<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NUMBER 1 TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
________ to ________
Commission file number 1-13340
Mid Atlantic Medical Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1481661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Taft Court, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
(301) 294-5140
(Registrant's telephone number, including area code) Securities registered
pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ---------------------
Common Stock, $0.01 par value The New York Stock
per share. Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
[ ]
Aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity March 4, 1999:
Approximately $405 million.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
51,134,162 shares of common stock as of March 4, 1999
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the Registrant's annual meeting of shareholders to be
held on April 26, 1999 is incorporated by reference into Part III of this Form
10-K, as supplemented by supplement dated April 2, 1999.
<PAGE> 3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Consolidated Balance Sheets as of December 31, 1998 and 1997 ... 31
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 ............................. 32
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996 ......... 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ............................. 34
Notes to Consolidated Financial Statements ..................... 35
Report of Ernst & Young LLP Independent Auditors ............... 54
(a)(2) and (d)
INDEX TO FINANCIAL STATEMENT SCHEDULE PAGE
----
II - Valuation and Qualifying Accounts as of December 31,
1998, 1997 and 1996 ..................................... 58
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are not required under the related instructions or are inapplicable.
The page numbers listed above refer to the original Form 10-K filing.
<PAGE> 4
Mid Atlantic Medical Services, Inc.
Schedule II - Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at ------------------------------
Beginning Charged to Charged to Balance
of Costs Other Deductions- at End
Description Period and Expenses Accounts Write-Offs of Period
- ----------- ---------- ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS:
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts - accounts receivable
$ 3,638 $ $ 1,756(1) $ (28) $ 5,366
======== ======== ======== ======== ========
Valuation allowance - deferred tax assets
$ 128 $ $ 634 $ $ 762
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts - accounts receivable
$ 5,366 $ $ (93)(1) $ (93) $ 5,180
======== ======== ======== ======== ========
Valuation allowance - deferred tax assets
$ 762 $ $ 325 $ (25) $ 1,062
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts - accounts receivable
$ 5,180 $ 143 $ (309)(1) $ 200 $ 5,214
======== ======== ======== ======== =======
Valuation allowance - deferred tax assets
$ 1,062 $ 1,228 $ $ $ 2,290
======== ======== ======== ======== =======
</TABLE>
(1) The changes to the allowance were charged to premium revenue.
<PAGE> 5
(a)(3)
EXHIBITS
See the Exhibit Index on pages 7-9 of this Form 10-K/A.
(b)
REPORTS ON FORM 8-K
None.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, and
Rule 12b-15 under the Exchange Act, the registrant has caused this report to be
signed on its behalf by undersigned thereunto duly authorized.
MID ATLANTIC MEDICAL SERVICES, INC. ("MAMSI")
(Registrant)
By: /s/ Robert E. Foss 4/05/99
--------------------------------------------------
Robert E. Foss Date
Senior Executive Vice President and Chief Financial Officer and
Director
(Principal Financial Officer)
<PAGE> 7
(a)(3), (b) and (c) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
- ------- ----------------------- -------------------
<S> <C> <C>
3.1 Copy of Certificate of Incorporation of MAMSI dated
October 7, 1986..........................................................(1)
3.2 Copy of Certificate of Amendment of MAMSI Certificate of
Incorporation dated April 23, 1990.......................................(4)
3.3 Amended and Restated By-laws of MAMSI as of February 25, 1999............(14)
3.4 Copy of Certificate of Amendment of MAMSI Certificate of
Incorporation dated June 2, 1994.........................................(4)
10.5 Copy of Agreement between M.D. IPA and the United States
Secretary of Health and Human Services dated December 20, 1985...........(1)
10.20 Copy of Amendments to Agreement between M.D. IPA and the United
States Secretary of Health and Human Services dated December 24, 1987....(3)
10.26 1990 Non-Qualified Stock Option Plan.....................................(4)
10.27 Copy of 1990 Non-Qualified Stock Option Letter sent to Key Employees.....(4)
10.32 Copy of Contract between George T. Jochum and M.D. IPA for the period
January 1, 1991 through January 1, 1994..................................(4)
10.35 1991 Non-Qualified Stock Option Plan.....................................(4)
10.36 Copy of 1991 Non-Qualified Stock Option Letter sent to Key Employees.....(4)
10.41 Copy of Agreement between M.D. IPA and Surgical Care Affiliates, Inc.,
dated April 22, 1985.....................................................(4)
10.44 1992 Non-Qualified Stock Option Plan.....................................(4)
10.45 Copy of 1992 Non-Qualified Stock Option Letter sent to Key Employees.....(4)
10.48 Equipment Term Loan Agreement with Signet Bank dated March 25, 1991......(4)
10.50 Amendment to Revolving Loan Agreement with Signet Bank dated
June 19, 1991............................................................(4)
10.53 Amendments to the Stock Option Plans effective May 15, 1991..............(4)
10.54 Summary Plan Description of the Employees Cash or Deferred Profit
Sharing (401k) Plan dated October, 1991..................................(4)
10.55 Defined Benefit Plan Agreement with the Principal Financial Group which
was approved September 12, 1991..........................................(4)
10.57 Mortgage and Loan Agreement with Aid Association for Lutherans dated
October 4, 1990..........................................................(4)
10.60 1993 Non-Qualified Stock Option Plan.....................................(11)
10.61 1993 Non-Qualified Stock Option Letter Sent to Key Employees.............(11)
10.62 1992 Amendment to Employment Agreement Between George T. Jochum and
the Company..............................................................(11)
10.65 Agreement to Purchase 2301 Research Boulevard dated September 30, 1993...(2)
10.66 1994 Management Bonus Program............................................(3)
10.67 1994 Non-Qualified Stock Option Plan.....................................(3)
10.68 1994 Non-Qualified Stock Option Letter sent to Key Employees.............(3)
10.69 Revolving Loan Agreement with Signet Bank dated September 30, 1993.......(3)
10.71 Agreement between OCI and the State of Maryland governing the Medical
Assistance Program ("Medicaid") dated August 5, 1993.....................(3)
10.72 List of States in which MAMSI Life is Licensed to Operate................(3)
10.73 1995 Management Bonus Program............................................(4)
10.74 1995 Non-Qualified Stock Option Plan.....................................(4)
10.75 1995 Non-Qualified Stock Option Plan letter sent to Key Employees........(4)
10.76 Agreement between OCI and the Commonwealth of Virginia governing the
Medical Assistance Program ("Medicaid") dated May 27, 1994...............(4)
10.77 1995 Amendment to Employment Agreement between George T. Jochum and
the Company..............................................................(5)
10.78 1996 Management Bonus Program............................................(5)
10.79 1996 Non-Qualified Stock Option Plan.....................................(5)
10.80 Form of Agreement between MAMSI and Employees Granting Options
under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.81 Form of Agreement between MAMSI and George T. Jochum Granting Options
under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.82 Form of Agreement between MAMSI and Non-Employee Directors Granting
Options under the 1996 Non-Qualified Stock Option Plan...................(5)
10 Amended and Restated Compensation Trust Agreement dated
December 20, 1996........................................................(7)
10.1 Amended and Restated Common Stock Purchase Agreement dated
December 20, 1996........................................................(7)
10.2 Replacement Promissory Note dated December 20, 1996......................(7)
10.83 1997 Management Bonus Program............................................(8)
<PAGE> 8
10.84 Form of Non-Qualified Stock Option Agreement for Options Granted
under 1991, 1992, 1993, 1994 and 1995 Non-Qualified Stock Option Plan....(9)
10.85 Agreement of Purchase of Real Property by Mid-Atlantic
Medical Services, Inc....................................................(10)
10.86 1997 Amendment to Employment Agreement between George T. Jochum
and the Company..........................................................(11)
10.87 1998 Non-Qualified Stock Option Plan.....................................(11)
10.88 1998 Senior Management Bonus Plan........................................(11)
10.89 1998 Management Bonus Plan...............................................(11)
10.90 Amendment to 1994 Non-Qualified Stock Option Plan........................(11)
10.91 Amendment to 1995 Non-Qualified Stock Option Plan........................(11)
10.92 Amendment to 1996 Non-Qualified Stock Option Plan........................(11)
10.93 1999 Employment Agreement Between George T. Jochum and the Company.......(11)
10.94 Form of Agreement between MAMSI and Employees Granting Options
under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.95 Form of Agreement between MAMSI and George T. Jochum Granting Options
under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.96 Form of Agreement between MAMSI and Non-Employee Directors Granting
Options under the 1998 Non-Qualified Stock Option Plan...................(12)
10.97 Memorandum to Employees and Form for Election Of Exchange
and Repricing of Stock Options...........................................(12)
10.98 Agreement of Purchase and Sale of Real Estate............................(13)
10.981 1999 Non-Qualified Stock Option Plan-as Revised..........................
10.982 1999 Senior Management Bonus Plan........................................(14)
10.983 1999 Management Bonus Plan...............................................(14)
10.984 Amended and Restated Stock Compensation Trust Agreement
dated January 11, 1999...................................................(14)
10.985 Common Stock Purchase Agreement dated January 11, 1999...................(14)
10.986 Allonge to Replacement Promissory Note dated January 11, 1999............(14)
10.987 Employment Agreement between the Company and Mark D. Groban..............(14)
10.988 Employment Agreement between the Company and Thomas P. Barbera...........(14)
10.989 Employment Agreement between the Company and Robert E. Foss..............(14)
10.990 Form of Executive Employment Agreement between the Company
and Executive Staff......................................................(14)
10.991 Form of Agreement between MAMSI and Employees Granting Options
under the 1999 Non-Qualified Stock Option Plan...........................(14)
10.992 Form of Agreement between MAMSI and Non-Employee Directors Granting
Options under the 1999 Non-Qualified Stock Option Plan-as Revised........
21 Subsidiaries of the Company..............................................(14)
23 Consent of Independent Auditors..........................................(14)
27 Financial Data Schedule..................................................(14)
</TABLE>
(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement filed under the Securities Act of 1933 on Form S-4 (Registration No.
33-9803).
(2) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act of 1934 on Form 10-Q for the
Quarterly Period Ended September 30, 1993.
(3) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1993.
(4) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1994.
(5) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q for the Quarterly
Period Ended March 31, 1995.
(6) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1995.
(7) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q/A for the Quarterly
Period Ended September 31, 1996.
(8) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1996.
<PAGE> 9
(9) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q for the Quarterly
Period Ended March 31, 1997.
(10) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q for the Quarterly
Period Ended June 30, 1997.
(11) Incorporated by reference to exhibits filed with the Company's Annual
Report filed under the Securities Exchange Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1997.
(12) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q for the quarterly
Period March 31, 1998.
(13) Incorporated by reference to exhibits filed with the Company's Quarterly
Report filed under the Securities Exchange Act on Form 10-Q for the Quarterly
Period Ended September 30, 1998.
(14) Previously filed.
MID ATLANTIC MEDICAL SERVICES, INC.
1999 NON-QUALIFIED STOCK OPTION PLAN
Article I. Purpose, Adoption and Term of the Plan
1.01 Purpose. The purpose of the Mid Atlantic Medical Services, Inc.
1999 Non-Qualified Stock Option Plan (hereinafter referred to as the "Plan") is
to advance the interests of the Company (as hereinafter defined) and its
Subsidiaries (as hereinafter defined) by encouraging and providing for the
acquisition of an equity interest in the Company by non-employee directors,
officers and key employees through the grant of options to purchase Common Stock
(as hereinafter defined). The Plan will enable the Company to retain the
services of non-employee directors, officers and key employees upon whose
judgment, interest, and special effort the successful conduct of its operations
is largely dependent and to compete effectively with other enterprises for the
services of non-employee directors, officers and key employees as may be needed
for the continued improvement of its business.
1.02 Adoption and Term. The Plan shall become effective on May 3, 1999,
subject to the prior approval of a simple majority of the holders of Common
Stock represented, by person or by proxy, and entitled to vote at an annual or
special meeting of the holders of Common Stock. The Plan shall terminate on May
2, 2004, or such earlier date as shall be determined by the Board (as
hereinafter defined); provided, however, that, in the event the Plan is not
approved by a simple majority of the holders of Common Stock represented, by
person or by proxy, and entitled to vote at an annual or special meeting at or
before the Company's 1999 annual meeting of holders of Common Stock, the Plan
shall terminate on such date and any Options (as hereinafter defined) made under
the Plan prior to such date shall be void and of no force and effect.
Article II. Definitions
For purposes of the Plan, capitalized terms shall have the following
meanings:
2.01 "Beneficiary" means an individual, trust or estate who or that, by
will or the laws of descent and distribution, succeeds to the rights and
obligations of the Participant under the Plan and an Option Agreement upon the
Participant's death.
2.02 "Board" means the Board of Directors of the Company.
2.03 "Cause" means, with respect to a Participant who is a Non-Employee
Director, removal as a director by the holders of Common Stock or by the Board
for cause; provided, however, that, if a Non-Employee Director is not a director
of the Company, removal as a director by the holders of common stock of any
Subsidiary on whose Board of Directors he or she serves or by such Board of
Directors for cause.
2.04 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto. References to a section of the Code
shall include that section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes said section.
2.05 "Committee" means a committee of the Board as may be appointed,
from time to time, by the Board.
(a) The Board may appoint more than one Committee to
administer the Plan. If it appoints more than one Committee, one Committee (the
"Stock Option Committee") shall have the authority to grant Options to a
Participant who is either, at the Date of Grant of the Option, a "covered
employee" as defined in Section 162(m) or who is subject to Section 16 of the
Exchange Act; however, such Committee shall also have the authority to grant
Options to other Participants. The Stock Option Committee shall be composed of
at least two directors of the Company, each of whom is a "non-employee director"
as defined in Rule 16b-3 and an "outside director" within the meaning of Section
162(m). If, however, at least two of the Company's directors are not both
"non-employee directors" and "outside directors," the Board may grant Options to
a Participant who is either a "covered employee" or subject to Section 16 of the
Exchange Act, in which case the Board may also administer the Plan and the term
"Committee" as used herein shall also include the Board. The other Committee
(the "Select Committee") shall be composed of at least one director, who may be
an officer of the Company. The Select Committee shall have authority to grant
Options to a Participant who is not, at the Date of Grant of the Option, either
a "covered employee" as defined in Section 162(m) or subject to Section 16 of
the Exchange Act.
(b) The Board may, from time to time, appoint members of each
Committee in substitution for those members who were previously appointed and
may fill vacancies, however caused, in the Committee.
(c) The Stock Option Committee and the Select Committee shall
each have the power and authority to administer the Plan in accordance with
Article III with respect to particular classes of Participants (as specified in
Section 2.05(a)) and, when used herein, the term "Committee" shall mean either
the Stock Option Committee or the Select Committee if the Board appoints more
than one Committee to administer the Plan. If, however, there is a conflict
between the determinations made by the Stock Option Committee and the Select
Committee, the determinations made by the Stock Option Committee shall control.
2.06 "Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
2.07 "Company" means Mid Atlantic Medical Services, Inc., a corporation
organized under the laws of the State of Delaware, and its successors.
2.08 "Date of Grant" means the date designated by the Committee as the
date as of which it grants an Option, which shall not be earlier than the date
on which the Committee approves the granting of such Option.
2.09 "Disability" has the meaning specified in Section 22(e)(3) of the
Code.
2.10 "Disability Date" means the date as of which an Employee
Participant is determined by the Committee to have a Disability.
2.11 "Employee Participant" means a Participant who is not a
Non-Employee Director.
2.12 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.14 "Fair Market Value" of a share of Common Stock means, as of any
given date, the closing sales price of a share of Common Stock on such date on
the principal national securities exchange on which the Common Stock is then
traded or, if the Common Stock is not then traded on a national securities
exchange, the closing sales price or, if none, the average of the bid and asked
prices of the Common Stock on such date as reported on the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"); provided, however,
that, if there were no sales reported as of such date, Fair Market Value shall
be computed as of the last date preceding such date on which a sale was
reported; provided, further, that, if any such exchange or quotation system is
closed on any day on which Fair Market Value is to be determined, Fair Market
Value shall be determined as of the first date immediately preceding such date
on which such exchange or quotation system was open for trading. In the event
the Common Stock is not admitted to trade on a securities exchange or quoted on
Nasdaq, the Fair Market Value of a share of Common Stock as of any given date
shall be as determined in good faith by the Committee, in its sole and absolute
discretion, which determination may be based on, among other things, the opinion
of one or more independent and reputable appraisers qualified to value companies
in the Company's line of business. Notwithstanding the foregoing, the Fair
Market Value of a share of Common Stock shall never be less than par value per
share.
2.15 "Non-Employee Director" means each member of the Board or of the
Board of Directors of Physicians Health Plan of Maryland, Inc., in each case who
is not an employee of the Company or of any of its Subsidiaries; provided,
however, that Francis C.
Bruno shall be considered to be a Non-Employee Director.
2.16 "Non-Employee Director Option" means an Option granted in
accordance with Article VII.
2.17 "Option Agreement" means a written agreement between the Company
and a Participant specifically setting forth the terms and conditions of an
Option granted to a Participant under the Plan.
2.18 "Option" means any option to purchase Common Stock granted to an
Employee Participant pursuant to Articles V and VI or to a Non-Employee Director
pursuant to Article VII. All Options granted under the Plan shall be Options
that do not qualify as incentive stock options under Section 422 of the Code.
2.19 "Participant" means any employee of the Company or any of its
Subsidiaries selected by the Committee to receive an Option under the Plan in
accordance with Articles V and VI and, solely to the extent provided in Article
VII, any Non-Employee Director.
2.20 "Plan" means the Mid Atlantic Medical Services, Inc. 1999
Non-Qualified Stock Option Plan as set forth herein, and
as the same may be amended from time to time.
2.21 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under
Section 16 of the Exchange Act and any successor rule.
2.22 "SEC" means the Securities and Exchange Commission.
2.23 "Section 162(m)" means Section 162(m) of the Code and the
regulations thereunder.
2.24 "Subsidiary" means a company more than 50% of the equity
interests of which are beneficially owned, directly or
indirectly, by the Company.
2.25 "Termination of Employment" means, with respect to an Employee
Participant, the voluntary or involuntary termination of a Participant's
employment with the Company or any of its Subsidiaries for any reason,
including, without limitation, death, Disability, retirement or as the result of
the sale or other divestiture of the Participant's employer or any similar
transaction in which the Participant's employer ceases to be the Company or one
of its Subsidiaries. Whether entering military or other government service shall
constitute Termination of Employment, and whether a Termination of Employment is
a result of Disability, shall be determined in each case by the Committee in its
sole and absolute discretion.
Article III. Administration
3.01 Committee. The Plan shall be administered by the Committee, which
shall have exclusive and final authority in each determination, interpretation,
or other action affecting the Plan and its Participants. The Committee shall
have the sole and absolute discretion to interpret the Plan, to establish and
modify administrative rules for the Plan, to select the officers and other key
employees to whom Options may be granted, to determine the terms and provisions
of the respective Option Agreements (which need not be identical), to determine
all claims for benefits under the Plan, to impose such conditions and
restrictions on Options as it determines appropriate, to determine whether the
shares delivered on exercise of Options will be treasury shares or will be
authorized but previously unissued shares, and to take such steps in connection
with the Plan and Options granted hereunder as it may deem necessary or
advisable. No action of the Committee will be effective if it contravenes or
amends the Plan in any respect.
3.02 Actions of the Committee. Except when the "Committee" is the
"Board" in the circumstance described in the fourth sentence of Section 2.05(a),
all determinations of the Committee shall be made by a majority vote of its
members. A majority of a Committee's members shall constitute a quorum. Any
decision or determination reduced to writing and signed by all of the members
shall be fully as effective as if it had been made by a majority vote at a
meeting duly called and held. The Committee shall also have express
authorization to hold Committee meetings by conference telephone, or similar
communication equipment by means of which all persons participating in the
meeting can hear each other.
Article IV. Shares of Common Stock
4.01 Number of Shares of Common Stock Issuable. Subject to adjustments
as provided in Section 8.05, 1,500,000 shares of Common Stock shall be available
for Options under the Plan. Any and all of such shares may be issued pursuant to
Options granted to Employee Participants or to Non-Employee Directors. The
Common Stock to be offered under the Plan shall be authorized and unissued
Common Stock, or issued Common Stock that shall have been reacquired by the
Company and held in its treasury.
4.02 Number of Shares of Common Stock Awarded to any Participant. In
the event the purchase price of an Option is paid, or related tax or withholding
payments are satisfied, in whole or in part through the delivery of shares of
Common Stock issuable in connection with the exercise of the Option, a
Participant will be deemed to have received an Option with respect to those
shares of Common Stock.
4.03 Shares of Common Stock Subject to Terminated Options. The Common
Stock covered by any unexercised portions of terminated Options may again be
subject to new Options under the Plan.
Article V. Participation
5.01 Eligible Participants. Employee Participants in the Plan shall be
such officers and other key employees of the Company or its Subsidiaries,
whether or not directors of the Company, as the Committee, in its sole and
absolute discretion, may designate from time to time. In making such
designation, the Committee may take into account the nature of the services
rendered by the officers and key employees, their present and potential
contributions to the success of the Company, and such other factors as the
Committee, in its sole and absolute discretion, may deem relevant. The
Committee's designation of an Employee Participant in any year shall not require
the Committee to designate such person to receive Options in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
Employee Participants and in determining the type and amount of their respective
Options. A Participant may hold more than one Option granted under the Plan.
During the term of the Plan, no Employee Participant may receive Options to
purchase more than one million shares of Common Stock under the Plan.
Non-Employee Directors shall receive Non-Employee Director Options in
accordance with Article VII, the provisions of which are automatic and
non-discretionary in operation. Non-Employee Directors shall not be eligible to
receive any other Options under the Plan unless they are no longer Non-Employee
Directors on the Date of Grant of such Options.
Article VI. Stock Options
6.01 Grant of Option. Any Option granted under the Plan shall have such
terms as the Committee may, from time to time, approve, and the terms and
conditions of Options need not be the same with respect to each Participant.
6.02 Terms of Options. Options granted under the Plan shall be subject
to the following terms and conditions and shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under an Option shall be determined by the Committee at the time of
grant but shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the Date of Grant; provided, however, that, except as required
by Rule 16b-3 with respect to Options granted to persons subject to Section 16
of the Exchange Act, no amendment of an Option shall be deemed to be the grant
of a new Option for purposes of this Section 6.02(a). Notwithstanding the
foregoing, the option price per share of Common Stock of an Option shall never
be less than par value per share.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than five years after the
Date of Grant.
(c) Exercisability. An Option Agreement with respect to
Options may contain such performance targets, waiting periods, exercise dates
and restrictions on exercise (including, but not limited to, a requirement that
an Option is exercisable in periodic installments), and restrictions on transfer
of the underlying shares of Common Stock, if any, as may be determined by the
Committee at the time of grant. To the extent not exercised, installments shall
cumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, subject to the limitations set forth in Sections 6.02(b), (f) and
(g).
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions that apply under Section 6.02(c) above,
Options may be exercised in whole or in part at any time during the term of the
Option, by giving written notice of exercise to the Company specifying the
number of shares of Common Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price in such form as the
Committee may accept (including payment in accordance with a cashless exercise
program approved by the Committee). If and to the extent the Committee
determines in its sole and absolute discretion at or after grant, payment in
full or in part may also be made in the form of shares of Common Stock already
owned by the Participant (and for which the Participant has good title, free and
clear of any liens or encumbrances) based on the Fair Market Value of the shares
of Common Stock on the date the Option is exercised; provided, however, that any
already owned Common Stock used for payment must have been held by the
Participant for at least six months. No Common Stock shall be issued on exercise
of an Option until payment, as provided herein, therefor has been made. A
Participant shall generally have the right to dividends or other rights of a
stockholder with respect to Common Stock subject to the Option only when
certificates for shares of Common Stock are issued to the Participant.
(e) Non-Transferability of Options. No Option shall be
transferable by the Participant otherwise than by will, by the laws of descent
and distribution, or pursuant at a qualified domestic relations order as defined
by the Code, Title I of ERISA or the rules thereunder.
(f) Acceleration or Extension of Exercise Time. The Committee,
in its sole and absolute discretion, shall have the right (but shall not in any
case be obligated) to permit purchase of Common Stock subject to any Option
granted to an Employee Participant prior to the time such Option would otherwise
become exercisable under the terms of the Option Agreement. In addition, the
Committee, in its sole and absolute discretion, shall have the right (but shall
not in any case be obligated) to permit any Option granted to an Employee
Participant to be exercised after its expiration date, subject, however to the
limitation set forth in Section 6.02(b).
(g) Exercise of Options Upon Termination of Employment. The
following provisions apply to Options granted to Employee Participants:
(i) Exercise of Vested Options Upon Termination of Employment.
(A) Termination. Unless the Committee, in its sole and absolute
discretion, provides for a shorter or longer period of time in the
Option Agreement or a longer period of time in accordance with Section
6.02(f), upon an Employee Participant's Termination of Employment
other than by reason of death or Disability, the Employee Participant
may, within three months from the date of such Termination of
Employment, exercise all or any part of his or her Options as were
exercisable at the date of Termination of Employment. In no event,
however, may any Option be exercised later than the date determined
pursuant to Section 6.02(b).
(B) Disability. Unless the Committee, in its sole and absolute
discretion, provides for a shorter or longer period of time in the
Option Agreement or a longer period of time in accordance with Section
6.02(f), upon an Employee Participant's Disability Date, the Employee
Participant may, within one year after the Disability Date, exercise
all or a part of his or her Options, whether or not such Option was
exercisable on the Disability Date, but only to the extent not
previously exercised. In no event, however, may any Option be
exercised later than the date determined pursuant to Section 6.02(b).
(C) Death. Unless the Committee, in its sole and absolute
discretion, provides for a shorter or longer period of time in the
Option Agreement or a longer period of time in accordance with Section
6.02(f), in the event of the death of an Employee Participant while
employed by the Company or a Subsidiary, the right of the Employee
Participant's Beneficiary to exercise the Option in full (whether or
not all or any part of the Option was exercisable as of the date of
death of the Employee Participant, but only to the extent not
previously exercised) shall expire upon the expiration of one year
from the date of the Employee Participant's death or on the date of
expiration of the Option determined pursuant to Section 6.02(b),
whichever is earlier.
(ii) Expiration of Unvested Options Upon
Termination of Employment. Subject to
Sections 6.02(f) and 6.02(g)(i)(B) and (C),
to the extent all or any part of an Option
granted to an Employee Participant was not
exercisable as of the date of Termination of
Employment, such right shall expire at the
date of such Termination of Employment.
Notwithstanding the foregoing, the
Committee, in its sole and absolute
discretion and under such terms as it deems
appropriate, may permit an Employee
Participant to continue to accrue service
with respect to the right to exercise his or
her Options.
Article VII. Non-Employee Director Options
7.01 Grant of Non-Employee Director Options; Exercise Price; Term. On
May 3, 1999, each person who is a Non-Employee Director on such date shall be
granted a Non-Employee Director Option to purchase the number of shares of
Common Stock determined in accordance with Section 7.02. A Non-Employee Director
shall only receive one Non-Employee Director Option on May 3, 1999, even if he
or she serves as a Non-Employee Director of the Company and/or of one or more of
its Subsidiaries.
The exercise price per share for Non-Employee Director Options shall be
the Fair Market Value of a share of Common Stock on the Date of Grant. All
Non-Employee Director Options shall have a five-year term.
7.02 Number of Shares. Each Non-Employee Director Option shall entitle
the holder to purchase 5,000 shares of Common Stock; provided, however, that, if
a Non-Employee Director is not a Non-Employee Director of the Company on the
Date of Grant of the Option, his or her Non-Employee Director Option shall only
entitle him or her to purchase 3,000 shares of Common Stock.
7.03 Exercisability. Each Non-Employee Director Option shall be
exercisable in full on the Date of Grant.
7.04 Termination. If a Non-Employee Director's service with the Company
terminates for any reason or if such person ceases to be a Non-Employee
Director, such Option may be exercised until the expiration of the stated term
of the Option. Accordingly, if a Non-Employee Director ceases to serve for any
reason, he or she may continue to exercise his or her Non-Employee Director
Option until the expiration of the stated term of such Option, but only to the
extent it was not previously exercised.
7.05 Other Plan Provisions. All applicable provisions of the Plan
(other than Sections 6.02(f) and (g)) not inconsistent with this Article VII
shall apply to Options granted to Non-Employee Directors.
Article VIII. Terms Applicable to All Options Granted Under the Plan
8.01 Plan Provisions Control Option Terms. The terms of the Plan shall
govern all Options granted under the Plan, and in no event shall the Committee
have the power to grant to a Participant any Option under the Plan that is
contrary to any provisions of the Plan. In the event any provision of any Option
granted under the Plan shall conflict with any of the terms in the Plan as
constituted on the Date of Grant of such Option, the terms in the Plan as
constituted on the Date of Grant of such Option shall control.
8.02 Option Agreement. No person shall have any rights under any Option
granted under the Plan unless and until the Company and the Participant to whom
such Option shall have been granted shall have executed and delivered an Option
Agreement authorized by the Committee expressly granting the Option to such
person and containing provisions setting forth the terms of the Option. If there
is any conflict between the provisions of an Option Agreement and the terms of
the Plan, the terms of the Plan shall control.
8.03 Modification of Option After Grant. Except as provided by the
Committee, in its sole and absolute discretion, in the Option Agreement or as
provided in Section 8.05, no Option granted under the Plan to a Participant may
be modified (unless such modification does not materially decrease the value of
the Option) after the Date of Grant except by express written agreement between
the Company and the Participant, provided that any such change (a) shall not be
inconsistent with the terms of the Plan, and (b) shall be approved by the
Committee.
8.04 Taxes. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any Common Stock issuable
under such Participant's Option, and the Company may defer issuance of Common
Stock upon the grant or exercise of an Option unless indemnified to its
satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee or its delegate
and shall be payable by the Participant at such time as the Committee
determines. A Participant shall be permitted to satisfy his or her tax or
withholding obligation by (a) having cash withheld from the Participant's salary
or other compensation payable by the Company or a Subsidiary, (b) the payment of
cash by the Participant to the Company, (c) the payment in shares of Common
Stock already owned by the Participant valued at Fair Market Value, and/or (d)
the withholding from the Option, at the appropriate time, of a number of shares
of Common Stock sufficient, based upon the Fair Market Value of such Common
Stock, to satisfy such tax or withholding requirements. The Committee shall be
authorized, in its sole and absolute discretion, to establish rules and
procedures relating to any such withholding methods it deems necessary or
appropriate (including, without limitation, rules and procedures relating to
elections by Participants who are subject to the provisions of Section 16 of the
Exchange Act to have shares of Common Stock withheld from an Award to meet those
withholding obligations).
8.05 Adjustments to Reflect Capital Changes; Change in Control.
(a) Recapitalization. The number and kind of shares subject to
outstanding Options, the purchase price or exercise price of such Options, the
amount of Non-Employee Director Options to be granted on any date under Section
7.02, the limit set forth in the last sentence of the first paragraph of Section
5.01 of the Plan, and the number and kind of shares available for Options
subsequently granted under the Plan shall be appropriately adjusted to reflect
any stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization with a similar substantive
effect upon the Plan or the Options granted under the Plan. The Committee shall
have the power and sole and absolute discretion to determine the nature and
amount of the adjustment to be made in each case.
(b) Sale or Reorganization. After any reorganization, merger,
or consolidation in which the Company is the surviving entity, each Participant
shall, at no additional cost, be entitled upon the exercise of an Option
outstanding prior to such event to receive (subject to any required action by
stockholders), in lieu of the number of shares of Common Stock receivable on
exercise pursuant to such Option, the number and class of shares of stock or
other securities to which such Participant would have been entitled pursuant to
the terms of the reorganization, merger, or consolidation if, at the time of
such reorganization, merger, or consolidation, such Participant had been the
holder of record of a number of shares of Common Stock equal to the number of
shares of Common Stock receivable on exercise pursuant to such Option.
Comparable rights shall accrue to each Participant in the event of successive
reorganizations, mergers, or consolidations of the character described above.
(c) Options to Purchase Stock of Acquired Companies. After any
reorganization, merger, or consolidation in which the Company shall be a
surviving entity, the Committee may grant substituted Options under the
provisions of the Plan, replacing old options granted under a plan of another
party to the reorganization, merger, or consolidation whose stock subject to the
old options may no longer be issued following such reorganization, merger, or
consolidation. The foregoing adjustments and manner of application of the
foregoing provisions shall be determined by the Committee in its sole and
absolute discretion. Any such adjustments may provide for the elimination of any
fractional shares of Common Stock that might otherwise become subject to any
Options.
(d) Changes in Control. (i) Upon the dissolution or
liquidation of the Company, (ii) upon a reorganization, merger, or consolidation
in which the Company is not the surviving corporation, (iii) upon the sale of
substantially all of the property or assets of the Company to another
corporation, or (iv) if at least 50% or more of the voting stock of the Company
is sold either through a tender offer or otherwise to a party or an affiliated
group of parties, then the Plan and the Options issued thereunder shall
terminate, unless provisions are made in connection with such transaction for
the assumption of Options theretofore granted, or for the substitution for such
Options of new options of the successor corporation or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kinds of shares and
the per share exercise prices. In the event such Options shall be terminated,
all outstanding Options shall be exercisable in full for at least 30 days prior
to such termination date, whether or not exercisable during such period,
subject, however, to the limitation set forth in Sections 6.02(b) and 7.01. For
purposes of this Section 8.05(d), the Company refers to Mid Atlantic Medical
Services, Inc., MD-Individual Practice Association, Inc., Optimum Choice, Inc.,
and/or Physicians Health Plan of Maryland, Inc., jointly or separately. The
Committee shall determine the date on which Options may become exercisable
pursuant to this Section 8.05(d).
8.06 Surrender of Options. Any Option granted to a Participant under
the Plan may be surrendered to the Company for cancellation on such terms as the
Committee and holder approve.
8.07 No Right to Option; No Right to Employment. Except as provided in
Article VII, no director, employee or other person shall have any claim or right
to be granted an Option. Neither the Plan nor any action taken hereunder shall
be construed as giving any employee any right to be retained in the employ of
the Company or any of its Subsidiaries.
8.08 Options Not Includable for Benefit Purposes. Income recognized by
a Participant pursuant to the provisions of the Plan shall not be included in
the determination of benefits under any employee pension benefit plan (as such
term is defined in Section 3(2) of ERISA) or group insurance or other benefit
plans applicable to the Participant that are maintained by the Company or any of
its Subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
8.09 Governing Law. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of
Delaware other than the conflict of laws provisions of such laws, and shall be
construed in accordance therewith.
8.10 No Strict Construction. No rule of strict construction shall be
implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Option granted under the
Plan or any rule or procedure established by the Committee.
8.11 Compliance with Rule 16b-3 and Section 162(m). It is intended that
the Plan be applied and administered in compliance with Rule 16b-3 and with
Section 162(m). If any provision of the Plan would be in violation of Section
162(m) if applied as written, such provision shall not have effect as written
and shall be given effect so as to comply with Section 162(m) as determined by
the Committee in its sole and absolute discretion. The Board is authorized to
amend the Plan and the Committee is authorized to make any such modifications to
Option Agreements to comply with Rule 16b-3 and Section 162(m), as they may be
amended from time to time, and to make any other such amendments or
modifications deemed necessary or appropriate to better accomplish the purposes
of the Plan in light of any amendments made to Rule 16b-3 and Section 162(m).
Notwithstanding the foregoing, the Board may amend the Plan so that it (or
certain of its provisions) no longer comply with either or both of Rule 16b-3 or
Section 162(m) if the Board specifically determines that such compliance is no
longer desired and the Committee may grant Options that do not comply with Rule
16b-3 and/or Section 162(m) if the Committee determines, in its sole and
absolute discretion, that it is in the interest of the Company to do so.
8.12 Captions. The captions (i.e., all Article and Section headings)
used in the Plan are for convenience only, do not constitute a part of the Plan,
and shall not be deemed to limit, characterize, or affect in any way any
provisions of the Plan, and all provisions of the Plan shall be construed as if
no captions have been used in the Plan.
8.13 Severability. Whenever possible, each provision in the Plan and
every Option at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law, and (b) all other provisions of
the Plan and every other Option at any time granted under the Plan shall remain
in full force and effect.
8.14 Legends. All certificates for Common Stock delivered under the
Plan shall be subject to such transfer restrictions set forth in the Plan and
such other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the SEC, any stock exchange upon which
the Common Stock is then listed, and any applicable federal or state securities
law. The Committee may cause a legend or legends to be put on any such
certificates to make appropriate references to such restrictions.
8.15 Investment Representation. The Committee may, in its sole and
absolute discretion, demand that any Participant awarded an Option deliver to
the Committee at the time of grant or exercise of such Option a written
representation that the shares of Common Stock to be acquired upon exercise are
to be acquired for investment and not for resale or with a view to the
distribution thereof. Upon such demand, delivery of such written representation
by the Participant prior to the delivery of any shares of Common Stock pursuant
to the exercise of his or her Option shall be a condition precedent to the
Participant's right to purchase or otherwise acquire such shares of Common Stock
by such grant or exercise. The Company is not legally obliged hereunder if
fulfillment of its obligations under the Plan would violate federal or state
securities laws.
8.16 Amendment and Termination.
(a) Amendment. The Board shall have complete power and
authority to amend the Plan at any time it is deemed necessary or appropriate;
provided, however, that the Board shall not, without the affirmative approval of
a simple majority of the holders of Common Stock, represented, by person or by
proxy, and entitled to vote at an annual or special meeting of the holders of
Common Stock, make any amendment that requires stockholder approval under
applicable law or rule, unless the Board determines that compliance with such
law or rule is no longer desired with respect to the Plan as a whole or the
provision to be amended. No termination or amendment of the Plan may, without
the consent of the Participant to whom any Option shall theretofore have been
granted under the Plan, adversely affect the right of such individual under such
Option; provided, however, that the Committee may, in its sole and absolute
discretion, make provision in an Option Agreement for such amendments that, in
its sole and absolute discretion, it deems appropriate.
(b) Termination. The Board shall have the right and the power
to terminate the Plan at any time. No Option shall be granted under the Plan
after the termination of the Plan, but the termination of the Plan shall not
have any other effect and any Option outstanding at the time of the termination
of the Plan may be amended and exercised and may vest after termination of the
Plan at any time prior to the expiration date of such Option to the same extent
such Option could have been amended or would have been exercisable or vest had
the Plan not terminated.
8.17 Costs and Expenses. All costs and expenses incurred in
administering the Plan shall be borne by the Company.
8.18 Unfunded Plan. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or make any other
segregation of assets to assure the payment of any award under the Plan.
MID ATLANTIC MEDICAL SERVICES, INC.
STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS
AGREEMENT ("Agreement") dated this 3rd day of May, 1999 by and between
Mid Atlantic Medical Services, Inc., a Delaware corporation ("Corporation"), and
the person indicated on the attached Face Sheet, a non-employee director of the
Corporation and/or Physicians Health Plan of Maryland, Inc. ("Optionee").
WHEREAS, the Corporation desires to have Optionee continue to serve on
its Board of Directors and to provide Optionee with an incentive by sharing in
the success of the Corporation;
WHEREAS, in order to provide such an incentive to its key employees and
non-employee directors, the Corporation has adopted the Mid Atlantic Medical
Services, Inc. 1999 Non-Qualified Stock Option Plan ("Plan");
WHEREAS, the option granted hereby is not intended to qualify as an
"incentive stock option" within the meaning of Section 422 or any successor
provision of the Internal Revenue Code of 1986, as amended; and
WHEREAS, unless otherwise provided herein, capitalized terms used in
this Agreement shall have the meaning given them in the Plan;
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein contained and intending to be legally bound, the parties
hereto agree as follows:
1. Number of Shares and Price. The Corporation hereby grants to the
Optionee an option ("Option") to purchase the number of shares of Common Stock
set forth on the attached Face Sheet of this Agreement. The exercise price per
share of Common Stock of the Option shall be as is set forth on the attached
Face Sheet of this Agreement, such price being the Fair Market Value per share
of Common Stock on the Date of Grant of the Option. The Option is not intended
to qualify as an "incentive stock option" under Section 422 of the Code.
2. Term and Exercise. The Option shall expire five (5) years from the
date hereof. The Option is exercisable in full on the Date of Grant. If the
Optionee's service with the Corporation terminates for any reason or if the
Optionee ceases to be a Non-Employee Director, the Option may be exercised until
the Option expires in accordance with the first sentence of this Section 2.
Accordingly, if the Optionee ceases to serve for any reason, he or she may
continue to exercise the Option until the Option expires in accordance with the
first sentence of this Section 2, but only to the extent that it was not
previously exercised.
Notwithstanding anything to the contrary in this Section 2, in the
event one of the events specified in Section 8.05(d)(i), (ii), (iii) or (iv) of
the Plan occurs, the provisions of such Section 8.05(d) shall determine when the
Option becomes exercisable, when it may be exercised and when it expires.
3. Exercise Procedures. The Option shall be exercisable by written
notice to the Corporation, which must be received by the Secretary of the
Corporation not later than 5:00 P.M. local time at the principal executive
office of the Corporation on the expiration date of the Option. Such written
notice shall set forth (a) the number of shares of Common Stock being purchased,
(b) the total exercise price for the shares of Common Stock being purchased, (c)
the exact name as it should appear on the stock certificate(s) to be issued for
the shares of Common Stock being purchased, and (d) the address to which the
stock certificate(s) should be sent. The exercise price of shares of Common
Stock purchased upon exercise of the Option shall be paid in full (a) in cash,
(b) by delivery to the Corporation of shares of Common Stock (which shares of
Common Stock must have been held for at least six months), (c) in any
combination of cash and shares of Common Stock, or (d) by delivery of such other
consideration as the Committee deems appropriate and in compliance with
applicable law (including payment in accordance with a cashless exercise program
approved by the Committee). In the event that any shares of Common Stock shall
be transferred to the Corporation to satisfy all or any part of the exercise
price, the part of the exercise price deemed to have been satisfied by such
transfer of shares of Common Stock shall be equal to the product derived by
multiplying the Fair Market Value as of the date of exercise times the number of
shares of Common Stock transferred to the Corporation. Any shares of Common
Stock tendered in payment shall be duly endorsed in blank or accompanied by
stock powers duly endorsed in blank. The Optionee may not transfer to the
Corporation in satisfaction of the exercise price any fraction of a share of
Common Stock, and any portion of the exercise price that would represent less
than a full share of Common Stock must be paid in cash by the Optionee. Subject
to Section 7 hereof, certificates for the purchased shares of Common Stock will
be issued and delivered to the Optionee as soon as practicable after the receipt
of such payment of the exercise price; provided, however, that delivery of any
such shares of Common Stock shall be deemed effected for all purposes when a
stock transfer agent of the Corporation shall have deposited such certificates
in the United States mail, addressed to Optionee, at the address set forth on
the last page of this Agreement or to such other address as Optionee may from
time to time designate in a written notice to the Corporation. The Optionee
shall not be deemed for any purpose to be a shareholder of the Corporation in
respect of any shares of Common Stock as to which the Option shall not have been
exercised, as herein provided, until such shares of Common Stock have been
issued to Optionee by the Corporation hereunder.
4. Plan Provisions Control Option Terms; Modifications. The Option is
granted pursuant and subject to the terms and conditions of the Plan, the
provisions of which are incorporated herein by reference. In the event any
provision of this Agreement shall conflict with any of the terms in the Plan as
constituted on the Date of Grant, the terms of the Plan as constituted on the
Date of Grant shall control. Except as provided in Section 8.05 of the Plan, the
Option shall not be modified after the Date of Grant except by express written
agreement between the Corporation and the Optionee; provided, however, that any
such modification (a) shall not be inconsistent with the terms of the Plan, and
(b) shall be approved by the Committee.
5. Limitations on Transfer. The Option may not be assigned or
transferred other than by will, by the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by the Code, Title I
of ERISA or the rules thereunder.
6. Taxes. The Corporation shall be entitled to withhold (or secure
payment from the Optionee in lieu of withholding) the amount of any withholding
or other tax required by law to be withheld or paid by the Corporation with
respect to any shares of Common Stock issuable under this Agreement, and the
Corporation may defer issuance of shares of Common Stock upon the exercise of
the Option unless the Corporation is indemnified to its satisfaction against any
liability for any such tax. The amount of such withholding or tax payment shall
be determined by the Committee or its delegate and shall be payable by the
Optionee at such time as the Committee determines. The Optionee may satisfy his
or her tax withholding obligation by (a) having cash withheld from the
Optionee's salary or other compensation payable by the Corporation or a
Subsidiary, (b) the payment of cash to the Corporation, (c) the payment in
shares of Common Stock already owned by the Optionee valued at Fair Market
Value, and/or (d) the withholding from the Option, at the appropriate time, of a
number of shares of Common Stock sufficient, based upon the Fair Market Value of
such shares of Common Stock, to satisfy such tax withholding requirements. The
Committee shall be authorized, in its sole and absolute discretion, to establish
such rules and procedures relating to any such withholding methods as it deems
necessary or appropriate, including, without limitation, rules and procedures
relating to elections to have shares of Common Stock withheld upon exercise of
the Option to meet such withholding obligations.
7. No Exercise in Violation of Law. Notwithstanding any of the
provisions of this Agreement, the Optionee hereby agrees that he or she will not
exercise the Option granted hereby, and that the Corporation will not be
obligated to issue any shares of Common Stock to the Optionee hereunder, if the
exercise thereof or the issuance of such shares of Common Stock shall constitute
a violation by the Optionee or the Corporation of any provision of any law or
regulation of any governmental authority. Any determination in this connection
by the Committee shall be final, binding and conclusive.
8. Securities Law Compliance. The Optionee agrees, for the Optionee and
his or her Beneficiaries, with respect to all shares of Common Stock acquired
pursuant to the terms and conditions of the Plan and the Option (or any other
shares of Common Stock issued pursuant to a stock dividend or stock split
thereon or any securities issued in lieu thereof or in substitution or exchange
therefor), that the Optionee and his or her Beneficiaries will not sell or
otherwise dispose of these shares except pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), or except in
a transaction that, in the opinion of counsel for the Corporation, is exempt
from registration under the Act. Further, the Corporation shall not be required
to sell or issue any shares under the Option if, in the opinion of the
Corporation, (a) the issuance of such shares would constitute a violation by the
Optionee or the Corporation of any applicable law or regulation of any
government authority or (b) the consent or approval of any governmental body is
necessary or desirable as condition of, or in connection with, the issuance of
such shares.
9. Adjustments. The existence of the Option shall not affect in any way
the right or power of the Corporation or its directors or shareholders to make
or authorize any or all adjustments, recapitalizations, reorganizations, or
other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issuance of bonds,
debentures, preferred stock or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or dissolution or liquidation of the
Corporation, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
10. Dispute Resolution. As a condition of granting the Option, the
Optionee agrees, for the Optionee and his or her Beneficiaries, that any dispute
or disagreement that may arise under or as a result of or pursuant to the Plan
and the Option shall be determined by the Committee in its sole and absolute
discretion, and any interpretation by the Committee of the terms of the Plan and
Option shall be final, binding and conclusive.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: MID ATLANTIC MEDICAL SERVICES, INC.
__________________________ By:___________________________________
Thomas P. Barbera
President and Chief Executive Officer
By:____________________________________
Member of the Stock Option Committee
WITNESS: OPTIONEE
__________________________
<PAGE>
FACE SHEET
Notice Addresses:
Optionee:
-----------------------
4 Taft Court
Rockville, Maryland 20850
Corporation:
Mid Atlantic Medical Services, Inc.
4 Taft Court
Rockville, Maryland 20850
Attention: Secretary
Grant Date: _________________
Total Options Granted: _________________
Exercise Price per share of Common Stock: $________________
Expiration Date: _________________
Optioned shares must be purchased within five years from the date of
grant, which is May 3, 1999. That is, all options must be exercised by May 3,
2004.
