<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
to
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19147
Coventry Corporation
(Exact name of registrant as specified in its charter)
Tennessee 62-1297579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Corporate Centre Drive, Suite 400
Franklin, Tennessee 37067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 771-4141
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock purchase rights
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 is not contained herein, and will not be contained,
to the best of 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. [ ]
The aggregate market value of the registrant's voting Common Stock held
by non-affiliates of the registrant as of March 16, 1998 (computed by reference
to the closing price of such stock on The Nasdaq Stock Market) was $621,856,007.
As of March 16, 1998, there were 33,393,492 shares of the registrant's
voting Common Stock outstanding.
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<PAGE> 2
COVENTRY CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I OMITTED
PART II OMITTED
PART III
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners
and Management
Item 13: Certain Relationships and Related Transactions
PART IV OMITTED
</TABLE>
<PAGE> 3
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
At March 31, 1998, the Company's directors and executive officers are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John H. Austin, M.D. 53 Director(1)(2)
Philip N. Bredesen 54 Director
Laurence DeFrance 53 Director(1)(2)
Emerson D. Farley, Jr., M.D. 59 Director
Patrick T. Hackett 36 Director(2)
Richard H. Jones 42 Director, Senior Vice President
Lawrence N. Kugelman 55 Director
Rodman W. Moorhead, III 54 Director(1)
Allen F. Wise 55 Director, Chief Executive Officer and President
Joseph N. Carroll 59 Vice President of Operations
James L. Gore 60 Vice President
James R. Hailey 41 Vice President, Specialty Markets
Jan H. Hodges 38 Vice President, Finance
Robert A. Mayer 55 Senior Vice President
Jefferson H. Ockerman 42 Assistant Secretary
Shirley R. Smith 53 Vice President, Corporate General Counsel and Secretary
Dale B. Wolf 43 Senior Vice President, Chief Financial Officer and Treasurer
</TABLE>
(1) Member of Compensation and Benefits Committee
(2) Member of Audit and Finance Committee
Dr. Austin has been a director of the Company since January 1988 and was elected
Chairman of the Board of Directors in December 1995. Dr. Austin has been
employed with Arcadian Management Services since June 1997. From March 1997
until June 1997, Dr. Austin was self-employed as a health care consultant. From
October 1994 to March 1997, he served as President of the Professional Services
Division of Unihealth, one of the nation's largest voluntary non-profit
healthcare networks. From July 1992 to October 1994 he was a self-employed
health care consultant. He was employed as Executive Vice President and Medical
Director for Health Plan of America, an HMO from 1987 until June 1992.
He is currently a director of Quadramed Corporation.
Mr. Bredesen accepted a position as a director of the Company in April 1997. He
was formerly a director of the Company from its founding in November 1986 to
January 1993. He is currently the Mayor of the Metropolitan Government of
Nashville and Davidson County, Tennessee, having been elected to that position
in August 1991 and re-elected in August 1995.
Mr. DeFrance has been a director of the Company since August 1990. Since March
1992 he has been self-employed as a business consultant and private investor. He
was a member of the Board of Directors of DeVlieg-Bullard, Inc., a manufacturer
of precision engineered machine tools, from April 1986 to December 1994. He was
DeVlieg-Bullard's President from April 1986 to March 1992 and its Chief
Executive Officer from December 1989 to March 1992.
Dr. Farley has been a director of the Company since December 1994. Since 1972,
Dr. Farley has been engaged in the private practice of medicine in Richmond,
Virginia. From 1989 until September 1997, he was the Medical Consultant for
Signet Bank in Richmond, Virginia. Since 1991, Mr. Farley has been the
Vice-Chairman of Doctors Insurance Reciprocal Risk Retention Group in Richmond,
Virginia which provides medical malpractice insurance coverage to physicians.
From 1984 to 1994, he was the Chairman of the Board of Directors of Southern
Health Management Corporation (now known as Coventry HealthCare Management
Corporation).
<PAGE> 4
Mr. Hackett has been a Managing Director of E.M. Warburg, which manages Warburg
Pincus Ventures since 1994. He served as an Associate at E.M. Warburg from 1990
to 1991 and as Vice President from 1991 to 1993. Mr. Hackett is a member of the
Board of Directors of Transition Systems, Inc., a provider of software and
related services to the health care industry, and several privately held
companies.
Mr. Jones has been a director of the Company since December 1995. A certified
public accountant, Mr. Jones was named President and Chief Executive Officer of
Group Health Plan, Inc., a wholly-owned subsidiary of the Company, on October 7,
1996. He is also a Senior Vice President of the Company and was Treasurer of the
Company from June 1993 until December 1996. From November 1990 to June 1993, he
was Vice President, Chief Financial Officer and Treasurer of the Company.
Mr. Kugelman has been a director of the Company since August 1992. He was
interim Chief Executive Officer and President of the Company from December 1995
until October 6, 1996. From March 1995 until December 1995 he was a
self-employed healthcare consultant. He was Executive Vice President of American
Medical International, an organization that owns and operates acute care
hospitals nationwide, from January 1993 to March 1995. From July 1992 to
December 1992, he was Executive Director of the Sisters of St. Joseph Healthcare
Foundation, which was created in connection with HealthPlan of America's
conversion from not-for-profit to for-profit status. He was President and Chief
Executive Officer of Health Plan of America from September 1986 to July 1992.
Mr. Moorhead has been employed since 1973 by E.M. Warburg, a specialized
financial services firm in New York, where he currently serves as Senior
Managing Director. He is a director of NeXstar Pharmaceuticals, Inc.,
Transkaryotic Therapies, Inc., Xomed Surgical Products, Inc. and several private
companies. He is a Trustee of The Taft School and a member of the Overseer's
Committee on University Resources, Harvard College.
Mr. Wise was elected a director of the Company in October 1996. He was named
President and Chief Executive Officer of the Company on October 7, 1996. Mr.
Wise was Executive Vice President of MetraHealth Company, Inc., a managed health
care Exchange Agent, from October 1994 until it was acquired by United
HealthCare Corp., a managed health care Exchange Agent, in October 1995. He
retained the same title with United HealthCare Corp. until October 1996. From
January 1994 to October 1994 he was President and Chief Executive Officer of
Wise Health System, a health care investment company. From 1991 to 1994, Mr.
Wise was President and Chief Executive Officer of Keystone Health Plan, a
managed health care Exchange Agent, and was also Chief Operating Officer of
Independence Blue Cross, a health care insurance Exchange Agent located in
Philadelphia, Pennsylvania.
Mr. Carroll was elected Vice President of Operations of the Company on October
14, 1996. From April 1996 to October 1996, he was a self-employed healthcare
consultant. From March 1992 to April 1996, Mr. Carroll was the Senior Vice
President and Chief Information Officer of Independence Blue Cross, a healthcare
insurance company located in Philadelphia, Pennsylvania.
Mr. Gore has been a Vice President of the Company since December 1994. Since
1990 he has been President and Chief Executive Officer of Coventry HealthCare
Management Company and its two subsidiaries, Southern Health Benefit Services,
Inc., a third party claims administrator for claims processing, and Southern
Health Services, Inc., a 57,000 member open panel HMO located in Richmond,
Virginia.
Mr. Hailey has been the Vice President, Specialty Markets, of the Company since
March 1994. Prior to joining the Company, Mr. Hailey was employed by SmithKline
Beecham Pharmaceuticals ("SmithKline"), an international pharmaceutical company.
From March 1982 to March 1994, Mr. Hailey's experience at SmithKline included
managed care sales, marketing, sales management and hospital sales. For more
than three years, he practiced clinical pharmacy in a teaching hospital. Mr.
Hailey holds a Doctor of Pharmacy license.
Ms. Hodges has been the Vice President, Finance of the Company since November
1994. Ms. Hodges was Director of Taxation and Treasury of the Company from
February 1991 to November 1994. Ms. Hodges is a certified public accountant.
Mr. Mayer was named Senior Vice President of the Company and Chief Operating
Officer of HealthAmerica Pennsylvania, Inc. on February 10, 1997. From November
1994 to February 1997, he was President and Chief Executive
<PAGE> 5
Officer of Independence Financial Services Corp., an insurance holding company
located in Stamford, Connecticut. From February 1989 to November 1994, Mr. Mayer
was Senior Vice President, Chief Financial Officer, Treasurer and a Director of
Sierra Health Services, Inc., a managed care company located in Las Vegas,
Nevada which provides a wide range of services. Mr. Mayer is a certified public
accountant.
Mr. Ockerman was elected Assistant Secretary on November 3, 1997. Since June 1,
1995, he has been Associate Corporate General Counsel of the Company. Prior to
that, from October 1, 1987 to May 31, 1995, Mr. Ockerman was an attorney with
the law firm of Kemper, McLemore & Ockerman in Nashville, Tennessee.
Ms. Smith has been a Vice President, Corporate General Counsel and Secretary of
the Company since March 1994. From August 1993 to March 1994, she was Acting
General Counsel and Secretary of the Company. From April 1989 to August 1993,
she was Assistant General Counsel of the Company.
Mr. Wolf was elected Senior Vice President, Chief Financial Officer and
Treasurer of the Company on December 9, 1996. From August 1995 to December 1996,
he was Executive Vice President of SpectraScan Health Services, Inc., a
Connecticut women's health care services company. From January 1995 to August
1995, Mr. Wolf was Senior Vice President, Business Development for MetraHealth
Companies, Inc., a Connecticut managed health care company. Prior to that, from
August 1988 to December 1994, Mr. Wolf was Vice President, Specialty Operations
Officer for the Managed Care and Employee Benefits Operations of The Travelers,
a Hartford, Connecticut insurance company. Mr. Wolf is a Fellow of the Society
of Actuaries.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished
to the Company during fiscal year 1997 pursuant to Rule 16a-3(e) of the
Securities Exchange Act of 1934, as amended, and upon written representations
from reporting persons that Form 5 was not required to report late filings, all
reporting persons filed on a timely basis.
<PAGE> 6
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth annual, long-term and other compensation awarded
to, earned by or paid to the Chief Executive Officer and the persons who, in
fiscal 1997, were the other four most highly compensated executive officers of
the Company (the "Named Executive Officers") for the three fiscal years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS(#) COMPENSATION
- ------------------------ ------ -------- -------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allen F. Wise (1) 1997 $464,400 $562,500 (2) $ 74,745 (3) $850,000 (4) 150,000 $22,526 (5)
President & Chief 1996 137,395 -- -- -- 400,000 240
Executive Officer 1995 -- -- -- -- -- --
Dale B. Wolf (1) 1997 $288,302 $250,000 (6) $146,614 (3) -- 100,000 $12,461 (7)
Senior Vice President, 1996 -- -- -- -- 100,000 --
Chief Financial Officer 1995 -- -- -- -- -- --
and Treasurer
Richard Jones 1997 $273,768 $185,000 (11) 0 0 50,000 $12,866 (12)
Senior Vice President 1996 $229,588 0 0 0 100,000 $ 6,750 (13)
1995 $205,000 0 0 0 25,000 $ 6,000 (13)
Robert A. Mayer 1997 $213,100 $ 30,000 (8) $ 18,750 (3) 0 200,000 $10,469 (9)
Senior Vice President 1996 --
1995 --
Joseph N. Carroll 1997 $196,600 $ 30,000 0 0 0 $11,057 (10)
Vice President 1996 $ 43,335 0 0 0 100,000 $ 264 (14)
1995 --
</TABLE>
- ------------
(1) Allen F. Wise was appointed President and Chief Executive Officer of the
Company effective October 7, 1996. Dale B. Wolf was appointed Senior Vice
President, Chief Financial Officer and Treasurer effective December 9,
1996.
(2) Includes 10,676 shares of unrestricted stock at fair market value as of
the date of grant.
(3) Relocation expenses reimbursement (taxable and nontaxable, and including
gross-up of taxable portion).
(4) Mr. Wise received a restricted stock grant for 50,000 shares of Common
Stock, the value of which has been based upon the value of the Common
Stock on the date of grant ($17, as reported on The Nasdaq National
Market). The restrictions on the restricted stock, which is not entitled
to dividends, will lapse in one-third increments annually over three
years. The value of the 50,000 shares of restricted stock as of December
31, 1997 was $762,500 (based upon the value of the Common Stock as
reported on The Nasdaq National Market on December 31, 1997 - $15 1/4).
(5) Group life insurance premium ($1,743), employer matching contribution to
the Company's Retirement Savings Plan ($4,177) and employer matching
contribution to the Company's Supplemental Executive Retirement Plan
($16,606).
(6) Includes 5,890 shares of unrestricted stock at fair market value as of
date of grant.
(7) Group life insurance premium ($510), employer matching contribution to the
Company's Retirement Savings Plan ($4,434) and employer matching
contribution to the Company's Supplemental Executive Retirement Plan
($7,517).
(8) Includes 252 shares of unrestricted stock at fair market value as of date
of grant.
(9) Group life insurance premium ($1,149), employer matching contribution to
the Company's Retirement Savings Plan ($3,089) and employer matching
contribution to the Company's Supplemental Executive Retirement Plan
($6,231)
(10) Group life insurance premium ($2,115), employer matching contribution to
the Company's Retirement Savings Plan ($2,981) and employer matching
contribution to the Company's Supplement Executive Retirement Plan
($5,961)
(11) Includes 3959 shares of unrestricted stock at fair market value as of
date of grant.
(12) Group life insurance premium ($546), employer matching contribution to the
Company's Retirement Savings Plan ($6,807) and employer matching
contribution to the Company's Supplemental Executive Retirement Plan
($5,513)
(13) Consists of employer contributions to the Company's Retirement Savings
Plan and Supplemental Executive Retirement Plan.
(14) Group life insurance premium
<PAGE> 7
The following table provides information on option grants to the Named Executive
Officers during fiscal 1997. No stock appreciation rights ("SARs") were granted
during fiscal 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION TERM
UNDERLYING OPTIONS GRANTED EXERCISE OR -----------------------------
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------ -------------- ----------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Allen F. Wise 150,000 9.9% 17.00 7/17/07 $1,603,681 $4,064,043
Dale B. Wolf 50,000 3.3% 11.625 3/27/07 $ 365,545 $ 926,363
50,000 3.3% 15.9375 7/15/07 $ 501,150 $1,270,014
Richard H. Jones 50,000 3.3% 15.9375 7/15/07 $ 501,150 $1,270,014
Robert A. Mayer 100,000 6.6% 7.3125 2/10/07 $ 459,879 $1,165,424
50,000 3.3% 11.6250 3/27/07 $ 365,545 $ 926,363
50,000 3.3% 11.125 4/14/07 $ 349,823 $ 886,519
Joseph N. Carroll -- -- -- -- -- --
</TABLE>
- ------------------
(1) Generally, all options vest in equal increments annually over a four year
period; Mr. Wise's options vest in equal increments annually over three years.
The following table provides information as to options exercised or held during
fiscal 1997 by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FY-END(#) AT FY-END
ON EXERCISE VALUE ---------------------------- -----------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------ ----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Allen F. Wise -- -- 133,333 466,667 $ 566,665 $ 1,133,335
Dale B. Wolf -- -- 25,000 175,000 $ 121,875 $ 546,875
Richard H. Jones -- -- 161,036 137,500 $ 543,537 $ 218,750
Robert A. Mayer -- -- 0 200,000 0 $ 1,181,250
Joseph N. Carroll -- -- 25,000 75,000 $ 117,188 $ 351,563
</TABLE>
DIRECTORS' COMPENSATION
All directors are reimbursed by the Company for out-of-pocket expenses incurred
in connection with attendance at meetings. Members of the Board of Directors who
are not officers or employees of the Company, its subsidiaries or affiliates
("Outside Directors") each receive an annual retainer of $16,000 paid in
quarterly installments of $4,000 each. Outside Directors also receive $1,000 for
each meeting of the Board of Directors or any committee thereof attended, and
$500 for each telephonic meeting.
Pursuant to the 1993 Outside Directors Stock Option Plan, as amended (the "1993
Directors Plan"), each director who is not an employee of or consultant to the
Company or one of its subsidiaries receives a grant of stock options for 2,000
shares, or
<PAGE> 8
6,000 shares in the case of the Chairman of the Board of Directors, of the
Company's Common Stock on January 1 of each year. Because Dr. Farley serves as a
consultant to Coventry HealthCare Management Corporation, a subsidiary of the
Company, he is eligible to receive options under the Company's stock option
plans for employees and consultants but is not eligible to receive options under
the 1993 Directors Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Allen F. Wise. Mr. Wise entered into an Employment Agreement effective October
7, 1996 for an initial term of one year (the "Initial Term"), which will
continue on a year-to-year basis as long as a new employment contract is not
executed or the agreement has not been otherwise terminated. Under the terms of
the agreement, Mr. Wise receives a base salary (currently $550,000) per year. In
addition, upon execution of the agreement, Mr. Wise received non-qualified stock
options to purchase 400,000 shares of the Company's Common Stock at an exercise
price of $11.00 per share, the fair market value per share of the Common Stock
as of October 7, 1996. These options will vest over a period of three years,
subject to acceleration in the event that substantially all of the assets or
capital stock of the Company are sold or transferred or the Company is merged or
consolidated with an unaffiliated entity. Mr. Wise is also eligible to receive
an annual incentive bonus of up to 100% of his base salary, determined 50% on
achievement of performance factors by the Company and the remainder to be
granted in the sole discretion of the Compensation and Benefits Committee of the
Board of Directors. If Mr. Wise's employment is terminated by the Company for
any reason other than cause, or he terminates his employment with the Company as
a result of a significant change in the nature or the scope of his position and
authority following a Change in Control (as defined below), the Company will
continue to pay his base salary at that time plus that portion of his annual
incentive bonus which is based on the Company's performance, if those criteria
are met, for a period of twelve months, plus any time period remaining in the
Initial Term. In consideration of these benefits, Mr. Wise agreed not to compete
with the Company during the term of his employment and for one year thereafter.
Richard H. Jones. Mr. Jones entered into an Employment Agreement with the
Company effective November 11, 1996 for an initial term of two years, which will
continue on a year-to-year basis as long as a new employment contract is not
executed or the agreement has not been otherwise terminated. Under the terms of
this agreement, Mr. Jones receives a base salary (currently $300,000) per year
and was granted non-qualified options to purchase 100,000 shares of the
Company's Common Stock at an exercise price of $12.75 per share, the fair market
value per share of the Common Stock as of September 6, 1996. These options will
vest over a period of four years, subject to acceleration in the event that
substantially all of the assets or capital stock of the Company are sold or
transferred or the Company is merged or consolidated with an unaffiliated
entity. Of the options granted to Mr. Jones under his Employment Agreement,
options to purchase 25,000 shares were exchanged for existing nonvested options
to purchase the same number of shares at a higher price. Mr. Jones is eligible
to participate in any annual incentive bonus programs available to officers of
the Company and to receive other incentive compensation as determined annually
by the Compensation and Benefits Committee of the Board of Directors.
Additionally, Mr. Jones will be eligible to receive a retention bonus in the
amount of $400,000 to be paid in full on January 31, 1999, if he is and has been
continuously employed with the Company or a subsidiary of the Company until that
time. In the event Mr. Jones terminates his employment for Good Reason (as
defined below), or in the event the Company terminates his employment for any
reason other than cause, Mr. Jones will continue to receive his yearly base
salary for a period of 24 months following termination and will be allowed to
exercise any vested options. In the event Mr. Jones' employment is terminated at
any time within three years following the occurrence of a Change in Control (as
defined below), the terms of this agreement, except with respect to the exercise
and acceleration of options to purchase Common Stock, will become null and void,
and the terms and conditions of that certain Change in Control Agreement
executed by Mr. Jones and the Company as of September 12, 1995 will control. In
consideration of these benefits, Mr. Jones agreed not to compete with the
Company during the term of his employment and for two years thereafter.
Under the terms and conditions of that Change in Control Agreement, in exchange
for an agreement not to compete with the Company for a period of one year
following the termination of his employment with the Company, Mr. Jones will
receive an amount equal to 299.99% of his base salary plus 299.99% of his annual
bonus if at any time within three years after a Change in Control (as defined
below) his employment is terminated by the Company for any reason other than
cause, or if he terminates his employment with the Company for Good Reason (as
defined below). Under this agreement, benefits are payable as follows: (i)
one-third of the total amount due will be paid in substantially equal
semi-monthly installments over the twelve months immediately following
termination of employment; and (ii) the remaining two-thirds will be paid in a
lump sum within five business days after the expiration of such twelve month
period.
<PAGE> 9
Joseph N. Carroll. Mr. Carroll entered into an Employment Agreement with the
Company dated October 14, 1996 for an initial term of one year, which will
continue on a year-to-year basis as long as a new employment contract is not
executed or the agreement has not been otherwise terminated. Under the terms of
this agreement, Mr. Carroll receives a base salary (currently $190,000 ) and
100,000 stock option shares which vest over a four-year period and accelerate in
the event substantially all of the capital stock or assets of the Company are
sold or transferred or the Company is merged into or consolidated with another
unaffiliated entity. Mr. Carroll is eligible to participate in any annual
incentive bonus programs available to officers of the Company and to receive
other incentive compensation as determined annually by the Compensation and
Benefits Committee of the Board of Directors. In the event of termination for
any reason other than cause, Mr. Carroll receives severance compensation equal
to his base salary for six months.
Robert A. Mayer. Mr. Mayer entered into an Employment Agreement with the Company
dated January 24, 1997, which has been amended by Amendment No. 1 to Employment
Agreement dated March 12, 1997. Under the terms of this agreement, Mr. Mayer
receives a base salary (currently $250,000) and 100,000 stock option shares
which vest over a three-year period and accelerate in the event substantially
all of the capital stock or assets of the Company are sold or transferred or the
Company is merged into or consolidated with another unaffiliated entity. Mr.
Mayer is eligible to participate in any annual incentive bonus programs
available to officers of the Company and to receive other incentive compensation
as determined annually by the Compensation and Benefits Committee of the Board
of Directors. The initial term of the agreement is two years; it then continues
on a year-to-year basis. In the event of termination for any reason other than
cause, Mr. Mayer receives severance equal to his base salary for 15 months.
Dale B. Wolf. Mr. Wolf entered into an Employment Agreement with the Company
dated December 30, 1996 for an initial term of one year, which will continue on
a year-to-year basis as long as a new employment contract is not executed or the
agreement has not been otherwise terminated. Under the terms of this agreement,
Mr. Wolf receives a base salary (currently $325,000) and 100,000 stock option
shares which vest over a four-year period and accelerate in the event
substantially all of the capital stock or assets of the Company are sold or
transferred or the Company is merged into or consolidated with another
unaffiliated entity. Mr. Wolf is eligible to participate in any annual incentive
bonus programs available to officers of the Company and to receive other
incentive compensation as determined annually by the Compensation and Benefits
Committee of the Board of Directors. In the event of termination for any reason
other than cause (which includes termination for Good Reason), Mr. Wolf receives
severance of his base salary for one year.
Definitions. For purposes of the agreements described above, a "Change in
Control" is defined to include any of the following events: (i) the acquisition
of at least a majority of the outstanding shares of the Company's Common Stock
by any person or entity; (ii) the merger or consolidation of the Company into or
with another entity if, as a result, the persons who owned a majority of the
Common Stock prior to the transaction do not own a majority after the
transaction; (iii) the sale of substantially all of the assets of the Company;
or (iv) any change in the composition of the Board of Directors such that
persons who at the beginning of any period of up to two years constituted at
least a majority of the Board of Directors cease to constitute at least a
majority of the Board of Directors at the end of such period.
For purposes of the agreements described above, "Good Reason" is generally
defined to include a significant change in the nature or scope of the
executive's position and authority or a reduction in base salary. In the Change
in Control Agreements, "Good Reason" also includes certain substantial
reductions in incentive compensation.
Acceleration of Other Options on a Change in Control. The Compensation and
Benefits Committee has determined that certain key executive officers who are
granted stock options under the Company's stock option plans will become fully
vested in all options granted to them if, during their employment, substantially
all of the capital stock or assets of the Company are sold or transferred, or if
the Company is merged into or consolidated with another unaffiliated entity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, no member of the Compensation and
Benefits Committee had been an officer or employee or a former officer or
employee of the Company or any of its subsidiaries. In addition, no member of
the Compensation and Benefits Committee had any relationship requiring
disclosure by the Company under applicable rules and regulations promulgated by
the Securities and Exchange Commission.
<PAGE> 10
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 13, 1998,
regarding the beneficial ownership of the Company's Common Stock by (i) each
person or group who is known by the Company to be the beneficial owner of more
than five percent of the Common Stock, (ii) all directors and nominees for
director of the Company, (iii) each executive officer named in the Executive
Compensation Table and (iv) all directors and executive officers of the Company
as a group. Information on beneficial owners other than officers or directors is
based on the most recent information filed by such beneficial owners with the
Securities and Exchange Commission. The number of shares beneficially owned by
each director or executive officer is determined under rules promulgated by the
Securities and Exchange Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. The Company believes
that each of the beneficial owners of the Common Stock listed below who is an
executive officer or director of the Company, based on the information furnished
by such owner, has sole voting and investment power (or shares such power with
his or her spouse or in the case of an entity, with its affiliates) with respect
to such shares, subject to the information contained in the notes to the table.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK PERCENT OF
BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) BENEFICIALLY OWNED
- ---------------------------------------------------------------- ----------------- ----------------------
<S> <C> <C>
Warburg Pincus Ventures, L.P. (2)............................... 6,517,047(7) 16.6%
466 Lexington Avenue
New York, NY 10017
The Crabbe Huson Group, Inc. (4)................................ 3,124,800 9.3%
121 S.W. Morrison, Suite 1400
Portland, OR 97204
Montgomery Asset Management, LLC (5)............................ 2,617,000 7.9%
101 California Street
San Francisco, CA 94111
Philip N. Bredesen (6).......................................... 1,769,271 5.3%
Office of the Mayor
107 Metropolitan Courthouse
Nashville, Tennessee 37201
John H. Austin, M.D............................................. 48,834(7) *
Laurence DeFrance............................................... 15,334(7) *
Emerson D. Farley, Jr., M.D..................................... 76,510(7) *
Patrick T. Hackett (2) (3) (8).................................. 6,527,047 16.6%
Richard H. Jones................................................ 164,995(7) *
Lawrence N. Kugelman............................................ 66,000(7) *
Rodman W. Moorhead, III (2) (3) (9)............................. 6,522,047 16.6%
Allen F. Wise................................................... 207,134(7) *
Joseph N. Carroll............................................... 34,500(7) *
Robert A. Mayer................................................. 73,085(7) *
Dale B. Wolf.................................................... 45,290(7) *
Executive Officers and Directors as a Group (21 persons)........ 2,669,047(7) 8.0%
</TABLE>
- -------------
* Less than one percent
(1) For the purpose of this table, a person or group of persons is deemed to
beneficially own shares issuable upon the exercise of warrants or options
that are currently exercisable or that will become exercisable within 60
days from the date set forth above.
<PAGE> 11
(2) According to the joint Schedule 13D (the "Joint 13D") filed by Warburg,
E.M. Warburg, Joel Ackerman, Jonathan S. Leff, Patrick T. Hackett and
Warburg, Pincus & Co. ("WP"), E.M. Warburg is a New York limited
liability company that manages Warburg, a Delaware limited partnership,
and WP is a New York general partnership that is the sole general partner
of Warburg Ventures. WP has a 15% interest in the profits of Warburg as
general partner and also owns approximately 1.2% of the limited
partnership interests of Warburg. According to the Joint 13D, Lionel I.
Pincus is the managing partner of WP and the managing member of E.M.
Warburg and may be deemed to control both WP and E.M. Warburg. The Joint
13D indicates that Joel Ackerman, Jonathan S. Leff and Patrick T. Hackett
(the "Trustees"), have been appointed as voting trustees under a Voting
Trust Agreement, dated April 15, 1997, relating to all shares of Coventry
Preferred Stock or Coventry Common Stock that Warburg may acquire. Mr.
Leff is an employee of E.M. Warburg, and Messrs. Ackerman, Hackett and
Rodman W. Moorhead, III are general partners of WP and Managing Directors
and members of E.M. Warburg and Messrs. Hackett and Moorhead are
directors of Coventry. As partners of WP, Messrs. Hackett and Moorhead
may be deemed to have an indirect pecuniary interest (within the meaning
of Rule 16a-1 under the Securities Exchange Act of 1934) in an
indeterminate portion of the shares beneficially owned by Warburg and WP.
The address of each of the voting trustees is 466 Lexington Avenue, New
York, N.Y. 10017. Under the terms of the Voting Trust Agreement, the
Trustees, acting by majority vote, have exclusive authority to vote the
shares held pursuant to the Voting Trust Agreement for the ten year term
of the Voting Trust Agreement. The Voting Trust Agreement will terminate
earlier if Warburg shall be deemed to beneficially own less than ten
percent of the Common Stock and shall give notice of termination to the
Trustees. Under the terms of the warrants held by Warburg, the warrant
shall not be exercisable as to any shares, the ownership of which by
Warburg would require approval under various state laws, unless and until
such regulatory approval has been obtained.
(3) Shares shown as beneficially owned by Warburg consist of 655,000 shares
of Common Stock, 3,749,400 shares of Coventry Common Stock that may be
acquired on conversion of $37,494,000 in aggregate principal amount of
the Coventry Convertible Notes held by Warburg (or on conversion of
Coventry Preferred Stock if authorized and issued in exchange for the
Coventry Convertible Notes) and warrants to purchase 2,117,647 shares of
Coventry Common Stock held by Warburg Ventures.
(4) According to its most recent Schedule 13G, The Crabbe Huson Group, Inc.
is an Oregon corporation.
(5) According to its most recent Schedule 13G, Montgomery Asset Management,
LLC is a Delaware limited liability company.
(6) Mr. Bredesen's shares are owned jointly by his wife, Andrea Conte.
(7) Includes the following shares issuable upon exercise of stock options
which are currently exercisable or which will become exercisable within
60 days of the date set forth above: John H. Austin, M.D., 21,334 shares
subject to options; Laurence DeFrance, 13,334 shares subject to options;
Emerson D. Farley, Jr., M.D., 9,500 shares subject to options; Richard H.
Jones, 161,036 shares subject to options; Lawrence N. Kugelman, 31,000
shares subject to options; Allen F. Wise, 133,333 shares subject to
options; Joseph N. Carroll, 25,000 shares subject to options; Robert A.
Mayer, 58,333 shares subject to options; Dale B. Wolf, 37,500 shares
subject to options; and all executive officers and directors as a group
(21 persons), 631,747 shares subject to options.
(8) Mr. Hackett disclaims beneficial ownership of the Common Stock owned by
Warburg or that may be acquired by Warburg on conversion of the
Convertible Exchangeable Senior Subordinated Notes, the Series A
Preferred Stock (if issued in exchange for the notes) or on the exercise
of warrants. See Notes 2 and 3 above.
(9) Mr. Moorhead disclaims beneficial ownership of the Common Stock owned by
Warburg or that may be acquired by Warburg on conversion of the
Convertible Exchangeable Senior Subordinated Notes, the Series A
Preferred Stock (if authorized and issued in exchange for the notes) or
on the exercise of warrants. See Notes 2 and 3 above.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Dr. Emerson D. Farley, Jr. entered into a Consulting Agreement
dated as of January 1, 1995, under the terms of which Dr. Farley provides
consulting services to Coventry HealthCare Management Corporation, the Company's
subsidiary headquartered in Richmond, Virginia, in exchange for a fee of $72,000
per annum ($6,000 per month), the option to purchase 10,000 shares of the
Company's Common Stock at an exercise price of $24.50 per share, and a
non-compete agreement in force during the term of the Agreement and for one year
thereafter. The Agreement is for an annually-renewing period of one year and may
be terminated by either party giving the other party sixty (60) days prior
written notice of such termination.
Rodman W. Moorhead, III and Patrick T. Hackett are Senior Managing Director and
Managing Director, respectively, of E.M. Warburg, which manages Warburg
Ventures. During 1997, the Company issued warrants to purchase 2,117,647 shares
of Coventry Common Stock at $10.625 per share and Convertible Notes in
aggregate principal amount of $37,494,000 to Warburg Ventures. See footnote 2
to the beneficial ownership table in Item 12 above for additional information.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COVENTRY CORPORATION
By: /s/ Dale B. Wolf Senior Vice President, Chief Financial Officer,
------------------------ Treasurer and Principal Accounting Officer
Dale B. Wolf
Dated: April 29, 1998
<PAGE> 13
INDEX TO EXHIBITS
Reg. S-K
Item 601
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
<S> <C>
10.1 Coventry Corporation 1997 Stock Incentive Plan, as amended.
</TABLE>
<PAGE> 1
Exhibit 10.1
COVENTRY CORPORATION
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Coventry Corporation 1997 Stock Incentive Plan (the
"Plan") is to enable Coventry Corporation (the "Company"), to attract, retain
and reward key employees of and consultants to the Company and its Subsidiaries
and Affiliates, and directors who are not also employees of the Company, and to
strengthen the mutuality of interests between such key employees, consultants,
and directors by awarding such key employees, consultants, and directors
performance-based stock incentives and/or other equity interests or equity-based
incentives in the Company, as well as performance-based incentives payable in
cash. The creation of the Plan shall not diminish or prejudice other
compensation programs approved from time to time by the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Company.
C. "Cause" has the meaning provided in Section 5(j) of the Plan.
D. "Change in Control" has the meaning provided in Section 10(b) of the
Plan.
E. "Change in Control Price" has the meaning provided in Section 10(d)
of the Plan.
F. "Common Stock" means the Company's Common Stock, par value $.01
per share.
G. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
H. "Committee" means the Committee referred to in Section 2 of the
Plan.
I. "Corporation" means, a corporation organized under the laws of the
State of Tennessee or any successor corporation.
J. "Disability" means disability as determined under the Company's
Group Long Term Disability Insurance Plan.
<PAGE> 2
K. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate
prior to age 65, in accordance with any applicable early retirement policy of
the Company then in effect or as may be approved by the Committee.
L. "Effective Date" has the meaning provided in Section 14 of the Plan.
M. "Equity Issuance" means an issuance of Common Stock by the
Company following the Effective Date of this Plan in connection with a public or
private offering, including in connection with an acquisition, merger or similar
transaction, but excluding issuances of Common Stock under this Plan or in any
other compensatory transaction with an officer or employee of, or consultant to,
the Company or its Subsidiaries or Affiliates.
N. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
O. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on The Nasdaq
National Market or such other market or exchange as is the principal trading
market for the Common Stock, or, if no such sale of a share of Common Stock is
reported on The Nasdaq National Market or other exchange or principal trading
market on such date, the fair market value of a share of Common Stock as
determined by the Committee in good faith.
P. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
Q. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
R. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
S. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
T. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
2
<PAGE> 3
U. "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based on, the
Common Stock.
V. "Outside Director" means a member of the Board who is not an officer
or employee of the Company or any Subsidiary or Affiliate of the
Company.
W. "Outside Director Option" means an award to an Outside Director
under Section 9 below.
X. "Plan" means this 1997 Stock Incentive Plan, as amended from time
to time.
Y. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 7 of the Plan.
Z. "Restriction Period" has the meaning provided in Section 7 of the
Plan.
AA. "Retirement" means Normal or Early Retirement.
BB. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
CC. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Common Stock covered by such Stock
Option (or such portion thereof), subject, where applicable, to the pricing
provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
DD. "Stock Option" or "Option" means any option to purchase shares of
Common Stock (including Restricted Stock, if the Committee so determines)
granted pursuant to Section 5 below.
EE. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Non-Employee Directors. The initial Committee shall be
3
<PAGE> 4
the Compensation Committee of the Board. In the event there are not at least two
Non-Employee Directors on the Board, the Plan shall be administered by the Board
and all references herein to the Committee shall refer to the Board.
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other key employees, Outside Directors and consultants
eligible under Section 4: (i) Stock Options, (ii) Stock Appreciation Rights,
(iii) Restricted Stock, and/or (iv) Other Stock-Based Awards; provided, however,
that the power to grant and establish the terms and conditions of awards to
Outside Directors under the Plan other than pursuant to Section 9 shall be
reserved to the Board.
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees and Outside
Directors of and consultants to the Company and its Subsidiaries
and Affiliates to whom Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards may from time to time
be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible persons;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of Common
Stock relating thereto, based in each case on such factors as the
Committee shall determine, in its sole discretion); and to amend or
waive any such terms and conditions to the extent permitted by Section
11 hereof;
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash or Restricted Stock under Section 5(m) or
(n), as applicable, instead of Common Stock;
(f) to determine whether, to what extent, and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan;
4
<PAGE> 5
(g) to determine whether, to what extent, and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(h) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(i) to impose any holding period required to satisfy Section
16 under the Exchange Act.
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares of Common
Stock that may be issued under the Plan shall be 7,000,000 shares. The shares of
Common Stock issuable under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. No officer of the Corporation
or other person whose compensation may be subject to the limitations on
deductibility under Section 162(m) of the Code shall be eligible to receive
awards pursuant to this Plan relating to in excess of 400,000 shares of Common
Stock in any fiscal year (the "Section 162(m) Maximum").
(b) If any shares of Common Stock that have been optioned cease to be
subject to a Stock Option, or if any shares of Common Stock that are subject to
any Restricted Stock or Other Stock-Based Award granted hereunder are forfeited
prior to the payment of any dividends, if applicable, with respect to such
shares of Common Stock, or any such award otherwise terminates without a payment
being made to the participant in the form of Common Stock, such shares shall
again be available for distribution in connection with future awards under the
Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure affecting the Common Stock, an appropriate
substitution or adjustment shall be made in the maximum number of shares that
may be awarded under the Plan, in the number and option price
5
<PAGE> 6
of shares subject to outstanding Options granted under the Plan, in the number
of shares underlying Outside Director Options to be granted under Section 9
hereof, the Section 162(m) Maximum and in the number of shares subject to other
outstanding awards granted under the Plan as may be determined to be appropriate
by the Committee, in its sole discretion, provided that the number of shares
subject to any award shall always be a whole number. An adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees and Outside Directors of and consultants
to the Company and its Subsidiaries and Affiliates who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Company and/or its Subsidiaries and Affiliates are eligible to be granted
awards under the Plan. Outside Directors are eligible to receive awards pursuant
to Section 9 and as otherwise determined by the Board.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may
be granted only to individuals who are employees of the Company or any
Subsidiary of the Company.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Options granted to officers, key employees, Outside Directors and
consultants under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% (or, in the case
of any employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or of
any of its Subsidiaries, not less than 110%) of the Fair Market Value
of the Common Stock at grant, in the case of Incentive Stock Options,
and not less than 50% of the Fair Market Value of the Common Stock at
grant, in the case of Non-Qualified Stock Options.
6
<PAGE> 7
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years (or, in the case of an employee who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its Subsidiaries or
parent corporations, more than five years) after the date the Option is
granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that
except as provided in Section 5(g) and (h) and Section 10, unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable prior to the first anniversary date of the
granting of the Option. The Committee may provide that a Stock Option
shall vest over a period of future service at a rate specified at the
time of grant, or that the Stock Option is exercisable only in
installments. If the Committee provides, in its sole discretion, that
any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after
grant, in whole or in part, based on such factors as the Committee
shall determine in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise restrictions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by check, note, or such
other instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or (except in the case of an
Incentive Stock Option) after grant, payment in full or in part may
also be made in the form of shares of Common Stock already owned by the
optionee or, in the case of a Non-Qualified Stock Option, shares of
Restricted Stock or shares subject to such Option or another award
hereunder (in each case valued at the Fair Market Value of the Common
Stock on the date the Option is exercised). If payment of the exercise
price is made in part or in full with Common Stock, the Committee may
award to the employee a new Stock Option to replace the Common Stock
which was surrendered. If payment of the option exercise price of a
Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock, such Restricted Stock (and any replacement shares
relating thereto) shall remain (or be) restricted in accordance with
the original terms of the Restricted Stock award in question, and any
additional Common Stock received upon the exercise shall be subject to
the same forfeiture restrictions, unless otherwise determined by the
Committee, in its sole discretion, at or after grant. No shares of
Common Stock shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other
rights of a shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid in
full for such shares, and, if requested, has given the representation
described in Section 13(a).
7
<PAGE> 8
(e) Transferability of Options. No Non-Qualified Stock Option
shall be transferable by the optionee without the prior written consent
of the Committee other than (i) transfers by the Optionee to a member
of his or her Immediate Family or a trust for the benefit of the
optionee or a member of his or her Immediate Family, or (ii) transfers
by will or by the laws of descent and distribution. No Incentive Stock
Option shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and all Incentive Stock Options
shall be exercisable, during the optionee's lifetime, only by the
optionee.
(f) Bonus for Taxes. In the case of a Non-Qualified Stock
Option or an optionee who elects to make a disqualifying disposition
(as defined in Section 422(a)(1) of the Code) of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, the Committee in
its discretion may award at the time of grant or thereafter the right
to receive upon exercise of such Stock Option a cash bonus calculated
to pay part or all of the federal and state, if any, income tax
incurred by the optionee upon such exercise.
(g) Termination by Death. Subject to Section 5(k), if an
optionee's employment by the Company and any Subsidiary or (except
in the case of an Incentive Stock Option) Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter
be exercised, to the extent such option was exercisable at the time of
death or (except in the case of an Incentive Stock Option) on such
accelerated basis as the Committee may determine at or after grant (or
except in the case of an Incentive Stock Option, as may be determined
in accordance with procedures established by the Committee) by the
legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such other
period as the Committee may specify at or after grant) from the date of
such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(h) Termination by Reason of Disability. Subject to Section
5(k), if an optionee's employment by the Company and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (i) three years (or such
other period as the Committee may specify at or after grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter, in
the case of a Non-Qualified Stock Option and (ii) one year from the
date of termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter, in the case of
an Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
committee shall specify at or after grant), any unexercised Non-
8
<PAGE> 9
Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of any period that would apply if
such Stock Option were a Non-Qualified Stock Option, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section
5(k), if an optionee's employment by the Company and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to
the extent it was exercisable at the time of such Retirement or (except
in the case of an Incentive Stock Option) on such accelerated basis as
the Committee may determine at or after grant (or, except in the case
of an Incentive Stock Option, as may be determined in accordance with
procedures established by the Committee), for a period of (i) three
years (or such other period as the Committee may specify at or after
grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the case of a Non-Qualified Stock Option and (ii) three
months from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the event of an Incentive Stock Option; provided
however, that, if the optionee dies within the period specified in (i)
above (or other such period as the Committee shall specify at or after
grant), any unexercised Non-Qualified Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination
of employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise period applicable to
Incentive Stock Options, but before the expiration of the period that
would apply if such Stock Option were a Non-Qualified Stock Option, the
option will thereafter be treated as a Non-Qualified Stock Option.
(j) Other Termination. Subject to Section 5(k), unless
otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or (except in the case of an Incentive
Stock Option) after grant, if an optionee's employment by the Company
and any Subsidiary or (except in the case of an Incentive Stock Option)
Affiliate is involuntarily terminated for any reason other than death,
Disability or Normal or Early Retirement, the Stock Option shall
thereupon terminate, except that such Stock Option may be exercised, to
the extent otherwise then exercisable, for the lesser of three months
or the balance of such Stock Option's term if the involuntary
termination is without Cause. For purposes of this Plan, "Cause" means
(i) a felony conviction of a participant or the failure of a
participant to contest prosecution for a
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<PAGE> 10
felony, or (ii) a participant's willful misconduct or dishonesty, which
is directly and materially harmful to the business or reputation of the
Corporation or any Subsidiary or Affiliate. If an optionee voluntarily
terminates employment with the Company and any Subsidiary or
(except in the case of an Incentive Stock Option) Affiliate (except for
Disability, Normal or Early Retirement), the Stock Option shall
thereupon terminate; provided, however, that the Committee at grant or
(except in the case of an Incentive Stock Option) thereafter may extend
the exercise period in this situation for the lesser of three months or
the balance of such Stock Option's term.
(k) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or, without the
consent of the optionee(s) affected, to disqualify any Incentive Stock
Option under such Section 422. No Incentive Stock Option shall be
granted to any participant under the Plan if such grant would cause the
aggregate Fair Market Value (as of the date the Incentive Stock Option
is granted) of the Common Stock with respect to which all Incentive
Stock Options are exercisable for the first time by such participant
during any calendar year (under all such plans of the Company and any
Subsidiary) to exceed $100,000. To the extent permitted under Section
422 of the Code or the applicable regulations thereunder or any
applicable Internal Revenue Service pronouncement:
(i) if (x) a participant's employment is
terminated by reason of death, Disability, or Retirement and
(y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period
specified under Section 5(g), (h) or (i), applied without
regard to the $100,000 limitation contained in Section 422(d)
of the Code, is greater than the portion of such Option that
is immediately exercisable as an "Incentive Stock Option"
during such post-termination period under Section 422, such
excess shall be treated as a Non-Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option
is accelerated by reason of a Change in Control, any portion
of such Option that is not exercisable as an Incentive Stock
Option by reason of the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a Non-Qualified
Stock Option.
(l) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash, Common Stock, or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time
that such offer is made.
(m) Settlement Provisions. If the option agreement so provides
at grant or (except in the case of an Incentive Stock Option) is
amended after grant and prior to
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<PAGE> 11
exercise to so provide (with the optionee's consent), the Committee may
require that all or part of the shares to be issued with respect to the
spread value of an exercised Option take the form of Restricted Stock,
which shall be valued on the date of exercise on the basis of the Fair
Market Value (as determined by the Committee) of such Restricted Stock
determined without regards to the forfeiture restrictions involved.
(n) Performance and Other Conditions. The Committee may
condition the exercise of any Option upon the attainment of specified
performance goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the option
agreement, any such conditional Option shall vest immediately prior to
its expiration if the conditions to exercise have not theretofore been
satisfied.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such
Stock Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of such Stock Option. A Stock
Appreciation Right or applicable portion thereof granted with respect
to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject
to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full number
of shares covered by a related Stock Option. A Stock Appreciation Right
may be exercised by an optionee, subject to Section 6(b), in accordance
with the procedures established by the Committee for such purpose. Upon
such exercise, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be
exercisable to the extent that the related Stock Appreciation Rights
have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6
of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash
and/or shares of Common Stock equal in value to the excess of
the Fair Market Value of one share of Common Stock over
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<PAGE> 12
the option price per share specified in the related Stock
Option multiplied by the number of shares in respect of which
the Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of
payment. When payment is to be made in shares, the number of
shares to be paid shall be calculated on the basis of the Fair
Market Value of the shares on the date of exercise. When
payment is to be made in cash, such amount shall be calculated
on the basis of the Fair Market Value of the Common Stock on
the date of exercise.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option
would be transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Common Stock
to be issued under the Plan.
(v) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a
Potential Change in Control, the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the
Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
(vi) The Committee may condition the exercise of any
Stock Appreciation Right upon the attainment of specified
performance goals or other factors as the Committee may
determine, in its sole discretion.
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee
shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares of
Restricted Stock to be awarded to any person, the price (if any) to be
paid by the recipient of Restricted Stock (subject to Section 7(b)),
the time or times within which such awards may be subject to
forfeiture, and the other terms, restrictions and conditions of the
awards in addition to those set forth in Section 7(c). The Committee
may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee may
determine, in its sole discretion. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
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<PAGE> 13
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to
the Company, and has otherwise complied with the applicable terms and
conditions of such award.
(i) The purchase price for shares of Restricted Stock
shall be established by the Committee and may be zero.
(ii) Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the
Committee may specify at grant) after the award date, by
executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock
award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock award, the
participant shall have delivered a stock power, endorsed in
blank, relating to the shares of Common Stock covered by such
award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) In accordance with the provisions of this Plan
and the award agreement, during a period set by the Committee
commencing with the date of such award (the "Restriction
Period"), the participant shall not be permitted to sell,
transfer, pledge, assign, or otherwise encumber shares of
Restricted Stock awarded under the Plan. Within these limits,
the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate
or waive such restrictions, in whole or in part, based on
service, performance, such other factors or criteria as the
Committee may determine in its sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 7(c)(i), the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The
Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines,
reinvested, subject
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<PAGE> 14
to Section 14(e), in additional Restricted Stock to the extent
shares are available under Section 3, or otherwise reinvested.
Pursuant to Section 3 above, stock dividends issued with
respect to Restricted Stock shall be treated as additional
shares of Restricted Stock that are subject to the same
restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued. If the
Committee so determines, the award agreement may also impose
restrictions on the right to vote and the right to receive
dividends.
(iii) Subject to the applicable provisions of the
award agreement and this Section 7, upon termination of a
participant's employment with the Company and any
Subsidiary or Affiliate for any reason during the Restriction
Period, all shares still subject to restriction will vest, or
be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
(iv) If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, certificates for an appropriate
number of unrestricted shares shall be delivered to the
participant promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Common Stock to the
recipient of a restricted stock award, subject to such performance,
future service, deferral, and other terms and conditions as may be
specified by the Committee.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including,
without limitation, performance shares, convertible preferred stock,
convertible debentures, exchangeable securities and Common Stock awards
or options valued by reference to earnings per share or Subsidiary
performance, may be granted either alone, in addition to, or in tandem
with Stock Options, Stock Appreciation Rights, or Restricted Stock
granted under the Plan and cash awards made outside of the Plan;
provided that no such Other Stock-Based Awards may be granted in tandem
with Incentive Stock Options if that would cause such Stock Options not
to qualify as Incentive Stock Options pursuant to Section 422 of the
Code. Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at
which such awards shall be made, the number of shares of Common Stock
to be awarded pursuant to such awards, and all other conditions of the
awards. The Committee may also provide for the grant of Common Stock
upon the completion of a specified performance period. The provisions
of Other Stock-Based Awards need not be the same with respect to each
recipient.
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<PAGE> 15
(b) Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Shares subject to awards under this Section 8 and
the award agreement referred to in Section 8(b)(v) below, may
not be sold, assigned, transferred, pledged, or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction,
performance, or deferral period lapses.
(ii) Subject to the provisions of this Plan and the
award agreement and unless otherwise determined by the
Committee at grant, the recipient of an award under this
Section 8 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend
equivalents with respect to the number of shares covered by
the award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have
been reinvested in additional shares of Common Stock or
otherwise reinvested.
(iii) Any award under Section 8 and any shares of
Common Stock covered by any such award shall vest or be
forfeited to the extent so provided in the award agreement, as
determined by the Committee in its sole discretion.
(iv) In the event of the participant's Retirement,
Disability, or death, or in cases of special circumstances,
the Committee may, in its sole discretion, waive in whole or
in part any or all of the remaining limitations imposed
hereunder (if any) with respect to any or all of an award
under this Section 8.
(v) Each award under this Section 8 shall be
confirmed by, and subject to the terms of, an agreement or
other instrument by the Corporation and the participant.
(vi) Common Stock (including securities convertible
into Common Stock) issued on a bonus basis under this Section
8 may be issued for no cash consideration. Common Stock
(including securities convertible into Common Stock) purchased
pursuant to a purchase right awarded under this Section 8
shall be priced at least 85% of the Fair Market Value of the
Common Stock on the date of grant.
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<PAGE> 16
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of (1) a "Change in Control"
as defined in Section 9(b); or (2) a "Potential Change in Control" as
defined in Section 9(c), but only if and to the extent so determined
by the Committee or the Board at or after grant (subject to any right
of approval expressly reserved by the Committee or the Board at the
time of such determination),
(i) Subject to the limitations set forth below in
this Section 9(a), the following acceleration provisions shall
apply:
(a) Any Stock Appreciation Rights or any
Stock Option awarded under the Plan not previously
exercisable and vested shall become fully exercisable
and vested.
(b) The restrictions applicable to any
Restricted Stock and Other Stock-Based Awards, in
each case to the extent not already vested under the
Plan, shall lapse and such shares and awards shall be
deemed fully vested.
(ii) Subject to the limitations set forth below in
this Section 9(a), the value of all outstanding Stock Options,
Stock Appreciation Rights, Restricted Stock, and Other
Stock-Based Awards, in each case to the extent vested, shall,
unless otherwise determined Board or by the Committee
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<PAGE> 17
in its sole discretion prior to any Change in Control, be
cashed out on the basis of the "Change in Control Price" as
defined in Section 9(d) as of the date such Change in Control
or such Potential Change in Control is determined to have
occurred or such other date as the Board or Committee may
determine prior to the Change in Control.
(iii) The Board or the Committee may impose
additional conditions on the acceleration or valuation of any
award in the award agreement.
(b) Definition of Change in Control. For purposes of Section
9(a), a "Change in Control" means the happening of any of the
following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its
Subsidiaries, becomes the beneficial owner of the Company's
securities having 35% or more of the combined voting power of
the then outstanding securities of the Company that may be
cast for the election of directors of the Company (other than
as a result of (A) an issuance of securities initiated by the
Company in the ordinary course of business or (B) a merger,
share exchange, sale of assets or other business combination
or combinations of the foregoing transactions approved by a
majority of the Board of Directors and in which a majority of
the combined voting power of the then outstanding securities
of the Company or any successor Company or entity entitled to
vote generally in the election of directors of the Company or
such other Company or entity after such transaction are held
in the aggregate by holders of the Company's securities
entitled to vote generally in the election of directors of the
Company immediately prior to such transaction);
(ii) as the result of, or in connection with, any
cash tender or exchange offer, merger or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Company or any successor corporation or
entity entitled to vote generally in the election of the
directors of the Company or such other Company or entity
after such transaction are held in the aggregate by the
holders of the Company's securities entitled to vote generally
in the election of directors of the Company immediately prior
to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's shareholders, of each director of
the Company first elected during such period was approved by a
vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the
beginning of any such period.
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(c) Definition of Potential Change in Control. For purposes of
Section 9(a), a "Potential Change in Control" means the happening of
any one of the following:
(i) The approval by shareholders of an agreement by
the Company, the consummation of which would result in a
Change in Control of the Company as defined in Section 9(b);
or
(ii) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Company or a Subsidiary or any Company employee
benefit plan (including any trustee of such plan acting as
such trustee)) of securities of the Company representing 5% or
more of the combined voting power of the Company's outstanding
securities and the adoption by the Committee of a resolution
to the effect that a Potential Change in Control of the
Company has occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 10,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the The Nasdaq National Market or such other
exchange or market as is the principal trading market for the Common
Stock, or paid or offered in any bona fide transaction related to a
Potential or actual Change in Control of the Company at any time
during the 60 day period immediately preceding the occurrence of the
Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on transactions reported for the date on which the
optionee exercises such Stock Appreciation Rights or, where applicable,
the date on which a cash out occurs under Section 10(a)(ii).
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter or discontinue the Plan;
provided, however, that, without the approval of the Company's shareholders,
no amendment or alteration may be made which would (a) except as a result of the
provisions of Section 3(c) of the Plan, increase the maximum number of shares
that may be issued under the Plan or increase the Section 162(m) Maximum, (b)
change the provisions governing Incentive Stock Options except as required or
permitted under the provisions governing incentive stock options under the Code,
or (c) make any change for which applicable law or regulatory authority
(including the regulatory authority of the The Nasdaq National Market or any
other market or exchange on which the Common Stock is traded) would require
shareholder approval or for which shareholder approval would be required to
secure full deductibility of compensation received under the Plan under Section
162(m) of the Code. No amendment, alteration, or discontinuation shall be made
which would impair the rights of an optionee or participant under a Stock
Option, Stock Appreciation Right, Restricted Stock,
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<PAGE> 19
Other Stock-Based Award or Outside Director Option theretofore granted, without
the participant's consent.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices. Solely
for purposes of computing the Section 162(m) Maximum, if any Stock Options or
other awards previously granted to a participant are canceled and new Stock
Options or other awards having a lower exercise price or other more favorable
terms for the participant are substituted in their place, both the initial Stock
Options or other awards and the replacement Stock Options or other awards will
be deemed to be outstanding (although the canceled Stock Options or other awards
will not be exercisable or deemed outstanding for any other purposes).
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or payments in lieu of or with
respect to awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected participant, the existence
of such trusts or other arrangements is consistent with the "unfunded" status of
the Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent
to and agree with the Corporation in writing that the optionee or
participant is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for shares of Common Stock or other
securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
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<PAGE> 20
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Company or any Subsidiary or Affiliate any right to
continued employment with the Company or a Subsidiary or Affiliate,
as the case may be, nor shall it interfere in any way with the right of
the Company or a Subsidiary or Affiliate to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes
of any kind required by law to be withheld with respect to such amount.
The Committee may require withholding obligations to be settled with
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements and the Company and its Subsidiaries or Affiliates
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Common Stock are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options
and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Company) or paid by them in
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satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his duties; provided
that within 60 days after institution of any such action, suit or
proceeding, the Committee member shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award or other right issued under this Plan
is transferable by the participant without the prior written consent of
the Committee, or, in the case of an Outside Director, the Board, other
than (i) transfers by an optionee to a member of his or her Immediate
Family or a trust for the benefit of the optionee or a member of his or
her Immediate Family or (ii) transfers by will or by the laws of
descent and distribution. The designation of a beneficiary will not
constitute a transfer.
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective upon approval by the Board of the
Company and by a majority of the votes cast by the holders of the
Company's Common Stock.
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock award,
Other Stock-Based Award or Outside Director Option award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date of
the Plan, but awards granted prior to such tenth anniversary may be extended
beyond that date.
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