UNIVERSAL AMERICAN FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
To the Stockholders of
UNIVERSAL AMERICAN FINANCIAL CORP.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
UNIVERSAL AMERICAN FINANCIAL CORP. will be held at The Chemists' Club, 40 West
45th Street, New York, New York 10036, at 10 A.M. on May 28, 1998, or at any
adjournment thereof (the "Annual Meeting"), for the following purposes:
1. To re-elect three Class III Directors whose terms will expire in
2001 and to elect one new Class II Director to replace a retiring
Class II Director whose term will expire in 2000.
2. To consider and act upon the Company's proposed 1998 Incentive
Compensation Plan.
3. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 17, 1998
will be entitled to vote at the Annual Meeting.
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY IN ORDER THAT YOUR SHARES MAY BE VOTED FOR YOU AS SPECIFIED.
By Order of the Board of Directors
JOAN M. FERRARONE
Secretary
Dated: April 27, 1998
Rye Brook, New York
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
Six International Drive
Rye Brook, New York 10573-1068
--------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
--------------------------
The Annual Meeting of Stockholders of UNIVERSAL AMERICAN FINANCIAL CORP.
(the "Company") will be held at The Chemists' Club, 40 West 45th Street, New
York, New York 10036, at 10 A.M. on May 28, 1998 for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. This statement is
furnished in connection with the solicitation by the Company of proxies to be
used at the Annual Meeting or at any and all adjournments of such meeting.
If a proxy in the accompanying form is duly executed and returned, the
shares represented by such proxy will be voted as specified. Any person
executing the proxy may revoke it prior to its exercise either by letter
directed to the Company at its principal executive office, Six International
Drive Rye Brook, New York 10573 or in person at the Annual Meeting. The
approximate date on which this Proxy Statement and the accompanying proxy first
will be sent or given to stockholders is April 27, 1998.
Voting Rights
On April 17, 1998 (the "Record Date"), the Company had outstanding three
classes of voting securities, namely 7,475,684 shares of Common Stock, $.01 par
value, 400 shares of Series B Preferred Stock and 45,680 shares of Series C-1
Preferred Stock. Holders of the Common Stock are entitled to one vote for each
share registered in their names at the close of business on the Record Date.
Holders of the Series B Preferred Stock and the Series C-1 Preferred Stock are
each entitled (i) to elect one director voting as a class and (ii) to vote
together with the holders of the Common Stock on all other matters as if the 400
shares of Series B Preferred Stock had been converted into 1,777,777 shares of
Common Stock and as if the shares of Series C-1 Preferred Stock had been
converted into 1,923,368 shares of Common Stock
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 17, 1998
as to the number of shares of Common Stock beneficially owned by (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock ("5% Holder"), (ii) each person who is a Director of the Company or a
nominee for election as such Director, and (iii) all persons as a group who are
Directors or a nominee for election as such Director and Officers of the
Company, and as to the percentage of outstanding shares held by them on that
date. Unless otherwise indicated, each such beneficial owner holds the sole
voting and investment power with respect to shares of Common Stock outstanding.
The Company's Common Stock and its Series B and C-1 Preferred Stocks are the
only classes of voting securities outstanding. Wand/Universal Investments I L.P.
and Wand/Universal Investments II L.P. own all of the issued and outstanding
2
<PAGE>
Series B Preferred Stock. The Series C-1 Preferred Stock is owned as follows:
UAFC, L.P., 53%; Richard A. Barasch, his wife and children, 12%; other
directors, officers and consultants of the Company and its subsidiaries, 18%.;
and principals and employees of Ameri-Life & Health Services, Inc. (a general
agency of the company), 17%.
<TABLE>
Beneficial Ownership(a)
-------------------------------
Number of Percent
Name and Address of Beneficial Owner Status Shares Of Class
- ------------------------------------------------- ---------- ------------------- ---------
<S> <C> <C> <C>
Barasch Associates Limited Partnership ("BALP") 5% Holder 3,892,588 (b)(c) 39.39%
c/o Richard Barasch
Six International Drive
Rye Brook, New York 10573
Wand/Universal Investments I L.P. and 5% Holder 1,777,777 (c)(d) 19.21%
Wand/Universal Investments II L.P.
(collectively, "WAND")
630 Fifth Avenue
New York, NY 10111
UAFC, L.P. 5% Holder 1,010,526 (e) 11.91%
30 North LaSalle Street
Chicago, Illinois 60602
Midland National Life Insurance Company 5% Holder 671,807 8.99%
("Midland")
One Midland Plaza
Sioux Falls, SD 57193
Marvin Barasch Director 218,432 (f) 2.90%
Six International Drive
Rye Brook, New York 10573
Michael Barasch Director 68,053 (f) *
11 Park Place
New York, NY 10007
Richard A. Barasch Director 696,370 (f) 8.83%
Six International Drive
Rye Brook, New York 10573
Stuart Becker Director 17,000 *
551 Madison Avenue
New York, NY 10022
David F. Bolger Director 504,000 6.74%
79 Chestnut Street
Ridgewood, NJ 07450
3
<PAGE>
Mark M. Harmeling Director 12,000 *
108 Chestnut Street
North Reading, MA 01864
Bertram Harnett Director 73,105 (f) 1.00%
105 East Palmetto Park Road
Boca Raton, FL 33432
Walter L. Harris Director 14,000 (f) *
320 West 57th Street
New York, NY 10019
Harry B. Henshel Director 97,500 1.30%
One Bulova Avenue
Woodside, NY 11377
Patrick J. McLaughlin Director 36,000 *
100 Chetwynd Drive
Rosemont, PA 19010
William E. Wehner 5% Holder 526,553 6.86%
600 Courtland Street
Orlando, FL 32804
Richard Veed Director - (h) *
30 North LaSalle Street
Chicago, Il 60602
Robert F. Wright (n) Nominee 194,447 (f) 2.59%
57 West 57th Street
New York, New York 10019
Directors and Officers as a Group (15 persons) 6,914,899 (g) 63.08%
</TABLE>
- -----------
* Percent of class is less
than 1%
(a) The Securities and Exchange Commission has defined "beneficial owner" of a
security to include any person who has or shares voting power or investment
power with respect to any such security or who has the right to acquire
beneficial ownership of any security within 60 days. The percentages shown
for each person or persons are therefore based on the 7,475,684 shares of
Common Stock outstanding as of April 17, 1998 plus common stock issuable
with respect to options and warrants presently exercisable and convertible
preferred stock presently convertible held by such person or persons.
(b) Includes 389,560 Warrants registered under the Securities Exchange Act of
1934 (the Act"), and 2,015,760 of Warrants not registered under the Act for
the purchase of shares of the Company's Common Stock owned by BALP.
(c) BALP and Wand have entered into an agreement, under which as long as Wand
holds common stock issued from conversion of its Series B Convertible
Preferred Stock, BALP will vote its shares for the election of one director
nominated by Wand and Wand will vote its shares for BALP's nominees for the
balance of the Board positions.
(d) Represents the amount of common stock potentially issuable upon conversion
of the Series B Convertible Preferred Stock held by Wand.
(e) Represents the amount of common stock potentially issuable upon conversion
of the Series C-1 Preferred Stock held by UAFC, L.P.
(f) Does not include any indirect ownership through BALP by Marvin Barasch,
Michael A. Barasch, Richard A. Barasch, Bertram Harnett, Walter Harris and
Robert F. Wright each of whom owns an interest in BALP.
(g) Includes the 3,892,588 shares of common stock beneficially owned by BALP.
(h) Does not include any indirect ownership through UAFC, L.P. by Richard Veed,
who is a partner with AAM Capital Partners, L.P. which partnership owns an
interest in UAFC, L.P.
(n) Nominee for Director to replace Stuart Becker, who is retiring as a
Director.
4
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
The By-Laws of the Company provide for a Board of Directors of not
less than three, classified into three classes with the Directors in each class
serving for three years, with the terms staggered by class so that one class is
elected at each annual meeting of stockholders for a full three year term. The
By-laws of the Company provide that the number of Directors shall be set by the
Board of Directors and that the number of directors in each class shall be
equal, or as nearly as practical. The Company's Board of Directors now consists
of eleven Directors, including three Directors whose terms expire at the 1998
annual meeting of stockholders.
The three Class III Directors whose terms expire in 1998 have been
nominated for re-election and one new Class II Director has been nominated to
replace a retiring Class II Director. This will result in a board consisting of
eleven Directors.
CLASS I CLASS II CLASS III
To Serve Until the Annual (To Serve Until the Annual (To Serve Until the
Meeting of Stockholders Meeting of Stockholders in Annual Meeting of
in 1999) 2000) Stockholders in 2001)
- -------------------------- --------------------------- --------------------
Michael A. Barasch Richard A. Barasch Marvin Barasch
David F. Bolger Harry B. Henshel Mark M. Harmeling
Walter L. Harris Patrick J. McLaughlin (a) Bertram Harnett
Richard Veed (b) Robert F. Wright (n)
- ------------------
(a) Elected by the holders of the Series B Preferred Stock.
(b) Designated to represent the holders of the Series C-1 Preferred Stock.
(n) Nominee
Director Compensation
Directors who are not employees of the Company receive a fee of $500
for each meeting of the Board or Committee meeting attended, unless such
Committee meeting is held immediately prior to or after a Board meeting, in
which case a $250 fee is received for the Committee Meeting.
In addition, in 1997 each director (other than Mr. Veed) was eligible
to be granted options under the Stock Option Plan for Directors adopted at the
1992 Annual Meeting of Stockholders. On June 30, 1997, each eligible director
was granted options to purchase 1,000 shares of Common Stock at an exercise
price of $1.875 for a total of 8,000 options granted.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Transaction
Committee, a Compensation Committee and an Executive Committee. The Audit
Committee is empowered to consult with the Company's independent auditors with
respect to their audit plans and to review their audit report and the
accompanying management letters. The Transaction Committee reviews and
recommends to the Board on certain capital transactions entertained by the
Company. The Compensation Committee reviews and determines compensation,
including incentive stock option grants, of officers of the Company. The
Executive Committee has the authority to act between Board meetings on behalf of
the Board, on all matters allowed by law.
During the fiscal year ended December 31, 1997, there were four meetings
of the Board of Directors, three meetings of the Audit Committee, two meetings
of the Transaction Committee and one meeting of the Compensation Committee. Each
5
<PAGE>
incumbent director attended more than 75% of the aggregate of the total number
of meetings of the Board of Directors and of the meetings of each Committee of
which he was a member.
Listing of Directors
The following table sets forth certain information concerning the
directors of the Company and the nominee for election as such director.
Position with the Company,
Present Principal Occupation or Employment
Name Age and Past Five-Year Employment History
- ------------------ -- ----------------------------------------------------
Richard A. Barasch 44 Director, Chairman of the Board (since December,
1997), President and Chief Executive Officer of the
Company; Director and President of American
Progressive; and Chairman of the Board of American
Pioneer, American Exchange and WorldNet. Mr. Barasch
has been a director and executive officer of the
Company since July, 1988, President since April, 1991
and Chief Executive Officer since June 15, 1995. He
has held his positions with the Company's
subsidiaries since their acquisition or organization
by the Company. Term as a Director expires in 2000.
Marvin Barasch 75 Chairman Emeritus of the Company (since December,
1997) and Vice-Chairman of American Progressive (John
Adams) since July, 1988, Chairman of American
Progressive since June, 1996 and a Director of
American Pioneer since May, 1993. Mr. Barasch was
Chairman from July, 1988 to December, 1997 and Chief
Executive Officer of the Company from July, 1988 to
June 15, 1995. He has been in the insurance business
as an agent and broker for over 40 years. Term as a
Director expires in 1998.
Michael A. Barasch 42 Director of the Company since July, 1988 and
American Progressive (and its predecessor, John
Adams) from July, 1988 to June, 1995. Since February
1995, Mr. Barasch has been a member of the law firm
of Barasch and McGarry. He was a member of the law
firm of Altier and Barasch from February, 1989 to
February, 1995. Term as a Director expires in 1999.
David F. Bolger 65 Director of the Company since December, 1992.
Since 1966, Mr. Bolger has been Chief Executive
Officer of Bolger & Co., Inc., an investment banking
firm. Term as a Director expires in 1999.
Mark M. Harmeling 45 Director of the Company since July, 1990 and
Director of American Progressive since December,
1992. Mr. Harmeling has been Director of Sales and
Marketing for Spanos Companies since June, 1997. He
has served as President of Bay State Realty Advisors
since January, 1994 and previously as President of
Intercontinental Real Estate Corporation, a real
estate management and development company for more
than the past five years. Mr. Harmeling is also a
Director of the following companies: Rochester
Shoetree Corporation (since 1988) and Applied
Extrusion Technologies (since 1987). Term as a
Director expires in 1998.
6
<PAGE>
Bertram Harnett 74 Elected director of the Company and American
Pioneer in June 1996 and had been a director of the
Company previously (July 29, 1988 to February 9,
1989). Mr. Harnett is President of the law firm of
Harnett Lesnick & Ripps P.A., Boca Raton, Florida,
and its predecessors since 1988, and a practicing
lawyer since 1948. He is the author of treatises on
insurance law and is a former Justice of New York
State Supreme Court. Term as a Drector expires in
1998.
Walter L. Harris 46 Director of the Company since July, 1993 and of
American Progressive (and its predecessor, John
Adams) since July, 1988. Since 1979, Mr. Harris has
been President of Tanenbaum-Harber Company, Inc., a
general insurance brokerage firm. Term as a Director
expires in 1999.
Harry B. Henshel 77 Director of the Company since June, 1992. Mr.
Henshel has been Chairman of the Board of the Bulova
Corporation, a manufacturer of timepieces located in
New York City, for more than the past five years. Mr.
Henshel is also a Director of Ponce Hotel Corporation
(since 1973) and Ampal Industries, Inc. (since 1983).
Term as a Director expires in 2000.
Patrick J. McLaughlin 39 Director of the Company since January, 1995.
Mr. McLaughlin has been Managing Director of Emerald
Capital Group, Ltd., an asset management and
consulting firm specializing in the insurance
industry, since April 1993. Prior to that he was an
Executive Vice President and Chief Investment Officer
of Life Partners Group, Inc. (April, 1990 to April,
1993), Managing Director of Conning & Company
(August, 1989 to April 1990) and Senior Vice
President and Chief Investment Officer of ICH
Corporation (March, 1987 to August, 1989). Term as a
Director expires in 2000.
Richard Veed 46 Director of the Company since April 25, 1997.
Mr. Veed has been a Managing Partner of AAM
Investment Banking Group, Ltd. Since October, 1993.
Prior to that, he was President of Guaranty
Reassurance Corp. from September, 1992 to May, 1993
and a Partner at Arthur Anderson & Co. from 1987 to
August, 1992. He is also a Director of HomeVest
Financial Group, Inc. Term as Director expires in
1999.
Robert F. Wright 73 Nominee for Director of the Company. Mr. Wright
has been President of Robert F.Wright Associates,
Inc. since 1988, which has acted as an active
consultant to the Company since 1990. Prior to that,
Mr. Wright was a partner of the public accounting
firm of Arthur Anderson & Co. from 1960 to 1988. Mr.
Wright is Director of Hanover Direct, Inc., Reliance
Standard Life Insurance Company and its affiliates,
Williams Real Estate Co.,Inc. and Norwab North
American Ltd. He is also a Director of Quandrant
Management, Inc. Term of Director will expire in
2000.
Richard Barasch is Marvin Barasch's nephew. Michael Barasch is
Marvin Barasch's son.
All of the Company's officers are elected annually. The Company's
Directors are elected for three-year staggered terms. All such officers and
directors hold office until their successors are duly elected and qualified.
7
<PAGE>
EXECUTIVE COMPENSATION, RELATED PARTY TRANSACTIONS AND OTHER INFORMATION
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors reviews and
approves the compensation of the Company's executive officers (including the
named executive officers listed in the management section below). The objective
of the Company's compensation program is to provide a total compensation package
that will enable the Company to attract, motivate and retain outstanding
individuals, to align the financial interests of such individuals with the
interests of the Company's shareholders and to reward such individuals for
increasing levels of profit and shareholder value. The Compensation Committee is
composed of three independent, non-employee members of the Board.
In conformance with this philosophy, the Committee establishes a
competitive and appropriate total compensation package for each executive
officer, consisting primarily of base salary, annual bonus, stock options and
restricted stock awards. These compensation components which comprise
Universal's Executive Compensation Program are designed to support the success
of the Company's performance, reward successful performance, align the executive
officers' interests with the success of the Company and encourage management's
stake in the long-term performance and success of the Company. Compensation
levels are reviewed annually by the Committee relative to other life insurance
companies and companies of similar size in the financial industry.
The Committee establishes base salaries each year at a level intended to
be within the competitive market range of comparable companies. Other factors
considered in determining base salary include the responsibilities of the
executive officer, experience, length of service and individual performance.
During fiscal year 1997, base salaries of the executive officer group increased
an average of 5.4%. The Committee believes that the base salaries of the current
executive officers are within or below the competitive market range of
comparable companies.
The Committee awards cash bonuses to the executive officers and the
criteria used to determine cash bonus levels include among other things,
operating profits, new business production and expenses relative to
pre-determined budgets. The executive officer group's fiscal year 1997 cash
bonus was 10.2% of the group's annual base salary.
An important component of the Company's Executive Compensation Program
is the award of stock options and restricted stock. The primary purpose of this
component is to assist the Company in aligning the interests of the executive
officers with the interests of the Company. The Committee feels this component
motivates the executive officers to remain focused on the overall long-term
performance of the Company. The award of a stock option creates no financial
benefit to the executive unless there is appreciation in the price of the
Company's stock after the award date. The financial benefit of an award of
restricted stock can not be realized by the executive officer until the
restriction can be lifted from the stock, generally a minimum of two years.
Total number of restricted stock and stock options awarded to the executive
officer group during fiscal year 1997 amounted to 28,000 and 75,000,
respectively, or 0.4% and 1.0%, respectively, of the average outstanding shares
of the Company during 1997.
The Compensation Committee
Mark Harmeling, Chairman
Stuart Becker
Walter Harris
8
<PAGE>
Performance Graph
The Performance Graph compares the Company's cumulative total
shareholder return on its Common Stock for the five year period between December
31, 1992 to December 31, 1997, with the cumulative total returns of The Nasdaq
Stock Market ("NSM") and the Nasdaq Insurance Stocks ("NIS"). The comparison for
each period assumes that $100 was invested on December 31, 1992 in each of the
Company's Common Stock, the stocks included in The Nasdaq Stock Market Total
Return Index and the stocks included in the Nasdaq Insurance Stocks Total Return
Index.
[OBJECT OMITTED]
(Intentionally left blank)
9
<PAGE>
MANAGEMENT
The following table sets forth aggregate compensation paid by the
Company and its subsidiaries for services rendered in all capacities to the
Company and its subsidiaries for the fiscal years ended December 31, 1997, 1996
and 1995 to the Company's Chief Executive Officer and the three most highly
compensated executive officers of the Company and its subsidiaries:
<TABLE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
---------------------------- ------------------------------------
Other Restricted Stock All Other
Annual
Name, Age and Year Salary Bonus Compensation Stock $ Options Compensation(2)
Principal Position (1)
- --------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Barasch 1997 $325,000 $30,000 $ - $27,500 25,000 $ 2,375
(44)
President & Chief 1996 312,000 5,000 - 14,000 40,000 2,350
Executive
Officer ("CEO") 1995 300,000 5,000 - 5,750 20,000 2,310
Gary W. Bryant (48) 1997 212,000 25,000 - 22,000 20,000 2,120
Senior Vice President 1996 203,000 3,000 - 7,000 30,000 2,030
of the
Company and President 1995 195,000 3,000 - 7,875 30,000 1,731
of American Pioneer
William E. Wehner (54) 1997 155,000 15,000 - 13,750 15,000 1,550
Exec. Vice President & 1996 140,000 3,000 - 7,000 30,000 1,400
Chief Operating 1995 132,000 5,000 - 15,750 10,000 1,155
Officer,
of American
Progressive
Robert A. Waegelein 1997 141,000 15,000 - 13,750 15,000 1,410
(37)
Sr. Vice President & 1996 135,500 3,000 - 7,000 30,000 1,355
Chief Financial
Officer 1995 130,000 3,000 - 7,875 10,000 1,322
</TABLE>
- --------------
(1) The executive officers were awarded shares of Restricted Stock of the
Company on various dates. These shares are shown at the fair market value of the
Company's Common Stock on the date of the award. (2) The amounts in this column
represent the value of common stock of the Company contributed by the Company
under the 401(k) plan to match contributions to the plan on behalf of the
executive officer.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options to
purchase Common Stock granted to the executive officers named in the Summary
Compensation Table during 1997:
% of Total
Options
Granted to Exercise
Options Employees Price Expiration
Name Granted # in 1997 ($/Share) Date
--------------------------------------------------------------
Richard A. Barasch 25,000 15.02% 3.03 12/9/97
Gary W. Bryant 20,000 12.01% 2.75 12/9/97
William E. Wehner 15,000 9.01% 2.75 12/9/97
Robert A. Waegelein 15,000 9.01% 2.75 12/9/97
10
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to options to
purchase Common Stock exercised by the executive officers named in the Summary
Compensation Table and the number and value of options held on December 31,
1997:
<TABLE>
Shares Number of Unexercised Value of Unexercised Options at
Acquired Value Options at Fiscal Fiscal Year-End( $)(2)
on Year-End
-------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
(#) ($)
- ----------------- --------------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Barasch 20,000 30,100(1) 130,000 25,000 136,930 -
Gary W. Bryant - - 105,000 20,000 128,670 1,260
William E.Wehner 20,000 32,500(1) 75,000 15,000 87,480 945
Robert A.Waegelein 20,000 32,500(1) 75,000 15,000 87,480 945
</TABLE>
- --------
(1) Based on a closing price of $2.875 for the Company's common stock on the
exercise date, December 16, 1997. (2) Calculated using the market price on
December 31, 1997 of $2.813 per share and exercise prices ranging between $1.44
and $3.33 for exercisable options and ranging between $2.75 and $3.03 for
unexercisable options.
Incentive Stock Option Plan
The Incentive Stock Option Plan (the "Incentive Stock Option Plan"),
which was approved by the shareholders in April, 1983 and amended in May, 1987,
June, 1989, June, 1994 and June, 1995, covers 1,000,000 shares of Common Stock
and is intended to provide an additional means of providing incentive to
executives and other "key salaried employees" of the Company (which is defined
under section 422A of the Internal Revenue Code as employees of the Company and
its subsidiaries).
Within the limits of the Incentive Stock Option Plan, the Company's
Board of Directors, in its discretion, determines the participants under the
Incentive Stock Option Plan, the number of options to be granted under the
Incentive Stock Option Plan and the purchase price and terms of each option. The
price for the shares covered by each option is required to be not less than 100%
of the fair market value at the date of grant. Options expire five years from
the date of grant or termination and become exercisable in installments as
determined by the Board of Directors commencing one year after date of grant.
During the year ended December 31, 1997, 166,500 Incentive Stock Options
were granted at exercise prices ranging between $2.00 and $3.03. Incentive Stock
Options to purchase 21,000 shares of Common Stock at exercise prices ranging
between $1.25 and $3.12 were canceled or expired. Incentive Stock Options to
purchase 95,000 shares of common stock were exercised at prices ranging between
$1.25 - $1.44. As of April 17, 1998, Incentive Stock Options to purchase 464,000
shares were exercisable, none of which have since been exercised.
401(k) Plan
The executives named in the Summary Compensation Table, as well as
substantially all full-time employees of the Company and its subsidiaries, are
eligible to participate in the Universal American Financial Corp. 401(k) Savings
Plan ("Savings Plan"). The Savings Plan is a voluntary contributory plan under
which employees may elect to defer compensation for federal income tax purposes
under Section 401(k) of the Internal Revenue Code of 1986. The employee is
entitled to participate in the Savings Plan by contributing through payroll
deductions up to 20% of the employee's compensation. The Company may match the
employee's contribution up to 50% of the first 4% of the employee's
compensation, which match will be made with Company common stock. The Company
elected to match 25% of the employee's contribution in 1997 and is matching at
50% in 1998.
11
<PAGE>
Certain Relationships and Related Transactions
The Company and Wand Partners, Inc., an affiliate of Wand, entered into
a financial advisory agreement, under which such Wand affiliate is to render
advisory services to the Company and is to be paid a fee of $100,000 per year
for such services as long as Wand owns 500,000 shares of Common Stock, or common
stock equivalent, reduced by any directors' fees paid to the director designated
by Wand.
The Company paid $120,000 to AAM Capital Partners, Inc., an affiliate of
UAFC, L.P., in fees for its structuring of the Series C Preferred Stock
offering.
Bertram Harnett, a director of the Company, is a shareholder in Harnett,
Lesnick & Ripps P.A. of Boca Raton, Florida, which was paid $269,870 in 1997 on
account of its legal services to, as well as reimbursement for disbursements
made on behalf of the Company.
PROPOSAL II
1998 INCENTIVE COMPENSATION PLAN
The Board of Directors of the Corporation has adopted, subject to
shareholder approval, the 1998 Incentive Compensation Plan (the "1998 ICP"). The
1998 ICP supersedes the Universal Holding Corp. Incentive Stock Option Plan, the
Universal American Financial Corp. Stock Option Plan For Directors, and the
Non-Qualified Stock Option Plan for Agents and Others (the "Preexisting Plans"),
although previously granted awards will remain outstanding in accordance with
their terms and the terms of the Preexisting Plans.
The Board of Directors believes that attracting and retaining key
employees is essential to the Corporation's growth and success. In addition, the
Board believes that the long term success of the Corporation is enhanced by a
competitive and comprehensive compensation program, which may include tailored
types of incentives designed to motivate and reward such persons for outstanding
service, including awards that link compensation to applicable measures of the
Corporation's performance and the creation of shareholder value. Such awards
will enable the Corporation to attract and retain key employees and enable such
persons to acquire and/or increase their proprietary interest in the Corporation
and thereby align their interests with the interests of the Corporation's
shareholders. In addition, the Board has concluded that the Compensation
Committee of the Board (the "Committee") should be given as much flexibility as
possible to provide for annual and long term incentive awards contingent on
performance.
The following is a brief description of the material features of the
1998 ICP. Such description is qualified in its entirety by reference to the full
text of the 1998 ICP, a copy of which is attached to this Proxy Statement as
Exhibit A.
Types of Awards
The 1998 ICP provides for grants of stock options, stock appreciation
rights ("SARs"), restricted stock, deferred stock, other stock-related awards,
and performance or annual incentive awards that may be settled in cash, stock,
or other property ("Awards").
<PAGE>
12
<PAGE>
Shares Subject to the 1998 ICP; Annual Per-Person Limitations
Under the 1998 ICP, the total number of shares of the Corporation's
Common Stock reserved and available for delivery to participants in connection
with Awards is (i) 1.5]million, plus (ii) the number of shares of Common Stock
subject to awards under Preexisting Plans that become available (generally due
to cancellation or forfeiture) after the effective date of the 1998 ICP, plus
(iii) 13% of the number of shares of Common Stock issued or delivered by the
Corporation during the term of the 1998 ICP (excluding any issuance or delivery
in connection with Awards, or any other compensation or benefit plan of the
Corporation, or in connection with this Offering); provided, however, that the
total number of shares of Common Stock with respect to which incentive stock
options ("ISOs") may be granted shall not exceed 1.5 million. Any shares of
Common Stock delivered under the 1998 ICP may consist of authorized and unissued
shares or treasury shares.
In addition, the 1998 ICP imposes individual limitations on the amount
of certain Awards in order to comply with Section 162(m) of the Internal Revenue
Code (the "Code"). Under these limitations, during any fiscal year the number of
options, SARs, shares of restricted stock, shares of deferred stock, shares of
Common Stock issued as a bonus or in lieu of other obligations, and other
stock-based Awards granted to any one participant shall not exceed one million
shares for each type of such Award, subject to adjustment in certain
circumstances. The maximum cash amount that may be earned as a final annual
incentive award or other annual cash Award in respect of any fiscal year by any
one participant is $5 million, and the maximum cash amount that may be earned as
a final performance award or other cash Award in respect of a performance period
other than an annual period by any one participant on an annualized basis is $5
million.
The Committee is authorized to adjust the number and kind of shares
subject to the aggregate share limitations and annual limitations under the 1998
ICP and subject to outstanding Awards (including adjustments to exercise prices
and number of shares of options and other affected terms of Awards) in the event
that a dividend or other distribution (whether in cash, shares, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event affects the Common Stock so that an
adjustment is appropriate. The Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or in response to changes in applicable laws, regulations, or accounting
principles.
Eligibility
Executive officers, directors, and other officers and employees of the
Corporation or any subsidiary, as well as other persons who provide services to
the Corporation or any subsidiary, shall be eligible to be granted Awards under
the 1998 ICP. It is anticipated that approximately 35 persons will be granted
Awards under the 1998 ICP.
Administration
The 1998 ICP will be administered by the Committee except to the extent
the Board elects to administer the 1998 ICP. Subject to the terms and conditions
of the 1998 ICP, the Committee is authorized to select participants, determine
the type and number of Awards to be granted and the number of shares of Common
Stock to which Awards will relate, specify times at which Awards will be
exercisable or settleable (including performance conditions that may be required
as a condition thereof), set other terms and conditions of such Awards,
prescribe forms of Award agreements, interpret and specify rules and regulations
relating to the 1998 ICP, and make all other determinations that may be
necessary or advisable for the administration of the 1998 ICP. The 1998 ICP
provides that Committee members shall not be personally liable, and shall be
fully indemnified, in connection with any action, determination, or
interpretation taken or made in good faith under the 1998 ICP.
13
<PAGE>
Stock Options and SARs
The Committee is authorized to grant stock options, including both ISOs
that can result in potentially favorable tax treatment to the participant and
non-qualified stock options (i.e, options not qualifying as ISOs), and SARs
entitling the participant to receive the excess of the fair market value of a
share of Common Stock on the date of exercise over the grant price of the SAR.
The exercise price per share subject to an option and the grant price of an SAR
is determined by the Committee, but must not be less than the fair market value
of a share of Common Stock on the date of grant (except to the extent of
in-the-money awards or cash obligations surrendered by the participant at the
time of grant). The maximum term of each option or SAR, the times at which each
option or SAR will be exercisable, and provisions requiring forfeiture of
unexercised options or SARs at or following termination of employment generally
is fixed by the Committee, except no option or SAR may have a term exceeding ten
years. Options may be exercised by payment of the exercise price in cash, Common
Stock, outstanding Awards, or other property (possibly including notes or
obligations to make payment on a deferred basis) having a fair market value
equal to the exercise price, as the Committee may determine from time to time.
Methods of exercise and settlement and other terms of the SARs are determined by
the Committee.
Restricted and Deferred Stock
The Committee is authorized to grant restricted stock and deferred
stock. Restricted stock is a grant of Common Stock which may not be sold or
disposed of, and which may be forfeited in the event of certain terminations of
employment and/or failure to meet certain performance requirements prior to the
end of a restricted period specified by the Committee. A participant granted
restricted stock generally has all of the rights of a shareholder of the
Corporation, including the right to vote the shares and to receive dividends
thereon, unless otherwise determined by the Committee. An Award of deferred
stock confers upon a participant the right to receive shares at the end of a
specified deferral period, subject to possible forfeiture of the Award in the
event of certain terminations of employment and/or failure to meet certain
performance requirements prior to the end of a specified restricted period
(which restricted period need not extend for the entire duration of the deferral
period). Prior to settlement, an Award of deferred stock carries no voting or
dividend rights or other rights associated with share ownership, although
dividend equivalents may be granted, as discussed below.
Dividend Equivalents
The Committee is authorized to grant dividend equivalents conferring on
participants the right to receive, currently or on a deferred basis, cash,
shares, other Awards, or other property equal in value to dividends paid on a
specific number of shares or other periodic payments. Dividend equivalents may
be granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred basis, and, if deferred, may be deemed to have
been reinvested in additional shares, Awards, or other investment vehicles
specified by the Committee.
Bonus Stock and Awards in Lieu of Cash Obligations
The Committee is authorized to grant shares as a bonus free of
restrictions, or to grant shares or other Awards in lieu of obligations to pay
cash under other plans or compensatory arrangements, subject to such terms as
the Committee may specify.
Other Stock-Based Awards
The 1998 ICP authorizes the Committee to grant Awards that are
denominated or payable in, valued by reference to, or otherwise based on or
related to shares. Such Awards might include convertible or exchangeable debt
securities, other rights convertible or exchangeable into shares, purchase
rights for shares, Awards with value and payment contingent upon performance of
the Corporation or any other factors designated by the Committee, and Awards
valued by reference to the book value of shares or the value of securities of or
the performance of specified subsidiaries. The Committee determines the terms
14
<PAGE>
and conditions of such Awards, including consideration to be paid to exercise
Awards in the nature of purchase rights, the period during which Awards will be
outstanding, and forfeiture conditions and restrictions on Awards.
Performance Awards, Including Annual Incentive Awards
The right of a participant to exercise or receive a grant or settlement
of an Award, and the timing thereof, may be subject to such performance
conditions as may be specified by the Committee. In addition, the 1998 ICP
authorizes specific annual incentive awards, which represent a conditional right
to receive cash, shares or other Awards upon achievement of preestablished
performance goals during a specified one-year period. Performance awards and
annual incentive awards granted to persons the Committee expects will, for the
year in which a deduction arises, be among the Chief Executive Officer and four
other most highly compensated executive officers (the "Named Executive
Officers"), will, if so intended by the Committee, be subject to provisions that
should qualify such Awards as "performance-based compensation" not subject to
the limitation on tax deductibility by the Corporation under Code Section
162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria. In the case of performance awards
intended to meet the requirements of Code Section 162(m), the business criteria
used must be one of those specified in the 1998 ICP, although for other
performance awards the Committee may specify any other criteria. The business
criteria specified in the 1998 ICP are: (1) earnings per share; (2) revenues;
increase in revenues; the excess of all or a portion of revenues over operating
expenses (which may exclude expenses determined by the Committee at the time
performance goals are established); (3) cash flow; (4) cash flow return on
investment; (5) return on net assets, return on assets, return on investment,
return on capital, return on equity; (6) economic value added; (7) operating
margin; (8) net income; pretax earnings; pretax earnings before interest,
depreciation, amortization and/or incentive compensation; pretax operating
earnings; operating earnings (with or without investment gains or losses); (9)
total shareholder return; (10) reduction in costs; (11) increase in the fair
market value of Common Stock; and (12) any of the above goals as compared to the
performance of a published or special index selected by the Committee, which
may, but need not, select the Standard & Poor's 500 Stock Index or a group of
comparator companies.
In granting annual incentive or performance awards, the Committee may
establish unfunded award "pools," the amounts of which will be based upon the
achievement of a performance goal or goals using one or more of the business
criteria described in the preceding paragraph. During the first 90 days of a
fiscal year or performance period, the Committee will determine who will
potentially receive annual incentive or performance awards for that fiscal year
or performance period, either out of the pool or otherwise. After the end of
each fiscal year or performance period, the Committee will determine the amount,
if any, of the pool, the maximum amount of potential annual incentive or
performance awards payable to each participant in the pool, and the amount of
any potential annual incentive or performance award otherwise payable to a
participant. The Committee may, in its discretion, determine that the amount
payable as a final annual incentive or performance award will be increased or
reduced from the amount of any potential Award, but may not exercise discretion
to increase any such amount intended to qualify under Code Section 162(m).
Subject to the requirements of the 1998 ICP, the Committee will
determine other performance award and annual incentive award terms, including
the required levels of performance with respect to the business criteria, the
corresponding amounts payable upon achievement of such levels of performance,
termination and forfeiture provisions, and the form of settlement.
15
<PAGE>
Non-Employee Director Options
Unless otherwise determined by the Board, each non-employee director
will be granted an option to purchase 4,500 shares of Common Stock upon approval
of the 1998 ICP by shareholders (or if later, his or her initial election to the
Board) and at each annual meeting of shareholders occurring three months or more
thereafter at which he or she qualifies as a non-employee director. Unless
otherwise determined by the Board, such options will have an exercise price
equal to 100% of the fair market value per share on the date of grant and will
become exercisable in three equal installments after each of the first, second
and third anniversaries of the date of grant based on continued service as a
director.
Other Terms of Awards
Awards may be settled in the form of cash, Common Stock, other Awards,
or other property, in the discretion of the Committee. The Committee may require
or permit participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest or dividend equivalents on deferred
amounts, and the crediting of earnings, gains, and losses based on deemed
investment of deferred amounts in specified investment vehicles. The Committee
is authorized to place cash, shares, or other property in trusts or make other
arrangements to provide for payment of the Corporation's obligations under the
1998 ICP. The Committee may condition any payment relating to an Award on the
withholding of taxes and may provide that a portion of any shares or other
property to be distributed will be withheld (or previously acquired shares or
other property surrendered by the participant) to satisfy withholding and other
tax obligations. Awards granted under the 1998 ICP generally may not be pledged
or otherwise encumbered and are not transferable except by will or by the laws
of descent and distribution, or to a designated beneficiary upon the
participant's death, except that the Committee may, in its discretion, permit
transfers for estate planning or other purposes.
Awards under the 1998 ICP are generally granted without a requirement
that the participant pay consideration in the form of cash or property for the
grant (as distinguished from the exercise), except to the extent required by
law. The Committee may, however, grant Awards in exchange for other Awards under
the 1998 ICP, awards under other plans of the Corporation, or other rights to
payment from the Corporation, and may grant Awards in addition to and in tandem
with such other Awards, awards, or rights as well.
Acceleration of Vesting
The Committee may, in its discretion, accelerate the exercisability, the
lapsing of restrictions, or the expiration of deferral or vesting periods of any
Award, and such accelerated exercisability, lapse, expiration and vesting shall
occur automatically in the case of a "change in control" of the Corporation
except to the extent otherwise determined by the Committee at the date of grant
or thereafter. In addition, the Committee may provide that the performance goals
relating to any performance-based award will be deemed to have been met upon the
occurrence of any change in control. Upon the occurrence of a change in control,
except to the extent otherwise determined by the Committee at the date of grant
or thereafter, options may at the election of the participant be cashed out
based on a defined "change in control price," which will be the higher of (i)
the cash and fair market value of property that is the highest price per share
of Common Stock paid (including extraordinary dividends) in any change in
control transaction or in any liquidation of shares of Common Stock following a
sale of substantially all of the assets of the Corporation, or (ii) the highest
fair market value per share of Common Stock (generally based on market prices)
at any time during the 60 days before and 60 days after a change in control.
"Change in control" is defined in the 1998 ICP to include a variety of events,
including significant changes in the stock ownership of the Corporation or a
significant subsidiary, changes in the Corporation's board of directors, certain
mergers and consolidations of the Corporation or a significant subsidiary, and
the sale or disposition of all or substantially all the consolidated assets of
the Corporation.
Amendment and Termination of the 1998 ICP
The Board of Directors may amend, alter, suspend, discontinue, or
terminate the 1998 ICP or the Committee's authority to grant Awards without
further shareholder approval, except shareholder approval must be obtained for
any amendment or alteration if required by law or regulation or under the rules
of any stock exchange or automated quotation system on which the shares are then
listed or quoted. Shareholder approval will not be deemed to be required under
laws or regulations, such as those relating to ISOs, that condition favorable
treatment of participants on such approval, although the Board may, in its
discretion, seek shareholder approval in any circumstance in which it deems such
approval advisable. Thus, shareholder approval will not necessarily be required
for amendments that might increase the cost of the 1998 ICP or broaden
eligibility. Unless earlier terminated by the Board, the 1998 ICP will terminate
16
<PAGE>
at such time as no shares remain available for issuance under the 1998 ICP and
the Corporation has no further rights or obligations with respect to outstanding
Awards under the 1998 ICP.
Federal Income Tax Implications of the 1998 ICP
The following is a brief description of the federal income tax
consequences generally arising with respect to Awards under the 1998 ICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Corporation. A participant will not recognize taxable income
upon exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and nonforfeitable shares acquired on
the date of exercise. Upon exercising an SAR, the participant must generally
recognize ordinary income equal to the cash or the fair market value of the
freely transferable and nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price, or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option or SAR).
The Corporation generally will be entitled to a tax deduction equal to
the amount recognized as ordinary income by the participant in connection with
an option or SAR. The Corporation generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Corporation will not be entitled to any tax deduction with respect to an ISO
if the participant holds the shares for the ISO holding periods prior to
disposition of the shares.
With respect to Awards granted under the 1998 ICP that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Corporation generally will be entitled
to a deduction in an amount equal to the ordinary income recognized by the
participant.
17
<PAGE>
With respect to Awards involving the issuance of shares or other
property that is restricted as to transferability and subject to a substantial
risk of forfeiture, the participant must generally recognize ordinary income
equal to the fair market value of the shares or other property received at the
first time the shares or other property becomes transferable or is not subject
to a substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather than
upon lapse of restrictions on transferability or substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days of the receipt of the shares or other property. The Corporation
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of
a change in control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Corporation and subject to a 20% excise tax by the
participant.
The Board of Directors recommends a vote FOR approval of the 1998
Incentive Compensation Plan.
ADDITIONAL INFORMATION
The Board of Directors does not intend to present to the meeting any
matters not referred to in the form of Proxy. If any proposal not set forth in
the Proxy Statement would be presented for action at the meeting, it is intended
that the shares represented by proxies will vote with respect to such matters in
accordance with the judgment of the persons voting them.
The Company's independent auditors for the fiscal year ended December
31, 1997 were Ernst & Young LLP. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
Stockholder proposals with respect to the Company's next Annual Meeting
of Stockholders must be received by the Company no later than February 1, 1999
to be considered for inclusion in the Company's next Proxy Statement.
The cost of soliciting proxies in the accompanying form has been or will
be paid by the Company. In addition to solicitation by mail, arrangements may be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to their principals, and the Company may reimburse them for
their expenses in so doing. To the extent necessary in order to assure
sufficient representation, officers and regular employees of the Company may
engage (without additional compensation) in the solicitation of proxies
personally, by telephone or telegram.
A copy of the Annual Report has been mailed to every stockholder as of
the Record Date. The Annual Report is not to be considered proxy soliciting
material.
By Order of the Board of Directors
JOAN M. FERRARONE
Secretary
Dated: April 27, 1998
Rye Brook, New York
<PAGE>
EXHIBIT A
UNIVERSAL AMERICAN FINANCIAL CORP.
1998 INCENTIVE COMPENSATION PLAN
- -------------------------------------------------------------------------------
1. Purpose. The purpose of this 1998 Incentive Compensation Plan (the
"Plan") is to assist Universal American Financial Corp. (the "Company") and its
subsidiaries in attracting, retaining, motivating, and rewarding high-quality
executives, employees, and other persons who provide services to the Company
and/or its subsidiaries, enabling such persons to acquire or increase a
proprietary interest in the Company and/or its subsidiaries in order to
strengthen the mutuality of interests between such persons and shareholders of
the Company and/or its subsidiaries, and providing such persons with annual and
long-term performance incentives to expend their maximum efforts in the creation
of shareholder value. The Plan is also intended to qualify certain compensation
awarded under the Plan for tax deductibility under Code Section 162(m) to the
extent deemed appropriate by the Committee (or any successor committee) of the
Board of Directors of the Company. Adoption of the Plan and the grant of Awards
in accordance with the terms of the Plan has been determined by the Board of
Directors of the Company to be in the best interests of the Company and its
shareholders.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means an Award granted to a
Participant which is conditioned upon satisfaction, during a period not
in excess of one year, of performance criteria established by the
Committee.
(b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of
another award, Dividend Equivalent, Other Stock-Based Award, Performance
Award or Annual Incentive Award, together with any other right or
interest granted to a Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the
benefits specified under the Plan upon such Participant's death or to
which Awards or other rights are transferred if and to the extent
permitted under Section 11(b) hereof. If, upon a Participant's death,
there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the Participant's estate.
(d) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act and any successor to such
Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with
related terms in Section 10 of the Plan.
(g) "Change in Control Price" means the amount calculated in
accordance with Section 10(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor
provisions and regulations thereto.
A-1
<PAGE>
(i) "Committee" means a committee of two or more directors
designated by the Board to administer the Plan; provided, however, that,
unless otherwise determined by the Board, the Committee shall consist
solely of two or more directors, each of whom shall be (i) a
"non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act, unless administration of the Plan by "non-employee
directors" is not then required in order for exemptions under Rule 16b-3
to apply to transactions under the Plan, and (ii) an "outside director"
as defined under Code Section 162(m), unless administration of the Plan
by "outside directors" is not then required in order to qualify for tax
deductibility under Code Section 162(m).
(j) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e) of the Plan.
(k) "Deferred Stock" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination
thereof at the end of a specified deferral period.
(l) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g), to receive cash, Stock, or other Awards equal in
value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
(m) "Effective Date" means June 1, 1998.
(n) "Eligible Person" means each Executive Officer or director of
the Company, other officers and employees of the Company or of any of
its subsidiaries, and other persons who provide services to the Company
or any of its subsidiaries. An employee on leave of absence may be
considered as still in the employ of the Company or a subsidiary for
purposes of eligibility for participation in the Plan. In addition, a
person who has been offered employment by the Company or any of its
subsidiaries or agreed to become a director of the Company is eligible
to be granted an Award under the Plan; provided, however, that such
Award shall be canceled if such person fails to commence such employment
or service as a director, and no payment of value may be made in
connection with such Award until such person has commenced such
employment or service.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(p) "Executive Officer" means an executive officer of the Company
as defined under the Exchange Act.
(q) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under
procedures established by the Committee. Unless otherwise determined by
the Committee, the Fair Market Value of Stock shall be equal to the
closing price per share reported on a consolidated basis on the
principal stock exchange upon which the Stock is traded on the date on
which the value is to be determined (or the last immediately preceding
date on which the Stock was traded).
(r) "Incentive Stock Option" or "ISO" means any Option intended
to be and designated as an incentive stock option within the meaning of
Code Section 422 or any successor provision thereto.
(s) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
A-2
<PAGE>
(t) "Non-Employee Director" means a director of the Company who
is not, at the time an Option is to be granted under Section 9(a) or
(b), an officer or employee of the Company or any of its subsidiaries.
(u) "Non-Employee Director Initial Option" or "Annual Option"
means an Option to purchase the number of shares of Stock specified in
or under Section 9(a) or (b), subject to adjustment as provided in
Section 11(c), granted to a Non-Employee Director.
(v) "Option" means a right, granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified
price during specified time periods.
(w) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(i) hereof.
(x) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(y) "Performance Award" means an Award granted to a Participant
which is conditioned upon satisfaction, during a period in excess of one
year but in no event more than ten years, of performance criteria
established by the Committee.
(z) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d)
thereof.
(aa) "Preexisting Plans" mean (i) the Universal Holding
Corp. 1983 Incentive Stock Option Plan, As Amended, (ii) the Universal
American Financial Corp. Stock Option Plan For Directors, and
(iii) the Non-Qualified Stock Option Plan for Agents and Others.
(bb) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(cc) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof that is subject to certain restrictions and to
a risk of forfeiture.
(dd) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(ee) "Stock" means the Company's Common Stock and such other
securities as may be substituted (or resubstituted) for Stock pursuant
to Section 11(c) hereof.
(ff) "Stock Appreciation Rights" or "SAR" means a right granted
to a Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by
the Committee except to the extent the Board elects to administer the
Plan, in which case references herein to the "Committee" shall be deemed
to include references to the "Board". The Committee shall have full and
final authority, in each case subject to and consistent with the
provisions of the Plan, to select Eligible Persons to become
A-3
<PAGE>
Participants, grant Awards, determine the type, number and other terms
and conditions of, and all other matters relating to, Awards, prescribe
Award agreements (which need not be identical for each Participant) and
rules and regulations for the administration of the Plan, construe and
interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other
decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. At any time that a
member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant
who is then subject to Section 16 of the Exchange Act in respect of the
Company, or relating to an Award intended by the Committee to qualify as
"performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder, may be taken either (i) by a
subcommittee, designated by the Committee, composed solely of two or
more Qualified Members, or (ii) by the Committee but with each such
member who is not a Qualified Member abstaining or recusing himself or
herself from such action; provided, however, that, upon such abstention
or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by
the Committee upon the abstention or recusal of such non-Qualified
Member(s), shall be the action of the Committee for purposes of the
Plan. Any action of the Committee shall be final, conclusive and binding
on all persons, including the Company, its affiliates, Participants,
Beneficiaries, transferees under Section 11(b) hereof or other persons
claiming rights from or through a Participant, and shareholders. The
express grant of any specific power to the Committee, and the taking of
any action by the Committee, shall not be construed as limiting any
power or authority of the Committee. The Committee may delegate to
officers or managers of the Company or any affiliate, or committees
thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative
functions, as the Committee may determine, to the extent that such
delegation will not result in the loss of an exemption under Rule
16b-3(d)(1) for Awards granted to Participants subject to Section 16 of
the Exchange Act in respect of the Company and will not cause Awards
intended to qualify as "performance-based compensation" under Code
Section 162(m) to fail to so qualify. The Committee may appoint agents
to assist it in administering the Plan.
(c) Limitation of Liability. The Committee and each member
thereof shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any executive officer,
other officer or employee of the Company or an affiliate, the Company's
independent auditors, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and any officer or
employee of the Company or an affiliate acting at the direction or on
behalf of the Committee shall not be personally liable for any action or
determination taken or made in good faith with respect to the Plan, and
shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action or
determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 11(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with
Awards under the Plan shall be (i) 1.5 million, plus (ii) 13% of the
number of shares of Stock issued or delivered by the Company during the
term of the Plan (excluding any issuance or delivery in connection with
Awards, or any other compensation or benefit plan of the Company), plus
(iii) the number of shares of Stock subject to awards under Preexisting
Plans that become available in accordance with Section 4(c) hereof after
the Effective Date; provided, however, that the total number of shares
of Stock with respect to which ISOs may be granted shall not exceed 1.5
million. Any shares of Stock delivered under the Plan shall consist of
authorized and unissued shares or treasury shares.
A-4
<PAGE>
(b) Application of Limitation to Grants of Awards. No Award may
be granted if the number of shares of Stock to be delivered in
connection with such Award or, in the case of an Award relating to
shares of Stock but settleable only in cash (such as cash-only SARs),
the number of shares to which such Award relates, exceeds the number of
shares of Stock remaining available under the Plan minus the number of
shares of Stock issuable in settlement of or relating to
then-outstanding Awards. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as,
for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs
from the number of shares previously counted in connection with an
Award.
(c) Availability of Shares Not Delivered under Awards. Shares of
Stock subject to an Award or award under the Plan or any Preexisting
Plan that is canceled, expired, forfeited, settled in cash or otherwise
terminated without a delivery of shares to the Participant, including
(i) the number of shares withheld in payment of any exercise or purchase
price of an Award or award or taxes relating to Awards or awards, and
(ii) the number of shares surrendered in payment of any exercise or
purchase price of an Award or award or taxes relating to any Award or
award, will again be available for Awards under the Plan, except that if
any such shares could not again be available for Awards to a particular
Participant under any applicable law or regulation, such shares shall be
available exclusively for Awards to Participants who are not subject to
such limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any
part of which the Plan is in effect, an Eligible Person may not be
granted Awards relating to more than 1 million shares of Stock, subject
to adjustment as provided in Section 11(c), under each of Sections 6(b),
6(c), 6(d), 6(e), 6(f), 6(g), 6(h), and 6(i). For purposes of applying
the foregoing limitation to Sections 6(b) and 6(c), any Option or SAR
that is canceled shall be treated as remaining outstanding, and any
amendment to an Option or SAR that reduces the exercise or grant price
(other than customary anti-dilution adjustments) shall be treated as the
cancellation of the original Option or SAR and the issuance of a new
Option or SAR. In addition, the maximum cash Award that may be earned
under the Plan pursuant to Section 6(h) in respect of any fiscal year
shall be $5 million, determined on an annualized basis in the case of a
Performance Award.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 11(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
determine, including terms requiring forfeiture of Awards in the event
of termination of employment by the Participant and terms permitting a
Participant to make elections relating to his or her Award. The
Committee shall retain full power and discretion to accelerate, waive or
modify, at any time, any term or condition of an Award that is not
mandatory under the Plan. Except in cases in which the Committee is
authorized to require other forms of consideration under the Plan, or to
the extent other forms of consideration must by paid to satisfy the
requirements of the New York Business Corporation Law, no consideration
other than services may be required for the grant (but not the exercise)
of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair
A-5
<PAGE>
Market Value of a share of Stock on the date of grant of such
Option except as provided under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which or the circumstances under
which an Option may be exercised in whole or in part (including
based on achievement of performance goals and/or future service
requirements), the methods by which such exercise price may be
paid or deemed to be paid, the form of such payment, including,
without limitation, cash, Stock, other Awards, or other property
(including notes or other contractual obligations of Participants
to make payment on a deferred basis), and the methods by or forms
in which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan
shall comply in all respects with the provisions of Code Section
422. Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to ISOs (including any SAR in tandem
therewith) shall be interpreted, amended or altered, nor shall
any discretion or authority granted under the Plan be exercised,
so as to disqualify either the Plan or any ISO under Code Section
422, unless the Participant has first requested the change that
will result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to
grant SARs to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the
Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise (or, in the case of a
"Limited SAR," the Fair Market Value determined by reference to
the Change in Control Price, as defined under Section 10(c)
hereof) over (B) the grant price of the SAR as determined by the
Committee, provided that such grant price shall not be less than
the Fair Market Value of a share of Stock on the date of grant of
such SAR except as provided under Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine at the
date of grant or thereafter, the time or times at which and the
circumstances under which a SAR may be exercised in whole or in
part (including based on achievement of performance goals and/or
future service requirements), the method of exercise, method of
settlement, form of consideration payable in settlement, method
by or forms in which Stock will be delivered or deemed to be
delivered to Participants, whether or not a SAR shall be in
tandem or in combination with any other Award, and any other
terms and conditions of any SAR. Limited SARs that may only be
exercised in connection with a Change in Control or other event
as specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may
determine. SARs and Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee may
impose, which restrictions may lapse separately or in combination
at such times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the
Committee may determine at the date of grant or thereafter.
A-6
<PAGE>
Except to the extent restricted under the terms of the Plan and
any Award agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights
of a shareholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any
mandatory reinvestment or other requirement imposed by the
Committee). During the restricted period applicable to the
Restricted Stock, subject to Section 11(b) below, the Restricted
Stock may not be sold, transferred, pledged, hypothecated,
margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
restriction period, Restricted Stock that is at that time subject
to restrictions shall be forfeited and reacquired by the issuing
company; provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Stock shall be waived in whole or in part
in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee
shall determine. If certificates representing Restricted Stock
are registered in the name of the Participant, the Committee may
require that such certificates bear an appropriate legend
referring to the terms, conditions and restrictions applicable to
such Restricted Stock, that the issuing company retain physical
possession of the certificates, and that the Participant deliver
a stock power to the issuing company, endorsed in blank, relating
to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of
an Award of Restricted Stock, the Committee may require that any
cash dividends paid on a share of Restricted Stock be
automatically reinvested in additional shares of Restricted Stock
or applied to the purchase of additional Awards under the Plan.
Unless otherwise determined by the Committee, Stock distributed
in connection with a Stock split or Stock dividend, and other
property distributed as a dividend shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period, subject
to the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of
Deferred Stock shall occur upon expiration of the deferral period
specified for such Deferred Stock by the Committee (or, if permitted
by the Committee, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions (which may
include a risk of forfeiture) as the Committee may impose, if any,
which restrictions may lapse at the expiration of the deferral period
or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or
in combination, in installments or otherwise, as the Committee may
determine. Deferred Stock may be satisfied by delivery of Stock, cash
equal to the Fair Market Value of the specified number of shares of
Stock covered by the Deferred Stock, or a combination thereof, as
determined by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
A-7
<PAGE>
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to deferral
(other than a deferral at the election of the Participant) shall be
forfeited; provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Deferred Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may
in other cases waive in whole or in part the forfeiture of Deferred
Stock.
(iii)Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified
number of shares of Stock covered by an Award of Deferred Stock shall
be either (A) paid with respect to such Deferred Stock at the
dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or
(B) deferred with respect to such Deferred Stock and the amount or
value thereof automatically deemed reinvested in additional Deferred
Stock, other Awards or other investment vehicles, as the Committee
shall determine or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations to pay cash or deliver other property under the Plan
or under other plans or compensatory arrangements, provided that, in the
case of Participants subject to Section 16 of the Exchange Act, the amount
of such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or
Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to
receive cash, Stock, or other Awards equal in value to dividends paid with
respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or
in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed
to have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee may specify.
(h) Annual Incentive and Performance Awards. The Committee is
authorized to make Annual Incentive Awards and Performance Awards payable
in cash, Stock, or other Awards, on terms and conditions established by
the Committee, subject to Section 8 in the event of Annual Incentive
Awards or Performance Awards intended to qualify as "performance-based
compensation" for purposes of Code Section 162(m).
(i) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part
by reference to, or otherwise based on, or related to, Stock, as deemed by
the Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company
or any other factors designated by the Committee, and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified affiliates. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(i) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other
A-8
<PAGE>
Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may also
be granted pursuant to this Section 6(i).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or any subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is
granted in substitution or exchange for another Award or award, the
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any subsidiary, in which the
value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Deferred Stock or Restricted Stock), or in
which the exercise price, grant price or purchase price of the Award in
the nature of a right that may be exercised is equal to the Fair Market
Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price
"discounted" by the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or such shorter
term as may be required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be
made by the Company or any subsidiary upon the exercise of an Option or
other Award or settlement of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, or
other Awards, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon the occurrence of
one or more specified events. Installment or deferred payments may be
required by the Committee to the extent necessary to qualify payments for
deductibility under Code Section 162(m), or permitted at the election of
the Participant on terms and conditions established by the Committee.
Payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or
the grant or crediting of Dividend Equivalents or other amounts in respect
of installment or deferred payments denominated in Stock. Any payments
mandatorily deferred by the Committee to qualify such payments for
deductibility under Code Section 162(m) shall include a reasonable rate of
interest.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company and its subsidiaries that the grant of any Awards to or other
transaction by a Participant who is subject to Section 16 of the Exchange
Act shall be exempt under Rule 16b-3 (except for transactions acknowledged
in writing to be non-exempt by such Participant). Accordingly, if any
provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to any such transaction,
such provision shall be construed or deemed amended to the extent
necessary to conform to the applicable requirements of Rule 16b-3 so that
such Participant shall avoid liability under Section 16(b).
(e) Loan Provisions. With the consent of the Committee, and subject
at all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
A-9
<PAGE>
provisions applicable to the Company and/or any subsidiary, the Company
and/or any subsidiary may make, guarantee or arrange for a loan or loans
to a Participant with respect to the exercise of any Option, purchase of
Stock or other payment in connection with any Award, including the payment
by a Participant of any or all federal, state or local income or other
taxes due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or
loans hereunder and to determine the amount, terms and provisions of any
such loan or loans, including the interest rate to be charged in respect
of any such loan or loans, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions;
provided, however, that all Performance Awards and Annual Incentive Awards
shall comply with the requirements of Sections 8(b) and 8(c) hereof unless
the Committee specifically determines at the time of grant that such Award
is not intended to qualify as "performance-based compensation" under Code
Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees.
Unless the Committee determines that a Performance Award is not intended
to qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance
Award shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and
a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this
Section 8(b). Performance goals shall be objective and shall
otherwise meet the requirements of Code Section 162(m) and
regulations thereunder (including Regulation 1.162-27 and successor
regulations thereto), including the requirement that the level or
levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain." The
Committee may determine that such Performance Awards shall be
granted, exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must be
achieved as a condition to grant, exercise and/or settlement of such
Performance Awards. Performance goals may differ for Performance
Awards granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or business units of the Company or any of its
subsidiaries (except with respect to the total shareholder return and
earnings per share criteria), shall be used by the Committee in
establishing performance goals for such Performance Awards: (1)
earnings per share; (2) revenues; increase in revenues; the excess of
all or a portion of revenues over operating expenses (excluding
expenses determined by the Committee at the time performance goals
are established); (3) cash flow; (4) cash flow return on investment;
(5) return on net assets, return on assets, return on investment,
return on capital, return on equity; (6) economic value added; (7)
operating margin; (8) net income; pretax earnings; pretax earnings
before interest, depreciation, amortization and/or incentive
compensation; pretax operating earnings; operating earnings (with or
without investment gains or losses); (9) total shareholder return;
(10) reduction in costs; (11) increase in the Fair Market Value of
Stock; and (12) any of the above goals as compared to the performance
A-10
<PAGE>
of a published or special index deemed applicable by the Committee
including, but not limited to, the Standard & Poor's 500 Stock Index
or a group of comparator companies. One or more of the foregoing
business criteria shall also be exclusively used in establishing
performance goals for Annual Incentive Awards granted to a Covered
Employee under Section 8(c) hereof.
(iii)Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of up
to ten years, as specified by the Committee. Performance goals shall
be established not later than 90 days after the beginning of any
performance period applicable to such Performance Awards, or at such
other date as may be required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes
of measuring performance of the Company, any subsidiary and/or any
business unit of the Company and/or any of its subsidiaries in
connection with Performance Awards. The amount of such Performance
Award pool shall be based upon the achievement of a performance goal
or goals based on one or more of the business criteria set forth in
Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii)
hereof. The Committee may specify the amount of the Performance Award
pool as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount which
need not bear a strictly mathematical relationship to such business
criteria, provided that the amount of the Performance Award pool can
be determined by an independent third party in possession of all the
relevant facts.
(v) Settlement of Performance Awards; Other Terms. Settlement
of such Performance Awards shall be in cash, Stock or other Awards,
in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee
in respect of a Performance Award subject to this Section 8(b). The
Committee shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a performance
period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees.
Unless the Committee determines that an Annual Incentive Award is not
intended to qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Company, any subsidiary
and/or any business unit of the Company and/or any of its
subsidiaries in connection with Annual Incentive Awards. The amount
of such Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 8(b)(ii) hereof during the
given performance period, as specified by the Committee in accordance
with Section 8(b)(iii) hereof. The Committee may specify the amount
of the Annual Incentive Award pool as a percentage of any of such
business criteria a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria, provided that
the amount of the Annual Incentive Award pool can be determined by an
independent third party in possession of all the relevant facts.
(ii) Potential Annual Incentive Awards. Not later than the end
of the 90th day of each fiscal year, or at such other date as may be
required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 8(c)(i) hereof or
A-11
<PAGE>
as individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 8(b)(ii) hereof in the
given performance year, as specified by the Committee; in other
cases, such amount shall be based on such criteria as shall be
established by the Committee.
(iii)Payout of Annual Incentive Awards. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A)
the Annual Incentive Award pool, and the maximum amount of potential
Annual Incentive Award payable to each Participant in the Annual
Incentive Award pool, or (B) the amount of potential Annual Incentive
Award otherwise payable to each Participant. The Committee may, in
its discretion, determine that the amount payable to any Participant
as a final Annual Incentive Award shall be increased or reduced from
the amount of his or her potential Annual Incentive Award, including
a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount in the case of an
Annual Incentive Award intended to qualify under Code Section 162(m).
The Committee shall specify the circumstances in which an Annual
Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a
fiscal year or settlement of such Annual Incentive Award. Settlement
of Annual Incentive Awards shall be in cash, Stock or other Awards,
in the discretion of the Committee.
(d) Written Determinations. All determinations by the Committee as to
the establishment of performance goals, the amount of any Performance
Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under
Section 8(b), and the amount of any Annual Incentive Award pool or
potential individual Annual Incentive Awards and the amount of final
Annual Incentive Awards under Section 8(c), shall be made in writing in
the case of any Award intended to qualify under Code Section 162(m). No
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m) shall be paid until the Committee has certified in writing
that the applicable performance goals have been achieved. The Committee
may not delegate any responsibility relating to such Performance Awards or
Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code Section
162(m). It is the intent of the Company and its subsidiaries that
Performance Awards and Annual Incentive Awards under Sections 8(b) and
8(c) hereof granted to persons who are likely to be Covered Employees
within the meaning of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations thereto) shall,
if so designated by the Committee, constitute "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e),
including the definitions of Covered Employee and other terms used
therein, shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing notwithstanding, because
the Committee cannot determine with certainty whether a given Participant
will be a Covered Employee with respect to a fiscal year that has not yet
been completed, the term Covered Employee as used herein shall mean any
Eligible Person who receives a Performance Award or an Annual Incentive
A-12
<PAGE>
Award unless the Committee determines, at the time of grant, that such
Award is not intended to qualify as "performance-based compensation" for
purposes of Code Section 162(m). If any provision of the Plan as in effect
on the date of adoption or any agreements relating to Performance Awards
or Annual Incentive Awards that are designated as intended to comply with
Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.
9. Options Granted Automatically to Non-Employee Directors.
(a) Initial Option Grants. A Non-Employee Director Initial Option
will be automatically granted (i) upon approval of the Plan by the
Company's shareholders to each Non-Employee Director at that date and
(ii), after approval of the Plan by the Company's shareholders, at the
effective date of any other director's initial election to the Board if he
or she qualifies as a Non-Employee Director at that date.
(b) Annual Option Grants. A Non-Employee Director Annual Option will
be automatically granted, at the close of business on the date of final
adjournment of each annual meeting of the Company's shareholders, to each
member of the Board who then qualifies as a Non-Employee Director. The
foregoing notwithstanding, any person who has been automatically granted a
Non-Employee Director Initial Option under Section 9(a) shall not be
automatically granted a Non-Employee Director Annual Option at the first
annual meeting of shareholders following such grant of the Initial Option
if such annual meeting takes place within three months after the effective
date of such grant of the Initial Option.
(c) Number of Shares Subject to Automatic Option Grants. Unless
otherwise determined by the Board in a resolution adopted on or prior to
the date of the annual meeting of the Company's shareholders that
coincides with or most recently precedes the date of grant of an Option to
a Non-Employee Director, the number of shares of Stock to be subject to
each Initial Option shall be 4,500, and the number of shares of Stock to
be subject to each Annual Option shall be 4,500, in each case subject to
adjustment as provided in Section 11(c).
(d) Other Non-Employee Director Initial and Annual Option Terms.
Unless otherwise determined by the Board, other terms of Initial and
Annual Options shall be as follows:
(i) The exercise price per share of Stock purchasable upon
exercise of a Non-Employee Director Initial or Annual Option will be
equal to 100% of the Fair Market Value of a share of Stock on the
date of grant of the Option.
(ii) A Non-Employee Director Initial or Annual Option will
expire at the earlier of (A) 10 years after the date of grant or (B)
three months after the date the Participant ceases to serve as a
director of the Company for any reason.
(iii)Each Non-Employee Director Initial or Annual Option will
become exercisable in three equal installments after each of the
first, second and third anniversaries of the date of grant.
(e) Method of Exercise. A Participant may exercise a Non-Employee
Director Initial or Annual Option, in whole or in part, at such time as it
is exercisable and prior to its expiration, by giving written notice of
exercise to the Secretary of the Company, specifying the Option to be
exercised and the number of shares to be purchased, and paying in full the
exercise price in cash (including by check) or by surrender of shares of
A-13
<PAGE>
Stock already owned by the Participant (except for shares acquired from
the Company by exercise of an option less than six months before the date
of surrender) having a Fair Market Value at the time of exercise equal to
the exercise price, or by a combination of cash and shares.
(f) Availability of Shares. If an automatic grant of Options
authorized under Section 9(a) or (b) cannot be made in full due to the
limitation set forth in Section 4(a), such grant shall be made (together
with other automatic grants to occur at the same time) to the greatest
extent then permitted under Section 4(a).
10. Change in Control.
(a) Effect of "Change in Control." In the event of a "Change in
Control," the following provisions shall apply unless otherwise provided
in the Award agreement:
(i) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and
vested as of the time of the Change in Control;
(ii) Any optionee who holds an Option shall be entitled to
elect, during the 60-day period immediately following a Change in
Control, in lieu of acquiring the shares of Stock covered by such
Option, to receive, and the Company shall be obligated to pay as soon
as practicable (including initially determinable payments and
thereafter any supplemental payments then due), in cash the excess of
the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option;
(iii)The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time of
the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in
Section 11(a) hereof; and
(iv) With respect to any outstanding Award subject to
achievement of performance goals and conditions under the Plan, such
performance goals and other conditions will be deemed to be met if
and to the extent so provided by the Committee in the Award agreement
relating to such Award.
(b) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company immediately prior to the occurrence with
respect to which the evaluation is being made in substantially the
same proportions as their ownership of the common stock of the
Company immediately prior to the occurrence with respect to which the
evaluation is being made) becomes the Beneficial Owner (except that a
Person shall be deemed to be the Beneficial Owner of all shares that
any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or
options or otherwise, without regard to the sixty day period referred
to in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company or any Significant Subsidiary (as defined
below), representing 30% or more of the combined voting power of the
Company's or such subsidiary's then outstanding securities;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
A-14
<PAGE>
entered into an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this paragraph) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the two-year period or whose election or nomination for
election was previously so approved but excluding for this purpose
any such new director whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of an individual, corporation,
partnership, group, associate or other entity or Person other than
the Board (the "Continuing Directors"), cease for any reason to
constitute at least a majority of the Board;
(iii)the consummation of a merger or consolidation of the
Company or any subsidiary owning directly or indirectly all or
substantially all of the consolidated assets of the Company (a
"Significant Subsidiary") with any other entity, other than a merger
or consolidation which would result in the voting securities of the
Company or a Significant Subsidiary outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or
resulting entity) more than 50% of the combined voting power of the
surviving or resulting entity outstanding immediately after such
merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or substantially all of
the consolidated assets of the Company (other than such a sale or
disposition immediately after which such assets will be owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company immediately prior to such sale or disposition)
in which case the Board shall determine the effective date of the
Change in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or
its ownership.
(c) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control or any liquidation of shares following a sale of
substantially all assets of the Company, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and 60-day
period following the Change in Control.
11. General Provisions.
(a) Compliance with Legal and Other Requirements. The Company may, to
the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the
Company are listed or quoted, or compliance with any other obligation of
the Company, as the Committee may consider appropriate, and may require
any Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or
payment of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations.
A-15
<PAGE>
(b) Limits on Transferability; Beneficiaries. No Award or other right
or interest of a Participant under the Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant
or his or her guardian or legal representative, except that Awards and
other rights (other than ISOs and SARs in tandem therewith) may be
transferred to one or more Beneficiaries or other transferees during the
lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent
such transfers are permitted by the Committee pursuant to the express
terms of an Award agreement (subject to any terms and conditions which the
Committee may impose thereon). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall
be subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the
Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may
be delivered in connection with Awards granted thereafter, (ii) the number
and kind of shares of Stock by which annual per-person Award limitations
are measured under Section 5 hereof, (iii) the number and kind of shares
of Stock subject to or deliverable in respect of outstanding Awards and
(iv) the exercise price, grant price or purchase price relating to any
Award and/or make provision for payment of cash or other property in
respect of any outstanding Award. In addition, the Committee is authorized
to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including Performance Awards and performance goals,
and Annual Incentive Awards and any Annual Incentive Award pool or
performance goals relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, events described in
the preceding sentence, as well as acquisitions and dispositions of
businesses and assets) affecting the Company, any subsidiary or any
business unit, or the financial statements of the Company or any
subsidiary or business unit, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if
and to the extent that such authority or the making of such adjustment
would cause Options, SARs, Performance Awards granted under Section 8(b)
hereof or Annual Incentive Awards granted under Section 8(c) hereof to
Participants designated by the Committee as Covered Employees and intended
to qualify as "performance-based compensation" under Code Section 162(m)
and regulations thereunder to otherwise fail to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder.
(d) Taxes. The Company and/or any subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under
the Plan, including from a distribution of Stock, or any payroll or other
payment to a Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award,
and to take such other action as the Committee may deem advisable to
enable the Company and/or any subsidiary and Participants to satisfy
A-16
<PAGE>
obligations for the payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include authority to withhold
or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of a Participant's tax obligations, either on a
mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's shareholders not later than the
annual meeting next following such Board action if such shareholder
approval is required by any federal or state law or regulation or the
rules of any stock exchange or automated quotation system on which the
Stock may then be listed or quoted, and the Board may otherwise, in its
discretion, determine to submit other such changes to the Plan to
shareholders for approval; provided that, without the consent of an
affected Participant, no such Board action may materially and adversely
affect the rights of such Participant under any previously granted and
outstanding Award. The Committee may waive any conditions or rights under,
or amend, alter, suspend, discontinue or terminate any Award theretofore
granted and any Award agreement relating thereto, except as otherwise
provided in the Plan; provided that, without the consent of an affected
Participant, no such Committee action may materially and adversely affect
the rights of such Participant under such Award. Notwithstanding anything
in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that
would, but for the right hereunder, be eligible for such accounting
treatment, the Committee may modify or adjust the right so that pooling of
interest accounting shall be available, including the substitution of
Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a subsidiary,
(ii) interfering in any way with the right of the Company or a subsidiary
to terminate any Eligible Person's or Participant's employment or service
at any time, (iii) giving an Eligible Person or Participant any claim to
be granted any Award under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a shareholder of the Company unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of
an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
or obligation to deliver Stock pursuant to an Award, nothing contained in
the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that the
Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet
the Company's obligations under the Plan. Such trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines with the consent of each
affected Participant. The trustee of such trusts may be authorized to
dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee may
specify and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of
the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and
awards which do not qualify under Code Section 162(m).
A-17
<PAGE>
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or
other consideration. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the New York Business Corporation Law,
without giving effect to principles of conflicts of laws, and applicable
federal law.
(k) Awards under Preexisting Plans. Upon approval of the Plan by the
Company's shareholders, no further awards shall be granted under the
Preexisting Plans.
(l) Plan Effective Date and Shareholder Approval. The Plan has been
adopted by the Board, effective June 1, 1998, subject to approval by the
shareholders of the Company.
