SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-ll(c) or Rule 14a-12
MAGELLAN HEALTH SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules O-ll(c)(l)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
4) Proposed maximum aggregate value of transaction:
(1) Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-ll(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
(Formerly Charter Medical Corporation)
------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
------------------------------------
The Annual Meeting of Stockholders of Magellan Health Services, Inc.
will be held at 191 Peachtree Street, 50th floor, Atlanta, Georgia, on February
22, 1996, at 10:00 A.M., Eastern Standard Time, to consider and act upon the
following:
(1) Election of one director to a three-year term;
(2) Approval of the Company's proposed 1996 Stock Option Plan;
(3) Approval of the Company's proposed 1997 Employee Stock Purchase
Plan;
(4) Approval of the Company's proposed 1996 Directors' Stock Option
Plan; and
(5) Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on January 4, 1996
are entitled to notice of, and to vote at, the meeting. A complete list of
stockholders entitled to vote at the meeting will be available for inspection at
the offices of the Company during normal business hours from February 9, 1996
through February 21, 1996.
Your attention is directed to the accompanying proxy statement.
Linton C. Newlin
Secretary
Atlanta, Georgia
January 25, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
PROMPTLY THE ENCLOSED PROXY. THE PROXY IS REVOCABLE AND YOU MAY VOTE YOUR SHARES
IN PERSON IF YOU ATTEND THE MEETING AND WISH TO DO SO.
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
------------------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Magellan Health Services, Inc., a
Delaware corporation (the "Company"), from the holders of the Company's Common
Stock (the "Common Stock"), for use at the Annual Meeting of Stockholders to be
held at 10:00 a.m., Eastern Standard Time, on February 22, 1996, and any
adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held at
191 Peachtree Street, 50th floor, Atlanta, Georgia. This Proxy Statement and the
accompanying form of proxy were first sent or given to stockholders on or about
January 25, 1996.
VOTING
The Board of Directors has fixed the close of business on January 4,
1996, as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting. On January 4, 1996, 28,724,786 shares of
Common Stock were outstanding. Each share is entitled to one vote on each matter
presented for a vote at the Annual Meeting.
The presence in person or by proxy of the holders of a majority of the
shares of Common Stock outstanding on the record date constitutes a quorum for
the transaction of business at the Annual Meeting.
The director will be elected by a plurality of the votes cast at the
meeting by stockholders represented in person or by proxy. The other matters
submitted to the stockholders at the Annual Meeting require the affirmative vote
of a majority of the votes represented in person or by proxy at the meeting.
With regard to the election of the director, stockholders may vote in favor of
the nominee or withhold their vote as to the nominee. With respect to approval
of the 1996 Stock Option Plan, 1997 Employee Stock Purchase Plan, and 1996
Directors' Stock Option Plan, stockholders may vote for or against the proposal
or may abstain from voting.
Stockholders should specify their choices on the enclosed form of proxy
card. If no specific instructions are given with respect to the matters to be
acted upon, the shares represented by a properly signed proxy card will be voted
FOR the election of the nominee for the office of director and FOR approval of
the 1996 Stock Option Plan, 1997 Employee Stock Purchase Plan and 1996
Directors' Stock Option Plan. If any other matters properly come before the
Annual Meeting, the persons named as proxies will vote on such matters in their
discretion.
A stockholder who has returned a proxy may revoke it at any time before
it is voted at the Annual Meeting by executing a later-dated proxy, by voting by
ballot at the meeting or by filing with the Inspector of Election an instrument
of revocation.
1
<PAGE>
Under Delaware law and the Company's bylaws, the treatment and effect
of abstentions and broker non-votes are as follows. Abstentions with respect to
a proposal are counted for purposes of establishing a quorum and are also
counted for purposes of determining the minimum number of affirmative votes
required for approval of matters other than the election of directors.
Accordingly, if a stockholder registers an abstention vote by checking the
Abstain box on the proxy card, the abstention vote has the effect of a vote
against the proposal. If a broker or other nominee holding shares of Common
Stock for beneficial owners has voted on one or more matters pursuant to
discretionary authority or instructions from beneficial owners, but does not
vote on other matters because the broker or nominee has not received
instructions from beneficial owners and does not have the right to exercise
discretionary voting power, such shares are counted for purposes of determining
whether a quorum is present, but broker non-votes have no effect on the vote
with respect to such other matters. That is, broker non-votes are not counted as
votes for the proposal or as votes against the proposal and also are not counted
in determining the number of votes needed in order for a proposal to be
approved.
Voting By ESOP Participants
Each participant in the Company's Employee Stock Ownership Plan (the
"ESOP") is being sent, together with this proxy statement, an ESOP proxy card
for voting of the shares of the Company's Common Stock allocated to such
participant's ESOP account (the "Allocated Shares"). The ESOP proxy card may be
used by a participant to direct the Trustee of the ESOP (the "ESOP Trustee") as
to the manner in which the participant's Allocated Shares shall be voted. In
order to direct the ESOP Trustee, a participant must have completed, signed and
dated the ESOP proxy card and returned it to the ESOP Trustee, in the envelope
provided, which card must be received by the ESOP Trustee prior to the Annual
Meeting.
Prior to the Annual Meeting, the ESOP Trustee will aggregate votes of
Allocated Shares for, against or abstaining or withholding authority to vote on
any proposal or for any nominee. At the Annual Meeting, the ESOP Trustee will
vote the Allocated Shares for which it has received instructions in accordance
with such instructions. The ESOP Trustee will not vote any Allocated Shares in
the absence of timely instructions. As of January 4, 1996, 227,500 shares of
Common Stock were held by the ESOP Trustee and eligible to be voted at the
Annual Meeting at the direction of participants. Under the terms of the ESOP,
instructions received by the ESOP Trustee from participants are required to be
held by the Trustee in confidence and not to be divulged or released to any
person, including officers and employees of the Company. Neither the ESOP
Trustee nor the Administrative Committee of the ESOP (consisting of three
officers of the Company) will make recommendations to participants on whether to
vote or how to vote.
Shares of Common Stock held by the ESOP which have not been allocated
to participants' accounts will be voted by the ESOP Trustee at the direction of
the Administrative Committee of the ESOP. Under the applicable plan document,
the Administrative Committee directs the ESOP Trustee concerning voting of
unallocated shares after it determines such action to be in the best interests
of participants. The Administrative Committee has advised the Company that it
intends to direct the ESOP Trustee to vote FOR the election as director of the
nominee named in this proxy statement and FOR approval of the 1996 Stock Option
Plan, the 1997 Employee Stock Purchase Plan and the 1996 Directors' Stock Option
Plan. As of January 4, 1996, 66,809 shares of Common Stock were held by the ESOP
Trustee but not allocated to participants' accounts.
SOLICITATION OF PROXIES
The cost of soliciting proxies in the accompanying form will be paid by
the Company. In addition to solicitation by mail, banks, brokers and other
custodians, nominees and fiduciaries will be requested to send proxy material to
the beneficial owners and to secure their voting instructions, if necessary. The
Company will reimburse them for their expenses in so doing. Certain officers and
other employees of the Company, who will receive no compensation for their
services other than their regular compensation, may solicit proxies by mail,
telephone and personal contact. In addition, the firm of MacKenzie Partners,
Inc. has been retained to assist in the solicitation of proxies for a fee of
approximately $5,000 plus expenses.
2
<PAGE>
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of December 31, 1995
(except as otherwise noted) with respect to persons known to the Company to be
the beneficial owner of more than 5% of the Company's outstanding Common Stock:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Ownership Class
- ---------------- ----------------------- -----
<S> <C> <C>
Rainwater - Magellan Holdings, L.P. (1) 4,000,000 (1)
Nicholas Company, Inc. (2) 2,300,000 8.0
700 North Water Street
Suite 1010
Milwaukee, WI 53202
W.R. Huff Asset Management Co. LLC (3) 1,797,728 6.3
30 Schuyler Place
Morristown, N.J. 07960
- ------------------------------------
</TABLE>
(1) Includes 4,000,000 shares of Common Stock that Rainwater-Magellan
Holdings, L.P. ("Rainwater-Magellan") has the right to acquire, subject
to certain closing conditions, pursuant to the agreement, dated
December 22, 1995, described under "Election of Director." The Company
anticipates that the 4,000,000 shares will be purchased, if the closing
conditions are satisfied, on or about January 31, 1996. As of December
31, 1995, after giving effect to Rainwater-Magellan's right to acquire
4,000,000 shares, Rainwater-Magellan was the beneficial owner of 12.2%
of the Company's outstanding Common Stock. Under the rules of the
Securities and Exchange Commission, Rainwater, Inc., the general
partner of Rainwater-Magellan, and Richard B. Rainwater, the sole owner
and sole director of Rainwater, Inc. are also deemed to be beneficial
owners of the shares owned by Rainwater-Magellan.
(2) Information concerning beneficial ownership of securities by Nicholas
Company, Inc. is based on information provided to representatives of
the Company as of December 31, 1995.
(3) Information concerning beneficial ownership of securities by W.R. Huff
Asset Management Co. LLC is based on its Schedule 13D, dated October
4, 1995.
Nicholas Company, Inc. is a registered investment advisor and
possesses sole disposition power over the 2,300,000 shares owned by it.
Nicholas Fund, Inc. is a registered investment company and possesses sole
voting power over the 1,840,000 shares of the 2,300,000 shares owned by
Nicholas Company, Inc. Albert O. Nicholas may be deemed a beneficial owner of
the shares held by Nicholas Company, Inc. under the Securities and Exchange
Commission rules because of his control of Nicholas Company, Inc. Mr.
Nicholas is the President, Director and majority stockholder of Nicholas
Company, Inc. and disclaims beneficial ownership of all securities reported
as beneficially owned by Nicholas Company, Inc.
W.R. Huff Asset Management Co. LLC ("Huff") is a registered investment
adviser and, under the terms of Huff's investment advisory contracts with its
clients, Huff has shared voting and shared investment power over the 1,797,728
shares of Common Stock. Huff is a limited liability company; and one of its
members, W.R. Huff, of the same address, may be deemed a beneficial owner of the
shares under Securities and Exchange Commission rules because of his control of
Huff.
ELECTION OF DIRECTOR
Under the Company's Certificate of Incorporation, the number of
directors is fixed at eight. The directors are divided into three classes, with
one class being elected each year to serve three-year terms. At the Annual
Meeting, management proposes that stockholders elect one director for a
three-year term expiring in 1999. One director position for a term expiring in
1996 is vacant. Of the present seven directors, six will continue to serve after
the Annual Meeting, three for terms expiring in 1997 and three for terms
expiring in 1998.
3
<PAGE>
The vacancy on the Board of Directors for the term expiring in 1996 was
created by the retirement of Lawrence W. Drinkard in October 1995. Vacancies on
the Board may be filled by the Board of Directors. G. Fred DiBona, Jr. was
appointed to the Board of Directors on January 23, 1996 for a term expiring in
1998 pursuant to a Stockholders Agreement dated December 13, 1995 between the
Company, Green Spring Health Services, Inc. ("Green Spring"), Independence Blue
Cross and the other remaining stockholders of Green Spring. See "Certain
Relationships and Related Transactions." The Board of Directors expects to
fill the remaining vacancy in 1996 upon closing of an agreement, dated
December 22, 1995, as amended, between the Company and Rainwater-Magellan
Holdings, L.P., a limited partnership controlled by Richard B. Rainwater. The
agreement provides for the purchase by Rainwater-Magellan of four million shares
of the Company's Common Stock and four-year warrants to purchase two million
shares of the Company's Common Stock ("Warrants") for an aggregate consideration
of $69,732,000. Pursuant to the Agreement, the Company will appoint a designee
of Rainwater, Inc., the general partner of Rainwater-Magellan, to fill a vacancy
on the Company's Board of Directors and will continue to nominate such a
designee for election or re-election to the Company's Board of Directors for so
long as Rainwater-Magellan and its affiliates continue to own at least 600,000
shares of the Company's Common Stock, Warrants or a combination of the two. Any
designee must be acceptable to the Company.
If the nominee listed below is unable to serve (which is not
anticipated), the Board of Directors will designate a substitute nominee, in
which case the persons designated as proxy holders will vote all valid proxies
for the election of such substitute nominee. In addition, the proxy holders
shall not be entitled to vote proxies for a greater number of nominees than the
number named below.
The first table below sets forth the name of the nominee for the
director position to be elected by the holders of the Common Stock at the Annual
Meeting. The second table sets forth the names of each other present director
who will continue to serve after the Annual Meeting. With respect to each
nominee and continuing director, the table lists his age, month and year in
which he first became a director, any other position with the Company, principal
occupations during the past five years and any directorships in public or
certain other companies.
<TABLE>
<CAPTION>
NOMINEE FOR THE DIRECTOR POSITION
FOR TERM EXPIRING IN 1999
Position with Company,
Name, Age, and Date Principal Occupations
First Became a During Past Five Years
Director Term Expiring and Other Directorships
-------- ------------- -----------------------
<S> <C> <C>
Edwin M. Banks 1996 Securities Analyst, W.R. Huff
33 Asset Management Co., L.P.
July 1992 (1988 - present); Director of
American Communications Services,
Inc.(since 1994); Director of Del
Monte Corporation (since 1995).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONTINUING DIRECTORS
Position with Company,
Name, Age, and Date Principal Occupations
First Became a During Past Five Years
Director Term Expiring and Other Directorships
-------- ------------- -----------------------
<S> <C> <C>
E. Mac Crawford 1997 Chairman of the Board of
46 Directors, President and Chief
April 1990 Executive Officer of the Company
(since 1993); President and Chief
Operating Officer 1992-1993);
Executive Vice President-Hospital
Operations (1990-1992); Director
of First Union National Bank of
Georgia (since 1994); Director of
Integrated Health Services, Inc.
(sub-acute healthcare company)
(since 1995).
Raymond H. Kiefer 1997 Retired insurance executive (since
68 1992); President, Allstate
July 1992 Insurance Company (1989-1992).
Gerald L. McManis 1997 President (since 1965) of McManis
59 Associates, Inc. (strategy
February 1994 development and management
consulting firm for healthcare
and healthcare related companies);
Director of MMI Companies, Inc.
(since 1994).
Andre C. Dimitriadis 1998 Chairman and Chief Executive
55 Officer of LTC Properties(a
July 1992 healthcare real estate investment
trust)(since 1992); Executive Vice
President and Chief Financial
Officer, Beverly Enterprises, Inc.
(nursing homes) (1989-1992);
Director of Home Care Management,
Inc. (since 1993); Director of
Assisted Living Concepts, Inc.
(since 1994).
A.D. Frazier, Jr. 1998 Senior Executive Vice President
51 and Chief Operating Officer for
May 1995 the Atlanta Committee for the
Olympic Games (since 1991);
Director of The INVESCO Funds/The
EBI Funds/INVESCO Treasurer's
Series Trust/The Global Health
Sciences Fund (since 1994).
5
<PAGE>
CONTINUING DIRECTORS (cont.)
Position with Company,
Name, Age, and Date Principal Occupations
First Became a During Past Five Years
Director Term Expiring and Other Directorships
-------- ------------- -----------------------
G. Fred DiBona, Jr. 1998 Director, President and Chief
44 Executive Officer of Independence
January 1996 Blue Cross (a health insurance
company) (since 1990); Director of
Pennsylvania Savings Bank (since
1994); Director of Philadelphia
Suburban Water Company (since
1993).
</TABLE>
BOARD OF DIRECTORS INFORMATION
During the fiscal year ended September 30, 1995, the Board of Directors
held six meetings; and each director attended all Board meetings (with the
exception of Mr. Frazier, who did not attend one meeting) and all meetings of
committees of which he was a member.
The Board has established an Audit Committee and a Compensation
Committee. There is no nominating committee of the Board; nominees for director
are selected by the Board of Directors.
Audit Committee. Audit Committee members are Edwin M. Banks (Chairman)
and Raymond H. Kiefer. The Audit Committee held two meetings in fiscal 1995.
The Audit Committee recommends to the Board of Directors the engagement of
independent auditors of the Company, reviews the scope and results of audits of
the Company, reviews the Company's internal accounting controls and the
activities of the Company's internal audit staff and reviews the professional
services furnished to the Company by its independent auditors.
Compensation Committee. Compensation Committee members are Andre C.
Dimitriadis (Chairman) and Gerald L. McManis. The Compensation Committee held
three meetings in fiscal 1995. The Compensation Committee's duties are
described under the caption, "Board Compensation Committee Report on Executive
Compensation."
During fiscal 1995, non-employee directors received annual compensation
of $24,000 and a fee of $1,000 for each Board meeting attended. In addition,
non-employee directors were paid $1,000 for each committee meeting attended. On
May 19, 1995, upon election to the Board of Directors, A.D. Frazier was granted
an option under the Directors' Stock Option Plan to purchase 25,000 shares of
the Company's Common Stock for an exercise price of $18.88 per share. In
addition, on May 19, 1995, Mr. Frazier was granted units under the Directors'
Unit Award Plan to receive 2,500 shares of the Company's Common Stock upon
vesting. Units vest when a director ceases to be a non-employee director. Under
certain circumstances, the number of shares payable upon vesting will be less
than 2,500.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the three fiscal years ended
September 30, 1995, the compensation paid by the Company to the Chief Executive
Officer and the four other most highly compensated executive officers:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Other Compensation
------------------- Annual Option/ All Other
Name and Principal Fiscal Salary Bonus Compensation SARS Compensation
Position Year ($) ($) ($)(1) (#) (2) $)(3)
------------------ ------ ------ ----- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
E. Mac Crawford 1995 $600,000 $ -- $177,236 -- $204,095
Chairman of the 1994 600,000 369,000 1,009 90,000 332,135
Board of Directors, 1993 520,000 293,280 711 -- 30,049
President and Chief
Executive Officer
Lawrence W. Drinkard(4) 1995 367,500 -- -- -- 151,276
Executive Vice 1994 367,500 226,013 3,014 35,500 231,129
President and Chief 1993 350,000 197,400 3,007 -- 29,806
Financial Officer
Craig L. McKnight (5) 1995 204,167 -- 45,668 100,000 11,218
Executive Vice President-
Office of the President
C. Clark Wingfield 1995 237,000 -- -- -- 74,887
Senior Vice President - 1994 237,000 134,047 157,322 17,500 122,788
Administrative Services 1993 225,000 110,790 37,820 -- 31,000
David A. Richardson 1995 204,167 -- 21,630 -- 72,541
Executive Vice President -1994 200,000 84,840 126,750 17,500 87,840
Alternative Services 1993 185,400 104,936 495 -- 29,917
</TABLE>
- ------------------------------------
(1) Fiscal 1995 includes, for Mr. Crawford and Mr. McKnight reimbursement
of relocation expenses of $157,558 and $38,289, respectively, and
for Mr. Richardson a car allowance of $12,000. Fiscal 1994 includes,
for Mr. Wingfield and Mr. Richardson, reimbursement of relocation
expenses of $108,914 and $107,244, respectively. Fiscal 1993
includes, for Mr. Wingfield, country club dues of $15,998, car
allowance of $12,000 and an administrative services allowance of
$7,939.
(2) Represents in fiscal 1995 and fiscal 1994 the number of stock options
granted under the Company's 1994 Stock Option Plan.
(3) In fiscal 1995 includes the following: (a) contributions to the ESOP
of $20,408 each for Mr. Crawford, Mr. Drinkard, Mr. Wingfield and Mr.
Richardson; (b) contributions to the Company's 401-K Plan of $5,250
each for Mr. Crawford, Mr. Drinkard, Mr. Wingfield and Mr. Richardson,
respectively; (c) amounts deposited in trust pursuant to the Executive
Benefits Plan of $104,877, $23,640, $24,905 and $21,017 for Mr.
Crawford, Mr. Drinkard, Mr. Wingfield and Mr. Richardson, respectively;
(d) premiums paid for life and disability insurance of $72,954,
$100,523, $11,010, $23,878 and $25,490 for Mr. Crawford, Mr. Drinkard,
Mr. McKnight, Mr. Wingfield and Mr. Richardson, respectively; (e) term
life insurance premiums of $606, $1,455, $208, $446 and $376 for Mr.
Crawford, Mr. Drinkard, Mr. McKnight, Mr. Wingfield and Mr. Richardson,
respectively.
(4) Mr. Drinkard retired as Executive Vice President and Chief Financial
Officer effective October 1, 1995.
(5) Salary paid from March 1, 1995 (date of hire) through September 30,
1995. Mr. McKnight's starting annual salary was $350,000. Mr.
McKnight was appointed Chief Financial Officer upon Mr. Drinkard's
retirement, effective October 1, 1995.
7
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1995
Individual Grants
----------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of Stock
Underlying Options/SARs Price Appreciation
Options/SARs Granted to Exercise for Option Term
Granted Employees in Price Expiration -------------------------
Name (#)(1) Fiscal 1995 Per Share Date 5% 10%
---- ------------- ------------ ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
E. Mac Crawford -- -- -- -- -- --
Lawrence W. Drinkard -- -- -- -- -- --
Craig L. McKnight 100,000 20.2% $18.312 3/1/05 $1,151,632 $2,918,461
C. Clark Wingfield -- -- -- -- -- --
David A. Richardson -- -- -- -- -- --
- ------------------------------------
</TABLE>
(1) Options granted under the 1994 Stock Option Plan which become
exercisable over three years at the rate of one-third of the total
number of options per year.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995
AND OPTION/SAR VALUES AT SEPTEMBER 30, 1995
The following table provides information related to options exercised
by the executive officers during fiscal 1995, and the number and value of
options held on September 30, 1995.
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money
Number of Options/SARs
Unexercised Option/SARs at September 30, 1995
Shares Value at September 30, 1995 ($)(2)
Acquired on Realized --------------------------- -------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Mac Crawford -- -- 495,440 60,000 $7,472,659 $ --
Lawrence W. Drinkard -- -- 170,909 23,667 2,562,645 --
Craig L. McKnight -- -- -- 100,000 -- 218,800
C. Clark Wingfield -- -- 17,983 11,667 193,680 --
David A. Richardson 6,000 $77,340 11,833 11,667 96,840 --
- ------------------------------------
</TABLE>
(1) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise, multiplied by the number of shares to which the exercise
relates.
(2) The closing price for the Company's Common Stock as reported by the
American Stock Exchange on September 30, 1995 was $20.50. Value is
calculated on the basis of the difference between the per share option
exercise price and $20.50, multiplied by the number of shares of Common
Stock underlying the in the money options.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board
of Directors is responsible for establishing the policies relating to and the
components of executive officer compensation. The Compensation Committee
approves the design of all compensation plans applicable to executive officers,
reviews and approves performance goals, establishes award opportunities,
determines appropriate base salary increases, approves incentive award payouts,
and oversees the ongoing operation of the various plans as they relate to
executive officers. The Compensation Committee consists of directors who are not
employees of the Company and who are not eligible to participate in any of the
compensation plans that the Compensation Committee administers.
8
<PAGE>
Policies. In 1993 the Compensation Committee retained an independent
compensation consultant to advise the Compensation Committee with respect to
executive and other officer total compensation, including base salaries, annual
incentive plans, benefits and stock-based and long-term incentive compensation.
The compensation consultant interviewed each independent director of the Company
and reported to the Compensation Committee that the independent directors
believed (i) total compensation of the Company's executive officers should, in
order to attract and retain qualified executives, be between the 60th and 70th
percentile of a peer group of companies developed by the consultant, with the
upper end of the range subject to increase to the 80th percentile of the peer
group based on performance; and (ii) a significant portion of executive officer
compensation should be performance-based. The peer group consists of specific
hospital management and healthcare companies, and the Compensation Committee
believes that such a peer group reflects the talent pool from which the Company
might draw and provides a useful benchmark for the competitiveness of
compensation of the Company's present executive officers.
The compensation consultant reported to the Compensation Committee that
total compensation for the Company's executive officers prior to the 1994 fiscal
year fell between the 40th and 50th percentile of total compensation for peer
group executive officers. With regard to base salary, the consultant reported
that the base salary of the Company's chief executive officer was below the 50th
percentile of the peer group chief executive officers and that other executive
officer salaries were competitive, falling between the 50th and 66th percentiles
of comparable peer group positions. With regard to annual incentive
compensation, the consultant reported that the percentage of base salary paid by
the Company as a bonus when the annual incentive target is met was slightly
below the peer group median and that the bonuses paid by the Company when the
target is exceeded were above the peer group median.
With regard to benefits, the consultant determined that executive
officer benefits as a percentage of base salary were below the 50th percentile
for the peer group and, in the case of the chief executive officer, were
substantially below the 50th percentile for the peer group chief executive
officers. With regard to stock-based compensation, the consultant determined
that, for years after 1992, stock options available for grant to executive
officers were below the 50th percentile of the peer group and, in the case of
the chief executive officer, were substantially below the 50th percentile for
the peer group chief executive officers.
Based in substantial part on the findings and recommendations of the
independent compensation consultant and the results of the compensation
consultant's interviews of the Company's independent directors, the Compensation
Committee has approved executive officer compensation policies and plans, as
follows:
1. Base Salary -- The Compensation Committee's policy with regard to
base salary is that executive officer base salaries should be at approximately
the 50th percentile of the peer group developed by the compensation consultant,
subject to increase to a higher percentile for individual executive officers
based on performance.
2. Annual Incentive Plan -- The Annual Incentive Plan as it applies to
executive officers was not changed as a result of the recommendations of the
compensation consultant. The Compensation Committee's policy regarding annual
compensation includes providing each executive officer a performance-based
opportunity to earn a bonus equal to a significant percentage of base salary.
Under the Annual Incentive Plan, annual bonuses for executive officers are
payable as a percentage of base salary based on an operating income (net revenue
less salaries, general and administrative expenses and bad debt expenses) target
that is established by the Compensation Committee after review of the Company's
budget for the fiscal year. The Compensation Committee believes that operating
income was an appropriate measure of the Company's 1995 performance, as opposed
to net income, because the Company's net income is determined after certain
charges (such as amortization of excess reorganization value and ESOP expense)
that are not based on the Company's performance. If the target is met, executive
officers earn a bonus of between 40% and 50% of base salary. If the Company
achieves greater than 90% of the operating income target, but less than target,
a threshold bonus of between .6% and .8% of base salary is earned, and the bonus
increases to between 40% and 50% of base salary as operating income increases to
the operating income target. If the target is exceeded, bonuses are increased to
a maximum of 85% of base salary when operating income equals or exceeds 120% of
the target.
9
<PAGE>
3. Stock-based Compensation -- The Compensation Committee, the Board of
Directors and the stockholders (at the 1994 annual meeting) approved the 1994
Stock Option Plan, which provides for the granting of options to purchase 1.3
million shares of the Company's Common Stock to key employees (including
executive officers). The number of shares covered by the plan and the number of
options granted in 1995 to executive officers are within the ranges of amounts
recommended to the Compensation Committee by the compensation consultant. The
Compensation Committee has also approved the 1996 Stock Option Plan that is
subject to shareholder approval at the Annual Meeting.
The 1994 and 1996 Stock Option Plans do not contain any
performance-based criteria in order for options granted to executive officers to
vest. In the judgment of the Compensation Committee, these are not necessary
because (1) the holding of the options granted creates incentive for executive
officers to manage the Company's business so that the Common Stock will increase
in value over time and (2) the options result in benefits to executive officers
only if the value of the Common Stock increases over the term (10 years) of each
option or, if exercised earlier, over the period prior to exercise.
4. Executive Benefits Plan -- The compensation consultant recommended
and the Compensation Committee and the Board of Directors in 1993 approved an
Executive Benefits Plan ("EBP") in response to the consultant's determination
that the Company's executive officer benefits were below the median for the peer
group and that the chief executive officer's benefits were substantially below
the median.
The EBP is funded through one performance-based component and one fixed
component and has been structured to provide an incentive for executive officers
to remain with the Company. Under the performance-based component, an amount
equal to one-third of an executive officer's annual bonus, if any, is paid by
the Company to a trust and invested in one or more mutual funds. The amount paid
to the trust and appreciation, if any, is paid to the executive officer on a
date selected by the executive officer prior to funding (but not earlier than
two years after funding or later than normal retirement date). Payments from the
trust to the executive officer are forfeited if, at the time payment would
otherwise be made, the executive officer is no longer employed by the Company
and is in violation of a non-competition agreement signed prior to funding.
The fixed component of the EBP is an annual amount equal to 19.5% of
the base salary of the chief executive officer and 11% of the base salary of
other executive officers. At the election of each executive officer, the fixed
component may be used to make additional payments to the trust described above
or to purchase life, spousal life or disability insurance.
Amounts deposited in the trust are subject to forfeiture, as described above.
Chief Executive Officer Compensation -- In fiscal 1995, the
compensation of E. Mac Crawford, the Company's Chief Executive Officer, included
a base salary of $600,000 and benefits under the EBP of $183,437. Mr. Crawford's
benefits under the EBP include $104,877 deposited in the trust described above,
which amount is subject to forfeiture under certain circumstances, and $63,445
of whole life insurance premiums that are required to be repaid to the Company
upon the earliest of death, surrender of the policy or termination of employment
with the Company. The Compensation Committee believes that Mr. Crawford's 1995
base salary (which was the same as his 1994 base salary) approximated the median
chief executive officer base salary of the peer group.
Under the Annual Incentive Plan targets established by the Compensation
Committee in the first quarter of fiscal 1995, 1995 operating income was below
the targeted operating income levels. Accordingly, neither Mr. Crawford nor any
other executive officer received a bonus for fiscal 1995, pursuant to the
provisions of the plan.
The benefits to Mr. Crawford under the EBP for fiscal 1995 represent a
decrease in his benefits compared to fiscal 1994. None of the EBP benefits
received were performance-based.
Chief Executive Officer Employment Agreement. The Compensation
Committee determined that the best interests of the Company's stockholders would
be served by the procurement from the Chief Executive Officer of a new
employment agreement (the "Employment Agreement") with a 27-month term. The
Employment Agreement was entered into with Mr. Crawford effective October 1,
1995. See "Employment Agreements and Change of Control Provisions".
10
<PAGE>
In determining the reasonableness of the compensation awarded to Mr.
Crawford pursuant to his Employment Agreement, the Compensation Committee
considered that a portion of the compensation may exceed the $1 million
threshold in certain years under Section 162(m) of the Internal Revenue Code.
Nevertheless, in light of the desirability of securing Mr. Crawford's commitment
to serve the Company for the next 27 months, the Compensation Committee
concluded that the loss of a tax deduction is not significant compared to the
value of Mr. Crawford's continued service.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the
Internal Revenue Code limits a corporation's ability to take a deduction for
federal tax purposes for certain compensation paid to its executives in excess
of $1 million per year. There are exceptions to this limitation for
"performance-based" compensation, which require stockholder approval, and for
payments made through September 30, 1995 under the Company's employment
agreements with Mr. Crawford and Mr. Lawrence W. Drinkard. Under Section 162(m),
the 1992, 1994 and 1996 Stock Option Plans are "performance-based" compensation
plans and are not subject to the limitation on deductibility. Because of the
status of the 1992, 1994 and 1996 Stock Option Plans and the two employment
agreements under Section 162(m), the Company's tax advisors have informed the
Compensation Committee it is likely that all 1995 compensation to executive
officers will be fully deductible for income
tax purposes. The Compensation Committee intends to monitor developments under
Section 162(m) and to consider on a case-by- case basis adoption of a policy
with respect to the deduction limitations of Section 162(m) when it is likely
that executive officer compensation will not be fully deductible.
Andre C. Dimitriadis
Gerald L. McManis
Compensation Committee Interlocks and Insider Participation
As described earlier in these proxy materials, the Company has a
Compensation Committee of the Board composed of Andre C. Dimitriadis, Chairman,
and Gerald L. McManis. Mr. McManis is the President of McManis Associates, Inc.
("MAI"), a healthcare development and management consulting firm. During fiscal
1995, MAI provided consulting services for the Company related to the
development of strategic plans and a review of the Company's business processes.
In the opinion of management, the services received from MAI are negotiated on
terms as favorable as could be obtained from an unaffiliated party. The Company
incurred approximately $158,000 in fees for such services during fiscal 1995 and
reimbursed MAI approximately $21,000 for expenses.
Employment Agreements And Change of Control Provisions
The Company entered into employment agreements with Messrs. Crawford
and Drinkard, for terms beginning on July 21, 1992, and ending on September 30,
1995. The agreements provided for base salaries (Mr. Crawford - $500,000 and Mr.
Drinkard - $335,000) and for bonuses and life and disability insurance benefits
that are competitive with similar benefits for comparable positions within the
investor-owned hospital industry. The agreements also provided for severance
payments upon termination without cause (including certain constructive
termination events), termination due to death or disability and termination due
to a change in control of the Company. (Under the employment agreements, a
change of control is defined as (i) the acquisition by any person, group or
entity of more than 50% of the Company's outstanding Common Stock, or (ii) a
merger or sale of assets in which the stockholders of the Company do not receive
securities that have a majority of the voting power of the combined entities.)
Upon any such termination, the employee would have been paid the greater of his
base salary through September 30, 1995 or his base salary for a period of two
years and amounts accrued for the employee through the date of termination under
the Annual Incentive Plan and other bonus plans, if any. The terms of the two
employment agreements were negotiated by the Company and an unofficial committee
of unsecured creditors prior to consummation of the Company's Chapter 11 Plan of
Reorganization in July 1992. Mr. Drinkard retired as Executive Vice President
and Chief Financial Officer upon the expiration of his employment agreement
effective October 1, 1995. The exercise price of stock options granted prior to
August 27, 1992 under the 1992 Stock Option Plan to Messrs. Crawford and
Drinkard contain certain provisions that would result in reductions to the
exercise price upon termination without cause. The exercise price per share of
each option would be reduced from $4.36 to (i) the par value ($0.25) per share
of Common Stock issued from authorized but unissued shares of Common Stock in
satisfaction of the exercise of the options, and (ii) $0.10 per share for shares
of Common Stock issued by the Company from treasury in satisfaction of the
exercise of such options.
11
<PAGE>
The Company entered into a second employment agreement with Mr.
Crawford for a term beginning October 1, 1995 and ending on December 31, 1997.
The agreement provides for a base salary of $600,000 and bonus compensation
payable on December 31, 1997, determined as follows: $10 million less (i) the
result obtained by multiplying 462,990 (the number of stock options held by Mr.
Crawford on October 1, 1995 under the 1992 Stock Option Plan) by the lesser of
(a) $18.00 over $4.36 (the exercise price of the stock options held by Mr.
Crawford on October 1, 1995 under the 1992 Stock Option Plan) or (b) the
arithmetic average of the closing sale price per share of the Company's Common
Stock for the ten trading days immediately preceding the date of payment over
$4.36, if none of the 462,990 options have been exercised as of December 31,
1997 or (ii) the sum of the result obtained by multiplying the number of stock
options held by Mr. Crawford on October 1, 1995 under the 1992 Stock Option Plan
that have not been exercised as of December 31, 1997 by the lesser of (a) or (b)
and the result obtained by multiplying the number of stock options held by Mr.
Crawford on October 1, 1995 under the 1992 Stock Option Plan that were exercised
prior to December 31, 1997 by $13.64 (the "Contract Bonus"). In addition, Mr.
Crawford will receive other bonuses and benefits that are provided to the
Company's other executive officers. The agreement also provides for severance
payments to Mr. Crawford upon termination by the Company (including certain
constructive termination events, such as a substantial change in Mr.Crawford's
duties, but not including termination for cause) or upon Mr. Crawford's
resignation. Upon such a termination, a termination due to death or disability,
or a termination or resignation after a change of control (as defined above),
Mr. Crawford would be paid (i) the Contract Bonus, (ii) three years salary at
the then current salary level, and (iii) portion(s) of any bonus or other
cash incentive compensation accrued through the date of termination. In
addition, if Mr. Crawford is terminated or resigns after a change in control,
he would be paid a "gross-up" payment intended to compensate Mr. Crawford for
the effect of certain excise taxes that may be imposed under the Internal
Revenue Code on a change of control severance payment. If Mr. Crawford
were to resign (excluding a resignation that constitutes constructive
termination and a resignation after a change of control), he would be paid an
amount determined by multiplying the number of unexercised options then
held by Mr. Crawford by the excess, if any, of $18.00 over the arithmetic
average of the closing sale price of the Company's Common Stock for the ten
trading days immediately preceding the resignation.
The Company also entered into an employment agreement with Mr. McKnight
for a term beginning on March 1, 1995 and ending on February 28, 2000. The
agreement provided for a base salary of $350,000 and for bonuses and life and
disability insurance benefits that are competitive with similar benefits for
comparable positions within the investor-owned hospital industry. The Agreement
also provides for severance payments upon termination without cause, termination
due to death or disability and termination upon a change of control (as defined
above). Upon any such termination, Mr. McKnight would receive the greater of (i)
all salary payments that would come due during the term of the agreement
subsequent to termination or (ii) two years' salary at the then current salary
level and a portion of any bonus or other cash incentive compensation accrued
through date of termination.
Under the trust established as part of the EBP, amounts deposited in
the trust on behalf of executive officers are to be paid to executive officers,
together with any appreciation in such amounts, upon a change of control of the
Company if the change of control occurs prior to the scheduled date for
distribution of amounts held in the trust. The trust agreement defines a "change
of control" as the replacement of fifty percent or more of the members of the
Company's Board of Directors within a twelve-month period that is followed by
the termination of employment within a twelve-month period of one-third or more
of the employees who participate in the EBP. Amounts deposited in the trust as
of December 31, 1995, on behalf of Messrs. Crawford, Drinkard, Wingfield and
Richardson were $109,877, $28,640, $29,905 and $26,017, respectively, which
includes financial counseling allowances of $5,000 each for Messrs. Crawford,
Drinkard, Wingfield and Richardson.
12
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return
on $100 invested on July 22, 1992, in the Company's Common Stock, the S&P 500
Composite Index (the "S&P 500") and the S&P Hospital Management Index (the "S&P
HMI"). "Cumulative total return" includes stock price appreciation plus
dividends paid, with cash dividends reinvested on the date paid; but the term
excludes trading commissions and taxes. Because the Company's Common Stock began
publicly trading on July 22, 1992, the chart set forth below begins on July 22,
1992, and uses as the beginning price for the Company its initial opening price
of $7.75 per share of Common Stock.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
ON $100 INVESTED ON JULY 22, 1992
July September September September September
1992 1992 1993 1994 1995
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Company $100 $ 79 $305 $356 $265
S&P 500 $100 $102 $115 $119 $155
S&P HMI $100 $ 87 $111 $171 $188
</TABLE>
13
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 4, 1996, information
concerning the beneficial ownership of shares of Common Stock by (i) directors,
(ii) named executive officers and (iii) directors and named executive officers
as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name Ownership Total Outstanding
---- --------- -----------------
<S> <C> <C>
E. Mac Crawford 526,116 (1) 1.80%
Lawrence W. Drinkard 57,529 (1) *
Craig L. McKnight 33,333 (1) *
David A. Richardson 17,936 (1) *
C. Clark Wingfield 24,162 (1) *
Edwin M. Banks 21,500 (2) *
G. Fred Dibona, Jr. 889,565 (3) 3.00%
Andre C. Dimitriadis 23,000 (2) *
A. D. Frazier, Jr. 10,000 (2) *
Raymond H. Kiefer 22,000 (2) *
Gerald L. McManis 16,000 (2) *
All directors and executive
officers as a group (11 persons) 1,641,141 (3), (4) 5.40%
- ------------------------------------
</TABLE>
* Less than 1% of total outstanding.
(1) Includes 525,791, 56,041, 33,333, 17,666, and 23,868 shares that Mr.
Crawford, Mr. Drinkard, Mr. McKnight, Mr. Richardson, and Mr.
Wingfield, respectively, have the right to acquire upon exercise of
options and warrants on or before March 4, 1996.
(2) Includes 21,000 shares each that Mr. Dimitriadis, Mr. Kiefer and Mr.
Banks have the right to acquire, 16,000 shares that Mr. McManis has the
right to acquire, and 10,000 shares that Mr. Frazier has the right to
acquire upon the exercise of options and units on or before March 4,
1996.
(3) Includes 889,565 shares of Common Stock that Independence Blue Cross
has the right to acquire pursuant to an Exchange Agreement, dated
December 13, 1995, between the Company, Independence Blue Cross and the
other remaining Green Spring stockholders. G. Fred DiBona, Jr. may be
deemed a beneficial owner of the right to acquire such shares of
Common Stock under the rules of the Securities and Exchange Commission
because of his control of Independence Blue Cross. Mr. DiBona is a
Director and the President and Chief Executive Officer of Independence
Blue Cross and disclaims beneficial ownership of all securities
reported as beneficially owned by him.
(4) Includes 745,699 shares that the directors and executive officers
have the right to acquire upon exercise of options and warrants on or
before March 4, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gerald L. McManis, a director of the Company, is the President of
McManis Associates, Inc. ("MAI"), a healthcare development and management
consulting firm. During fiscal 1995, MAI provided consulting services for the
Company related to the development of strategic plans and a review of the
Company's business processes. The Company incurred approximately $158,000 in
fees for such services during fiscal 1995 and reimbursed MAI approximately
$21,000 for expenses.
G. Fred DiBona, Jr., a director of the Company, is a Director and the
President and Chief Executive Officer of Independence Blue Cross, a health
insurance company. As of December 31, 1995, Independence Blue Cross owned
12.25% of Green Spring, a majority-owned subsidiary of the Company.
The Company acquired a 51% ownership interest in Green Spring on
December 13, 1995 for $73,170,000 in cash and Common Stock and the contribution
of Group Practice Affiliates ("GPA"), a wholly-owned subsidiary of the Company.
The minority shareholders of Green Spring, which include Independence Blue
Cross, were granted the option, under certain circumstances, to exchange their
ownership interests in Green Spring for 3,557,826 shares of the Company's
Common Stock
14
<PAGE>
or $81,830,000 in subordinated notes. The Company may elect to pay cash in lieu
of issuing the subordinated notes. The exchange option expires on December 13,
1998. The consideration paid in the Green Spring acquisition was determined in
an arm's length negotiation that considered, among other factors, the historical
and projected income of Green Spring, and the value of GPA. The consideration
paid by the Company was determined by the Company's Board of Directors with the
advice of Senior Management of the Company and the Company's investment bankers.
On December 20, 1995, the Company acquired an additional 10% ownership
interest in Green Spring for $16,700,000 in cash as a result of an exchange
option exercised by a minority shareholder of Green Spring. The Company owns
61% of Green Spring as of December 31, 1995.
Independence Blue Cross owned 16.67% of Green Spring prior to December
13, 1995. On December 13, 1995, Independence Blue Cross sold 4.42% of its
ownership interest in Green Spring to the Company for $5,376,000 in cash.
Independence Blue Cross had a cost basis of $3,288,000 in the 4.42% ownership
interest sold to the Company. The exchange option described previously gives
Independence Blue Cross the right to exchange its ownership interest in Green
Spring for a maximum of 889,565 shares of Common Stock or $20,460,000 in
subordinated notes through December 13, 1998.
Independence Blue Cross and its affiliated entities contract with
Green Spring for provider network, case management and medical review services
pursuant to contractual relationships entered into on July 7, 1994 with terms
of up to five years. During 1995, Independence Blue Cross and its affiliated
entities made payments to Green Spring of $27,658,000.
On July 7, 1994, Independence Blue Cross sold a subsidiary to Green
Spring in exchange for a $15 million promissory note. As of December 31, 1995,
$12 million remains outstanding under such promissory note and is due and
payable in equal installments on July 7, 1996, 1997, 1998 and 1999.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, certain officers and persons
who own more than 10% percent of the Company's Common Stock to file certain
reports with respect to each such person's beneficial ownership of the Company's
Common Stock. To the Company's knowledge, based solely on review of copies of
such reports furnished to the Company and written representations that no other
reports were required, during the year ended September 30, 1995, all such
Section 16(a) filing requirements were complied with, except that Mr. Raymond H.
Kiefer, a director of the Company, filed a Form 4 in January 1995 that
reported late the purchase of 1,000 shares of Common Stock in December 1994.
PROPOSED 1996 STOCK OPTION PLAN
On November 30, 1995, the Board of Directors adopted, subject to
stockholder approval at the Annual Meeting, the Magellan Health Services, Inc.
1996 Stock Option Plan (the "Option Plan"). The principal purpose of the Option
Plan is to promote the interests of the Company and its stockholders by
attracting, retaining and stimulating the performance of management by providing
participants incentive opportunities tied to the Company's long-term
performance. The Option Plan will enable executive officers, officers and
eligible key employees of the Company and its subsidiaries to acquire
proprietary interest in the Company through the ownership of Common Stock.
Under the terms of the Option Plan, options can be granted to
participants to purchase, out of the authorized but unissued Common Stock or out
of shares of Common Stock held in the Company's treasury, or partly out of each,
a total of 1,750,000 shares of Common Stock. Both the number of shares of Common
Stock covered by the Option Plan and the per share exercise price of options
granted are subject to adjustment upon certain changes in capitalization of the
Company, such as stock splits or stock dividends.
15
<PAGE>
The Option Plan is administered by the Compensation Committee or such
committee as may from time to time be designated by the Board of Directors to
administer the Option Plan (the "Committee"). The Committee is required to be
comprised of not fewer than two members of the Board of Directors, each of whom
is a "disinterested person" as that term is defined in Rule 16b-3 under the
Exchange Act. The Committee administers the Option Plan, selects the eligible
participants to whom options will be awarded, determines the number of shares or
which options are to be awarded to each eligible participant, and determines the
terms and conditions of each option, subject to the provisions of the Option
Plan. The duties of the Committee in granting options to officers and key
employees (but not to executive officers or any other person subject to Section
16 of the Exchange Act) may be delegated to the Company's Chief Executive
Officer, subject to any review, approval or notification required by the
Committee or as may otherwise be required by law. The Committee may from time to
time prescribe, amend and rescind such rules, regulations, provisions and
procedures, consistent with the terms of the Option Plan, as, in its opinion,
may be advisable in the administration of the Option Plan and the Committee
approves the provisions of the stock option agreements required by the Option
Plan. Options granted under the Option Plan are nonqualified stock options.
Named executive officers (four persons) of the Company and other
officers (36 persons) and key employees (approximately 100 persons) of the
Company and its subsidiaries are eligible to participate in the Option Plan.
Subject to the approval of the Option Plan by the stockholders, both
the Committee and the Chief Executive Officer have granted options under the
terms of the Option Plan; each of these option grants (as indicated in the
following table) was made on November 30, 1995 at an exercise price of $18.25.
<TABLE>
<CAPTION>
Name and Position Number of Options
----------------- -----------------
<S> <C>
E. Mac Crawford, Chairman of the Board, President and 300,000
Chief Executive Officer
Craig L. McKnight, Executive Vice President and Chief 25,000
Financial Officer
David A. Richardson, Executive Vice President - Alternative 20,000
Services
C. Clark Wingfield, Senior Vice President - Administrative 15,000
Services
Named Executive Officers as a Group (four persons) 360,000
Non-named Executive Officer and Key Employee Group (136 persons) 988,000
The above options, and options subsequently granted, will have a per
share exercise price equal to the mean between the high and low sales prices per
share of the Common Stock on the American Stock Exchange on the date of grant of
the options. More than one grant of an option may be made to the same person,
but no person may be granted options in the aggregate to purchase more than
500,000 shares of Common Stock. The closing price of the Company's Common Stock
on January 4, 1996 was $23.50 per share.
Options granted under the Option Plan will be exercisable to the extent
vested. An option vests at the rate of 25% of the shares covered by the option
on each of the first four anniversary dates of the grant of the option if the
optionee is an employee of the Company or a subsidiary of the Company on such
dates. Options granted pursuant to the Option Plan which are vested may be
exercised in whole or in part by the optionee from time to time, but in no event
later than November 30, 2005. All unvested options fully vest and are
immediately exercisable upon any change of control, defined as (i) the sale,
lease, transfer or other disposition in one or more related transactions of all
or substantially all of the Corporation's assets, to any person or related group
of persons (including a "group" as such term is used in Section 13(d)(3) of the
Exchange Act), (ii) the
16
<PAGE>
merger or consolidation of the Corporation with or into
another corporation, or the merger of another corporation in the Corporation or
any other transaction, with the effect that the stockholders of the Corporation
immediately prior to such transaction hold less than 50% of the total voting
power or the voting stock of the surviving corporation resulting from such
consolidation or such other transaction, (iii) any person or related group of
persons holding 30% or more in interest of the voting power or voting stock of
the Corporation, or (iv) the liquidation or dissolution of the Corporation.
The exercise price is payable upon the exercise of the option in cash
or in shares of Common Stock or a combination of the foregoing, but payment of
all or a portion of the exercise price by delivery of shares of Common Stock is
permitted only at the discretion of the Company. In the event of any payment
with shares of Common Stock, such shares will be valued on the basis of their
fair market value determined as of the day prior to the date of delivery to the
Company.
The Option Plan provides that: (i) upon termination of employment for
any reason except death or total disability, unvested options granted will
terminate on the date of termination of employment and vested options on the
date of termination may be exercised during the six months following termination
(but not after expiration of the term of the option); (ii) upon total disability
of a participant, vested options on the date the participant became totally
disabled may be exercised by the participant within 12 months from the date of
total disability of the participant (but not after expiration of the term of the
option); and (iii) upon the death of a participant, the vested options on the
date of the participant's death may be exercised by the legal representative,
heir or legatee within 12 months of the date of death of the participant (but
not after expiration of the term of the option).
Options under the Option Plan must be granted on or before December 31,
1999. No option granted under the Option Plan shall be assignable or
transferrable by the participant except by will or by the laws of descent and
distribution.
Subject to certain limitations set forth in the Option Plan, the Board
may at any time or from time to time terminate, modify or amend the Option Plan.
No amendment shall be made without stockholder approval if such approval is
required for continued compliance with Rule 16b-3 of the Exchange Act, by other
applicable law or regulation or by the rules of any stock exchange on which the
Common Stock is listed for trading. Under Rule 16b-3 stockholder approval would
be required for any amendment that would (i) materially increase the maximum
number of shares for which options may be awarded under the Option Plan, or (ii)
materially modify the eligibility requirements for participation in the Option
Plan, or (iii) materially
increase the benefits accruing to participants under the Option Plan. The
termination or any modification or amendment of the Option Plan or options
thereunder shall not, without the consent of the participant, affect such
person's rights under an option previously granted.
Under the Code and current regulations, a participant is not subject to
any federal income tax upon the grant of an option under the Option Plan and the
grant of an option will not result in an income tax deduction for the Company.
Upon the exercise of an option, the participant will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
at the time of purchase over the option price. At that time the Company will be
entitled to a deduction as compensation expense in an amount equal to the amount
taxable to the participant as income, provided the Company satisfies applicable
federal income tax reporting requirements. The sale or other taxable disposition
of shares of Common Stock acquired upon exercise of an option generally will
result in a short or long-term capital gain or loss equal to the difference
between the amount realized on the disposition and the fair market value of the
shares of Common Stock when the option was exercised.
If previously acquired shares are used to exercise an option, the
participant will not recognize any gain by reason of such use, and the tax basis
of the shares received upon such exercise is as follows: (i) for the newly
received shares equal to the number of shares surrendered by the participant,
the basis of the surrendered shares, and the holding period does not start anew,
and (ii) the basis of the balance of the newly acquired shares is the income, if
any, on the exercise of the option, plus any cash paid on the exercise.
Approval of the 1996 Stock Option Plan requires the approval of a
majority of the votes cast (including abstentions) at the Annual Meeting.
17
<PAGE>
The Board of Directors unanimously recommends a vote FOR approval of
the 1996 Stock Option Plan by the stockholders.
PROPOSED 1997 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, subject to stockholder approval,
the Magellan Health Services, Inc. 1997 Employee Stock Purchase Plan (the
"Employee Stock Plan"), covering 600,000 shares of Common Stock. The purpose of
the Employee Stock Plan is to provide eligible employees of the Company and its
subsidiaries with an opportunity to be compensated through the benefits of stock
ownership and to acquire an interest in the Company through the purchase of
Common Stock. It is the intention of the Company that the Employee Stock Plan
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code (the "Code).
The Employee Stock Plan will be administered by a committee (the
"Employee Stock Plan Committee") consisting of not less than three members
appointed by the Chief Executive Officer of the Company. Each member of the
Employee Stock Plan Committee will be either a Director, an officer or an
employee of the Company. The Employee Stock Plan Committee will be vested with
authority to make, administer and interpret such rules and regulations as it
deems necessary to administer the Employee Stock Plan, and any determination,
decision or action of the Employee Stock Plan Committee in connection with the
construction, interpretation, administration or application of the Employee
Stock Plan will be final and binding on all participants and all persons
claiming under or through any participant.
Any person (other than an officer of the Company) who is employed by
the Company or any of the Company's subsidiaries designated by the Employee
Stock Plan Committee, and who was employed on the 60th day preceding the first
day of an offering period, will be eligible to participate in the Employee Stock
Plan for such offering period. An eligible employee who becomes an officer of
the Company or certain of its subsidiaries during an offering period shall be
deemed to have elected to withdraw from the Employee Stock Plan, and all payroll
deductions credited to his or her account will be paid to him or her in cash. As
of November 30, 1995, there were approximately 9,900 employees of the Company
and its subsidiaries who were eligible to participate in the Employee Stock
Plan.
The Employee Stock Plan Committee has the authority to establish the
offering periods under the Employee Stock Plan; provided that each offering
period will have a term of not less than three months and not more than 12
months and that the first offering period will not begin before January 1, 1997,
and the last offering period will end on or before December 31, 1999. On the
first date of each offering period, a participant is granted an option to
purchase a number of whole shares determined by dividing the amount to be
withheld and applied for the offering period by the "option price" per share of
Common Stock, provided that the maximum number of shares for which an option is
granted to a participant with respect to any single offering period shall not
exceed 200 shares for each full or partial month in the offering period. The
"option price" is the lesser of (i) 85% of the opening price of the Common Stock
on the American Stock Exchange as of the first day of the offering period or
(ii) 85% of the opening price of the Common Stock on the American Stock Exchange
as of the last day of the offering period. The closing price of the Common Stock
on January 4, 1996 was $23.50 per share. Payment for shares to be purchased
under the Employee Stock Plan will be made by payroll deductions.
No participant will be granted an option (i) if, immediately after the
grant, the participant would own stock and options possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans to accrue at a rate which
exceeds $25,000 of the fair market value of the stock for each calendar year in
which such option is outstanding at any time.
A participant may withdraw from the Employee Stock Plan except that no
withdrawal may be made during the calendar month in which the last day of the
offering period occurs, unless otherwise permitted by the Employee Stock Plan
Committee. All of the participant's payroll deductions credited to his or her
account will be paid to him or her promptly after receipt of the notice of
withdrawal, and no further payroll deductions will be made during that offering
period. A participant's withdrawal will not have any effect upon his or her
eligibility to participate in any similar plan which may be thereafter adopted
by the Company or in any subsequent offering period. Upon termination of a
participant's employment for any reason, the
18
<PAGE>
payroll deductions credited to the participant's Employee Stock Plan account
will be returned to the participant unless the participant's termination
occurs during the calendar month in which the last day of the offering period
occurs. In that event, the participant's account will be used to purchase
shares of Common Stock on the last day of the offering period.
Unless a participant gives written notice of withdrawal from the
Employee Stock Plan to the Company, the option to purchase shares during an
offering period will be exercised automatically for the participant on the day
on which the offering period terminates. The price at which the participant's
option will be exercised is the lesser of 85% of the opening price of the Common
Stock on the American Stock Exchange on the first day or the last day of the
offering period. If the total number of shares for which options are to be
exercised exceeds the number of shares then available under the Employee Stock
Plan, the Company shall make a pro rata allocation of the shares available.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Employee Stock Plan may be assigned, transferred, pledged or otherwise disposed
of by a participant. The Company may treat any such act as an election to
withdraw funds.
The Board of Directors of the Company may at any time terminate or
amend the Employee Stock Plan. No such termination can affect options previously
granted, and no amendment can make any change in options theretofore granted
which would adversely affect the rights of any participant. No amendment can be
made prior to approval of the stockholders of the Company if such amendment
would: (i) require the sale of more shares than are authorized under the
Employee Stock Plan; or (ii) permit payroll deductions at a rate in excess of
10% of a participant's base pay.
The amounts withheld from a participant's pay under the Employee Stock
Plan will be taxable income to the participant and must be included in the
participant's gross income for federal income tax purposes in the year which
such amounts otherwise would have been received.
A participant will not be required to recognize any income for federal
income tax purposes either at the time the participant is granted an option
(which will be on the first day of the offering period) or by virtue of the
exercise of the option (which will take place on the last day of such offering
period). The federal income tax consequences of a sale or disposition of shares
acquired under the Employee Stock Plan depend in part on the length of time the
shares are held by a participant before such sale or disposition. If a
participant sells or otherwise disposes of shares acquired under the Employee
Stock Plan (other than any transfer resulting from death) within two years after
the date on which the option to purchase such shares is granted to him
("Two-Year Period), the participant must recognize ordinary income in the year
of such disposition in an amount equal to the excess of (i) the fair market
value of the shares on the date such shares are exercised over (ii) the option
price. The amount of ordinary income recognized by the participant will be added
to the participant's basis in such shares. Any gain realized on a sale in excess
of the participant's basis (after increasing such basis in such shares by the
amount of the ordinary income recognized) will be taxed as capital gain, and any
loss realized (after increasing such basis in such shares by the ordinary income
recognized) will be a capital loss.
If a participant sells shares acquired under the Employee Stock Plan
after holding such shares for the Two-Year Period or the participant dies, the
participant or the participant's estate must include ordinary income in the year
of sale (or the taxable year ending upon death) an amount equal to the lesser of
(i) the excess of the fair market value of the shares on the date the option was
granted over than option price computed on such date, or (ii) the excess of the
fair market value of the shares at the time of sale of the shares or on the date
of death over the option price. Except in the case of a transfer as a result of
death, the amount of ordinary income recognized by the participant will be added
to the participant's basis in such shares. Any gain realized upon the sale in
excess of such basis will be taxed as a long-term capital gain. Any loss
realized will be treated as long-term capital loss.
The Company will not receive any income tax deduction as result of
issuing shares pursuant to the Employee Stock Plan, except upon sale or
disposition of shares by a participant within the Two-Year Period. In such an
event, the Company will be entitled to a deduction equal to the amount included
as ordinary income to the participant with respect to the sale or disposition of
such shares.
19
<PAGE>
Approval of the 1997 Employee Stock Plan requires the approval of a
majority of the votes cast (including abstentions) at the Annual Meeting.
The Board of Directors unanimously recommends a vote FOR approval of
the 1997 Employee Stock Plan by the stockholders.
PROPOSED 1996 DIRECTORS' STOCK OPTION PLAN
On November 30, 1995, the Board of Directors adopted, subject to
shareholder approval at the Annual Meeting, the Magellan Health Services, Inc.
Directors' 1996 Stock Option Plan (the "Directors' Plan"). The principal purpose
of the Directors' Plan is to promote the interests of the Company and its
stockholders by attracting, retaining and stimulating the performance of
directors by providing incentive opportunities tied to the Company's long-term
performance.
Under the terms of the Directors' Plan, options can be granted to
non-employee members of the Company's Board of Directors to purchase, out of the
authorized but unissued Common Stock or out of shares of Common Stock held in
the Company's treasury, or partly out of each, a total of 250,000 shares of
Common Stock. Both the number of shares of Common Stock covered by the
Directors' Plan and the per share exercise price of options granted are subject
to adjustment upon certain changes in capitalization of the Company, such as
stock splits or stock dividends.
The Directors' Plan provides for the grant on November 30, 1995 to each
director who is not an employee of the Company of an option to purchase 25,000
shares of the Company's Common Stock. The exercise price will be the mean
between the high and low sales prices per share of the Common Stock on the
American Stock Exchange. Persons elected or appointed to the Board as
non-employee directors subsequent to November 30, 1995 automatically will be
granted, effective on the date of their election or appointment, an option to
purchase 25,000 shares of Common Stock for so long as there are shares available
under the Directors' Plan. For such subsequent director, the exercise price will
be determined as described above, but as of the date of grant of the option. The
closing price of the Company's Common Stock on January 4, 1996 was $23.50.
Options granted under the Directors' Plan will be exercisable to the
extent vested and may be exercised in whole or in part by the optionee from time
to time, but in no event later than November 30, 2005. An option vests at the
rate of 25% of the shares covered by the option on each of the first four
anniversary dates of the grant of the option if the optionee continues to serve
as a non-employee director on such dates. Unvested options vest in full if and
when a director ceases to serve as a non-employee director for reasons other
than a voluntary resignation, a voluntary decision not to stand for reelection,
or removal for cause by the stockholders. Options are not transferable but can
be exercised, in the event of death, by an optionee's estate, heirs or legal
representatives for a period of one year after death.
Options under the Directors' Plan must be granted on or before December
31, 1999. No option granted under the Directors' Plan shall be assignable or
transferrable by the participant except by will or by the laws of descent and
distribution.
Subject to certain limitations set forth in the Directors' Plan, the
Board may at any time or from time to time terminate, modify or amend the
Directors' Plan. No amendment shall be made without stockholder approval if such
approval is required for continued compliance with Rule 16b-3 of the Exchange
Act, by other applicable law or regulation or by the rules of any stock exchange
on which the Common Stock is listed for trading. Under Rule 16b-3 stockholder
approval would be required for any amendment that would (i) materially increase
the maximum number of shares for which options may be awarded under the
Directors' Plan, or (ii) materially modify the eligibility requirements for
participation in the Directors' Plan, or (iii) materially increase the benefits
accruing to participants under the Directors' Plan. The termination or any
modification or amendment of the Directors' Plan or options thereunder shall
not, without the consent of the participant, affect such person's rights under
an option previously granted.
The exercise price is payable upon the exercise of the option in cash
or in shares of Common Stock or a combination of the foregoing, but payment of
all or a portion of the exercise price by delivery of shares of Common Stock is
permitted only
20
<PAGE>
at the discretion of the Company. In the event of any payment with shares
of Common Stock, such shares will be valued on the basis of their fair market
value determined as of the day prior to the date of delivery to the Company.
Under the Code and current regulations, a participant is not subject to
any federal income tax upon the grant of an option under the Directors' Plan and
the grant of an option will not result in an income tax deduction for the
Company.
Upon the exercise of an option, the participant will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
at the time of purchase over the option price. At that time the Company will be
entitled to a deduction in an amount equal to the amount taxable to the
participant as income, provided the Company satisfies applicable federal income
tax reporting requirements. The sale or other taxable disposition of shares of
Common Stock acquired upon exercise of an option generally will result in a
short or long-term capital gain or loss equal to the difference between the
amount realized on the disposition and the fair market value of the shares of
Common Stock when the option was exercised.
If previously acquired shares are used to exercise an option, the
participant will not recognize any gain by reason of such use, and the tax basis
of the shares received upon such exercise is as follows: (i) for the newly
received shares equal to the number of shares surrendered by the participant,
the basis of the surrendered shares, and the holding period does not start anew,
and (ii) the basis of the balance of the newly acquired shares is the income, if
any, on the exercise of the option, plus any cash paid on the exercise.
Approval of the 1996 Directors' Plan requires the affirmative vote of
the votes cast (including abstentions) at the Annual Meeting.
The Board of Directors unanimously recommends a vote FOR approval of
the 1996 Directors' Plan by the stockholders.
ADDITIONAL INFORMATION
Attendance. Attendance at the Annual Meeting is limited to
stockholders of record or their proxies, beneficial owners of Common Stock
having evidence of such ownership, and guests of the Company.
Stockholder Proposals. In order to be included in the proxy statement
and form of proxy for the 1997 Annual Meeting, a stockholder proposal must be in
writing and received by the Company by the close of business on October 2, 1996.
All stockholder proposals should be submitted by certified mail, return receipt
requested, to the Secretary of the Company, 577 Mulberry Street, Macon, Georgia
31298.
Other Business. Management does not know of any matter to be brought
before the Annual Meeting other than those referred to above. If any other
matter properly comes before the meeting, all properly executed proxies
delivered pursuant to this solicitation will be voted on any such matters in the
discretion of the persons named on the enclosed proxy.
Independent Accountants. The Company expects to retain Arthur Andersen
LLP as its independent accountants for the fiscal year ended September 30, 1996
upon written acceptance of an engagement letter, which is expected to occur no
later than June 30, 1996. Arthur Andersen LLP served as the Company's
independent accountants for the fiscal year ended September 30, 1995.
Representatives of such firm will be present at the Annual Meeting, will have an
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
AVAILABLE INFORMATION. COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED SEPTEMBER 30, 1995 MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST TO THE COMPANY (ATTN: MS. NANCY GORE, DIRECTOR - INVESTOR
RELATIONS) AT 3414 PEACHTREE ROAD, N.E., SUITE 1400, ATLANTA, GEORGIA 30326,
OR TELEPHONE (404) 841-9200.
21
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
February 22, 1996
The undersigned appoints E. MAC CRAWFORD and CRAIG L. MCKNIGHT, or either of
them, as proxies, each with full power of substitution, to represent and to
vote, as designated below, all shares of the Common Stock of Magellan Health
Services, Inc. held by the undersigned at the Annual Meeting of Stockholders to
be held Thursday, February 22, 1996, at 10:00 a.m., Eastern Standard Time, at
191 Peachtree Street, 50th Floor, Atlanta, Georgia, and at any adjournment, upon
the matters described in the accompanying Notice of Annual Meeting of
Stockholders and Proxy Statement, receipt of which is acknowledged, and upon any
other business that may properly come before the meeting or any adjournment.
Said proxies are directed to vote on the matters described in the Notice of
Annual Meeting of Stockholders and Proxy Statement as follows, and otherwise in
their discretion upon such other business as may properly come before the
meeting or any adjournment thereof.
</TABLE>
<TABLE>
<S> <C>
1. ELECTION OF DIRECTOR: FOR
Edwin M. Banks [ ]
WITHHOLD AUTHORITY
to vote for Edwin M. Banks [ ]
2. APPROVAL OF THE COMPANY'S
PROPOSED 1996 STOCK OPTION
PLAN: FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
3. APPROVAL OF THE COMPANY'S
PROPOSED 1997 EMPLOYEE
STOCK PURCHASE PLAN: FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4. APPROVAL OF THE COMPANY'S
PROPOSED 1996 DIRECTORS'
STOCK OPTION PLAN: FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
</TABLE>
(Continued on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3 AND 4.
DATED: , 1996
---------------------------
---------------------------------
---------------------------------
Signature of Shareholder
Please sign exactly as your name or names appear hereon. Where more than one
owner is shown, each should sign. Persons signing in a fiduciary or
representative capacity shall give full title. If this proxy is submitted by
a corporation, please sign in full corporate name by authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please mark, sign, date and return this proxy card promptly, using the
enclosed envelope.
<PAGE>
APPENDICES
Pursuant to Instruction 3 to
Item 10 of Schedule 14A
<PAGE>
APPENDIX A
<PAGE>
- 1 -
MAGELLAN HEALTH SERVICES, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purpose of the Magellan Health Services, Inc.
1996 Stock Option Plan is to motivate and retain officers and other key
employees of Magellan Health Services, Inc. and its Subsidiaries who have major
responsibility for the attainment of the primary long-term performance goals of
Magellan Health Services, Inc.
2. Definitions. The following terms shall have the following
meanings:
"Board" means the Board of Directors of the Corporation.
"Change in Control" means the effective date of the occurrence, at any
time after November 30, 1995, of one or more of the following events: (i) the
sale, lease, transfer or other disposition, in one or more related transactions,
of all or substantially all of the Corporation's assets to any person or related
group of persons, including a "group" as such term is used in Section 13(d)(3)
of the Exchange Act, (ii) the merger or consolidation of the Corporation with or
into another corporation, the merger of another corporation into the Corporation
or any other transaction, to the extent that the stockholders of the Corporation
immediately prior to any such transaction hold less than 50 percent of the total
voting power or of the voting stock of the surviving corporation resulting from
any such transaction, (iii) any person or related group of persons, including a
"group" as such term is used in Section 13(d)(3) of the Exchange Act, whether
such person or group of persons is a stockholder of the Corporation as of
November 30, 1995, holds 30 percent or more of the voting power or of the voting
stock of the Corporation, or (iv) the liquidation or dissolution of the
Corporation.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules promulgated thereunder.
"Committee" means a committee of two or more members of the Board
constituted and empowered by the Board to administer the Plan in accordance with
its terms.
"Corporation" means Magellan Health Services, Inc., a Delaware
corporation.
"Director" means a member of the Board.
"Disability" means a physical or mental condition under which the
Participant qualifies for (or will qualify for after expiration of a waiting
period) disability benefits under the long-term disability plan of the
Corporation or a Subsidiary that employs such Participant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
DC01/100718-2 //
<PAGE>
- 2 -
"Fair Market Value" means: (1) if the Stock is listed on a national
securities exchange (as such term is defined by the Exchange Act) or is traded
on the Nasdaq National Market System on the date of award or other
determination, the price equal to the mean between the high and low sales prices
of a share of Stock on said national securities exchange or on said Nasdaq
National Market System on that date (or if no shares of the Stock are traded on
that date but there were shares traded on dates within a reasonable period both
before and after such date, the Fair Market Value shall be the weighted average
of the means between the high and low sales prices of the Stock on the nearest
date before and the nearest date after that date on which shares of the Stock
are traded); (2) if the Stock is traded both on a national securities exchange
and in the over-the-counter market, the Fair Market Value shall be determined by
the prices on the national securities exchange; and (3) if the Stock is not
listed for trading on a national securities exchange and is not traded on the
Nasdaq National Market System or otherwise in the over-the-counter market, then
the Committee shall determine the Fair Market Value of the Stock from time to
time in its sole discretion.
"Option" means an Option granted pursuant to Section 6.
"Participant" means an employee of the Corporation or any of its
Subsidiaries who is selected to participate in the Plan in accordance with
Section 4.
"Plan" means the Magellan Health Services, Inc. 1996 Stock Option Plan.
"Stock" means the common stock, par value $0.25 per share, of the
Corporation.
"Stock Option Agreement" means the written agreement or instrument
which sets forth the terms of an Option granted to a Participant under this
Plan.
"Subsidiary" means any corporation, as defined in Section 7701 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, of which the Corporation, at the time, directly or indirectly, owns
50% or more of the outstanding securities having ordinary voting power to elect
directors (other than securities having voting power only by reason of a
contingency).
3. Administration. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee, acting in its absolute
discretion, shall exercise such powers and take such action as expressly called
for under this Plan and, further, shall have the power to interpret the Plan, to
determine the terms of each Stock Option Agreement (subject to the provisions of
the Plan) and (subject to Section 18 and Rule 16b-3 under the Exchange Act, if
applicable) to take such other action in the administration and operation of
this Plan as the Committee deems equitable under the circumstances. All actions
of the Committee shall be binding on the Corporation, on each affected
Participant and on each other person directly or indirectly affected by such
action. No member of the Board shall serve as a member of the
DC01/100718-2 //
<PAGE>
- 3 -
Committee unless such member is a "disinterested person" within the meaning of
Rule 16b-3 under the Exchange Act. The Committee shall have the right to
delegate to the chief executive officer of the Corporation the authority to
select Participants and to grant Options (except to any person subject to
Section 16 of the Exchange Act), subject to any review, approval or notification
required by the Committee or as otherwise may be required by law.
4. Participation. Participants in the Plan shall be limited to
those officers and employees of the Corporation or any of its Subsidiaries who
have been selected to participate in the Plan by the Committee acting in its
absolute discretion.
5. Maximum Number of Shares Subject to Options. Subject to the
provisions of Section 9, there shall be 1,750,000 shares of Stock reserved for
use under this Plan, and such shares of Stock shall be reserved to the extent
that the Committee and the Board deems appropriate from authorized but unissued
shares of Stock or from shares of Stock which have been reacquired by the
Corporation. Any shares of Stock subject to any Option which remain unpurchased
after the cancellation, expiration, exchange or forfeiture of such Option shall
again become available for use under this Plan. All authorized and unissued
shares issued upon exercise of Options under the Plan shall be fully paid and
nonassessable shares.
6. Grant of Options. The Committee, acting in its absolute discretion,
shall have the right to grant Options to Participants under this Plan from time
to time; provided, that the maximum number of shares of Stock issuable upon
exercise of Options shall not exceed 1,750,000, subject to adjustment as
provided in Section 9. No Option shall be granted after December 31, 1999. The
maximum number of Options that are granted to any Participant shall not exceed
500,000, subject to adjustment as provided in Section 9.
7. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by Stock Option Agreements in such form as the Committee
from time to time shall approve, including any such terms and conditions not
inconsistent with the provisions set forth in the Plan as the Committee may
determine; provided, that such Stock Option Agreements and the Options granted
shall comply with and be subject to the following terms and conditions:
(a) Employment. Each Participant shall agree to remain in the
employ of and to render services to the Corporation or a Subsidiary thereof for
such period as the Committee may require in the Stock Option Agreement;
provided, that such agreement shall not impose upon the Corporation or any
Subsidiary thereof any obligation to retain the Participant in its employ for
any period.
(b) Number of Shares. Each Stock Option Agreement shall
state the total number of shares of Stock to which it pertains.
DC01/100718-2 //
<PAGE>
- 4 -
(c) Exercise Price. The exercise price per share for
Options shall be Fair Market Value of the Stock on the date of grant, subject
to adjustment as contemplated by Section 9.
(d) Medium and Time of Payment. The exercise price shall be
payable upon the exercise of the Option, or as provided in Section 7(e) if the
Corporation adopts a broker- directed cashless exercise/resale procedure, in
each case in an amount equal to the number of shares then being purchased times
the per share exercise price. Payment shall be in cash, except that the
Corporation, in its sole discretion, may permit payment by delivery to the
Corporation of a certificate or certificates for shares of Stock duly endorsed
for transfer to the Corporation with signature guaranteed by a member firm of
the New York Stock Exchange or by a national banking association. In the event
of any payment by delivery of shares of Stock, such shares shall be valued on
the basis of their Fair Market Value determined as of the day prior to the date
of delivery. If payment is made by delivery of shares of Stock, the value of
such Stock may not exceed the total exercise price payment; provided, that the
preceding clause shall not prevent delivery of a stock certificate for a number
of shares having a greater value, if the number of shares to be applied to
payment of the exercise price is designated by the Participant and the
Participant requests that a certificate for the remainder shares be delivered to
the Participant.
In addition to the payment of the purchase price of the shares of Stock
then being purchased, a Participant shall also, pursuant to Section 16, pay to
the Corporation or otherwise provide for payment of an amount equal to the
amount, if any, which the Corporation at the time of exercise is required to
withhold under the income tax withholding provisions of the Code and other
applicable income tax laws.
(e) Method of Exercise. All Options shall be exercised (i) by
written notice directed to the Secretary of the Corporation at its principal
place of business, accompanied by payment of the option exercise price, in
accordance with the foregoing subsection (d), for the number of shares specified
in the notice of exercise and by any documents required by Section 14, or (ii)
by complying with the exercise and other provisions of any broker-directed
cashless exercise/resale procedure adopted by the Corporation and approved by
the Committee, and by delivery of any documents required by Section 14. The
Corporation shall make delivery of such shares within a reasonable period of
time or in accordance with applicable provisions of any such broker-directed
cashless exercise/resale procedure; provided, that if any law or regulation
requires the Corporation to take any action (including but not limited to the
filing of a registration statement under the Securities Act of 1933 and causing
such registration statement to become effective) with respect to the shares
specified in such notice before their issuance, then the date of delivery of
such shares shall be extended for the period necessary to take such action.
(f) Term of Options. Except as otherwise specifically provided
in the Plan, the terms of all Options shall commence on the date of grant and
shall expire not later than November 30, 2005.
DC01/100718-2 //
<PAGE>
- 5 -
(g) Exercise of Options. Options are exercisable only to the
extent they are vested as provided in Section 8. After Options have vested in
accordance with Section 8, such Options are exercisable at any time, in whole or
in part during their terms if the Participant is at the time of exercise
employed by the Company or a Subsidiary. If a Participant's employment with the
Corporation or any Subsidiary is terminated for any reason other than death or
disability, the vested portion of each Option held by such Participant on the
date of such termination may be exercised for six (6) months following the date
of termination of employment (but not after expiration of the term of the
Option). In the event of the death or Disability of a Participant, the vested
portion of each Option held by such Participant on the date of such event may be
exercised within twelve months of the date of such event (but not after the
expiration of the term of the Option).
In the event of the death of a Participant, the vested portion of each
Option previously held by such Participant may be exercised within the time set
forth above by the executor, other legal representative or, if none, by the heir
or legatee of such Participant.
(h) Adjustments Upon Changes in Capitalization. Upon a change
in capitalization pursuant to Section 9, the number of shares covered by an
Option and the per share option exercise price shall be adjusted in accordance
with the provisions of Section 9.
(i) Transferability. No Option shall be assignable or
transferable by the Participant except by will or by the laws of descent and
distribution. The designation of a beneficiary shall not constitute a transfer;
and, during the lifetime of a Participant, all Options held by such Participant
shall be exercisable only by him or by his lawful representative in the event of
his incapacity.
(j) Rights as a Stockholder. A Participant shall have no
rights as a stockholder with respect to shares covered by his Option until the
date of the issuance of the shares to him and only after such shares are fully
paid. Unless specified in Section 9, no adjustment will be made for dividends or
other rights for which the record date is prior to the date of such issuance.
(k) Miscellaneous Provisions. The Stock Option
Agreements authorized under the Plan may contain such other provisions not
inconsistent with the terms of this Plan as the Committee shall deem advisable.
8. Vesting. Options granted under this Plan shall be exercisable only
to the extent such Options have become vested pursuant to this Section 8. An
Option shall vest at the rate of 25 percent of the shares covered by the Option
on each of the first four anniversary dates of the grant of the Option if the
Participant is an employee of the Company or a Subsidiary on such dates.
DC01/100718-2 //
<PAGE>
- 6 -
9. Change in Capitalization. If the Stock should, as a result of a
stock split or stock dividend, combination of shares, recapitalization or other
change in the capital structure of the Corporation or exchange of Stock for
other securities by reclassification or otherwise, be increased or decreased or
changed into, or exchanged for, a different number or kind of shares or other
securities of the Corporation, or any other corporation, then the number of
shares covered by Options, the number and kind of shares which thereafter may be
distributed or issued under the Plan and the per share option price of Options
shall be appropriately adjusted consistent with such change in such manner as
the Committee may deem equitable to prevent dilution of or increase in the
rights granted to, or available for, Participants.
10. Fractional Shares. In the event that any provision of this
Plan or a Stock Option Agreement would create a right to acquire a fractional
share of Stock, such fractional share shall be disregarded.
11. Successor Corporation. If the Corporation is merged or consolidated
with another corporation or other legal entity and the Corporation is not the
surviving corporation or legal entity, or in the event all or substantially all
of the assets or common stock of the Corporation is acquired by another
corporation or legal entity, or in the case of a dissolution, reorganization or
liquidation of the Corporation, the Board, or the board of directors or
governing body of any corporation or other legal entity assuming the obligations
of the Corporation hereunder, shall either: (i) make appropriate provision for
the preservation of Participants' rights under the Plan in any agreement or plan
it may enter into or adopt to effect any of the foregoing transactions; or (ii)
upon written notice to each Participant, provide that all Options, whether or
not vested, may be exercised within thirty days of the date of such notice and
if not so exercised, shall be terminated.
12. Change in Control. Notwithstanding any provisions in the Plan to
the contrary, in the event of a Change in Control, any unvested and outstanding
Options awarded to Participants under the Plan automatically shall become fully
vested and exercisable in accordance with the terms thereof.
13. Non-Alienation of Benefits. Except insofar as applicable law
otherwise may require, (i) no Options, rights or interest of Participants or
Stock deliverable to any Participant at any time under the Plan shall be subject
in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any
attempt to so alienate, sell, transfer, assign, pledge, attach, charge or
otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii) to the fullest extent permitted by law, the Plan shall
in no manner be liable for, or subject to, claims, liens, attachments or other
like proceedings or the debts, liabilities, contracts, engagements or torts of
any Participant or beneficiary. Nothing in this Section 13 shall prevent a
Participant's rights and interests under the Plan from being transferred by will
or by the laws of descent and distribution; provided, that no transfer by will
or by the laws of descent and distribution shall be effective to
DC01/100718-2 //
<PAGE>
- 7 -
bind the Corporation unless the Committee or its designee shall have been
furnished before or after the death of such Participant with a copy of such will
or such other evidence as the Committee may deem necessary to establish the
validity of the transfer.
14. Listing and Qualification of Shares. The Corporation, in its
discretion, may postpone the issuance or delivery of shares of Stock until
completion of any stock exchange listing, or other qualification or registration
of such shares under any state or federal law, rule or regulation, as the
Corporation may consider appropriate, and may require any Participant to make
such representations, including, but not limited to, a written representation
that the shares are to be acquired for investment and not for resale or with a
view to the distribution thereof, and to furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
in compliance with applicable law, rules and regulations. The Corporation may
cause a legend or legends to be placed on such certificates to make appropriate
reference to such representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.
15. No Claim or Right Under the Plan. No employee of the Corporation or
any Subsidiary shall at any time have the right to be selected as a Participant
in the Plan nor, having been selected as a Participant and granted an Option, to
be granted any additional Option. Neither the action of the Corporation in
establishing the Plan, nor any action taken by it or by the Board or the
Committee thereunder, nor any provision of the Plan, nor participation in the
Plan, shall be construed to give, and does not give, to any person the right to
be retained in the employ of the Corporation or any Subsidiary, or interfere in
any way with the right of the Corporation or any Subsidiary to discharge or
terminate any person at any time without regard to the effect such discharge or
termination may have upon such person's rights, if any, under the Plan.
16. Taxes. The Corporation may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding of all federal,
state, local and other taxes required by law to be withheld with respect to
Options under the Plan, including, but not limited to, (i) deducting the amount
required to be withheld from salary or any other amount then or thereafter
payable to a Participant, beneficiary or legal representative, (ii) requiring a
Participant, beneficiary or legal representative to pay to the Corporation the
amount required to be withheld as a condition of releasing the Stock, or (iii)
complying with applicable provisions of any broker-directed cashless
exercise/resale procedure adopted by the Corporation pursuant to Section 7(e).
17. No Liability of Directors. No member of the Board or the Committee
shall be personally liable by reason of any contract or other instrument
executed by such member on his behalf in his capacity as a member of the Board
or Committee, nor for any mistake of judgment made in good faith, and the
Corporation shall indemnify and hold harmless each employee, officer and
Director, to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or
DC01/100718-2 //
<PAGE>
- 8 -
liability (including any sum paid in settlement of a claim with the approval of
the Board) arising out of any act or omission to act in connection with the Plan
to the fullest extent permitted or required by the Corporation's governing
instruments and, in addition, to the fullest extent of any applicable insurance
policy purchased by the Corporation.
18. Other Plans. Nothing contained in the Plan is intended to amend,
modify or rescind any previously approved compensation plans or programs entered
into by the Corporation or its Subsidiaries. The Plan shall be construed to be
in addition to any and all such plans or programs. No award of Options under the
Plan shall be construed as compensation under any other executive compensation
or employee benefit plan of the Corporation or any of its Subsidiaries, except
as specifically provided in any such plan or as otherwise provided by the
Committee. The adoption of the Plan by the Board shall not be construed as
creating any limitations on the power or authority of the Board to adopt such
additional compensation or incentive arrangements as the Board may deem
necessary or desirable.
19. Amendment or Termination. This Plan may be amended by the Board
from time to time to the extent that the Board deems necessary or appropriate;
provided, no such amendment shall be made absent the approval of the
stockholders of the Corporation: (1) if stockholder approval of such amendment
is required for continued compliance with Rule 16b-3 of the Exchange Act, or (2)
if stockholder approval of such amendment is required by any other applicable
laws or regulations or by the rules of any stock exchange as long as the Stock
is listed for trading on such exchange. The Committee also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, the Corporation shall not have the right to modify, amend or
cancel any Option granted before such suspension or termination unless (1) the
Participant consents in writing to such modification, amendment or cancellation
or (2) there is a dissolution or liquidation of the Corporation or a transaction
described in Section 11 of this Plan.
20. Captions. The captions preceding the sections of the Plan
have been inserted solely as a matter of convenience and shall not, in any
manner, define or limit the scope or intent of any provisions of the Plan.
21. Governing Law. The Plan and all rights thereunder shall be
governed by, and construed in accordance with, the laws of the State of Georgia,
without reference to the principles of conflicts of law thereof.
22. Expenses. All expenses of administering the Plan shall be
borne by the Corporation.
23. Effective Date. The Plan shall be effective as of the date of
its adoption by the Board, subject to approval of this Plan by the stockholders
of the Corporation after the date of its adoption in accordance with the
requirements of Rule 16b-3 under the Exchange Act.
DC01/100718-2 //
<PAGE>
APPENDIX B
<PAGE>
MAGELLAN HEALTH SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Magellan Health Services, Inc. 1997
Employee Stock Purchase Plan (the "Plan"), is to provide employees of Magellan
Health Services, Inc. (the "Company") and its subsidiary companies with an
opportunity to be compensated through the benefits of stock ownership and to
acquire an interest in the Company through the purchase of Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986 (the "Code"). The provisions of the Plan shall, accordingly, be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions.
(a) "Base Pay" means the compensation payable to an employee
by the Company or a designated subsidiary (as defined in Code Section 424(f)) (a
"subsidiary") calculated at that employee's base salary or standard hourly rate
of compensation, but excluding overtime, commissions, shift differential,
incentive bonus compensation and compensation payable under any deferred
compensation or other fringe benefit plan.
(b) "Employee" means any person who is employed by the Company
or by any subsidiary of the Company designated from time to time by the
Committee (as defined in Section 13).
3. Eligibility.
(a) Any Employee who shall be employed on the 60th day
preceding the Offering Date of an Offering Period shall be eligible to
participate in the Plan for such Offering Period except that no Officer can
participate in the Plan. Notwithstanding the foregoing, the Committee, in its
sole discretion, may credit the employment service of persons employed by a
business acquired by the Company or by any subsidiary thereof for the purpose of
satisfying the 60-day rule herein. The term "Officer" shall mean the position of
Assistant Vice President and officer positions that are senior to the position
of Assistant Vice President with respect to the Company and Charter Behavioral
Health Systems, Inc., and also shall mean senior officers of Green Spring Health
Services, Inc. and Magellan Public Solutions, Inc.
(b) Any provision of the Plan to the contrary
notwithstanding, no Employee shall be granted an option:
(i) If, immediately after the grant such
Employee would own shares, and/or hold
outstanding options to purchase stock,
possessing 5% or more of the total combined
voting power or value of all classes of
shares of the Company or of any subsidiary
of the Company; or
DC01/100719-3 //
1
<PAGE>
(ii) Which permits his rights to purchase shares
under all employee stock purchase plans of
the Company and its subsidiaries to accrue
at a rate which exceeds $25,000 of the fair
market value of the shares (determined at
the time such option is granted) for each
calendar year in which such stock option is
outstanding at any time.
4. Offering Periods. The Committee shall establish the Offering Periods
under the Plan which shall be of not less than three months nor more than twelve
months duration each, the first of which shall not begin before January 1, 1997,
and the last of which shall end not later than December 31, 1999. The beginning
date (the "Offering Date") and the ending date (the "Termination Date") of each
Offering Period shall be set in advance of each Offering Period by the
Committee.
5. Participation. An eligible Employee may become a participant
only by completing an election notice provided by the Company and filing it
with the designated representative of the Company no later than the date
specified by the Company in the election notice form.
Unless otherwise adjusted in accordance with Section 6(a), payroll
deductions for a participant with respect to an Offering Period shall commence
with the first pay date beginning on or after the Offering Date, and shall end
with the last pay date ending on or before the Termination Date, unless sooner
terminated by the participant as provided in Section 10. An eligible Employee
who becomes an Officer, as defined in Section 3(a), after becoming a participant
in accordance with this Section 5 shall terminate his participation in the Plan
as of the date such Employee becomes an Officer and shall be deemed to have
elected to withdraw in cash any payroll deductions then credited to his account
in accordance with Section 10. All Employees granted options under the Plan
shall have the same rights and privileges, except that the amount of stock which
may be purchased under such option may vary in a uniform manner as described in
Section 7.
6. Method of Payment. Payments for shares under the Plan may be
made only by payroll deductions, as follows:
(a) If a participant wishes to participate in the Plan, then
at the time he files his election notice, he shall elect to have deductions made
from his Base Pay at a rate, expressed as a percentage, not to exceed 10% of his
annualized Base Pay as of the Offering Date. Amounts withheld during the
one-month period immediately preceding the Termination Date in any Offering
Period may be applied to the purchase of shares on the Termination Date or to
the purchase of shares offered for the next subsequent Offering Period in a
manner as may be determined by the Committee, in its sole discretion.
(b) All payroll deductions made for a participant shall be
credited to his account under the Plan. A participant may not make any separate
cash payment into such account. A participant's account shall be no more than a
bookkeeping account maintained by the Company,
DC01/100719-3 //
2
<PAGE>
and neither the Company nor any subsidiary shall be obligated to segregate or
hold in trust or escrow any funds in a participant's account.
(c) A participant's election to have deductions made from his
Base Pay shall be effective for all pay dates occurring during the Offering
Period which commences immediately following the filing, in accordance with
Section 5, of the participant's election notice and for each subsequent Offering
Period until such election is modified or revoked by the participant or until
such participant no longer meets the eligibility requirements of Section 3(a). A
participant may discontinue his participation in the Plan as provided in Section
10.
A participant may elect to change the rate of payroll deductions at such times
and in accordance with such rules as may be prescribed by the Committee; any
such change in the rate of payroll deductions shall be applicable only with
respect to Offering Periods commencing after a participant files with the
Committee an election notice requesting such change.
7. Granting of Option.
(a) Subject to any adjustment under Sections 12 or 17, on the
Offering Date for each Offering Period, a participant shall be granted an option
to purchase a number of whole shares determined by dividing the amount to be
withheld for participation in the Plan and applied to such Offering Period by
the option price per share of Common Stock determined in accordance with Section
7(b) but, in no event shall the maximum number of shares for which an option is
granted to a participant with respect to any single Offering Period exceed
two-hundred (200) shares for each full or partial month during the Offering
Period.
(b) The option price per share of shares purchased with
payroll deductions for a participant will be equal to the lesser of: (i) 85% of
the opening price of the Common Stock on the American Stock Exchange on the
Offering Date; or (ii) 85% of the opening price of the Common Stock on the
American Stock Exchange on the Termination Date. If no shares are traded on such
exchange on either such date, such price shall be determined on the last trading
date for such shares immediately preceding the Offering Date or the Termination
Date, as applicable.
8. Exercise of Option. Unless a participant gives written notice of
withdrawal pursuant to Section 10(a) or such participant's payroll deductions
are returned in accordance with Section 10(c), his option for the purchase of
shares during an Offering Period with payroll deductions will be exercised
automatically for him on the Termination Date of that Offering Period. The
automatic exercise shall, subject to Sections 12 and 17, be for the purchase of
the maximum number of full shares subject to his option which the sum of payroll
deductions credited to the participant's account on the Termination Date can
purchase at the option price.
9. Delivery. As promptly as practicable after the end of an
Offering Period, the Company will deliver the shares purchased upon the exercise
of the option to a designated broker selected by the Company to administer and
hold shares in individual accounts established for the benefit of each
participant. The Committee, in its sole discretion, may establish procedures to
DC01/100719-3 //
3
<PAGE>
permit a participant to receive such shares directly. Amounts credited to the
participant's account in excess of the amount necessary to pay the option price
for the maximum number of full shares subject to his option shall either be
refunded to the participant or credited to the participant's account for the
next subsequent Offering Period as may be determined by the Committee, in its
sole discretion.
10. Withdrawal.
(a) A participant may withdraw payroll deductions credited to
his account under the Plan by giving written notice to the representative of the
Company designated on the election notice form. A participant may withdraw
amounts credited to his account at any time prior to the first day of the
calendar month ending on the Termination Date or such later date as may be
established by the Committee in its sole discretion. All of the participant's
payroll deductions credited to his account will be paid to him promptly after
receipt of his notice of withdrawal, and no further deductions will be made from
his pay during that Offering Period.
(b) A participant's withdrawal will not limit his eligibility
to participate in any similar plan which may hereafter be adopted by the Company
or in any subsequent Offering Period.
(c) Upon termination of the participant's employment during an
Offering Period for any reason, including death or retirement, the payroll
deductions credited to his account for such period will be returned to him or,
in the case of his death, to the person or persons entitled thereto under
Section 14. Notwithstanding the foregoing, the payroll deductions credited to
the account of any participant whose employment is terminated during the
calendar month ending on the Termination Date shall not be returned but shall
instead be used to purchase shares in accordance with Section 8.
11. No Interest. No interest shall be accrued or payable with
respect to amounts in a participant's account.
12. Stock.
(a) The shares of Common Stock to be sold to participants
under the Plan may, at the election of the Company, be either treasury shares or
shares originally issued for such purpose. The maximum number of shares which
shall be made available for sale under the Plan shall be 600,000 shares and the
maximum number of shares available for sale in each Offering Period shall be
determined by the Committee in its sole discretion, subject in each case to
adjustment upon changes in capitalization of the Company as provided in Section
17. If the total number of shares for which options are to be exercised for an
Offering Period in accordance with Section 8 exceeds the number of shares then
available under the Plan for such Offering Period, the Company shall make a pro
rata allocation of the shares available based on a fraction, the numerator of
which shall be the number of shares with respect to which a participant has an
option
DC01/100719-3 //
4
<PAGE>
to purchase for an Offering Period and the denominator of which shall be the
number of shares available for purchase, with rounding down for each participant
to the nearest whole number.
(b) A participant will have no interest in shares covered by
an option until such option has been exercised.
13. Administration. The Plan shall be administered by a Committee (the
"Committee") consisting of not less than three members who shall be appointed by
the Chief Executive Officer of the Company. Each member of the Committee shall
be either a director, an officer, or an employee of the Company or of a
subsidiary thereof. The Committee shall be vested with full authority to make,
administer, and interpret such rules and regulations as it deems necessary to
administer the Plan, and any determination, decision, or action of the Committee
in connection with the construction, interpretation, administration, or
application of the Plan shall be final, conclusive, and binding upon all
participants and all persons claiming under or through any participant.
14. Designation of Beneficiary. A participant may file a written
designation of a beneficiary who is to receive any shares or cash to the
participant's credit under the Plan in the event of such participant's death
before, on, or after the Termination Date but prior to the delivery of shares
and, if applicable, cash. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by him under the Plan,
the Company shall deliver such shares or cash to the account of such
beneficiary. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares or cash to the
account of the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company) the Company, in its discretion, may deliver such shares or cash to the
account of the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent, or relative is known to the Company,
then to the account of such other person as the Company may designate. No
designated beneficiary shall, prior to the death of the participant by whom he
has been designated, acquire any interest in the shares or cash credited to the
participant under the Plan.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant. Any such attempted
assignment, transfer, pledge, or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose.
DC01/100719-3 //
5
<PAGE>
17. Adjustments Upon Changes in Capitalization. In the event that the
outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization,
reclassification, stock split, combination of shares, or dividend payable in
shares of Common Stock, an appropriate adjustment shall be made by the Committee
to the number and kind of shares as to which outstanding options shall be
exercisable and to the option price. No fractional shares shall be issued or
optioned in making the foregoing adjustments. All adjustments made by the
Committee under this paragraph shall be conclusive and binding on all
participants and all persons claiming under or through any participant.
Subject to any required action by the stockholders, if the Company
shall be a party to any reorganization involving merger, consolidation,
acquisition of the stock or acquisition of the assets of the Company, the
Committee in its discretion may declare (a) that all options granted hereunder
are to be terminated after giving at least ten days' notice to holders of
outstanding options, or (b) that any option granted hereunder shall pertain to
and apply with appropriate adjustment as determined by the Committee to the
securities of the resulting corporation to which a holder of the number of
shares of Common Stock subject to the option would have been entitled. The
adoption of a plan of dissolution or liquidation by the Board of Directors and
stockholders of the Company shall cause every option outstanding hereunder to
terminate on the fifteenth day thereafter, except that, in the event of the
adoption of a plan of dissolution or liquidation in connection with a
reorganization as provided in the preceding sentence, options outstanding
hereunder shall be governed by and shall be subject to the provisions of the
preceding sentence.
Any issue by the Company of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to any option, except as specifically provided
otherwise in this Section 17. The grant of an option pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
18. Amendment or Termination. The Board of Directors of the Company may
at any time terminate or amend the Plan. No such termination can affect options
previously granted and no amendment can make any change in any option
theretofore granted which would adversely affect the rights of any participant.
No amendment can be made without prior approval of the stockholders of the
Company if such amendment would:
(a) Require the sale of more shares than are authorized
under Section 12; or
(b) Permit payroll deductions or cash payments at a rate
in excess of 10% of a participant's Base Pay.
DC01/100719-3 //
6
<PAGE>
19. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall not be deemed to have
been duly given until actually received by the representative of the Company
designated on the election notice form provided by Section 5.
20. Missing Payee. If (i) the Company utilizes a designated broker to
administer and hold in individual accounts the shares purchased by the
participants, (ii) the Company subsequently cannot ascertain the whereabouts of
a participant whose account is held with the designated broker, (iii) after
three years from the date of the last purchase by such participant, a notice of
such account balance and pending action under this section is mailed to the last
known address of such person, as shown on the records of the designated broker
or the Company, and (iv) within three months after such mailing, such person has
not made written claim therefor, then the Committee may direct that such account
balance (including both shares and withholdings) otherwise due to such person be
canceled and returned to the Company. Upon such cancellation, the Company or the
designated broker shall have no further liability therefor, except that, in the
event such person, within one year of the date of the notice referred to in
(iii) above, notifies the Company or the broker of his whereabouts and requests
the amounts due to him under the Plan, the number of shares (as may be adjusted
to reflect any extraordinary corporate event or recapitalization) together with
any dividends or other accretions thereon and the amount of withholdings
contained in such account so canceled shall be delivered to him as provided
herein by the Plan.
DC01/100719-3 //
7
<PAGE>
APPENDIX C
<PAGE>
-1-
MAGELLAN HEALTH SERVICES, INC.
1996 DIRECTORS' STOCK OPTION PLAN
1. Purpose. The Magellan Health Services, Inc. 1996 Directors'
Stock Option Plan (the "Plan") is intended as an incentive and as a means of
encouraging stock ownership by non-employee members of the Board of Directors of
Magellan Health Services, Inc. (the "Company").
2. Administration.
(a) The Plan shall be administered, construed and interpreted
by the Compensation Committee (the "Committee") of the Board of Directors.
During any time that the Board of Directors does not have a Compensation
Committee, the duties of the Committee under the Plan shall be performed by the
Board of Directors.
(b) The interpretation and construction by the Committee of
any provision of the Plan, any option granted under it or any written agreement
that sets forth the terms of an option (the "Stock Option Agreement") and any
determination by the Committee, pursuant to any provision of the Plan, any such
option or any provisions of a Stock Option Agreement, shall be final and
conclusive. The terms and conditions of each individual Stock Option Agreement
shall be in accordance with the provisions of the Plan, but the Committee may
provide for such additional terms and conditions, not in conflict with the
provisions of the Plan, as it deems advisable.
3. Eligibility. Members of the Board of Directors who are not
employees of the Company or any subsidiary shall be granted options under and
pursuant to the terms of the Plan.
4. Stock. The stock subject to the options and other provisions of the
Plan shall be authorized but unissued or reacquired shares of the $.25 par value
Common Stock of the Company (the "Common Stock"). Subject to readjustment in
accordance with the provisions of Section 6(h), the total amount of Common Stock
on which options may be granted to Directors under the Plan shall not exceed in
the aggregate 250,000 shares.
If any outstanding option (or portion thereof) under the Plan for any
reason expires unexercised or is terminated without exercise prior to the end of
the period during which options may be granted, the shares of Common Stock
allocable to the unexercised portion of such option again may be subject to an
option under the Plan.
5. Grant of Options. Each eligible Director shall be granted on the
later of November 30, 1995, or the date he or she first becomes a Director an
option to purchase 25,000 shares of Common Stock, for so long as shares are
available under the Plan, but no option shall be granted after December 31,
1999. Options granted shall be subject to the vesting and other terms and
conditions of the Plan and each optionee's Stock Option Agreement.
DC01/100716-2 //
<PAGE>
-2-
6. Terms and Conditions of Options. Stock options granted pursuant to
the Plan shall be evidenced by Stock Option Agreements in such form as the
Committee from time to time shall approve; such agreements and the stock options
granted thereby shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. Each Stock Option Agreement shall
state the total number of shares of Common Stock to which it pertains.
(b) Exercise Price. The exercise price per share shall
be the Fair Market Value per share of the Common Stock on the date of the grant.
(c) Medium and Time of Payment. The exercise price shall be
payable upon the exercise of the option, or as provided in Section 6(f)
if the Company adopts a broker- directed cashless exercise/resale
procedure, in each case in an amount equal to the number of shares then
being purchased times the per share exercise price. Payment shall be in
cash, except that the Company, in its sole discretion, may permit
payment by delivery to the Company of a certificate or certificates for
shares of Common Stock, duly endorsed for transfer to the Company with
signature guaranteed by a member firm of the New York Stock Exchange or
by a national banking association. In the event of any payment by
delivery of shares of Common Stock, such shares shall be valued on the
basis of their Fair Market Value determined as of the day prior to the
date of delivery. If payment is made by delivery of shares of Common
Stock, the value of such shares may not exceed the total exercise price
payment; but the preceding clause shall not prevent delivery of a stock
certificate for a number of shares having a greater value, if the
number of shares to be applied to payment of the exercise price is
designated by the optionee and the optionee requests that a certificate
for the remainder shares be delivered to the optionee.
In addition to the payment of the purchase price of the shares
then being purchased, an optionee shall also, pursuant to Section 12,
pay to the Company or otherwise provide for an amount equal to the
amount, if any, which the Company at the time of exercise is required
to withhold under the income tax withholding provisions of the Internal
Revenue Code and other applicable income tax laws.
(d) Fair Market Value. For purposes of Sections 6(b) and (c),
Fair Market Value of Common Stock shall be determined on the applicable
date as follows. If the Common Stock is listed on a national securities
exchange (as such term is defined by the Securities Exchange Act of
1934) or is traded in the over-the-counter market on the date of
determination, the Fair Market Value per share of the Common Stock
shall be equal to the mean between the high and low sales prices of a
share of the Common Stock on said
DC01/100716-2 //
<PAGE>
-3-
national securities exchange on that day (or, for purposes of Section
6(c), if no shares of the Common Stock are traded on that date but
there were shares traded on dates within a reasonable period both
before and after such date, the Fair Market Value shall be the weighted
average of the means between the high and low sales prices of the
Common Stock on the nearest date before and the nearest date after that
date on which shares of the stock are traded) or the mean between the
high "bid" and low "asked" prices per share in said over-the-counter
market on that date, as reported by the National Association of
Securities Dealers Automated Quotation System (or a successor to such
system). If the Common Stock is traded on two exchanges, the Fair
Market Value shall be determined by the weighted average Fair Market
Value on such exchanges unless one of such exchanges is the American
Stock Exchange, in which case Fair Market Value shall be determined by
prices on that exchange. If the Common Stock is traded both on a
national securities exchange and in the over-the-counter market, the
Fair Market Value shall be determined by the prices on the national
securities exchange, unless transactions on such exchange and in the
over-the-counter market are jointly reported on a consolidated
reporting system in which case the Fair Market Value shall be
determined by reference to such consolidated reporting system. If the
Common Stock is not listed for trading on a national securities
exchange and is not regularly traded in the over-the-counter market,
then the Committee shall determine the Fair Market Value of the stock
from all relevant available facts which may include opinions of
independent experts as to value and may take into account any recent
sales and purchases of such stock to the extent they are
representative.
(e) Terms of Options; Date of Exercise. Terms of options
granted under the Plan shall commence on the date of grant and shall expire on
November 30, 2005, subject to Section 6(g). Each option shall become exercisable
when vested.
(f) Method of Exercise. Options shall be exercised (i) by
written notice directed to the Secretary of the Company at its principal place
of business, accompanied by payment made in accordance with Section 6(c), in
cash or personal check (which will be accepted subject to collection), or by
certificates for shares of the Common Stock, or by a combination of the
foregoing, of the option price for the number of shares specified in the notice
of exercise and by any documents required by Section 6(j), or (ii) by complying
with the exercise and other provisions of any broker-directed cashless
exercise/resale procedure adopted by the Company and approved by the Committee,
and by delivery of any documents required by Section 6(j). The Company shall
make delivery of such shares within a reasonable period of time or in accordance
with applicable provisions of any such broker-directed cashless exercise/resale
procedure; provided, that if any law or regulation requires the Company to take
any action (including but not limited to the filing of a registration statement
under the Securities Act of 1933 and causing such registration statement to
become effective) with respect to the
DC01/100716-2 //
<PAGE>
-4-
shares specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action.
(g) Effect of Termination of Service as a Director. If an
optionee during his life ceases to be a non-employee Director of the Company
(including its subsidiaries) due to voluntary resignation as a Director,
voluntary decision not to stand for reelection or removal as a Director by the
stockholders for cause, then the unvested portion of any option shall terminate
on the earlier to occur of (i) the expiration date of the option, or (ii) the
date of termination of service as a non-employee Director. If an optionee ceases
to be a Director for any other reason, the unvested portion of options shall
vest on the date of termination of service and may thereafter be exercised in
accordance with their terms. In the event of the death of the optionee while he
is a non-employee Director of the Company or after termination of such service,
the vested portion of any option may be exercised by his personal
representatives, heirs or legatees at any time prior to the expiration of one
(1) year from the date of death of the optionee, but in no event later than the
date of expiration of the option.
(h) Adjustments Upon Changes in Capitalization. If the Common
Stock should, as a result of a stock split or stock dividend, combination of
shares, recapitalization or other change in the capital structure of the Company
or exchange of Common Stock for other securities by reclassification or
otherwise, be increased or decreased or changed into, or exchanged for, a
different number or kind of shares of other securities of the Company, or any
other corporation, then the number of shares covered by options, the number and
kind of shares which thereafter may be distributed or issued under the Plan and
the per share option price of options shall be appropriately adjusted consistent
with such change in such manner as the Committee may deem equitable to prevent
dilution of or increase in the rights granted to, or available for, optionees.
(i) Who May Exercise. No option shall be assignable or
transferable by the optionee except by will or by the laws of descent and
distribution, and during the lifetime of an optionee, the option shall be
exercisable only by him.
(j) Optionee's Agreement. If, in the opinion of counsel for
the Company, such action is necessary or desirable, no option shall be granted
to any optionee unless at such time such optionee represents and warrants that
the stock will be acquired for investment only and not for purposes of resale or
distribution and makes such further representations and warranties as are deemed
necessary or desirable by counsel to the Company with regard to holding and
resale of the stock. If, at the time of the exercise of any option, in the
opinion of counsel for the Company, it is necessary or desirable, in order to
comply with any applicable laws or regulations relating to the sale of
securities, that the optionee shall represent and warrant that he is purchasing
the shares that are subject to the option for investment and not with any
DC01/100716-2 //
<PAGE>
-5-
present intention to resell or distribute the same or make other and further
representations and warranties with regard to the holding and resale of the
shares, the optionee, upon the request of the Committee, will execute and
deliver to the Company an agreement or affidavit to such effect. All
certificates issued pursuant to the exercise of any option shall be marked with
a restrictive legend, if such marking, in the opinion of counsel to the Company,
is necessary or desirable.
(k) Rights as a Stockholder. An optionee shall have no rights
as a stockholder with respect to shares covered by his option until the date of
the issuance of the shares to him and only after such shares are fully paid.
Unless specified in Section 6(h), no adjustment will be made for dividends or
other rights for which the record date is prior to the date of such issuance.
(l) Vesting. An option shall vest at the rate of 25 percent of
the shares of Common Stock covered by the option on each of the four anniversary
dates of the grant of the option if the Participant is a non-employee Director
of the Company on such dates.
(m) Miscellaneous Provisions. The Stock Option Agreements
authorized under the Plan shall contain such other provisions, including,
without limitation, restrictions upon the exercise of the option as the
Committee shall deem advisable.
7. Effective Date and Termination of Plan.
(a) The Plan shall become effective upon adoption by the Board
of Directors of the Company, provided the Plan is approved by the holders of a
majority of the shares of Common Stock voting on the matter at an annual or
special meeting of stockholders held within twelve months of adoption by the
Board of Directors.
(b) The Plan, with respect to the granting of options, shall
terminate at midnight on December 31, 1999, but the Board of Directors may
terminate the Plan at any time prior to said time and date. Such termination of
the Plan by the Board of Directors shall not alter or impair any of the rights
or obligations under any option theretofore granted under the Plan unless the
affected optionee shall so consent.
8. Fractional Shares. If any provision of this Plan or a Stock
Option Agreement would create a right to acquire a fractional share, such
fractional share shall be disregarded.
9. Successor Corporation. The obligations of the Company under
the Plan shall be binding upon any successor corporation or organization
succeeding to substantially all of the assets and business of the Company and
shall continue to be binding upon the Company notwithstanding any change in
ownership of the Company. The Company agrees that it will make appropriate
provision for the preservation of optionees' rights under the Plan in any
DC01/100716-2 //
<PAGE>
-6-
agreement or plan which it may enter into or adopt to effect any such transfer
of assets or ownership.
10. Non-Alienation of Benefits. Except insofar as applicable law may
otherwise require, (i) no options, rights or interest of optionees or Common
Stock deliverable to any optionee at any time under the Plan shall be subject in
any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charges or encumbrance of any kind, and any
attempt to so alienate, sell, transfer, assign, pledge, attach, charge or
otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii), to the fullest extent permitted by law, the Plan shall
in no manner be liable for, or subject to, claims, liens, attachments or other
like proceedings or the debts, liabilities, contracts, engagements or torts of
any optionee. Nothing in this Section 10 shall prevent an optionee's rights and
interests under the Plan from being transferred by will or by the laws of
descent and distribution; provided, that no transfer by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Committee or its designee shall have been furnished before or after the death of
such optionee with a copy of such will or such other evidence as the Committee
may deem necessary to establish the validity of the transfer.
11. Listing and Qualification of Shares. The Company, in its
discretion, may postpone the issuance or delivery of shares of Common Stock
until completion of any stock exchange listing, or other qualification or
registration of such shares under any state or federal law, rule or regulation,
as the Company may consider appropriate, and may require any optionee to furnish
such information as it may consider appropriate in connection with the issuance
or delivery of the shares in compliance with applicable laws, rules and
regulations.
12. Taxes. The Company may make such provisions and take such steps as
it may deem necessary or appropriate for the withholding of all federal, state,
local and other taxes required by law to be withheld with respect to options
under the Plan, including, but not limited to (i) deducting the amount required
to be withheld from any amount then or thereafter payable to an optionee,
beneficiary or legal representative, (ii) requiring an optionee, beneficiary or
legal representative to pay to the Company the amount required to be withheld as
a condition of releasing shares, or (iii) complying with applicable provisions
of any broker-directed cashless exercise/resale procedure adopted by the Company
pursuant to Section 6(f). If, in the exercise of an option, the Company requires
payment pursuant to (ii), then, to the extent permitted by the Company in its
discretion, payment may be made in any medium provided for in subsection (c) of
Section 6.
13. No Liability of Directors. No member of the Board or the
Committee shall be personally liable by reason of any contract or other
instrument executed by such member on his behalf in his capacity as a member of
the Board or Committee, nor for any mistake of judgment
DC01/100716-2 //
<PAGE>
-7-
made in good faith, and the Company shall indemnify and hold harmless each
employee, officer and Director of the Company, to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board)
arising out of any act or omission to act in connection with the Plan to the
fullest extent permitted or required by the Company's governing instruments and,
in addition, to the fullest extent of any applicable insurance policy purchased
by the Company.
14. Amendments. This Plan may be amended by the Board from time to time
to the extent that the Board deems necessary or appropriate; provided, no such
amendment shall be made absent the approval of the stockholders of the Company:
(1) if stockholder approval of such amendment is required for continued
compliance with Rule 16b-3 of the Securities Exchange Act, or (2) if stockholder
approval of such amendment is required by any other applicable laws or
regulations or by the rules of the American Stock Exchange as long as the Common
Stock is listed for trading on such Exchange. The Committee also may suspend the
granting of options under this Plan at any time; provided, the Company shall not
have the right initially to modify, amend or cancel any option granted before
such suspension unless (1) the optionee consents in writing to such
modification, amendment or cancellation or (2) there is a dissolution or
liquidation of the Company or a transaction described in Section 6(h) of this
Plan.
15. Captions. The captions preceding the sections of the Plan
have been inserted solely as a matter of convenience and shall not, in any
manner, define or limit the scope or intent of any provisions of the Plan.
16. Governing Law. The Plan and all rights thereunder shall be
governed by, and construed in accordance with, the laws of the State of Georgia,
without reference to the principles of conflicts of law thereof.
17. Expenses. All expenses of administering the Plan shall be
borne by the Company.
DC01/100716-2 //
<PAGE>
