<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Healthcare Recoveries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[HEALTHCARE RECOVERIES LETERHEAD]
November 10, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Healthcare Recoveries, Inc. to be held on December 8, 1997 at 1400 Watterson
Tower, Louisville, Kentucky 40218. The meeting will begin promptly at 10:00
a.m., local time.
The items of business are listed in the following Notice of Special Meeting
and are more fully addressed in the Proxy Statement.
Please date, sign and return your proxy card in the enclosed envelope at
your convenience to assure that your shares will be represented and voted at the
Special Meeting even if you cannot attend. If you attend the Special Meeting,
you may vote your shares in person even though you have previously signed and
returned your proxy.
On behalf of your Board of Directors, thank you for your continued support
and interest in Healthcare Recoveries, Inc.
Sincerely,
/s/ PATRICK B. MCGINNIS
Patrick B. McGinnis
Chairman of the Board and
Chief Executive Officer
[HEALTHCARE RECOVERIES ADDRESS]
<PAGE> 3
[HEALTHCARE RECOVERIES LETERHEAD]
HEALTHCARE RECOVERIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 8, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Healthcare
Recoveries, Inc. will be held at 1400 Watterson Tower, Louisville, Kentucky
40218, on Monday, December 8, 1997, at 10:00 a.m., local time, for the following
purposes:
(i) To consider and act upon a proposal to adopt and approve the
Healthcare Recoveries, Inc. 1997 Stock Option Plan; and
(ii) To transact such other business as may properly come before the
meeting or any adjournment.
The Board of Directors has fixed the close of business on October 31, 1997
as the record date for determination of stockholders entitled to notice of and
to vote at the meeting and any adjournment thereof. During the period from
November 28, 1997 until the special meeting, a list of stockholders as of the
close of business on October 31, 1997 will be available at the location of the
meeting for examination during normal business hours by any stockholder.
Your attention is directed to the Proxy Statement provided with this
Notice.
By Order of the Board of Directors,
/s/ PATRICK B. MCGINNIS
Patrick B. McGinnis
Chairman of the Board and
Chief Executive Officer
Louisville, Kentucky
November 10, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 4
HEALTHCARE RECOVERIES, INC.
1400 WATTERSON TOWER
LOUISVILLE, KENTUCKY 40218
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 8, 1997
INFORMATION REGARDING PROXIES
A Special Meeting of Stockholders (the "Special Meeting") of Healthcare
Recoveries, Inc. (the "Company") will be held on December 8, 1997, for the
purposes set forth in the Notice of Special Meeting of Stockholders. The
enclosed form of proxy is solicited by the Board of Directors of the Company
(the "Board" or "Board of Directors") and the cost of the solicitation will be
borne by the Company. When the proxy is properly executed and returned, the
shares it represents will be voted as directed at the Special Meeting or any
adjournment or, if no direction is indicated, such shares will be voted in favor
of the proposals set forth in the Notice of Special Meeting of Stockholders. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted. All proxies delivered pursuant to this solicitation are revocable at any
time at the option of the persons executing them by giving written notice to the
Secretary of the Company, by delivering a later-dated proxy or by voting in
person at the Special Meeting.
VOTING SHARES
Only holders of Common Stock of record as of the close of business on
October 31, 1997 (the "Record Date") will be entitled to vote at the Special
Meeting. As of that date, the Company had outstanding 11,470,000 shares of
Common Stock. Stockholders of record on the Record Date are entitled to one vote
for each share of Common Stock held. Dissenters' rights for stockholders are not
applicable to the matter being proposed. This Proxy Statement and the
accompanying proxy will first be mailed to stockholders of the Company on or
about November 10, 1997.
The presence in person or by proxy of holders of a majority of the shares
of Common Stock outstanding on the record date will constitute a quorum for the
transaction of business at the Special Meeting or any adjournment. Abstentions
will be treated as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. Shares held by nominees for beneficial
owners will be counted for purposes of determining whether a quorum is present
if the nominee has the discretion to vote on at least one of the matters
presented even if the nominee may not exercise discretionary voting power with
respect to other matters and voting instructions have not been received from the
beneficial owner (a "broker non-vote").
The affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote is required to adopt and approve the 1997 Healthcare
Recoveries, Inc. Stock Option Plan (the "Stock Option Plan") or to take any
other action at the Special Meeting. With respect to the Stock Option Plan and
any other matter that may properly come before the meeting for stockholder
consideration, abstentions will be counted in determining the minimum number of
affirmative votes required for approval of any matter presented for stockholder
consideration and accordingly, will have the effect of a vote against any such
matter. Broker non-votes will not be counted as votes for or against matters
presented for stockholder consideration.
From August 28, 1995 through May 21, 1997, the Company was a wholly-owned
subsidiary of Medaphis Corporation ("Medaphis"). On May 21, 1997, Medaphis sold
all of its shares of Common Stock of the Company to the public for $14.00 per
share. Medaphis has no rights with respect to the election of directors of the
Company or any other matter relating to the Company.
<PAGE> 5
ADOPTION AND APPROVAL OF STOCK OPTION PLAN
Subject to stockholder approval, the Company has adopted the Healthcare
Recoveries, Inc. 1997 Stock Option Plan to encourage stock ownership by eligible
consultants, officers and employees, and consultants, officers and employees of
companies acquired by the Company.
The number of options that will be granted to the Company's executive
officers and managers pursuant to the Stock Option Plan in the future is not
currently determinable.
The adoption and approval of the Stock Option Plan requires the affirmative
vote of a majority of shares present in person or by proxy and entitled to vote
at the Special Meeting. The Board has unanimously approved the Stock Option Plan
and has determined that the Stock Option Plan is in the best interests of the
Company and its stockholders. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS OF THE COMPANY VOTE FOR ADOPTION AND APPROVAL OF THE STOCK
OPTION PLAN.
The material features of the Stock Option Plan are outlined below. A copy
of the Stock Option Plan is attached hereto as Appendix A.
ELIGIBLE PARTICIPANTS
The Stock Option Plan provides for the grant of options to purchase the
Company's Common Stock to eligible participants, which may include any
consultant, officer, or other employee of the Company, or any consultant,
officer or other employee of an entity that is acquired by the Company. As of
October 31, 1997, this class of individuals included approximately 100 people.
Only eligible participants who are also employees of the Company or a parent or
subsidiary of the Company are eligible for the grant of incentive stock options
under the Stock Option Plan. As of October 31, 1997, the closing price of the
Common Stock on the Nasdaq Stock Market was $18 1/2 per share.
SHARES SUBJECT TO THE STOCK OPTION PLAN
A total of 860,000 shares of Common Stock are reserved under the Stock
Option Plan. The maximum number of shares of Common Stock with respect to which
options may be granted under the Stock Option Plan in any calendar year to any
one eligible participant is 100,000 shares.
LIFE OF PLAN
No option shall be granted after ten years from the effective date of the
Stock Option Plan.
ADMINISTRATION
The Stock Option Plan will be administered by a committee (the
"Compensation Committee") consisting of three non-employee and outside directors
of the Company. Subject to the terms of the Stock Option Plan, the Compensation
Committee has the authority to determine the employees, directors and
consultants to whom options may be granted, whether such options are incentive
stock options or nonqualified stock options, the exercise price and the number
of shares subject to each option and the time or times when each option shall
become exercisable, to interpret the Stock Option Plan and prescribe and rescind
rules and regulations consistent with the Stock Option Plan and to determine
certain other provisions with respect to each option. The Compensation Committee
may also delegate to the chief executive officer of the Company the authority to
determine the non-executive employees and consultants to whom options may be
granted, the exercise price and the number of shares subject to each option and
the time or times when each option shall become exercisable.
VESTING AND TERM OF OPTIONS
Options granted under this Stock Option Plan are generally nontransferable
by the optionee and, unless otherwise determined by the Compensation Committee,
must be exercised by the optionee during his or her period of employment or
service with the Company, a parent or subsidiary of the Company, or, in the case
of
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<PAGE> 6
nonqualified stock options, during the period of employment or service with a
company acquired by the Company, or within a specified period following
termination of employment or service. The options shall vest according to the
terms that the Compensation Committee determines in its sole discretion. In the
event of a Change of Control (as defined by the Stock Option Plan), the
unexercised portion of all outstanding options under the Stock Option Plan will
automatically become fully vested and immediately exercisable and will remain
exercisable until the first anniversary of such event, after which time all
outstanding options will immediately terminate as to any portion thereof not
exercised. The exercise period for stock options granted under the Stock Option
Plan shall end ten years from the date on which such options are granted, or, in
the case of incentive stock options granted to an eligible participant who owns
more than ten percent of the total combined voting power of the stock of the
Company, a subsidiary or parent, five years from the date on which such options
are granted.
EXERCISE PRICE
Under the terms of the Stock Option Plan, the exercise price for the
issuance of Common Stock pursuant to incentive stock options shall be no less
than the fair market value of the Company's Common Stock on the date that such
options are granted or, if such incentive stock options are granted to a person
who owns more than ten percent of the total combined voting power of all classes
of stock of either the Company or a subsidiary or parent of the Company, then
the exercise price shall be no less than one hundred ten percent (110%) of the
fair market value of the Company's Common Stock on the date such options are
granted. The exercise price for the issuance of Common Stock pursuant to
nonqualified stock options may be more than or equal to the fair market value of
the Company's Common Stock on the date that such options are granted.
NONTRANSFERABILITY
No option granted under the Stock Option Plan shall be transferable by an
eligible participant other than by will or by the laws of descent and
distribution at his or her death.
AGGREGATE FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS
The aggregate fair market value of the Company's Common Stock subject to
incentive stock options granted to an eligible participant under the Stock
Option Plan and any other stock option plan that first become exercisable in any
calendar year shall not exceed $100,000.
ADJUSTMENT
The number of shares of Common Stock with respect to which options may be
granted under the Stock Option Plan shall be adjusted by the Compensation
Committee to reflect any change in the capitalization of the Company.
AMENDMENT
The Stock Option Plan may be amended from time to time by the Board of
Directors, subject to the approval of the stockholders of the Company if
stockholder approval is required by a national securities exchange on which the
Common Stock is listed, Rule 16b-3 under the Securities Exchange Act of 1934
(the "Exchange Act"), or to enable options granted under the Stock Option Plan
to be treated as "qualified performance based compensation" under Treasury
Regulation sec. 1.162-27(e) and, in the case of an amendment that applies to
incentive stock options, if stockholder approval is required under sec. 422 of
the Internal Revenue Code, to increase the number of shares of Common Stock
reserved under the Stock Option Plan, or to change the class of employees
eligible for options.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion outlines generally the federal income tax
consequences under present law of participation under the Stock Option Plan.
Individual circumstances may vary these results. This brief discussion is only a
general summary based on current federal income tax laws, regulations (including
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<PAGE> 7
proposed regulations), and judicial and administrative interpretations thereof.
The federal income tax laws and regulations are frequently amended, and such
amendments may or may not be retroactive with respect to transactions described
therein.
Nonqualified Options. An individual receiving a nonqualified stock option
under the Stock Option Plan does not recognize taxable income on the date of
grant of the option, assuming that the option does not have a readily
ascertainable fair market value at the time it is granted, nor does the Company
receive an income tax deduction. However, the individual must generally
recognize ordinary income at the time of exercise of the nonqualified stock
option in the amount of the excess of the fair market value of the Common Stock
on the date of exercise over the option exercise price. The amount of ordinary
income recognized by an individual generally is deductible by the Company in the
year that the income is recognized by the individual. The Company's deduction,
however, is subject to a $1,000,000 limitation on the deduction of certain
employee remuneration under sec. 162(m) of the Internal Revenue Code, unless an
exception for performance-based compensation under such section applies. The
Stock Option Plan is designed to meet the requirements for such an exception.
Upon subsequent disposition, any further gain or loss is taxable to the
individual either as a short-term or long-term capital gain or loss, depending
upon the length of time that the shares of Common Stock are held, with the
Company entitled to no deduction.
Incentive Stock Options. An optionee who is granted an incentive stock
option under the Stock Option Plan ordinarily does not recognize taxable income
either on the date of grant or on the date of option exercise, nor does the
Company receive an income tax deduction. However, the excess of the fair market
value of the Common Stock received upon the exercise of the incentive stock
option over the option exercise price is includable in the optionee's
alternative minimum taxable income and may result in an increase in federal tax
liability as a result of the alternative minimum tax.
Upon the disposition of the Common Stock acquired upon exercise of an
incentive stock option, long-term capital gain or loss generally will be
recognized in an amount equal to the difference between the sales price and the
option exercise price, provided that the optionee has not disposed of the Common
Stock within two years after the date of grant or within one year from the date
of exercise. If the optionee disposes of the Common Stock without satisfying
both holding period requirements (a "Disqualifying Disposition"), the optionee
will generally recognize ordinary income at the time of such Disqualifying
Disposition to the extent of the lesser of (i) the excess of the fair market
value of the Common Stock on the date the incentive stock option is exercised
over the option exercise price or (ii) the excess of the amount realized on such
Disqualifying Disposition over the option exercise price. Any remaining gain or
any net loss is treated as a short-term or long-term capital gain or loss,
depending upon the length of time that the Common Stock is held. Unlike the case
in which a nonqualified option is exercised, the Company is not entitled to a
tax deduction upon either the timely exercise of an incentive stock option or
upon disposition of the Common Stock acquired pursuant to such exercise, except
generally to the extent that the optionee recognizes ordinary income in a
Disqualifying Disposition, in which case the Company generally would be entitled
to a federal income tax deduction equal to any ordinary income recognized by the
employee (with any such deduction subject to potential limitation under
sec. 162(m) of the Internal Revenue Code, subject to the exception for
performance-based compensation under such section).
OTHER BUSINESS
The Board of Directors knows of no matters to be brought before the Special
Meeting other than the adoption and approval of the Stock Option Plan. If any
other business should properly come before the meeting, the persons named in the
accompanying form of proxy intend to vote thereon in accordance with their best
judgment.
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<PAGE> 8
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of Common
Stock as of October 31, 1997 for (i) directors of the Company, (ii) the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company whose cash and cash equivalent compensation exceeded
$100,000 for the year ended December 31, 1996 (collectively the "Named Executive
Officers"), (iii) the directors and executive officers of the Company as a group
and (iv) each person who beneficially owns more than 5% of the outstanding
Common Stock of the Company. Unless otherwise indicated in the footnotes, all of
such interests are owned directly, and the indicated person or entity has sole
voting and disposition power. The number of shares represents (a) the number of
shares of Common Stock the person beneficially owns plus (b) the number of
shares issuable upon exercise of currently outstanding options that are
exercisable or that become exercisable within 60 days.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS(1)
------------------------------------ ------------ -------------------
<S> <C> <C>
Patrick B. McGinnis......................................... 110,000 1.0%
Douglas R. Sharps........................................... 20,000 *
Bobby T. Tokuuke............................................ 17,000 *
Debra M. Murphy............................................. 15,700(2) *
William C. Ballard, Jr...................................... 10,000(3) *
Jill L. Force............................................... 2,500 *
John H. Newman.............................................. 1,000(4) *
Elaine J. Robinson.......................................... 500 *
Chris B. Van Arsdel......................................... 500 *
All executive officers and directors as a group (10
persons).................................................. 209,700 1.8
The Kaufman Fund, Inc.(5)................................... 1,490,000 13.0
</TABLE>
- ---------------
* Less than 1%.
(1) Based on an aggregate of 11,470,000 shares of Common Stock issued and
outstanding as of October 31, 1997.
(2) Includes 700 shares which are held by Ms. Murphy as custodian for a minor
child.
(3) Represents shares held by Mr. Ballard as trustee for the benefit of his son.
(4) Represents shares owned by Mr. Newman's spouse.
(5) The address of The Kaufman Fund, Inc. ("Kaufman") is 140 E. 45th Street,
43rd Floor, New York, New York 10017. The information regarding Kaufman is
presented in reliance upon a Schedule 13G filed by Kaufman with the
Securities and Exchange Commission on June 13, 1997.
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<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation for services in all capacities awarded to, earned by or paid to,
the Named Executive Officers, with respect to the year ended December 31, 1996.
As of August 28, 1995, the Company was a wholly-owned subsidiary of Medaphis.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Patrick B. McGinnis.......... 1996 $110,966 $86,093 $89,301(1) 0 $ 0
Chairman, Chief Executive
Officer, Director
Kathleen K. Harreld(2)....... 1996 120,004 54,917 3,535(3) 0 0
Executive Vice President --
Business Development
Douglas R. Sharps............ 1996 107,152 54,123 0 0 0
Executive Vice President --
Finance and Administration,
Chief Financial Officer and
Secretary
Bobby T. Tokuuke............. 1996 92,424 15,370 3,227(4) 0 0
Senior Vice President --
Systems
Debra M. Murphy.............. 1996 83,071 17,447 1,785(5) 0 0
Senior Vice
President -- Sales &
Marketing
</TABLE>
- ---------------
(1) Includes $83,301 paid to Mr. McGinnis for his services as President of
Medaphis Healthcare Information Technology Company, a subsidiary of
Medaphis, $4,500 of matching contributions to the Medaphis Employees'
Retirement Savings Plan and $1,500 of matching contributions to the Medaphis
Deferred Compensation Plan.
(2) Resigned from the Company in May 1997.
(3) Includes $3,535 of matching contributions to the Medaphis Employees'
Retirement Savings Plan.
(4) Includes $2,151 of matching contributions to the Medaphis Employees'
Retirement Savings Plan and $1,076 of matching contributions to the Medaphis
Deferred Compensation Plan.
(5) Includes $1,785 of matching contributions to the Medaphis Employees'
Retirement Savings Plan.
STOCK OPTION GRANTS
During the year ended December 31, 1996, the Company was a wholly-owned
subsidiary of Medaphis and, therefore, the Company did not grant any options to
purchase its Common Stock. Medaphis sold its interest in the Company to the
public on May 21, 1997.
NON-QUALIFIED STOCK OPTION PLAN FOR ELIGIBLE EMPLOYEES
The Company has adopted the Healthcare Recoveries, Inc. Non-Qualified Stock
Option Plan for Eligible Employees (the "Plan"). The Plan provides for the award
of stock options to certain officers and key employees of the Company. The
Company has reserved 700,000 shares of Common Stock for issuance under the Plan
and, as of October 31, 1997, options to purchase 671,025 shares of Common Stock
have been granted. In accordance with Treasury regulations, in the event the
value realized upon the exercise of options
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<PAGE> 10
by any "covered" employee (the difference between the per share exercise price
and the market price on the date of exercise multiplied by the number of options
exercised) when combined with such employee's other "covered" compensation in
the year of exercise exceeds $1.0 million, the Company will be unable to deduct
the amount of such excess compensation.
The Plan is administered by the Compensation Committee, which consists of
three non-employee and outside directors. Subject to the terms of the Plan, the
Compensation Committee has the authority to determine the employees to whom
options or rights may be granted, the exercise price and the number of shares
subject to each option or right and the time or times when each option shall
become exercisable, to interpret the Plan and prescribe and rescind rules and
regulations consistent with the Plan and to determine certain other provisions
with respect to each option or right.
Options granted under this Plan are generally nontransferable by the
optionee and, unless otherwise determined by the Compensation Committee, must be
exercised by the optionee during their period of employment or service with the
Company or within a specified period following termination of employment or
service. In the event of a Change of Control (as defined by the Plan), the
unexercised portion of all outstanding options under the Plan will become fully
vested and immediately exercisable and will remain exercisable until the first
anniversary of such event, after which time all outstanding options will
immediately terminate as to any portion thereof not exercised.
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
The Company has adopted a non-qualified deferred compensation plan under
which certain key employees of the Company may defer up to 16% of their
compensation (reduced by the amount they could have deferred under the Company's
401(k) Plan). The Company will match employee contributions equal to the
contributions that would have been made under the Company's 401(k) Plan but for
certain tax restrictions. Participants will be entitled to receive distributions
upon termination of employment. The Company may fund all or part of its
obligations under this plan in a trust reachable by the Company's general
creditors.
ANNUAL BONUS PLAN
The Company has adopted an annual performance-based bonus plan in which the
Named Executive Officers will participate. The plan provides for cash bonuses to
its participants based on certain performance-based thresholds set forth in the
plan. The Company estimates that the maximum bonus for the Named Executive
Officers would be between 95% and 115% of their respective base annual salaries.
DIRECTORS' STOCK OPTION PLAN
The Company has adopted the Healthcare Recoveries, Inc. Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan provides for the grant
of options to purchase Common Stock to each non-employee Director of the
Company. No Director who is an employee of the Company or any subsidiary is
eligible to participate in the Directors' Plan.
Each eligible Director was awarded options to purchase 10,000 shares of
Common Stock at an exercise price equal to the initial public offering price per
share upon consummation of the Company's initial public offering in May 1997.
The Directors' Plan provides that beginning on the date of the annual meeting of
the Board of Directors in 1998 and on the date of each subsequent annual meeting
until 2002, each eligible Director will receive options to purchase 2,000 shares
of Common Stock, for so long as shares are available under the Directors' Plan.
One-third of the shares of Common Stock covered by an option will vest on the
June 1st next following the date of grant and on each succeeding June 1st until
fully vested, provided that the optionee must be an eligible Director of the
Company on June 1st. Subject to readjustment in accordance with the provisions
of the Directors' Plan, the total amount of Common Stock for which options may
be granted to Directors under the Directors' Plan shall not exceed in the
aggregate 70,000 shares. As of October 31, 1997, options to purchase 50,000
shares have been granted under the Directors' Plan.
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<PAGE> 11
The Directors' Plan is administered by the Compensation Committee. Subject
to the terms of the Directors' Plan, the Compensation Committee has the
authority to determine the Directors to whom options or rights may be granted,
the exercise price and the number of shares subject to each option or right and
the time or times when each option become exercisable, to interpret the
Directors' Plan and prescribe and rescind rules and regulations consistent with
the Directors' Plan and to determine certain other provisions with respect to
each option or right. If an optionee ceases to be a non-employee Director due to
voluntary resignation as a Director, voluntary decision not to stand for
reelection or removal as a Director by the stockholders for cause, then the
unvested portion of any option shall terminate on the earlier of the option's
expiration date or the date of termination of service as a non-employee
Director. If an optionee ceases to be Director for any other reason, the
unvested portion of options shall vest on the date of termination of service and
may thereafter be exercised pursuant to their terms. The obligations of the
Company under the Directors' Plan shall be binding upon any successor to
substantially all of the Company's assets and business, and the Company has
agreed that it will make appropriate provision for the preservation of the
optionee's rights in any agreement or plan which it may enter into or adopt to
effect any such transfer of assets or ownership. The Directors' Plan, with
respect to the granting of options, shall terminate at midnight on June 30,
2002.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted the Healthcare Recoveries Employee Stock Purchase
Plan pursuant to which eligible employees may elect to have payroll deductions
of up to 15% of their annual compensation applied to the purchase of Common
Stock at a discount to market price of approximately 15%, subject to certain
restrictions.
EMPLOYMENT AGREEMENT
The Company and Mr. McGinnis have entered into an employment agreement
pursuant to which Mr. McGinnis will serve as Chairman and Chief Executive
Officer of the Company. The employment agreement is for a term of three years,
with automatic two year renewals, unless a notice of termination is delivered by
either party within not less than sixty (60) days prior to the end of a term or
a renewal term. Under the terms of the agreement, Mr. McGinnis will receive a
salary at an annual rate of $200,000. The Company may terminate the employment
agreement and all of its obligations thereunder if Mr. McGinnis (i) materially
breaches any term of the employment agreement, (ii) commits any act in bad faith
materially detrimental to the Company, (iii) engages in illegal or dishonest
activities or is convicted of any crime involving fraud, deceit, or moral
turpitude, or (iv) dies or becomes mentally or physically disabled and is unable
to perform his obligation under the employment agreement. The Company's
obligations under the employment agreement to pay salary, to provide for the
continued vesting of stock option awards and to provide for health insurance
benefits shall continue for the greater of the remainder of the term (or the
renewal term) or two years if the Company terminates the employment agreement
for any other reason, or if Mr. McGinnis terminates the agreement for one of the
following reasons (i) the Company materially breaches any term of the employment
agreement, (ii) the Company assigns Mr. McGinnis duties, or significantly
reduces his assigned duties, in a manner inconsistent with his position with the
Company (without his consent), (iii) the Company requires Mr. McGinnis's
relocation outside of the metropolitan Louisville, Kentucky area (without his
consent), (iv) the Company fails to obtain the assumption of the employment
agreement by any successors to the Company, or (v) a Change in Control Event (as
defined in the employment agreement) occurs, and Mr. McGinnis's employment is
terminated by Mr. McGinnis or the Company, for whatever reason, within 120 days
thereafter (in this latter event, Mr. McGinnis may also be entitled to receive a
certain Gross-Up Payment (as defined in the employment agreement)). The
employment agreement contains certain confidentiality and noncompete provisions
in favor of the Company.
The Company and Messrs. Burge, Sharps, Tokuuke, and Ms. Murphy have entered
into employment agreements, each with a term of three years. Under the terms of
the agreements, Messrs. Burge and Sharps will receive a salary at an annual rate
of $125,000, and Mr. Tokuuke and Ms. Murphy will receive a salary at an annual
rate of $110,000. The Company may terminate an employment agreement with Messrs.
Burge, Sharps, Tokuuke, and Ms. Murphy for cause in the following circumstances:
(i) material breach of any term
8
<PAGE> 12
of the employment agreement, (ii) commission of any act in bad faith materially
detrimental to the Company, (iii) engagement in illegal or dishonest activities
or conviction of any crime involving fraud, deceit, or moral turpitude or (iv)
death or mental or physical disability resulting in an inability to perform
one's obligations under the employment agreement. Each employment agreement
contains certain confidentiality and noncompete provisions in favor of the
Company.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not employees of the Company fees
for their services as directors. Non-employee directors receive $1,500 for
attendance (in person or by telephone) at each meeting of the Board of
Directors, plus annual grants of 2,000 non-qualified stock options at the then
current market price of Common Stock. See "-- Directors' Stock Option Plan."
Directors are reimbursed for all out-of-pocket expenses incurred in attending
all Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company was a wholly-owned subsidiary of Medaphis and, as
such, all compensation decisions were made by Medaphis management.
OTHER MATTERS
STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at the Company's 1998
Annual Meeting of Stockholders must be received by the Company on or before
December 1, 1997 to be eligible for inclusion in the Proxy Statement and form of
proxy to be distributed by the Company in connection with such meeting.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, telegraph or mail by one or more employees of the Company. The
Company also will reimburse brokers, banks, nominees and other fiduciaries for
postage and reasonable clerical expenses of forwarding the proxy material to
their principals who are beneficial owners of the Company's Common Stock. In
addition, the Company has retained Corporate Investor Communications, Inc.
("CIC") to assist in the solicitation of proxies with respect to shares of the
Company's Common Stock held of record by brokers, nominees and institutions and,
in certain cases, by other holders. Such solicitation may be made through the
use of mails, by telephone or by personal calls. The anticipated cost of the
services of CIC is a fee of $6,000 plus expenses.
By Order of the Board of Directors,
/s/ PATRICK B. MCGINNIS
Patrick B. McGinnis
Chairman of the Board and
Chief Executive Officer
Louisville, Kentucky
November 10, 1997
9
<PAGE> 13
APPENDIX A
HEALTHCARE RECOVERIES, INC.
1997 STOCK OPTION PLAN
FOR ELIGIBLE PARTICIPANTS
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
sec. 1. PURPOSE............................................................ A-3
sec. 2. DEFINITIONS........................................................ A-3
2.1. Acquisition................................................. A-3
2.2. Board....................................................... A-3
2.3. Code........................................................ A-3
2.4. Committee................................................... A-3
2.5. Company..................................................... A-3
2.6. Effective Date.............................................. A-3
2.7. Eligible Participant........................................ A-3
2.8. Exchange Act................................................ A-3
2.9. Fair Market Value........................................... A-3
2.10. ISO......................................................... A-4
2.11. Non-ISO..................................................... A-4
2.12. Option...................................................... A-4
2.13. Option Agreement............................................ A-4
2.14. Option Price................................................ A-4
2.15. Parent...................................................... A-4
2.16. Plan........................................................ A-4
2.17. Securities Act.............................................. A-4
2.18. Stock....................................................... A-4
2.19. Subsidiary.................................................. A-4
2.20. Ten Percent Shareholder..................................... A-4
sec. 3. SHARES RESERVED UNDER THE PLAN..................................... A-4
sec. 4. ADMINISTRATION..................................................... A-4
sec. 5. ELIGIBILITY........................................................ A-5
sec. 6. GRANT OF OPTIONS................................................... A-5
sec. 7. OPTION PRICE....................................................... A-6
sec. 8. EXERCISE PERIOD.................................................... A-6
sec. 9. NONTRANSFERABILITY................................................. A-6
sec. 10. SECURITIES REGISTRATION........................................... A-6
sec. 11. LIFE OF PLAN...................................................... A-7
sec. 12. ADJUSTMENT........................................................ A-7
sec. 13. CHANGE OF CONTROL AND CERTAIN OTHER EVENTS........................ A-7
13.1. Change of Control Events..................................... A-7
13.2. The Company.................................................. A-8
13.3. Notice....................................................... A-8
Disposition of Stock Following Change of Control of
13.4. Company...................................................... A-8
13.5. Fractional Shares............................................ A-8
sec. 14. AMENDMENT OR TERMINATION.......................................... A-8
sec. 15. MISCELLANEOUS..................................................... A-8
15.1. No Stockholder Rights........................................ A-8
15.2. No Contract of Employment.................................... A-8
15.3. Other Conditions............................................. A-9
15.4. Taxes........................................................ A-9
15.5. Construction................................................. A-9
15.6. References................................................... A-9
</TABLE>
A-2
<PAGE> 15
HEALTHCARE RECOVERIES, INC.
1997 STOCK OPTION PLAN
FOR ELIGIBLE PARTICIPANTS
sec. 1.
PURPOSE
The purpose of this Plan is to provide options to purchase stock to
Eligible Participants in order for such Eligible Participants to acquire or
increase their proprietary interest in the Company, and for such Eligible
Participants to share in the success of the Company and to encourage them to
remain in the employ of the Company.
sec. 2.
DEFINITIONS
Each capitalized term set forth in this sec. 2 shall have the meaning set
forth opposite such capitalized term for purposes of this Plan and, for purposes
of such definitions, the singular shall include the plural and the plural shall
include the singular.
2.1. Acquisition -- means the acquisition by the Company or any of its
subsidiaries of all or part of the assets or outstanding capital stock or
ownership interests (whether by purchase, merger or other business combination)
of any corporation, partnership, joint stock company, limited liability company,
joint venture or other business entity or division or other operating unit
thereof.
2.2. Board -- means the Board of Directors of the Company.
2.3. Code -- means the Internal Revenue Code of 1986, as amended.
2.4. Committee -- means the committee appointed by the Board to administer
this Plan and at all times shall consist of two or more members of the Board who
constitute "Non-Employee Directors" as such term is defined in Rule 16b-3 under
the Exchange Act and "Outside Directors" as such term is defined in Treasury
Regulation sec. 1.162-27(e)(3).
2.5. Company -- means Healthcare Recoveries, Inc., a Delaware corporation,
and any successor.
2.6. Effective Date -- means the effective date of this Plan, which shall
be the date this Plan is adopted by the Board in 1997, provided the Company's
stockholders (acting at a duly called meeting of such stockholders) approve this
Plan within twelve months after the date the Board adopts this Plan.
2.7. Eligible Participant -- means any consultant, officer or other
employee of the Company, a Parent or a Subsidiary, or any consultant, officer or
other employee of an entity that is the subject of an Acquisition, who the
Committee, acting in its absolute discretion, has determined to be eligible for
the grant of an Option under this plan.
2.8. Exchange Act -- means the Securities Exchange Act of 1934.
2.9. Fair Market Value -- means for any date (i) the closing price on such
date for a share of Stock as reported by The Wall Street Journal under the
quotation system then used and reported on by any national securities exchange
(as defined under the Exchange Act) on which the stock is listed or, (ii) if the
Stock is not traded on a national securities exchange, the closing price for
such date as reported for such date by The Wall Street Journal under the Nasdaq
National Market quotation system or under the quotation system under which such
closing price is reported or, (iii) if The Wall Street Journal does not report
such closing price, such closing price as reported for such date by a newspaper
or trade journal selected by the Committee or, (iv) if no such closing price is
available for such date, such closing price as so reported or so quoted in
accordance with sec. 2.9(i), (ii) or (iii) for the immediately preceding
business day, or, (v) if no newspaper or trade journal reports such closing
price or if no such price quotation is available, the price that the Committee
acting in
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<PAGE> 16
good faith determines through any reasonable valuation method that a share of
Stock might change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
2.10. ISO -- means an option granted under this Plan to purchase Stock that
is intended to satisfy the requirements of sec. 422 of the Code.
2.11. Non-ISO -- means an option granted under this Plan to purchase Stock
that by its terms provides that it will not be treated as an incentive stock
option under sec. 422 of the Code or that fails to satisfy the requirements of
sec. 422 of the Code.
2.12. Option -- means an option granted under this Plan to purchase Stock.
2.13. Option Agreement -- means the written agreement that sets forth the
terms of an Option granted to an Eligible Participant under this Plan.
2.14. Option Price -- means the price that shall be paid to purchase one
share of Stock upon the exercise of an Option granted under this Plan.
2.15. Parent -- means any corporation that is a parent corporation (within
the meaning of sec. 424(e) of the Code) of the Company.
2.16. Plan -- means this Healthcare Recoveries, Inc. 1997 Stock Option Plan
for Eligible Participants, as amended from time to time.
2.17. Securities Act -- means the Securities Act of 1933.
2.18. Stock -- means the common stock of the Company, par value $.001 per
share.
2.19. Subsidiary -- means any corporation that is a subsidiary corporation
(within the meaning of sec. 424(f) of the Code) of the Company.
2.20. Ten Percent Shareholder -- means a person who owns (after taking into
account the attribution rules of sec. 424(d) of the Code) more than ten percent
of the total combined voting power of all classes of stock of either the
Company, a Subsidiary or a Parent.
sec. 3.
SHARES RESERVED UNDER THE PLAN
There shall be 860,000 shares of Stock reserved for issuance under this
Plan, and such shares of Stock shall be reserved to the extent that the Company
deems appropriate from authorized but unissued shares of Stock and from shares
of Stock which have been repurchased by the Company. Furthermore, any shares of
Stock subject to an Option that remain unissued after the cancellation or
expiration of such Option thereafter shall again become available for use under
this Plan. The maximum number of shares of Stock with respect to which an Option
or Options may be granted under this Plan in any calendar year to any one
Eligible Participant shall be 100,000 shares, and any Option granted before
stockholder approval of this Plan automatically shall be granted subject to such
approval.
sec. 4.
ADMINISTRATION
This Plan shall be administered by the Committee. The Board may from time
to time remove members from, or add members to, the Committee. Vacancies on the
Committee shall be filled by the Board and the Board shall designate the
Chairman of the Committee. The Committee shall hold meetings at such times and
places as it may determine. The Committee acting in its absolute discretion
shall exercise such powers and take such action as expressly called for under
this Plan and, further, the Committee shall have the power to
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<PAGE> 17
interpret this Plan and to take such other action (except to the extent the
right to take such action is expressly and exclusively reserved for the Board)
in the administration and operation of this Plan as the Committee deems
equitable under the circumstances, which action shall be binding on the Company,
on each affected Eligible Participant and on each other person directly or
indirectly affected by such action. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to this Plan or any Option granted under this Plan.
sec. 5.
ELIGIBILITY
Only Eligible Participants shall be eligible for the grant of Options under
this Plan. Only Eligible Participants who are employees of the Company, a Parent
or a Subsidiary shall be eligible for the grant of ISOs under this Plan.
sec. 6.
GRANT OF OPTIONS
The Committee, acting in its absolute discretion, shall have the right to
grant Options to Eligible Participants under this Plan, and the Committee may
delegate to the chief executive officer of the Company the authority to grant
Options to any Eligible Participant, subject to any review, approval or
notification required by the Committee, except that the chief executive officer
shall not be delegated the authority to grant Options to Eligible Participants
who are subject to the reporting requirements of Section 16(a) of the Exchange
Act. Each grant of an Option shall be evidenced by an Option Agreement, which
shall specify whether the Option is an ISO or Non-ISO and which shall
incorporate such other terms and conditions as the Committee, acting in its
absolute discretion, or the chief executive officer deems consistent with the
terms of this Plan; provided that (unless the Committee or the chief executive
officer decides otherwise with respect to any Option grant or grants) each
Option Agreement shall provide the vesting provisions of the Option and shall
provide that, if the Eligible Participant ceases to be an employee of the
Company, any Parent or Subsidiary, or, in the case of a Non-ISO, an employee of
any entity that is the subject of an Acquisition, except as a result of a
transaction contemplated by sec. 13, before the Option is fully vested, any
portion of the Option which is not fully vested on the date of such termination
of employment shall be automatically forfeited as of such employment termination
date, and the vested portion of the Option which is unexercised shall expire,
terminate and become unexercisable no later than the earlier to occur of: (i)
the expiration of three months from the date on which the Eligible Participant
ceases to be an employee of the Company, any Parent or Subsidiary, or, in the
case of a Non-ISO, an employee of any entity that is the subject of an
Acquisition, by any reason other than death or permanent and total disability
(within the meaning of Code sec. 22(e)(3)), or (ii) the expiration of six months
from the date the Eligible Participant ceases to be employed by the Company, any
Parent or Subsidiary, or, in the case of a Non-ISO, an employee of any entity
that is the subject of an Acquisition, by reason of death or permanent and total
disability (within the meaning of Code Section 22(e)(3)).
The aggregate Fair Market Value of the shares of Stock subject to ISOs and
other incentive stock options (that satisfy the requirements under sec. 422 of
the Code) granted to an Eligible Participant under this Plan and under any other
stock option plan adopted by the Company, a Subsidiary or a Parent that first
become exercisable in any calendar year shall not exceed $100,000. Such Fair
Market Value figure shall be determined by the Committee on the date the ISO or
other incentive stock option is granted. The Committee shall interpret and
administer the limitation set forth in this paragraph in accordance with
sec. 422(d) of the Code, and the Committee shall treat this limitation as in
effect only for those periods for which sec. 422(d) of the Code is in effect.
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<PAGE> 18
sec. 7.
OPTION PRICE
The Option Price for each share of Stock subject to an ISO shall be no less
than the Fair Market Value of a share of Stock on the date such Option is
granted or, if the ISO is granted to an Eligible Participant who is a Ten
Percent Shareholder, the Option Price for each share of Stock subject to such
Option shall be no less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the date such Option is granted. The Option Price
for each share of Stock subject to a Non-ISO may (in the absolute discretion of
the Committee or chief executive officer) be more than or equal to the Fair
Market Value of a share of Stock on the date such Option is granted; provided
that the Option Price for each Non-ISO that is granted to replace a stock option
of any entity that is the subject of an Acquisition shall reflect the conversion
ratio, if any, applicable to such Acquisition and may (in the absolute
discretion of the Committee) be more or less than or equal to the Fair Market
Value of a share of Stock on the date such Option is granted; provided further,
however, that in no event shall the Option Price be less than adequate
consideration as determined by the Committee.
sec. 8.
EXERCISE PERIOD
Each Option granted under this Plan shall be exercisable in whole or in
part if and when it is vested and at such time or times as set forth in the
related Option Agreement, but no Option Agreement shall make an Option
exercisable on or after the earlier of
(a) the date such option is exercised in full or forfeited,
(b) the date which is the fifth anniversary of the date such Option is
granted, if such Option is an ISO and the Eligible Participant is a Ten
Percent Shareholder on the date such Option is granted, or
(c) the date which is the tenth anniversary of the date such Option is
granted, if such Option is a Non-ISO or if such Option is an ISO and is
granted to an Eligible Participant who is not a Ten Percent Shareholder on
the date such Option is granted.
sec. 9.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by an Eligible
Participant other than by will or by the laws of descent and distribution at his
or her death, and an Option shall be exercisable during an Eligible
Participant's lifetime only by the Eligible Participant or, if the Eligible
Participant is determined under applicable law to be incompetent to act on his
or her own behalf, by the person authorized under such applicable law to act on
the Eligible Participant's behalf. The Company shall treat any person to whom an
Option is transferred by will or by the laws of descent and distribution the
same as an Eligible Participant for purposes of exercising such Option.
sec. 10.
SECURITIES REGISTRATION
Each Option Agreement shall provide that, upon the receipt of shares of
Stock as a result of the exercise of an Option, the Eligible Participant shall,
if so requested by the Company, hold such shares of Stock for investment and not
with a view to resale or distribution to the public and, if so requested by the
Company, shall deliver to the Company a written statement satisfactory to the
Company to that effect. Each Option Agreement also shall provide that, if so
requested by the Company, the Eligible Participant shall make a written
representation to the Company that he or she will not sell or offer to sell any
of such Stock unless a registration statement shall be in effect with respect to
such stock under the Securities Act and any applicable
A-6
<PAGE> 19
state securities law or unless he or she shall have furnished to the Company an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required. Certificates
representing the Stock transferred upon the exercise of an Option granted under
this Plan may at the discretion of the Company bear a legend to the effect that
such Stock has not been registered under the Securities Act or any applicable
state securities law and that such Stock may not be sold or offered for sale in
the absence of an effective registration statement as to such Stock under the
Securities Act and any applicable state securities law or an opinion, in form
and substance satisfactory to the Company, of counsel acceptable to the Company,
that such registration is not required.
sec. 11.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(a) the tenth anniversary of the Effective Date, in which event this
Plan thereafter shall continue in effect until all outstanding Options have
been exercised in full or no longer are exercisable, or
(b) the date on which all of the Stock reserved under sec. 3 has (as a
result of the exercise of Options granted under this Plan) been issued or
no longer is available for use under this Plan, in which event this Plan
also shall terminate on such date.
sec. 12.
ADJUSTMENT
The number of shares of Stock reserved under sec. 3, the number of shares
of Stock subject to Options granted under this Plan, and the Option Price of
such Options shall be adjusted by the Committee in a equitable manner to reflect
any change in the capitalization of the Company, including, but not limited to,
such changes as stock dividends or stock splits, a subdivision or combination of
the Stock, a reclassification of the Stock, a merger or consolidation of the
Company or any like changes in the Stock or in the value of a share of Stock.
The Committee as part of any corporate transaction described in sec. 424(a) of
the Code shall have the right to adjust (in any manner which the Committee in
its discretion deems consistent with sec. 424(a) of the Code) the number, kind
or class (or any combination thereof) of shares subject to ISOs previously
granted under this Plan and the related Option Price for each such Option, and,
further, shall have the right (in any manner which the Committee in its
discretion deems consistent with sec. 424(a) of the Code) to grant Options to
effect the assumption of, or the substitution for, options previously granted by
any other corporation to the extent that such corporate transaction calls for
such substitution or assumption of such options. If any adjustment under this
sec. 12 would create a fractional share of Stock or a right to acquire a
fractional share of Stock, such fractional share shall be disregarded and the
number of shares of Stock reserved under this Plan and the number subject to any
Options granted under this Plan shall be the next lower number of shares of
Stock, rounding all fractions downward. Any adjustment made under this sec. 12
by the Committee shall be conclusive and binding on affected persons.
sec. 13.
CHANGE OF CONTROL AND CERTAIN OTHER EVENTS
13.1. Change of Control Events. The following events shall constitute
"Change of Control" events for purposes of this Plan: (1) The adoption of a plan
of merger or consolidation of the Company with any other corporation as a result
of which the holders of the outstanding voting stock of the Company as a group
would receive less than fifty percent of the voting stock of the surviving or
resulting corporation; (2) The adoption of a plan of liquidation or the approval
of the dissolution of the Company; or (3) The sale or transfer of substantially
all of the assets of the Company.
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<PAGE> 20
13.2. The Company. In the event of a Change of Control event described in
sec. 13.1(1), the unexercised portion of all outstanding Options under this Plan
will automatically become fully vested and immediately exercisable and will
remain exercisable (subject to adjustment pursuant to sec. 12) until 12 months
after the occurrence of such Change of Control event, after which time all
outstanding Options will immediately terminate as to any portion thereof not
exercised; provided, the Compensation Committee may approve vesting and exercise
periods differing from those provided in this sec. 13.2.
13.3. Notice. Subject to compliance with applicable federal and state
securities laws, the Committee will undertake to provide applicable Eligible
Participants with reasonable notice of any Change of Control event described in
sec. 13.1 prior to the occurrence of such Change of Control event.
13.4. Disposition of Stock Following Change of Control of Company. In the
event of a Change of Control event described in sec. 13.1(1), each Eligible
Participant electing to exercise any outstanding Option will have the right in
connection with the closing of such Change of Control event either to (1) sell
to the Company or the surviving or resulting corporation, the shares of Stock
which the Eligible Participant received upon exercise of such Option at a cash
price per share equivalent of the Fair Market Value of the Stock as of the date
of such Change of Control event, or (2) receive the number and class of shares
of stock or other securities or any other property which the terms of the
agreement of merger, consolidation, or other reorganization would entitle the
Eligible Participant to receive as the holder of record of the number of shares
of Stock which the Eligible Participant received upon exercise of such Option;
provided, however, that in the event a Change of Control event contemplated by
this sec. 13.4 involves a merger to be accounted for under the "pooling of
interests" accounting method, then the Committee shall have the authority
hereunder to modify the rights of an Eligible Participant under this sec. 13.4
to the extent necessary in order to preserve the "pooling of interests"
accounting treatment for such merger.
13.5. Fractional Shares. No Change of Control event contemplated by this
sec. 13 shall create a right to acquire a fractional share of Stock, and any
such fractional share shall be forfeited by the Eligible Participant.
sec. 14.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate, except that the Board shall not amend
this Plan absent the approval of the stockholders of the Company (a) if
stockholder approval of the amendment is required under Code sec. 422, to
increase the number of shares of Stock reserved under sec. 3 or to change the
class of employees eligible for Options under sec. 5, or (b) if stockholder
approval of the amendment is required by a national securities exchange on which
the stock is listed, is required in order to comply with Rule 16b-3 under the
Exchange Act, or is required to enable Options granted under the Plan to be
treated as "qualified performance based compensation" under Treasury Regulation
sec. 1.162-27(e); provided that any amendment that specifically applies to
Non-ISOs shall not require stockholder approval unless such approval is required
under sec. 14(b). The Board also may suspend the granting of Options under this
Plan at any time and may terminate this Plan at any time; provided, however, the
Board shall not have the right unilaterally to modify, amend or cancel any
Option granted before such modification, amendment or cancellation unless the
Eligible Participant consents in writing to such modification, amendment or
cancellation.
sec. 15.
MISCELLANEOUS
15.1. No Stockholder Rights. No Eligible Participant shall have any rights
as a stockholder of the Company as a result of the grant of an Option to him or
to her under this Plan or his or her exercise of such Option pending the actual
delivery of Stock subject to such Option to such Eligible Participant.
15.2. No Contract of Employment. The grant of an Option to an Eligible
Participant under this Plan shall not constitute a contract of employment and
shall not confer on an Eligible Participant any rights upon
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<PAGE> 21
his or her termination of employment in addition to those rights, if any,
expressly set forth in the Option Agreement which evidences his or her Option.
15.3. Other Conditions. Each Option may require that an Eligible
Participant (as a condition to the exercise of an Option) enter into any
agreement or make such representations requested by the Company, including any
agreement which restricts the transfer of Stock acquired pursuant to the
exercise of such Option and provides for the repurchase of such Stock by the
Company under certain circumstances.
15.4. Taxes. The Company may make such provisions and take such steps as
it may deem necessary or appropriate for the withholding of all federal, state,
local and other taxes required by law to be withheld with respect to Options
under the Plan, including, but not limited to, (i) deducting the amount required
to be withheld from salary or any other amount then or thereafter payable to an
Eligible Participant, beneficiary or legal representative or (ii) requiring an
Eligible Participant, beneficiary or legal representative to pay to the Company
the amount required to be withheld as a condition of releasing the Stock.
15.5. Construction. This Plan shall be construed under the laws of the
State of Delaware.
15.6. References. Any reference in this Plan to a section (sec.) shall be
to a section (sec.) of this Plan unless otherwise specified in such reference.
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<PAGE> 22
APPENDIX
HEALTHCARE RECOVERIES, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
ON DECEMBER 8, 1997
The undersigned hereby appoints Patrick B. McGinnis and Douglas R. Sharps
and each of them, proxies, with full power of substitution and resubstitution,
for and in the name of the undersigned, to vote all shares of common stock of
Healthcare Recoveries, Inc. which the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders to be held on Monday,
December 8, 1997, at 10:00 a.m., local time, or at any adjournment thereof, upon
the matters described in the accompanying Notice of Special Meeting of
Stockholders and Proxy Statement, receipt of which is hereby acknowledged, and
upon any other business that may properly come before the Special Meeting of
Stockholders or any adjournment thereof. Said proxies are directed to vote on
the matters described in the Notice of Special Meeting of Stockholders and Proxy
Statement as follows, and otherwise in their discretion upon such other business
as may properly come before the Special Meeting of Stockholders or any
adjournment thereof.
1. To adopt and approve the Healthcare Recoveries, Inc. 1997 Stock Option
Plan for Eligible Participants (the "Stock Option Plan").
[ ] FOR the Stock Option Plan
[ ] AGAINST the Stock Option Plan
[ ] ABSTAIN with respect to the Stock Option Plan
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE ABOVE-STATED PROPOSAL.
Dated: 1997
-----------------------,
----------------------------------
Signature
----------------------------------
Signature (if held jointly)
Please sign exactly as your name
or names appear hereon. For more
than one owner as shown above,
each should sign. When signing in
a fiduciary or representative
capacity, please give full title.
If this proxy is submitted by a
corporation, it should be executed
in the full corporate name by a
duly authorized officer, if a
partnership, please sign in
partnership name by authorized
person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING ON DECEMBER 8,
1997. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
