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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
HEALTH RISK MANAGEMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
HEALTH RISK MANAGEMENT, INC.
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 17, 1997
------------------------
TO THE SHAREHOLDERS OF HEALTH RISK MANAGEMENT, INC.:
The 1997 Annual Meeting of Shareholders of Health Risk Management, Inc. will
be held at the Company's corporate offices, fourth floor, 7900 West 78th Street,
Minneapolis, Minnesota, on Tuesday, June 17, 1997 at 1:00 p.m., Minnesota time,
for the following purposes:
1. To elect Class B directors.
2. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year.
3. To amend the Amended and Restated 1992 Long-Term Incentive Plan to
increase the number of shares authorized for issuance thereunder from
400,000 to 800,000.
4. To take action upon any other business that may properly come before the
meeting or any adjournment thereof.
Only shareholders of record shown on the books of the Company at the close
of business on May 9, 1997, will be entitled to vote at the meeting or any
adjournment thereof. Each shareholder is entitled to one vote per share on all
matters to be voted on at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, please sign, date and return your Proxy in
the return envelope provided as soon as possible. Your cooperation in promptly
signing and returning your Proxy will help avoid further solicitation expense by
the Company.
This Notice, the Proxy Statement and the enclosed Proxy are sent to you by
order of the Board of Directors.
Marlene Travis
PRESIDENT, CHIEF OPERATING OFFICER AND
SECRETARY
Dated: May 19, 1997
Minneapolis, Minnesota
<PAGE>
HEALTH RISK MANAGEMENT, INC.
---------------
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 17, 1997
------------------------
INTRODUCTION
Your Proxy is solicited by the Board of Directors of Health Risk Management,
Inc. (the "Company") for use at the 1997 Annual Meeting of Shareholders to be
held on June 17, 1997, and at any adjournment thereof, for the purposes set
forth in the attached Notice of Annual Meeting.
The cost of soliciting Proxies, including preparing, assembling and mailing
the Proxies and soliciting material, will be borne by the Company. Directors,
officers and regular employees of the Company may, without compensation other
than their regular compensation, solicit Proxies personally or by telephone. The
Company also has retained Georgeson & Company, Inc., a firm that provides
professional proxy soliciting services, to aid in the solicitation of proxies
for a fee of approximately $7,000.00 and reimbursement of certain out-of-pocket
expenses.
Any shareholder giving a Proxy may revoke it at any time prior to its use at
the Annual Meeting by giving written notice of such revocation to the Secretary
or other officer of the Company or by filing a new written Proxy with an officer
of the Company. Personal attendance at the Annual Meeting is not, by itself,
sufficient to revoke a Proxy unless written notice of the revocation or a
subsequent Proxy is delivered to an officer before the revoked or superseded
Proxy is used at the Annual Meeting.
Proxies not revoked will be voted in accordance with the choice specified by
shareholders by means of the ballot provided on the Proxy for that purpose.
Proxies which are signed but which lack any such specification will, subject to
the following, be voted in favor of the proposals set forth in the Notice of
Meeting and in favor of the slate of directors proposed by the Board of
Directors and listed herein. If a shareholder abstains from voting as to any
matter, then the shares held by such shareholder shall be deemed present at the
Meeting for purposes of determining a quorum and for purposes of calculating the
vote with respect to such matter, but shall not be deemed to have been voted in
favor of such matter. Abstentions, therefore, as to any proposal will have the
same effect as votes against such proposal. If a broker returns a "non-vote"
proxy, indicating a lack of voting instruction by the beneficial holder of the
shares and a lack of discretionary authority on the part of the broker to vote
on a particular matter, then the shares covered by such non-vote shall be deemed
present at the Meeting for purposes of determining a quorum but shall not be
deemed to be represented at the Meeting for purposes of calculating the vote
required for approval of such matter.
The mailing address of the Company's principal executive office is 8000 West
78th Street, Minneapolis, Minnesota 55439. The Company expects that this Proxy
Statement and the related Proxy and Notice of Annual Meeting will first be
mailed to shareholders on or about May 19, 1997.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed May 9, 1997, as the record
date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will
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not be allowed to vote at the Annual Meeting. At the close of business on May 9,
1997, 4,465,726 shares of the Company's Common Stock, par value $.01, were
issued and outstanding. Such $.01 par value Common Stock is the only outstanding
class of stock of the Company. A quorum (a majority of the outstanding shares)
must be represented at the meeting in person or by Proxy to transact business.
Each share of Common Stock is entitled to one vote. Holders of the Common Stock
are not entitled to cumulative voting rights in the election of directors.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned by each person known to the Company to beneficially own
more than 5% of the Company's Common Stock, by each of the Company's current
directors and nominees for director, by each executive officer named in the
Summary Compensation Table (on page 10), and by all of the Company's current
directors and current executive officers as a group, as of May 9, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF DIRECTOR, EXECUTIVE OFFICER OR IDENTITY OF GROUP OWNED(1) CLASS
- ------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
NOLA, LLC ................................................... 293,565(2) 6.57%
916 Sommerset Street
Watchung, NJ 07060
Chiplease, Inc. ............................................. 270,000(3) 6.05%
640 N. LaSalle Street, Suite 300
Chicago, IL 60610
Gary T. McIlroy, M.D. ....................................... 305,205(4) 6.68%
8000 West 78th Street
Minneapolis, MN 55439
Marlene Travis .............................................. 351,039(5) 7.73%
8000 West 78th Street
Minneapolis, MN 55439
Thomas P. Clark.............................................. 86,121(6) 1.92%
Adele M. Kimpell............................................. 7,000(7) *
A. Charles Bredesen.......................................... 0 *
Vance Kenneth Travis......................................... 12,000(8) *
Ronald R. Hahn............................................... 9,500 (9) *
Robert L. Montgomery......................................... 18,778 10) *
Gary L. Damkoehler........................................... 1,267 11) *
Raymond G. Schultze, M.D..................................... 1,267 12) *
All Current Executive Officers and Current Directors as a
Group (12 persons)......................................... 816,127 13) 17.21 %
</TABLE>
- ------------------------
* Less than one percent.
(1) Except as otherwise noted, each person or group named in the table has sole
voting and investment power with respect to all shares of Common Stock
listed opposite the name of such person or group. Shares not outstanding but
deemed beneficially owned by virtue of the right of a person to acquire them
as of May 9, 1997, or within 60 days of such date are treated as outstanding
only when determining the amount and percent owned by such person or group
named in the table.
(2) Includes 293,565 shares for which NOLA, LLC represents it has sole voting
power and which was owned on May 1, 1997, the date of the most recent
Schedule 13D received by the Company from such shareholder.
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(3) Includes 270,000 shares for which Chiplease, Inc. represents it has sole
voting power and which was owned on March 21, 1997, the date of the most
recent Schedule 13D received by the Company from such shareholder.
(4) The number of shares set forth in the above table (i) includes 201,774
shares held by the Gary T. McIlroy Revocable Trust, for which Dr. McIlroy is
grantor and trustee, (ii) includes 103,431 shares which Dr. McIlroy has the
right to acquire upon exercise of options, (iii) excludes 75 shares
beneficially owned by Dr. McIlroy's and Ms. Travis' adult children, and (iv)
excludes the shares beneficially owned by Ms. Travis. Dr. McIlroy disclaims
beneficial ownership of such excluded shares.
(5) The number of shares set forth in the above table (i) includes 272,688
shares held by the Marlene O. Travis Revocable Trust, for which Ms. Travis
is grantor and trustee, (ii) includes 78,351 shares which Ms. Travis has the
right to acquire upon exercise of options, (iii) excludes 75 shares
beneficially owned by Ms. Travis' and Dr. McIlroy's adult children, and (iv)
excludes the shares beneficially owned by Dr. McIlroy. Ms. Travis disclaims
beneficial ownership of such excluded shares.
(6) Includes 55,000 shares held by Mr. Clark and 31,121 shares which Mr. Clark
has the right to acquire upon exercise of options.
(7) Includes 7,000 shares which Ms. Kimpell has the right to acquire upon
exercise of options.
(8) Includes 2,500 shares held by Mr. Travis and 9,500 shares which Mr. Travis
has the right to acquire upon exercise of options.
(9) Includes 9,500 shares which Mr. Hahn has the right to acquire upon exercise
of options.
(10) Includes 18,778 shares which Mr. Montgomery has the right to acquire upon
exercise of options.
(11) Includes 1,267 shares which Mr. Damkoehler has the right to acquire upon
exercise of options.
(12) Includes 1,267 shares which Mr. Schultze has the right to acquire upon
exercise of options.
(13) Includes 538,412 shares held by the current officers and directors, and
277,715 shares that current executive officers and directors as a group have
the right to acquire as of May 9, 1997, or within 60 days of such date, upon
exercise of options.
ELECTION OF DIRECTORS
(PROPOSAL #1)
The Bylaws of the Company provide that the number of directors shall be
determined by the Board of Directors. The Board of Directors has set such number
at seven. The Company's Articles of Incorporation provide for the election of
three classes of directors with terms staggered so as to require the election of
only one class of directors each year. Only directors who are members of Class B
will be elected at the Annual Meeting. The Class B directors will be elected to
a three-year term and, therefore, will hold office until the Company's 2000
Annual Meeting of Shareholders and until their successors have been duly elected
and qualified. The terms of Classes C and A continue until 1998 and 1999,
respectively.
The Board of Directors nominates Marlene Travis and Vance Kenneth Travis for
election as the Class B directors. Each Proxy will be voted for each of such
nominees unless the Proxy withholds a vote for one or more of the nominees. If
any of the nominees should be unable to serve as a director by reason of death,
incapacity or other unexpected occurrence, the Proxies solicited by the Board of
Directors shall be voted by the proxy representatives for such substitute
nominee as is selected by the Board, or, in the absence of such selection, for
such fewer number of directors as results from such death, incapacity or other
unexpected occurrence. The election of each Class B nominee requires the
affirmative vote of the holders of the greater of (i) a majority of the voting
power of the shares represented in person or by proxy at the Annual Meeting with
authority to vote on such matter or (ii) a majority of the voting power of the
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<PAGE>
minimum number of shares that would constitute a quorum for the transaction of
business at the Annual Meeting.
The following table provides certain information with respect to all
directors of the Company:
<TABLE>
<CAPTION>
CURRENT POSITION(S) PRINCIPAL OCCUPATION(S) DIRECTOR
NAME OF DIRECTOR (CLASS) AGE WITH COMPANY DURING PAST FIVE YEARS SINCE
- ------------------------------- --- -------------------- ------------------------------------------------ -----------
<S> <C> <C> <C> <C>
Gary T. McIlroy, M.D. 56 Chairman of the Chairman and Chief Executive Officer of the 1977
(Class C) Board, Chief Company since 1977. Dr. McIlroy is married to
Executive Officer Marlene Travis.
and Director
Marlene Travis 57 President, Chief President of the Company since 1987 and Chief 1977
(Class B) Operating Officer, Operating Officer of the Company from 1987 to
Secretary and 1992 and since June 1993; and Chief
Director Nominee Administrative Officer from 1992 to June 1993;
Ms. Travis is married to Gary T. McIlroy, M.D.
Vance Kenneth Travis 71 Director Nominee Chairman of the Board of Triad International, 1984
(Class B) Inc., a plant engineering and project
management operation for petro-chemical and
refinery process plants located in Calgary,
Alberta, Canada. Mr. Travis is Marlene Travis'
uncle.
Ronald R. Hahn 52 Director Chairman and President, ESE Partners, LLC, a 1992
(Class C) venture capital management company, since 1996
and President of Stroben & Hahn, Inc., a
venture capital management company, since
1981. Consultant regarding the U.S. healthcare
industry to Union d'Etudes et
d'Investissements ("UI"), the merchant banking
subsidiary of Credit Agricole, principally
from 1992 to 1995. Mr. Hahn currently also
serves on the Board of Directors of Protein
Databases, Inc., a publicly traded computer
software company.
Robert L. Montgomery 60 Director President--Western Division of Sutter Health 1993
(Class C) since 1996 to present. Prior to this, he was
President and Chief Executive Officer of Alta
Bates Health System of Emeryville, California
from 1989 to 1996, and from 1979 to March
1983, a vertically integrated full service
healthcare system.
Gary L. Damkoehler 57 Director Chairman, Chief Executive Officer and President 1996
(Class A) of JSA Healthcare Corporation of St.
Petersburg, Florida since 1988, a direct
provider of healthcare services.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CURRENT POSITION(S) PRINCIPAL OCCUPATION(S) DIRECTOR
NAME OF DIRECTOR (CLASS) AGE WITH COMPANY DURING PAST FIVE YEARS SINCE
- ------------------------------- --- -------------------- ------------------------------------------------ -----------
<S> <C> <C> <C> <C>
Raymond G. Schultze, M.D. 63 Director Professor of Medicine at the UCLA School of 1996
(Class A) Medicine since 1978, Dr. Schultze served as
Director of the UCLA Medical Center from 1980
to 1995; and Administrative Vice Chancellor
for the UCLA School of Medicine from 1986 to
1992. Dr. Schultze currently serves as Vice
Chair of the Academic Medical Center
Consortium.
</TABLE>
DIRECTOR FEES AND OPTIONS
ANNUAL RETAINER AND MEETING FEES. All directors of the Company are
reimbursed for expenses incurred by them in connection with attending meetings
of the Board and performing duties as a director. Each nonemployee director
receives an annual retainer of $12,500 and meeting fees as follows: $750 for
each Board meeting attended; $500 ($650 for committee chairs) for each committee
meeting attended unless the committee meeting is held in conjunction with a
Board meeting; $500 for each meeting of the board of directors of a subsidiary
of the Company that is attended; $500 for each Board meeting in which the
nonemployee director participates by telephone; and $250 for each committee
meeting in which the nonemployee director participates by telephone. A director
of the Company may elect to receive the payment of his or her annual retainer,
meeting fees and committee fees on a monthly basis or in one lump sum at the end
of the fiscal year.
DEFERRED COMPENSATION PLAN FOR DIRECTORS. The Board of Directors of the
Company adopted the Deferred Compensation Plan for Directors, effective for
fiscal 1994, and for all fiscal years thereafter until the Plan is terminated.
Under the Deferred Compensation Plan, members of the Company's Board of
Directors and members of the Board of any subsidiary may elect, prior to July 1
of any fiscal year, to defer the receipt of all or any portion of any annual
retainer and meeting fees that may be payable to the director during the fiscal
year for which the election is effective. The Deferred Compensation Plan is
administered by the Compensation Committee. All amounts deferred by the director
are credited to an account established for the director for accounting purposes
only, and the amounts credited to such account generally accrue interest,
compounded quarterly, at a rate equal to two percentage points above the Prime
Rate. The Deferred Compensation Plan is and will remain unfunded, and the
director will stand in the position of a general unsecured creditor of the
Company with respect to all payments made pursuant to the Deferred Compensation
Plan.
DIRECTOR OPTIONS. Under the Amended and Restated 1992 Long-Term Incentive
Plan, directors who are not employees of the Company are eligible for
nonqualified stock options. As specified in the Plan, an option for 3,800 shares
of the Company's Common Stock was granted to each nonemployee director who was
serving on the Board on September 14, 1992, the date the Board originally
adopted the Plan and is granted to each new nonemployee director on the date
that such new director is first elected to the Board. All nonemployee directors
will also receive an option for 1,900 shares of the Company's Common Stock at
the end of each fiscal year during which such director continues to serve on the
Board. The Board may, in its discretion, grant additional nonqualified stock
options to nonemployee directors, subject to such terms and conditions as the
Board may deem appropriate.
In addition, a nonemployee director may elect in writing to receive a
nonqualified stock option in lieu of all or any portion of the annual retainer
and meeting fees to which such director may be entitled and which would
otherwise be payable to such director during the fiscal year for which the
election has been made. The number of shares subject to such option is
determined by dividing the total dollar amount specified in the election by 25%
of the fair market value of the Company's Common Stock as of the date
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<PAGE>
the option is granted, which shall be the last day of the fiscal year for which
the election has been made. Any election by the nonemployee director to receive
a nonqualified stock option in lieu of annual retainer and meeting fees must be
made prior to the date the option is granted.
Except for options granted in lieu of retainer or meeting fees, the option
price per share for all nonqualified stock options granted to nonemployee
directors is generally the fair market value of a share of the Company's Common
Stock as of the date such option is granted. The exercise price per share for
all nonqualified stock options granted to nonemployee directors in lieu of
retainer or meeting fees pursuant to the election described above equals 75% of
the fair market value of a share of the Company's Common Stock as of the date
such option is granted. All nonqualified stock options granted to the
nonemployee directors ordinarily expire five years after the date they are
granted, and become exercisable as to one-third of the shares subject to the
option on each of the succeeding three anniversaries of the option grant.
COMMITTEE AND BOARD MEETINGS
The Company's Board of Directors has an Audit Committee which reviews with
the Company's independent auditors the annual financial statements and the
results of the annual audit. The Audit Committee also is used to review
potential conflict of interest situations involving related party transactions.
The Audit Committee's current members are Mr. Damkoehler, Mr. Hahn, Mr.
Montgomery and Mr. Travis. The Audit Committee met twice during fiscal 1996,
which includes one (1) telephonic meeting.
The Board also has a Compensation Committee which reviews and recommends the
compensation to be paid to the Company's senior officers under the Company's
management incentive plans. Mr. Hahn, Mr. Travis, Mr. Schultze and Mr.
Montgomery are the current members of such Committee. During fiscal 1996, the
Compensation Committee met twelve (12) times, which includes seven (7)
telephonic meetings.
The Company does not have a nominating committee. The functions which would
be performed by a nominating committee are performed by the entire Board. Any
shareholder who intends to make a nomination at an annual meeting must deliver,
not less than fifty nor more than seventy-five days prior to the particular
annual meeting, a notice to the Company's Corporate Secretary setting forth: the
name and address of the shareholder who intends to make the nomination; the
class and number of shares of stock of the Company which are beneficially owned
by the shareholders; the name, age, business address and residence address of
each nominee being proposed by the shareholder; the principal occupation or
employment of each nominee; the class and number of shares of stock of the
Company which are beneficially owned by each nominee; such other information
concerning each nominee that would be required, under the rules of the
Securities and Exchange Commission, in a proxy statement soliciting proxies for
the election of such nominee; and a signed consent of each nominee to serve as a
director of the Company if so elected. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the
Company to determine the eligibility of such proposed nominee to serve as a
director of the Company.
The Company's Board of Directors held five (5) meetings during fiscal 1996.
Each director attended seventy-five percent or more of the total number of
meetings of the Board of Directors and of committee(s) of which he or she was a
member.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE'S RESPONSIBILITY
The Compensation Committee's (the "Committee") principal responsibility with
respect to executive level compensation is to ensure the Company's executive
compensation plans are aligned with and support the Company's business
objectives. The Committee evaluates the overall design and administration of the
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<PAGE>
plans in order to fulfill its responsibility. In addition, to enhance the
objectivity and independence of the Committee, it is comprised entirely of
outside directors.
COMPENSATION PHILOSOPHY
The primary elements of the executive officers' total compensation program
are based on salary, annual incentives, and long-term incentives. The elements
are designed to:
(i) motivate executive officers to achieve strategic objectives which
promote the future success of the Company and increase shareholder value;
(ii) reward outstanding performance at the corporate, department, and
individual levels;
(iii) aid the Company in attracting and retaining executives capable of
assuring the future success of the Company; and
(iv) promote a pay-for-performance philosophy by placing a significant
portion of the total compensation "at risk" while providing compensation
opportunities which are comparable to market levels.
Recent tax law changes may disallow deductions for compensation paid by a
company to each of the company's named executives if the officer's compensation
exceeds $1 million. Special rules apply for "performance-based" compensation,
including compensation resulting from stock options. The Company intends to take
steps as are necessary to comply with the deduction limits imposed by the new
tax provisions.
BASE SALARY
Base salaries for certain executive officers are reviewed by the Committee
on an annual basis. Each year the Committee assesses the executive employees'
level of responsibility, experience, individual performance, accountabilities
relative to other Company executives, and external market practices. Each year
the Committee also reviews Company performance and recommends to the full Board
the salary levels for the coming year, and the base salaries are adjusted
accordingly. In fiscal 1996, base salaries for the chief executive and certain
other executives were the same as fiscal 1995, which were generally toward the
mid-point of base salary levels for comparable health care organizations. In
fiscal 1996, the chief executive's base salary and certain other executives'
base salaries were the same as fiscal 1995 because of a pay-for-performance
philosophy for base compensation which places a significant portion of the total
compensation "at risk" while providing compensation opportunities which are
comparable to market levels. Other executives' salaries are reviewed annually
and changed based on their performance and responsibilities.
ANNUAL INCENTIVES
EXECUTIVE INCENTIVE PLAN. The Company's Board of Directors has an Executive
Incentive Plan which provides for the payment of annual incentive bonuses to
certain executive employees. The Executive Incentive Plan is administered by the
Compensation Committee, whose members are not eligible to participate in the
Executive Incentive Plan.
Generally, an executive employee does not earn a bonus under the Executive
Incentive Plan unless specified revenue, net profit or other performance goals
are met by the Company. The Compensation Committee sets a range of bonus levels
based on the performance goals set for the year. The Committee determines the
amount of such cash bonus that may be paid to an executive employee by applying
a payment percentage that corresponds to such goals to the employee's salary at
the beginning of the applicable fiscal year. The Committee may also use stock
options if it believes that stock options will provide executive officers with
appropriate incentives. Fiscal 1996 incentives included only cash bonuses. The
actual payment of any cash bonus is made within thirty days after the
calculation of the amount of
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<PAGE>
such bonus from the table approved by the Committee which determines the amount
payable to the employee.
For fiscal 1996, the chief executive officer did not receive any stock
options as an annual incentive. A cash bonus under the Plan of $13,510 was
earned by the Chief Executive Officer.
LONG-TERM INCENTIVES
The Company may grant some executive level employees long-term awards,
including stock options, performance awards, and restricted stock pursuant to
the Long-Term Incentive Plan. The purpose of these awards are to:
(i) focus executives on the achievement of performance objectives which
enhance shareholder value;
(ii) emphasize the importance of balancing present business needs and
long-term goals critical to the future success of the Company; and
(iii) attract and retain executives of superior ability.
STOCK OPTIONS. Stock options allow the executives to purchase shares of the
Company's common stock at an exercise price equal to the fair market value at
the date of grant over a period of five years. Generally, one-third to
one-fourth of the executive's option becomes exercisable within the first six to
twelve months after grant with the remainder over a period ranging up to three
or four years following the date of grant. During fiscal 1996, the Company
entered into a new employment agreement with the chief executive officer, who
received 33, 138 stock options at an exercise price of $8.00 per share under the
1990 Stock Option Plan on November 29, 1995.
PERFORMANCE UNITS. The Compensation Committee authorized awards of
performance units ("Units") in fiscal 1993 and fiscal 1994 that generally would
have provided executive recipients with the opportunity to receive cash awards
if the Company's financial goals and other business objectives were achieved
over a three-year period.
In fiscal 1995, the Committee determined that only annual cash incentives
and stock options should be granted to executives to simplify their compensation
program, canceled the Units previously awarded and decided that no additional
Units should be granted under the Amended and Restated 1992 Long-Term Incentive
Plan for the foreseeable future.
Ronald R. Hahn, CHAIRPERSON
V. Kenneth Travis
Robert L. Montgomery
Raymond G. Schultze, M.D.
EMPLOYMENT AGREEMENTS
The Company has an Employment Agreement, dated June 20, 1996, with Gary T.
McIlroy, M.D. whereby Dr. McIlroy will continue to serve as Chief Executive
Officer with the term continuing indefinitely unless terminated under the terms
of the Agreement. Dr. McIlroy received a base salary for fiscal 1996 of $278,000
(subject to increase upon annual review by the Compensation Committee of the
Board) and is eligible to receive an annual incentive bonus under the Executive
Incentive Plan. The Employment Agreement is terminable by the Company for cause,
in which case the Company is obligated to pay only Dr. McIlroy's accrued base
salary and a portion of annual incentive bonus for the fiscal year in which his
termination occurs. The Agreement is also terminable by the Company upon thirty
(30) days written notice, without cause, in which case the Company is obligated
to (i) pay the then-current annualized base salary and provide health, dental,
life and other benefits for a twenty-four month period; (ii) pay out-
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<PAGE>
placement services; (iii) pay a portion of any annual incentive bonus for the
fiscal year in which his termination occurs; and (iv) transfer all cash value
and life insurance policies owned by the Company to Dr. McIlroy. In the event
Dr. McIlroy resigns for "good reason" or within twelve (12) months after a
"change of control" of the Company, the Company is obligated to make all of the
payments and provide all of the benefits described in the preceding sentence,
and shall accelerate the vesting of all stock options which shall then remain
exercisable until the options expire. The Agreement also addresses the benefits
payable and the treatment of the life insurance policies owned by the Company
upon termination for death or disability and, in the event of disability,
provides for supplemental disability payments and health, dental and life
benefits for a twelve (12) month period.
The Company also has a Split Dollar Agreement, dated June 5, 1991, which
requires the Company to pay the premiums on a life insurance policy owned by Dr.
McIlroy (or his assignee) and which requires repayment to the Company of either
the premiums paid or the policy's accumulated cash surrender value, whichever is
greater, upon Dr. McIlroy's death or termination of employment. Under the
Employment Agreement, if Dr. McIlroy's employment is terminated without cause or
within twelve (12) months after a "change of control" of the Company, or if Dr.
McIlroy resigns for "good reason," the repayment obligations under the Split
Dollar Agreement cease and the Company must release any collateral assignment in
the life insurance policy.
The Company has an Employment Agreement, dated June 21, 1996, with Marlene
Travis whereby Ms. Travis will continue to serve as President and Chief
Operating Officer with the term continuing indefinitely unless and until
terminated under the terms of the Agreement. Ms. Travis received a base salary
for fiscal 1996 of $222,000 (subject to increase upon annual review by the Chief
Executive Officer) and is eligible to receive an annual incentive bonus under
the Executive Incentive Plan. The Employment Agreement is terminable by the
Company for cause, in which case the Company is obligated to pay only Ms.
Travis' accrued base salary and a portion of any annual incentive bonus for the
fiscal year in which her termination occurs. The Agreement is also terminable by
the Company upon thirty (30) days written notice, without cause, in which case
the Company is obligated to (i) pay the then-current annualized base salary and
provide health, dental, life and other benefits for a twenty-four (24) month
period; (ii) pay out-placement services; (iii) pay a portion of any annual
incentive bonus for the fiscal year in which her termination occurs; and (iv)
transfer all cash value and life insurance policies owned by the Company to Ms.
Travis. In the event Ms. Travis resigns for "good reason" or within twelve (12)
months after a "change of control" of the Company, the Company is obligated to
make all of the payments and provide all of the benefits described in the
preceding sentence and shall accelerate the vesting of all stock options which
shall then remain exercisable until the options expire. The Agreement also
addresses the benefits payable and the treatment of the life insurance policies
owned by the Company upon termination for death or disability and, in the event
of disability, provides for supplemental disability payments and health, dental
and life benefits for a twelve (12) month period.
The Company also has a Split Dollar Agreement, dated June 5, 1991, which
requires the Company to pay the premiums on a life insurance policy owned by Ms.
Travis (or her assignee) and which requires repayment to the Company of either
the premiums paid or the policy's accumulated cash surrender value, whichever is
greater, upon Ms. Travis' death or termination of employment. Under the
Employment Agreement, if Ms. Travis' employment is terminated without cause or
within twelve (12) months after a "change of control" of the Company, or if Ms.
Travis resigns for "good reason," the repayment obligations under the Split
Dollar Agreement cease and the Company must release any collateral assignment in
the life insurance policy.
The Company has an Employment Agreement dated June 21, 1996, with Thomas P.
Clark whereby Mr. Clark will continue to serve as Chief Financial Officer, with
the term continuing indefinitely unless and until terminated under the terms of
the Agreement. Mr. Clark received an annual base salary for fiscal 1996 of
$167,500 (subject to increase upon annual review by the Chief Executive Officer)
and is eligible to receive an annual incentive bonus under the Executive
Incentive Plan. The Employment Agreement is
9
<PAGE>
terminable by the Company for cause, in which case the Company is obligated to
pay only Mr. Clark's accrued base salary and a portion of any annual incentive
bonus for the fiscal year in which his termination occurs. The Agreement is also
terminable by the Company upon thirty (30) days written notice, without cause,
in which case the Company is obligated to (i) pay the then-current annualized
base salary and provide health, dental, life and other benefits for a
twenty-four (24) month period; (ii) pay out-placement services; (iii) pay a
portion of any annual incentive bonus for the fiscal year in which his
termination occurs; and (iv) transfer all cash value and life insurance policies
paid by the Company to Mr. Clark. In the event Mr. Clark resigns for "good
reason" or within twelve (12) months after a "change of control" of the Company,
the Company is obligated to make all of the payments and provide all of the
benefits described in the preceding sentence and shall accelerate the vesting of
all stock options which shall then remain exercisable until the options expire.
The Agreement also addresses the benefits payable and the treatment of the life
insurance policies owned by the Company upon termination for death or disability
and, in the event of disability, provides for supplemental disability payments
and health, dental and life benefits for a twelve (12) month period.
The Company also has a Split Dollar Agreement, dated September 19, 1991,
which requires the Company to pay the premiums on a life insurance policy owned
by Mr. Clark (or his assignee) and which requires repayment to the Company of
either the premiums paid or the policy's accumulated cash surrender value,
whichever is greater, upon Mr. Clark's death or termination of employment. Under
the Employment Agreement, if Mr. Clark's employment is terminated without cause
or within twelve (12) months after a "change of control" of the Company, or if
Mr. Clark resigns for "good reason," the repayment obligations under the Split
Dollar Agreement cease and the Company must release any collateral assignment in
the life insurance policy.
The Company had an employment letter agreement dated July 13, 1995, with A.
Charles Bredesen whereby Mr. Bredesen formerly was employed to serve as
President of the Company's Managed Care Division. The letter agreement set forth
Mr. Bredesen's initial compensation as reflected in the Summary Compensation
Table below and provided for severance equal to six months of base salary if the
Company terminated his employment.
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years of the Company's Chief Executive Officer and the
four other highest paid executive officers of the Company whose salary and bonus
for fiscal 1996 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------
AWARDS
ANNUAL COMPENSATION(1) ------------------------------
---------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
NAME AND POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS LTIP PAYOUTS
- ------------------------------ --------- --------- --------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary T. McIlroy, M.D. ........ 1996 $ 278,000 $ 13,510 $ 9,395(10) 0 33,138(3) $ 0
Chairman & CEO 1995 $ 278,000 0(2) 9,395(10) 0 4,000(2) 0
1994 278,000 0(2) 9,395(10) 0 16,000(4) 0
30,000(9)
4,000(2)
16,000(4)
Marlene Travis ............... 1996 222,000 13,510 9,395(10) 0 23,298(3) 0
President & COO 1995 222,000 0(2) 9,395(10) 0 3,500(2) 0
1994 222,000 0(2) 9,395(10) 0 12,000(4) 0
25,000(9)
3,000(2)
12,000(4)
Thomas P. Clark .............. 1996 167,500 11,580 10,460(10) 0 17,759(3) 0
CFO 1995 167,500 0(2) 10,460(10) 0 3,000(2) 0
1994 167,500 0(2) 10,460(10) 0 12,000(4) 0
20,000(9)
3,000(2)
12,000(4)
A. Charles Bredesen .......... 1996 210,289 0 5,608(10) 0 0 0
Former President, Managed
Care Division
Adele M. Kimpell ............. 1996 128,169 6,000 0 0 5,000(3) 0
Sr. V.P., Health Plan 1995 106,795 6,000 0 0 2,000(2) 0
Operations 1994 90,942 0 0 0 2,000(2) 0
<CAPTION>
ALL OTHER
NAME AND POSITION COMPENSATION
- ------------------------------ -------------
<S> <C>
Gary T. McIlroy, M.D. ........ $ 22,655(6)
Chairman & CEO 23,127(6)
22,923(6)
Marlene Travis ............... 19,655(7)
President & COO 19,943(7)
19,716(7)
Thomas P. Clark .............. 8,655(8)
CFO 8,388(8)
8,174(8)
A. Charles Bredesen .......... 2,655(5)
Former President, Managed
Care Division
Adele M. Kimpell ............. 1,882(5)
Sr. V.P., Health Plan 1,796(5)
Operations 1,322(5)
</TABLE>
- ------------------------------
(1) Does not include the payment of professional and monthly club dues, group
term life insurance, and other personal benefits, the aggregate amount of
which was less than 10% of the individual's listed compensation.
(2) Stock options were issued under the Amended and Restated 1992 Long-Term
Incentive Plan in lieu of cash bonus under the annual Executive Incentive
Plan and are fully exercisable.
(3) Stock options were issued under the 1990 Stock Option Plan, and become
exercisable in annual increments of one-fourth per year.
(4) Stock options were issued under the Amended and Restated 1992 Long-Term
Incentive Plan and become exercisable in annual increments of one-third per
year.
(5) The Company matching contribution under its 401(k) Salary Savings Plan.
(6) The amount reflected includes $2,923, $3,127 and $2,655 as Company matching
contributions under its 401(k) Salary Savings Plan or other retirement
payments for fiscal 1994, 1995 and 1996, respectively, and $20,000 per year
for the total premiums paid by the Company on the life insurance policy
covered by the Split-Dollar Agreement referred to above in "Employment
Agreements" for fiscal 1994, 1995 and 1996 respectively.
(7) The amount reflected includes $2,716, $2,943 and $2,655 as Company matching
contributions under its 401(k) Salary Savings Plan or other retirement
payments for fiscal 1994, 1995 and 1996, respectively, and $17,000 per year
for the total premiums paid by the Company on the life insurance policy
covered by the Split-Dollar Agreement referred to above in "Employment
Agreements" for fiscal 1994, 1995 and 1996, respectively.
11
<PAGE>
(8) The amount reflected includes $2,174, $2,388 and $2,655 as Company matching
contributions under its 401(k) Salary Savings Plan or other retirement
payments for fiscal 1994, 1995 and 1996, respectively, and $6,000 per year
for the total premiums paid by the Company on the life insurance policy
covered by the Split-Dollar Agreement referred to above in "Employment
Agreements" for fiscal 1994, 1995 and 1996, respectively.
(9) Stock options were issued to Dr. McIlroy, Ms. Travis and Mr. Clark, for
30,000, 25,000 and 20,000 shares, respectively, in lieu of performance unit
awards for fiscal 1995, cancellation of performance unit awards for fiscal
1994 and fiscal 1993 issued under the 1992 Long-Term Incentive Plan, and
cancellation of stock options issued in fiscal 1993 of 27,643, 19,588 and
15,827, respectively, which were originally issued in lieu of a cash bonus.
One-half of these stock options became exercisable on August 1, 1995, and
one-half became exercisable on August 1, 1996.
(10) Includes auto allowance and medical coverage.
The following two stock option tables summarize option grants and exercises
during fiscal 1996 for the Chief Executive Officer and other named executive
officers, and the values of options granted during fiscal 1996 and held by such
persons at June 30, 1996.
STOCK OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------------- -------------------------------
NUMBER OF
SECURITIES % OF TOTAL 5%(2) 10%(2)
UNDERLYING OPTIONS GRANTED -------------------- ---------
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION STOCK STOCK
NAME GRANTED FISCAL YEAR BASE PRICE DATE(1) PRICE GAIN PRICE
- ------------------------------------ ------------- --------------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary T. McIlroy, M.D................ 33,138 23.8% $ 8.00 11/28/00 $ 10.21 $ 73,235 $ 12.88
Marlene Travis...................... 23,298 16.7% $ 8.00 11/28/00 $ 10.21 $ 51,489 $ 12.88
Thomas P. Clark..................... 17,759 12.8% $ 8.00 11/28/00 $ 10.21 $ 39,247 $ 12.88
A. Charles Bredesen................. 0 0% $ 0 -- $ 0 $ 0 $ 0
Adele M. Kimpell.................... 5,000 3.6% $ 8.00 11/28/00 $ 10.21 $ 11,050 $ 12.88
<CAPTION>
NAME GAIN
- ------------------------------------ ---------
<S> <C>
Gary T. McIlroy, M.D................ $ 161,713
Marlene Travis...................... $ 113,694
Thomas P. Clark..................... $ 86,664
A. Charles Bredesen................. $ 0
Adele M. Kimpell.................... $ 24,400
</TABLE>
- ------------------------------
(1) One-fourth of the stock options granted as a long-term incentive to Dr.
McIlroy, Ms. Travis, Mr. Clark, and Ms. Kimpell became exercisable six
months after November 29, 1995, the date of grant, and one fourth of the
stock options become exercisable on the next three anniversaries of the date
of grant. Under the terms of the 1990 Stock Option Plan, the Board may
provide for the protection of all optionees to whom options have been
granted in the event of a merger, liquidation, reorganization or similar
transaction.
(2) The stock price is calculated using a 5% and 10% rate of appreciation
(solely for illustrative purposes) for the term of the option, compounded
annually. The gain is the difference between the resulting illustrative
compounded stock price and the exercise price times the number of options
granted.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISES REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------- ------------- --------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Gary T. McIlroy, M.D................. -- -- 74,813/45,187 $170,446/$133,301
Marlene Travis....................... -- -- 56,026/33,974 $128,013/$101,435
Thomas P. Clark...................... 20,000 $ 57,500 47,681/27,319 $107,617/$82,298
A. Charles Bredesen.................. 0 $ 0 0/0 $0/$0
Adele M. Kimpell..................... 5,000 $ 28,000 5,750/3,750 $5,875/$9,375
</TABLE>
- ------------------------
(1) Market value of underlying securities at June 30, 1996 ($10.50, the closing
price of the Common Stock) minus the exercise price.
PERFORMANCE GRAPH
Set forth below are line graphs comparing the Company's cumulative total
shareholder return on the Company's Common Stock, from June 30, 1991, through
June 30, 1996, with the cumulative total return of The NASDAQ Market Index (U.S.
Companies) and of the selected peer group (the "SIC Peer Group Index"). The SIC
Peer Group Index includes all NASDAQ companies which are in the same three-digit
SIC ("Standard Industrial Classification") labeled 632--Accident and Health
Insurance and Medical Service Plans.
[CHART]
13
<PAGE>
The NASDAQ Market Index and SIC Peer Group Index is provided by Media
General Financial Services. The Peer Group includes the following companies:
Aetna, Inc.; AFLAC Incorporated; American Travelers Corp.; Compdent Corporation;
Emphesys Financial Group; Employee Benefits Plans, Inc.; Everest Reinsurance
Hld.; First Commonwealth of America; Foundation Health Corporation; Health
Power, Inc.; Health Risk Management, Inc.; Healthplex, Inc.; Healthsource, Inc.;
Healthwise of America; Humana, Inc.; Managed Care Solutions; Maxicare Health
Plans; Medical Control, Inc.; Mid Atlantic Medical Services, Inc.; Oxford Health
Plans, Inc.; Pacific Physician Services; Pacificare Health Services, Inc.; Paul
Revere Corporation; Penncorp Financial Group; Physicians Health Services;
Pioneer Financial Services, Inc.; Provident Life and Accident Insurance Company;
RightChoice Managed Care; Safeguard Health Enterprises; Sierra Health Services,
Inc.; Southwestern Life Corporation; Torchmark Corporation; Transamerica
Corporation; TransNational RECPCLA; U.S. Healthcare, Inc.; Union American
Holding; United American Healthcare; United Dental Care, Inc.; United Healthcare
Corporation; United Wisconsin Services; Unum Corporation; Value Health, Inc.;
Vesta Insurance Group; Washington National CP; and Westbridge Capital Corp.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Such forms include: Form 3, due within 10 days after becoming an
officer, director or greater than ten-percent shareholder; Form 4, due within 10
days after any calendar month during which a reportable transaction occurred;
and Form 5 due within 45 days after the end of the fiscal year. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that, during the period from July 1, 1995
through June 30, 1996, all Section 16(a) filing requirements applicable to its
current and former officers, directors, and greater than ten-percent
shareholders were complied with.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL #2)
The Company's Board of Directors, upon recommendation of its Audit
Committee, has selected Ernst & Young LLP as independent auditors of the Company
for the current fiscal year ending June 30, 1997. Ernst & Young LLP has acted as
the Company's independent auditors since fiscal 1985. Although it is not
required to do so, the Board wishes to submit the selection of Ernst & Young LLP
for shareholders' ratification at the 1997 Annual Meeting. If the selection is
not ratified, the Board will reconsider its selection.
A representative of Ernst & Young LLP is expected to be present at the 1997
Annual Meeting and will be given an opportunity to make a statement if so
desired. Such representative is also expected to be available to respond to
appropriate questions at the Meeting.
APPROVAL OF AMENDED AND RESTATED
1992 LONG-TERM INCENTIVE PLAN
(PROPOSAL #3)
On September 14, 1992, the Board adopted the 1992 Long-Term Incentive Plan,
which was approved by the shareholders on November 19, 1992. The Board of
Directors recently adopted the Amended and Restated 1992 Health Risk Management
1992 Long-Term Incentive Plan (the "Amended and Restated
14
<PAGE>
Plan" or "Plan") to clarify a number of administrative provisions, incorporate
recent changes in Section 16(b) of the Securities Exchange Act of 1934, and,
subject to approval by the Company's shareholders, increase the number of shares
of Common Stock reserved for issuance pursuant to the Amended and Restated Plan
from 400,000 shares to 800,000 shares.
The Board believes that the Amended and Restated Plan has been, and will
continue to be, important for attracting, retaining and providing incentives for
those officers, directors and key employees upon whose judgment, initiatives and
efforts the Company is largely dependent for the successful conduct of its
business. If the increase in the number of shares of Common Stock reserved for
issuance pursuant to the Amended and Restated Plan is not approved by the
shareholders, the number of shares reserved shall remain at 400,000 shares, but
all other provisions of the Amended and Restated Plan shall remain in effect.
DESCRIPTION OF AMENDED AND RESTATED 1992 LONG-TERM INCENTIVE PLAN
A general description of the material features of the Amended and Restated
Plan, as amended, follows, but this description is qualified in its entirety by
reference to the full text of the Plan, a copy of which may be obtained without
charge upon request to the Company's Chief Financial Officer.
GENERAL. Under the Amended and Restated Plan, the Compensation Committee
may award nonqualified or incentive stock options, restricted stock and
performance units to those officers and employees of the Company (including its
subsidiaries and affiliates) whose performance, in the judgment of the
Compensation Committee, can have a significant effect on the success of the
Company. In addition, as described below, nonemployee directors are also
eligible for the grant of nonqualified stock options.
SHARES AVAILABLE. Assuming the shareholders approve the proposed increase
in the number of shares reserved, a total of 800,000 shares of the Company's
Common Stock will have been made available for issuance pursuant to prior and
future option grants, restricted stock awards and performance units under the
Amended and Restated Plan. If any options or restricted stock awards granted
under the Plan expire or terminate prior to exercise, the shares subject to that
portion of the option or restricted stock award are available for subsequent
grants.
The total number of shares and the exercise price per share of Common Stock
that may be issued pursuant to outstanding stock options, restricted stock
awards or performance units are subject to adjustment by the Board of Directors
upon the occurrence of stock dividends, stock splits or other recapitalizations,
or because of mergers, consolidations, reorganizations or similar transactions
in which the Company receives no consideration. The Board may also provide for
the protection of optionees or recipients of restricted stock awards and
performance units in the event of a merger, liquidation, reorganization,
divestiture (including a spin-off) or similar transaction.
ADMINISTRATION AND TYPES OF AWARDS. With the exception of the nonemployee
director stock options described above in "Director Fees and Options," the
features of which are established by the Board and certain provisions of the
Amended and Restated Plan, the Plan is administered by the Compensation
Committee of the Board of Directors, which shall generally consist of at least
two "nonemployee" directors (as defined in Rule 16b-3, or any successor
provision, of the General Rules and Regulations under the Securities Exchange
Act of 1934). The Committee has broad powers to administer and interpret the
Amended and Restated Plan, including the authority: (i) to establish rules for
the administration of the Plan; (ii) to select the participants in the Plan;
(iii) to determine the types of awards to be granted and the number of shares
covered by such awards; and (iv) to set the terms and conditions of such awards.
All determinations and interpretations of the Committee are binding on all
interested parties.
OPTIONS. Options granted under the Amended and Restated Plan may be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code ("I.R.C.") or "nonqualified" stock options that do not qualify for
special tax treatment under Section 422 or similar provisions of the I.R.C. No
incentive stock option may be granted with a per share exercise price less than
the fair market
15
<PAGE>
value of a share of the underlying Common Stock on the date the incentive stock
option is granted. The per share exercise price for nonqualified stock options
granted under the Amended and Restated Plan also will not generally be less than
the fair market value of a share of the Company's Common Stock on the date the
nonqualified stock option is granted. The closing sale price of a share of the
Company's Common Stock was $11.875 on May 13, 1997. The exercise price generally
must be paid in cash unless the Committee permits payment in shares of Common
Stock.
An incentive or nonqualified stock option will generally expire five years
after the date it is granted, and will ordinarily become exercisable as to
one-third of the shares on each of the three succeeding anniversaries of the
date of grant. The Committee may, in its discretion, modify or impose additional
restrictions on the term or exercisability of an option. The Committee may also
determine the effect than an optionee's termination of employment with the
Company or a subsidiary may have on the exercisability of such option. Except
for the annual grants of nonqualified stock options to nonemployee directors
described above, the grants of stock options under the Amended and Restated Plan
are subject to the Compensation Committee's discretion. Consequently, future
grants to eligible optionees cannot be determined at this time.
Nonemployee directors of the Company are also eligible for nonqualified
stock options. As specified in the Amended and Restated Plan, and as more fully
described above, an option for 3,800 shares of the Company's Common Stock is
granted to each new nonemployee director when such new director is first elected
to the Board. Each nonemployee director is also granted an option for 1,900
shares of the Company's Common Stock at the end of each fiscal year during which
such director continues to serve on the Board. A nonemployee director may also
elect to receive a nonqualified stock option in lieu of all or any portion of
such director's annual retainer and meeting fees. The Board may, in its
discretion, grant additional nonqualified stock options to nonemployee
directors, subject to such terms and conditions as the Board may deem
appropriate.
Following a "change of control termination," as described below, all options
granted under the Amended and Restated Plan, including nonqualified stock
options granted to nonemployee directors, will become immediately exercisable.
In certain circumstances, nonqualified stock options may be transferred to a
member of the optionee's family, a trust for the benefit of such immediate
family members or a partnership in which such family members are the only
partners. Incentive stock options cannot be transferred by the optionee except
by will or by the laws of descent and distribution.
RESTRICTED STOCK AWARDS AND PERFORMANCE UNITS. The Committee is also
authorized to grant awards of restricted stock and performance units. Each
restricted stock award granted under the Amended and Restated Plan shall be for
a number of shares as determined by the Committee, and the Committee, in its
discretion, may also establish continued employment, vesting or other conditions
that must be satisfied for the restrictions on the transferability of the shares
and the risks of forfeiture to lapse. Performance units generally provide
recipients with the opportunity to receive cash awards if the Company's
financial goals or other business objectives are achieved over specified
performance periods. Currently, no restricted stock or performance unit awards
are outstanding under the Amended and Restated Plan. Because future grants of
restricted stock awards and performance units are subject to the discretion of
the Committee, future awards to eligible participants cannot be determined at
this time.
CHANGE OF CONTROL PROVISIONS. Following a "change of control termination,"
generally all options granted under the Amended and Restated Plan will become
immediately exercisable and all restrictions on restricted stock awards, if any,
will lapse. Within 30 days following a change of control termination, a
participant in the Amended and Restated Plan may require the Company to purchase
any shares of stock awarded to the participant under the Plan as to which the
restrictions on transfer lapsed because of the change of control termination.
The purchase price will equal the fair market value of the shares on the day
prior to the "change of control." These provisions also provide that all change
of control compensation to a participant or nonemployee director must be less
than the amount which would be considered a
16
<PAGE>
"parachute payment" under Section 280G of the I.R.C. To the extent that change
of control compensation would exceed this amount, the participant or nonemployee
director must designate which payments would be reduced or eliminated so as to
avoid receipt of a parachute payment.
For purposes of these provisions, a "change of control termination" refers
to one of the following if it occurs within two years after a "change of
control" of the Company: (i) termination of the participant's employment by the
Company for reasons other than a willful failure to perform his or her
employment duties or conduct constituting a felony involving moral turpitude;
(ii) the participant terminates employment with the Company for "good reason;"
or (iii) for nonemployee directors, the termination of the individual's status
as a director. "Good reason" is generally defined as an adverse change in the
participant's responsibilities, authority, compensation or working conditions,
or a material breach of an employment agreement by the Company. "Change of
control" is defined as (i) a merger or consolidation involving the Company if
less than 50% of the Company's voting stock after the business combination is
held by persons who were shareholders before the business combination; (ii) a
sale of the assets of the Company substantially as an entirety; (iii) ownership
by a person or group of at least 20% of the Company's voting securities; (iv)
approval by the shareholders of a plan for the liquidation of the Company; and
(v) certain changes in the composition of the Company's Board of Directors.
AMENDMENT. The Board of Directors or the Committee may terminate or amend
the Amended and Restated Plan at any time prior to a "change of control," except
that the terms of option or award agreements then outstanding may not be
adversely affected without the consent of the individual. After a change of
control, neither the Board of Directors nor the Committee may terminate or amend
the Amended and Restated Plan to deny participants the change of control
benefits stated in the Plan. Neither the Board of Directors nor the Committee
may amend the Amended and Restated Plan to materially increase the total number
of shares of Common Stock available for issuance under the Plan, materially
increase the benefits accruing to any individual or materially modify the
requirements for eligibility to participate in the Plan without the approval of
the Company's shareholders if such approval is required to comply with the
I.R.C. or other applicable laws or regulations.
FEDERAL INCOME TAX MATTERS
OPTIONS. "Nonqualified" stock options granted under the Amended and
Restated Plan are not intended to and do not qualify for favorable tax treatment
available to "incentive" stock options under I.R.C. Section 422. Generally, no
income is taxable to the optionee (and the Company is not entitled to any
deduction) upon the grant of a nonqualified stock option. When a nonqualified
stock option is exercised, the optionee generally must recognize compensation
taxable as ordinary income equal to the difference between the option price and
the fair market value of the shares on the date of exercise. The Company
normally will receive a deduction equal to the amount of compensation the
optionee is required to recognize as ordinary income and must comply with
applicable tax withholding requirements.
"Incentive" stock options granted under the Amended and Restated Plan are
intended to qualify for favorable tax treatment under I.R.C. Section 422. Under
Section 422, an optionee realizes no taxable income when an incentive stock
option is granted. Further, the optionee generally will not realize any taxable
income when the incentive stock option is exercised if he or she has at all
times from the date of the option's grant until three months before the date of
exercise been an employee of the Company. The Company ordinarily is not entitled
to any deduction upon the grant or exercise of an incentive stock option.
Certain other favorable tax consequences may be available to the optionee if he
or she does not dispose of the shares acquired upon the exercise of an incentive
stock option for a period of two years from the granting of the option and one
year from the receipt of the shares.
RESTRICTED STOCK AWARDS. Generally, no income is taxable to the recipient
of a restricted stock award in the year that the award is granted. Instead, the
recipient will recognize compensation taxable as ordinary income equal to the
fair market value of the shares in the year in which the transfer restrictions
lapse,
17
<PAGE>
including any lapse due to a "change of control termination" described above.
Alternatively, if the recipient makes a "Section 83(b)" election, the recipient
will, in the year that the restricted stock award is granted, recognize
compensation taxable as ordinary income equal to the fair market value of the
shares on the date of the award. The Company normally will receive a deduction
equal to the amount of compensation the recipient is required to recognize as
ordinary taxable income, and must comply with applicable tax withholding
requirements.
PERFORMANCE UNIT AWARDS. A recipient of performance units will recognize
compensation taxable as ordinary income at the time the recipient receives
payment, whether in cash or stock, equal to the value of the units. The Company
normally will receive a deduction equal to the amount of compensation the
recipient is required to recognize as ordinary taxable income, and must comply
with applicable tax withholding requirements.
NEW PLAN BENEFITS
The Company's management and Board of Directors believe that the Amended and
Restated Plan will enable the Company to continue to attract and retain a strong
management and employee base, and will further link key employees to and reward
them for increases in shareholder value. The table below shows the total number
of stock options that have been received by the following individuals and groups
under the Plan:
AMENDED AND RESTATED
1992 LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
TOTAL NUMBER OF
OPTIONS
NAMES AND TYPES OF AWARDS RECEIVED(1)
- -------------------------------------------------------------------------- ------------------
<S> <C>
Gary T. McIlroy, M.D. .................................................... 52,862
Chairman and CEO
Marlene Travis ........................................................... 38,202
President and COO
Thomas P. Clark .......................................................... 34,241
CFO
A. Charles Bredesen ...................................................... 0
Former President, Managed Care Division
Adele M. Kimpell ......................................................... 6,500
Sr. Vice President, Health Plan Operations
Current Executive Group................................................... 149,305
Current Non-Executive Director Group...................................... 61,197
Current Non-Executive Officer Employee Group.............................. 66,650
</TABLE>
- ------------------------
(1) This table reflects the total number of stock options granted in prior
fiscal years and to date in the current 1997 fiscal year.
Because future grants and awards under the Amended and Restated Plan are
subject to the Compensation Committee's discretion or the non-employee
director's reelection to the Board, the future benefits or amounts that may be
received by these individuals or groups under the Plan cannot be determined at
this time.
VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE INCREASE IN THE SHARES RESERVED UNDER THE AMENDED AND RESTATED 1992
LONG-TERM INCENTIVE PLAN. Approval of such increase requires the affirmative
18
<PAGE>
vote of the greater of (i) a majority of the voting power of the shares
represented in person or by proxy at the 1997 Annual Meeting with authority to
vote on such matter or (ii) a majority of the voting power of the minimum number
of shares that would constitute a quorum for the transaction of business at the
Annual Meeting.
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the 1997
Annual Meeting. If any other matter does properly come before the Meeting, the
appointees named in the Proxies will vote the Proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting of Shareholders must be
received by the Company by August 29, 1997, to be includable in the Company's
proxy statement and related proxy for the 1998 Annual Meeting of Shareholders.
ANNUAL REPORT
A copy of the Company's Annual Report, which contains its Form 10-K Report
and financial statements, together with a letter to shareholders for the fiscal
year ended June 30, 1996, accompanies, or has been furnished prior to, this
Notice of Annual Meeting and Proxy Statement. No part of such Reports is
incorporated herein or is to be considered proxy soliciting material.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1996, TO ANY SHAREHOLDER OF THE COMPANY
UPON WRITTEN REQUEST. REQUESTS SHOULD BE SENT TO CHIEF FINANCIAL OFFICER, HEALTH
RISK MANAGEMENT, INC., 8000 WEST 78TH STREET, MINNEAPOLIS, MINNESOTA 55439. SUCH
REQUESTS SHOULD INCLUDE A REPRESENTATION THAT THE SHAREHOLDER WAS THE BENEFICIAL
OWNER OF SHARES OF COMMON STOCK ON MAY 9, 1997, THE RECORD DATE FOR THE 1997
ANNUAL MEETING OF SHAREHOLDERS.
Dated: May 19, 1997
Minneapolis, Minnesota
19
<PAGE>
HEALTH RISK MANAGEMENT, INC.
PROXY
FOR 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints GARY T. McILROY, M.D. and THOMAS P. CLARK
and each of them, with full power of substitution, his or her proxies to
represent and vote, as designated below, all shares of Health Risk Management,
Inc. registered in the name of the undersigned, at the Company's 1997 Annual
Meeting of Shareholders and at any adjournment thereof, and the undersigned
hereby revokes all proxies previously given with respect to the Annual Meeting.
1. ELECTION OF CLASS B DIRECTORS. Nominees: Marlene Travis and Vance Kenneth
Travis
<TABLE>
<S> <C>
/ / FOR ALL nominees listed above / / WITHHOLD AUTHORITY
(except those whose names have been written on the to vote for all nominees listed above.
line below).
</TABLE>
(To WITHHOLD authority to vote for any individual nominee write that
nominee's name on the line below.)
2. INDEPENDENT AUDITORS. Ratification of selection of Ernst & Young LLP as the
Company's independent auditors for the current 1997 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
3. STOCK OPTION PLAN. Amendment of Amended and Restated 1992 Long-Term
Incentive Plan to increase number of shares authorized for issuance
thereunder from 400,000 to 800,000.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
<PAGE>
4. OTHER MATTERS. In their discretion, the appointed Proxies are...
/ / AUTHORIZED / / NOT AUTHORIZED
to vote upon such other business as may properly come before the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL
AND, IN THE CASE OF PROPOSAL #3 WILL BE DEEMED TO GRANT AUTHORITY UNDER PROPOSAL
#3.
DATED: _________________________________, 1997
______________________________________________
______________________________________________
(PLEASE DATE AND SIGN NAME(S) EXACTLY AS SHOWN
ON YOUR STOCK CERTIFICATE. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS, ETC.,
SHOULD INDICATE CAPACITY WHEN SIGNING. FOR
STOCK HELD IN JOINT TENANCY, EACH JOINT OWNER
SHOULD SIGN.)
<PAGE>
HEALTH RISK MANAGEMENT, INC.
AMENDED AND RESTATED 1992 LONG-TERM INCENTIVE PLAN
ARTICLE I - INTRODUCTION
1.01 HISTORY. On September 14, 1992, the Board adopted the Health Risk
Management, Inc. 1992 Long-Term Incentive Plan, which the
shareholders of the Company approved on November 19, 1992, and
which has been amended from time to time.
1.02 PURPOSE. The primary purpose of the Amended and Restated 1992
Long-Term Incentive Plan (the Plan) is to advance the interests of
Health Risk Management, Inc. and its stockholders by affording
officers and other key employees of the Corporation and its
Subsidiaries, upon whose judgment, initiative and efforts the
Corporation and its Subsidiaries largely depend for the successful
conduct of their business, a proprietary interest in the growth and
performance of the Corporation.
ARTICLE II - DEFINITIONS
2.01 "AFFILIATE" means a Parent or Subsidiary of the Corporation.
2.02 "AWARD" means the grant of any form of Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, or any number of
Performance Units, whether granted singly, in combination or in
tandem, to a Plan Participant pursuant to the Plan on such terms,
conditions and limitations as the Committee may establish in order
to fulfill the objectives of the Plan.
2.03 "AWARD AGREEMENT" means the agreement executed by the Corporation or
its Subsidiary and a Participant that sets forth the terms,
conditions and limitations applicable to the Award.
2.04 "BOARD" means, at any particular time, the then duly elected and
acting directors of the Corporation.
2.05 "COMMITTEE" means the Compensation Committee of the Board (or any
successor to such Committee), which shall consist solely of two or
more directors who shall be appointed by and serve at the pleasure
of the Board. To the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the
Committee shall be a 'Non-Employee Director,' as such term is
defined in Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended from time to time.
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<PAGE>
2.06 "CORPORATION" means Health Risk Management, Inc., a Minnesota
corporation, and any successor in interest by way of consolidation,
operation of law, merger or otherwise.
2.07 "DATE OF GRANT" means the date an Award is approved by resolution of
the Committee, or such later date as may be specified in such
resolution; provided, however, that for Nonqualified Stock Options
granted to Outside Directors pursuant to Article VIII, the "Date of
Grant" shall be the date specified in Section 8.01.
2.08 "EFFECTIVE DATE" means the date the Plan is adopted by the Board
under Section 14.01 of Article 14 of the Plan.
2.09 "ELIGIBLE EMPLOYEE" means those key employees and officers of the
Corporation or a Subsidiary upon whose judgment, initiative and
efforts the Corporation and its Subsidiaries largely depend for the
successful conduct of their business.
2.10 "FAIR MARKET VALUE" means, with respect to shares of Stock on any
applicable date:
(a) If the Stock is reported in the national market system or
is listed upon an established exchange or exchanges, the
closing price of such Stock in such national market system
or on such stock exchange or exchanges on the applicable
date or, if no sale of such Stock shall have occurred on
that date, the next preceding date on which there was such
a reported sale; or
(b) If the Stock is not so reported in the national market
system or listed upon an exchange, the mean between the
"bid" and "asked" prices quoted by a recognized specialist
in the Stock on the applicable date or, if there are no
quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes; or
(c) If the Stock is not publicly traded as of the applicable
date, the Fair Market Value of the Stock on the applicable
date as determined by the Committee by applying principals
of valuation, and the Committee shall have full authority
and discretion in establishing the Fair Market Value.
2.11 "FISCAL YEAR" means the twelve (12) month period beginning on July 1
and ending on June 30 of each year.
-2-
<PAGE>
2.12 "INCENTIVE STOCK OPTION" means an option to purchase Stock awarded
to a Participant under Article VI of this Plan that qualifies as an
Incentive Stock Option within the meaning of Internal Revenue Code
Section 422.
2.13 "INCUMBENT DIRECTOR" means an Outside Director who was serving as a
member of the Board on September 14, 1992.
2.14 "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations thereunder.
2.15 "MARKET VALUE THRESHOLD" means the first date following the
September 14, 1992, upon which the average of the closing price of a
share of Stock for thirty (30) consecutive trading days equals or
exceeds $15.00, subject to adjustment pursuant to Section 4.03 of
the Plan; provided, however, that in the event of a sale of
substantially all of the Corporation's assets or in the event of a
merger, consolidation, exchange, reorganization, liquidation,
divestiture (including a spin-off) or similar transaction in which
the shareholders of the Corporation have the opportunity to receive
consideration having a value of at least $15.00 per share of Stock,
the Market Value Threshold shall be deemed to be satisfied upon the
date that such transaction becomes effective.
2.16 "NEW DIRECTOR" means an Outside Director who becomes a member of the
Board on or after the Effective Date of the Plan.
2.17 "NONQUALIFIED STOCK OPTION" means an option to purchase Stock
awarded to a Participant under Article VII or to an Outside Director
under Article VIII of this Plan but which does not qualify as an
Incentive Stock Option.
2.18 "OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Corporation or any of its Affiliates.
2.19 "PARENT" means a corporation as defined in Internal Revenue Code
Section 424(e) applying such Section 424(e) by treating the
Corporation as the employer corporation.
2.20 "PARTICIPANT" means an Eligible Employee to whom an Award has been
made under the Plan.
2.21 "PERFORMANCE GOAL" means, with respect to a Performance Unit Award,
a specified initial or cumulative business or financial objective
whether or not related to any equity security of the Corporation,
the satisfaction of which shall be a condition precedent to the
vesting of all or a portion of that Performance Unit Award.
-3-
<PAGE>
2.22 "PERFORMANCE PERIOD" means, with respect to a Performance Unit
Award, the designated period set forth in an Award Agreement over
which the Performance Units may vest. Participants who receive a
Performance Unit Award for any Performance Period shall be entitled
to receive additional Performance Unit Awards for subsequent
Performance Periods whether or not such Performance Periods overlap.
2.23 "PERFORMANCE UNIT" means a unit having a cash equivalent value
determined by the Committee on the basis of achievement by the
Corporation, by a specified Subsidiary, or by a specified operating
unit within the Corporation or Subsidiary of business or financial
objectives which shall be set forth in the terms of an Award
Agreement and which may or may not be related to any equity security
of the Corporation.
2.24 "PLAN" means the Amended and Restated Health Risk Management, Inc.
1992 Long-Term Incentive Plan, as set forth herein, as the same may
be from time to time amended.
2.25 "RESTRICTED STOCK AWARD" means shares of Stock awarded to a
Participant under Article IX of this Plan.
2.26 "SECTION 16(b) PARTICIPANT" means a Participant who is subject to
the provisions of Section 16(b) of the Securities Exchange Act of
1934, or its successor, as amended.
2.27 "STOCK" means the Corporation's Common Stock, par value $0.01 per
share.
2.28 "SUBSIDIARY" means a corporation as defined in Internal Revenue Code
Section 424(f) applying such Section 424(f) by treating the
Corporation as the employer corporation.
2.29 "SUBSIDIARY BOARD" means, at any particular time, the then duly
elected and acting directors of any Subsidiary of the Corporation.
2.30 "SUBSIDIARY DIRECTOR" means a member of any Subsidiary Board.
ARTICLE III - ADMINISTRATION
3.01 ADMINISTRATION. Except for those matters expressly reserved to the
Board pursuant to any provisions of the Plan, and except for all
matters relating to the grant of Nonqualified Stock Options to
Outside Directors and Subsidiary Directors pursuant to Article VIII,
the Committee shall have full responsibility for
-4-
<PAGE>
administration of the Plan, which responsibility shall include, but
shall not be limited to, the following:
(a) The Committee shall review and approve any and all Awards
to be made to Eligible Employees recommended by the
management of the Corporation or its Subsidiaries in
accordance with and subject to the provisions of the Plan;
(b) The Committee shall, subject to the provisions of the
Plan, establish, adopt and revise such rules and
procedures for administering the Plan, shall prescribe the
form of the Award Agreements (which may vary from
Participant to Participant) evidencing each Award, and
shall make all other determinations as it may deem
necessary or advisable for the administration of the Plan;
(c) With the exception of the Nonqualified Stock Options
granted to Outside Directors and Subsidiary Directors
pursuant to Article VIII, the Committee shall, subject to
the provisions of the Plan, determine the number and type
of Awards and all terms and conditions that shall apply to
such Awards, including, but not limited to, the
Performance Goals, the Performance Period and the formula
for the valuation of Performance Units in connection with
the Performance Unit Awards. The Committee may, in its
discretion, consider the recommendations of the management
of the Corporation or its Subsidiaries when determining
such terms and conditions for such Awards.
(d) The Committee shall have the exclusive authority to
interpret the provisions of the Plan, and each such
interpretation or determination shall be conclusive and
binding for all purposes and on all persons, including,
but not limited to, the Corporation and its Subsidiaries,
the stockholders of the Corporation and its Subsidiaries,
the Committee and each of its members thereof, the
directors, officers and employees of the Corporation and
its Subsidiaries, and the Participants and the respective
successors-in-interest of all of the foregoing;
(e) The Committee shall keep minutes of its meetings regarding
the Plan and shall provide copies to the Board.
3.02 OPTIONS GRANTED TO DIRECTORS. The Board shall have full
responsibility for administering all matters relating to the grant
of any Nonqualified Stock Options to Outside Directors and
Subsidiary Directors pursuant to Article VIII of this Plan.
-5-
<PAGE>
ARTICLE IV - STOCK SUBJECT TO PLAN
4.01 NUMBER. Subject to the approval of the Corporation's shareholders,
the total number of shares of Stock available for grants to
Participants directly or indirectly under all forms of Awards under
the Plan shall not exceed Eight Hundred Thousand (800,000) shares,
except to the extent adjustments are made pursuant to Section 4.03
of the Plan. Shares of Stock to be awarded may be either treasury
or authorized but unissued shares. If the shareholders do not
approve the reservation of Eight Hundred Thousand (800,000) shares
of Stock for Awards under the Plan, the number of shares of Stock
available under the Plan shall remain at Four Hundred Thousand
(400,000) shares, which was the number of shares of Stock originally
reserved under the Plan as adopted by the Board on September 14,
1992, and approved by the shareholders on November 19, 1992.
4.02 UNUSED SHARES. In the event a Restricted Stock Award, an Incentive
Stock Option Award or a Nonqualified Stock Option Award granted
under the Plan for any reason expires or is terminated prior to the
exercise thereof, the shares of Stock allocable to the unexercised
portion of such Restricted Stock Award, Incentive Stock Option or
Nonqualified Stock Option shall continue to become available for
grants of Restricted Stock Awards, Incentive Stock Options or
Nonqualified Stock Options under the Plan.
4.03 CAPITAL ADJUSTMENTS. In the event of an increase or decrease in the
number of shares of Stock or in the event the Stock is changed into
or exchanged for a different number or kind of shares of stock or
other securities of the Corporation or of another corporation by
reason of a reorganization, merger, consolidation, divestiture
(including a spin-off), liquidation, recapitalization,
reclassification, stock dividend, stock split, combination of
shares, rights offering or any other change in the corporate
structure or shares of the Corporation, the Board (or, if the
Corporation is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation),
in its sole discretion, shall adjust the number and kind of
securities subject to and reserved under the Plan and, to prevent
the dilution or enlargement of rights of Participants, Subsidiary
Directors and Outside Directors, shall adjust the number and kind of
securities subject to outstanding Awards and, where applicable, the
option price per share for such securities. Additional shares which
may be credited to such outstanding Awards shall be subject to the
same restrictions that apply to the securities with respect to which
the adjustment relates.
Notwithstanding the foregoing or any other provision in this Plan to
the contrary, and subject to Section 11.04 of Article XI, in the
event of a sale by the Corporation of substantially all of its
assets and the consequent discontinuance of its business or in the
event of a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture (including a
spin-off) or
-6-
<PAGE>
liquidation of the Corporation (collectively referred to as a
"transaction') after which the Corporation is not the surviving
corporation, the Board may, in connection with the Board's adoption
of the plan for such transaction, in its sole discretion, provide for
one or more of the following:
(a) That all outstanding Incentive Stock Options and
Nonqualified Stock Options shall become exercisable in
full;
(b) That this Plan shall terminate and that all outstanding
Incentive Stock Options and Nonqualified Stock Options not
exercised prior to a date specified by the Board (which
date shall give Participants, Outside Directors and
Subsidiary Directors the right to exercise such Options
prior to the effectiveness of the transaction) shall be
canceled;
(c) That this Plan shall continue with respect to the exercise
of Incentive Stock Options and Nonqualified Stock Options
which were outstanding as of the date of the Board's
adoption of the plan for such transaction and, if
applicable, provide Participants, Outside Directors and
Subsidiary Directors the right to exercise their
respective Options as to an equivalent number of shares of
stock of any corporation succeeding the Corporation by
reason of such transaction;
(d) That Participants, Outside Directors and Subsidiary
Directors holding outstanding Incentive Stock Options and
Nonqualified Stock Options shall receive, with respect to
each share of Stock subject to such Options, as of the
effective date of any such transaction, cash in an amount
equal to the excess of the Fair Market Value of such Stock
on the date immediately preceding the effective date of
such transaction over the option price per share of such
Options; provided that the Board may, in lieu of such cash
payment, distribution to such Participants, Outside
Directors and Subsidiary Directors shares of Stock of the
Corporation or shares of stock of any corporation
succeeding the Corporation by reason of such transaction,
such shares having a value equal to the cash payment
provided by this Section 4.03(d);
(e) That all restrictions on the transferability of shares
subject to Restricted Stock Awards shall lapse;
(f) That, to the extent Performance Units granted under
Article X have vested prior to the effective date of the
transaction as the Committee, in its sole discretion,
shall determine, Participants shall
-7-
<PAGE>
receive payment for the value of such Performance Units as
provided in Sections 10.03 and 10.04.
provided, however, that the Board may restrict the rights of, or the
applicability of this Section 4.03 to Section 16(b) Participants,
Outside Directors and Subsidiary Directors to the extent necessary
to comply with the requirements of Section 16(b), or any successor
provision, of the Securities Exchange Act of 1934, as amended. The
grant of an Award pursuant to the Plan shall not limit in any way
the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes in its capital or
business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE V - PARTICIPATION
5.01 PARTICIPANTS. Participants in the Plan shall be those Eligible
Employees who, in the judgment of the Committee, following
recommendation by management of the Corporation or its Subsidiaries,
have performed, are performing or during the period of their Award
will perform, vital services in the management, operation and
development of the Corporation or its Subsidiaries, and have
significantly contributed, are significantly contributing or are
expected to significantly contribute to the achievement of long-term
corporate objectives. Participants may be granted from time to time
one or more Restricted Stock Awards, Performance Units, Incentive
Stock Options, or Nonqualified Stock Options; provided, however,
that the grant of each Award shall be separately approved by the
Committee; and, provided further, that the receipt of one such Award
shall not result in the automatic receipt of any other Award. Upon
determination by the Committee that an Award is to be granted to a
Participant, an Award Agreement shall be executed by the Corporation
and by such Participant, specifying the terms, conditions, rights
and duties related thereto.
5.02 DIRECTORS. Outside Directors and Subsidiary Directors shall be
eligible for grants of Nonqualified Stock Options pursuant to the
provisions of Article VIII.
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<PAGE>
ARTICLE VI - INCENTIVE STOCK OPTIONS
6.01 GRANT OF INCENTIVE STOCK OPTIONS. In accordance with the provisions
of the Plan, the Committee shall approve, following recommendation
by management of the Corporation or its Subsidiaries, the Eligible
Employees to whom Incentive Stock Options shall be granted. The
Committee shall determine the number of shares to be subject to each
Incentive Stock Option, the time at which such Option shall be
granted, whether such Option shall be granted in exchange for the
cancellation and termination of a previously granted Incentive Stock
Option under the Plan or otherwise, the extent to which an Incentive
Stock Option may be exercisable upon the Participant's termination
of employment, which may differ depending upon the reason for such
termination, the manner in which an Incentive Stock Option may be
exercised and the form of the Award Agreement that shall evidence
each Incentive Stock Option. Except as otherwise provided in this
Article VI, the Committee shall determine the terms, conditions and
other provisions of each Award Agreement, which may vary from
Participant to Participant and which may contain such limitations
and restrictions as shall be necessary to ensure that such Option
will be considered an Incentive Stock Option as defined in Internal
Revenue Code Section 422 or to conform to any change therein. Each
Participant shall enter into an Award Agreement with the Corporation
with respect to the grant of each Incentive Stock Option.
6.02 OPTION PRICE. To the extent required to qualify the Option as an
Incentive Stock Option under Internal Revenue Code Section 422, the
option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the Date
of Grant except that, if a Participant owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or its Affiliate, the option
price per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value of one share of Stock as of the Date
of Grant.
6.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF INCENTIVE STOCK OPTIONS. The period during
which an Incentive Stock Option granted under the Plan may
be exercised shall be established by the Committee, and
shall be set forth in the Award Agreement, but in no event
shall any Incentive Stock Option be exercisable during a
term of more than ten (10) years after the Date of Grant;
provided, however, that if a Participant owns stock
possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the
Corporation or its Affiliate, the Incentive Stock Option
shall be exercisable during a period of not more than five
(5) years after the Date of Grant.
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<PAGE>
(b) EXERCISABILITY OF INCENTIVE STOCK OPTIONS.
(1) The Committee shall have discretion to determine when
an Incentive Stock Option becomes exercisable and may
provide that the Incentive Stock Option shall become
exercisable in installments. If the Participant does
not purchase in any year the full number of shares
which the Participant is entitled to purchase in that
year, the Participant may, if provided in the Award
Agreement, purchase in any subsequent year such
previously unpurchased shares in addition to those
that the Participant is otherwise entitled to
purchase.
(2) In the event an Incentive Stock Option is immediately
exercisable at the Date of Grant, the manner of
exercising such Option in the event it is not
immediately exercised in full shall be specified in
the Award Agreement.
(3) The Committee may accelerate the exercise date of any
Incentive Stock Option which is not immediately
exercisable at the Date of Grant as the Committee, in
its discretion, deems advisable.
(4) The Award Agreement shall set forth all provisions
relating to the exercisability of Incentive Stock
Options.
6.04 PAYMENT OF OPTION PRICE. Upon the exercise of any Incentive Stock
Option granted pursuant to this Plan, the purchase price for such
shares of Stock subject to such Option shall be paid in cash unless
the Committee, in its sole discretion and subject to any applicable
rules or regulations it may adopt, allows such payment to be made,
in whole or in part, by the transfer from the Participant to the
Corporation of previously acquired shares of Stock. Any Stock so
transferred shall be valued at Fair Market Value on the day
immediately preceding the effective exercise of the Incentive Stock
Option. For purposes of this Section 6.04, "previously acquired
shares of Stock" shall include shares of Stock that are already
owned by the Participant at the time of exercise.
6.05 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to an
Incentive Stock Option until the Participant becomes the holder of
record of such shares. Except as provided in Section 4.03, no
adjustments shall be made for dividends or other cash distributions
or for other rights that have a record date preceding the date the
Participant becomes the holder of record of such shares of Stock.
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<PAGE>
ARTICLE VII - NONQUALIFIED STOCK OPTIONS
7.01 GRANT OF NONQUALIFIED STOCK OPTIONS. In accordance with the
provisions of the Plan, the Committee shall approve, following
recommendation by management of the Corporation or its Subsidiaries,
the Eligible Employees to whom Nonqualified Stock Options shall be
granted under this Article VII. The Committee shall determine the
number of shares to be subject to each Nonqualified Stock Option,
the time at which such Option shall be granted, whether such Option
shall be granted in exchange for the cancellation and termination of
a previously granted Nonqualified Stock Option under the Plan or
otherwise, the extent to which a Nonqualified Stock Option may be
exercisable upon the Participant's termination of employment, which
may differ depending upon the reason for such termination, the
manner in which a Nonqualified Stock Option may be exercised and the
form of the Award Agreement that shall evidence each Nonqualified
Stock Option. Except as otherwise provided in this Article VII,
the Committee shall determine the terms, conditions and other
provisions of each Award Agreement, which may vary from Participant
to Participant. Each Participant shall enter into an Award Agreement
with the Corporation with respect to the grant of each Nonqualified
Stock Option.
7.02 OPTION PRICE. Unless otherwise determined by the Committee, the
option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the Date
of Grant.
7.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF NONQUALIFIED STOCK OPTIONS. The period during
which a Nonqualified Stock Option granted under the Plan
may be exercised shall be established by the Committee,
and shall be set forth in the Award Agreement, but in no
event shall any Nonqualified Stock Option be exercisable
during a term of more than ten (10) years after the Date
of Grant.
(b) EXERCISABILITY OF NONQUALIFIED STOCK OPTIONS.
(1) The Committee shall have discretion to determine when
a Nonqualified Stock Option becomes exercisable and
may provide that the Nonqualified Stock Option shall
become exercisable in installments. If the
Participant does not purchase in any year the full
number of shares which the Participant is entitled to
purchase in that year, the Participant may, if
provided in the Award Agreement, purchase in any
subsequent year such previously
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unpurchased shares in addition to those that the
Participant is otherwise entitled to purchase.
(2) In the event a Nonqualified Stock Option is
immediately exercisable at the Date of Grant, the
manner of exercising such Option in the event it is
not immediately exercised in full shall be specified
in the Award Agreement.
(3) The Committee may accelerate the exercise date of any
Nonqualified Stock Option which is not immediately
exercisable at the Date of Grant as the Committee, in
its discretion, deems advisable.
(4) The Award Agreement shall set forth all provisions
relating to the exercisability of Nonqualified Stock
Options.
7.04 PAYMENT OF OPTION PRICE. Upon the exercise of any Nonqualified
Stock Option granted pursuant to this Plan, the purchase price for
such shares of Stock subject to such Option shall be paid in cash
unless the Committee, in its sole discretion and subject to any
applicable rules or regulations it may adopt, allows such payment to
be made, in whole or in part, by the transfer from the Participant
to the Corporation of previously acquired shares of Stock. Any
Stock so transferred shall be valued at Fair Market Value on the day
immediately preceding the effective exercise of the Nonqualified
Stock Option. For purposes of this Section 7.04, "previously
acquired shares of Stock" shall include shares of Stock that are
already owned by the Participant at the time of exercise.
7.05 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to a
Nonqualified Option until the Participant becomes the holder of
record of such shares. Except as provided in Section 4.03, no
adjustments shall be made for dividends or other cash distributions
or for other rights that have a record date preceding the date the
Participant becomes the holder of record of such shares of Stock.
ARTICLE VIII - NONQUALIFIED STOCK OPTIONS
FOR DIRECTORS
8.01 GRANT OF NONQUALIFIED STOCK OPTIONS.
(a) In accordance with the provisions of the Plan, the Board shall
determine the Outside Directors and Subsidiary Directors to
whom Nonqualified Stock Options shall be granted under this
Article
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VIII. The Board shall determine the number of shares
of Stock to be subject to each Nonqualified Stock Option, the
time at which such Option shall be granted, whether such Option
shall be granted in exchange for the cancellation and
termination of a previously granted Nonqualified Stock Option
under the Plan or otherwise, the extent to which a Nonqualified
Stock Option may be exercisable upon the Outside Director's or
Subsidiary Director's termination of membership on the Board,
which may differ depending on the reason for such termination,
the manner in which a Nonqualified Stock Option may be
exercised and the form of the Award Agreement that shall
evidence each Nonqualified Stock Option. Except as otherwise
provided in this Article VIII, the Board shall determine the
terms, conditions and other provisions of each Award Agreement,
which may vary from Outside Director to Outside Director and
from Subsidiary Director to Subsidiary Director. Each Outside
Director or Subsidiary Director shall enter into an Award
Agreement with the Corporation with respect to the grant of
each Nonqualified Stock Option.
In addition to the foregoing discretionary grants, each Outside
Director and Subsidiary Director shall automatically be granted
Nonqualified Stock Options as provided in Sections 8.01(b) and
8.01(c).
(b) INITIAL GRANTS.
(1) On September 14, 1992, each Incumbent Director was granted
a Nonqualified Stock Option to purchase three thousand
eight hundred (3,800) shares of stock, Such Option shall
remain subject to the terms and conditions of this Plan.
(2) Each New Director who first becomes elected to the Board
on or after September 14, 1992, shall be granted a
Nonqualified Stock Option to purchase three thousand eight
hundred (3,800) shares of Stock on the date of such
election.
(c) ANNUAL GRANTS.
(1) If an Outside Director receives an initial grant pursuant
to Section 8.01(b) during the first six (6) months of a
Fiscal Year, the Outside Director shall be granted a
Nonqualified Stock Option to purchase one thousand nine
hundred (1,900) shares of Stock on the last day of the
Fiscal Year in
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which the Outside Director received such
initial grant and on the last day of each Fiscal Year
thereafter during which the Outside Director continues to
serve on the Board.
(2) If an Outside Director receives an initial grant pursuant
to Section 8.01(b) during the last six (6) months of a
Fiscal Year, the Outside Director shall be granted a
Nonqualified Stock Option to purchase one thousand nine
hundred (1,900) shares of Stock on the last day of the
Fiscal Year immediately following the Fiscal Year in which
the Outside Director received such initial grant and on
the last day of each Fiscal Year thereafter during which
the Outside Director continues to serve on the Board.
(3) An Outside Director or a Subsidiary Director may elect in
writing to receive a Nonqualified Stock Option in lieu of
all or any portion of the cash fees for which the Outside
Director or Subsidiary Director may be entitled to receive
payment following the date of such election, whether in
the form of an annual retainer or in the form of fees for
attending or chairing meetings of the Board or Subsidiary
Board or any committee to which the Outside Director or
Subsidiary Director has been appointed, and which would
otherwise be payable to the Outside Director or Subsidiary
Director during the Fiscal Year for which such election
has been made. The number of shares subject to such
Nonqualified Stock Option shall be determined by dividing
the total dollar amount subject to the election by an
amount equal to twenty-five percent (25%) of the Fair
Market Value of the Stock of the Corporation as of the
Date of Grant. For purposes of this Section 8.01(c)(3),
the "Date of Grant" shall be the last day of the Fiscal
Year for which the election has been made. Beginning with
the 1998 Fiscal Year, an election by an Outside Director
or Subsidiary Director to receive a Nonqualified Stock
Option pursuant to this Section 8.01(c)(3) may be made at
any time prior to the Date of Grant on a form prescribed
by the Board.
8.02 OPTION PRICE.
(a) The option price per share for all Nonqualified Stock Options
granted pursuant to Sections 8.01(b), 8.01(c)(1) and 8.01(c)(2)
shall be one hundred percent (100%) of the Fair Market Value of
one share of Stock as of the Date of Grant.
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(b) The option price per share for all Nonqualified Stock Options
granted pursuant to Section 8.01(c)(3) shall be seventy-five
percent (75%) of the Fair Market Value of one share of Stock as
of the Date of Grant.
8.03 DURATION AND EXERCISE OF OPTIONS.
(a) DURATION OF OPTIONS. Unless otherwise determined by the Board
and specified in the Award Agreement, the period during which
any Nonqualified Stock Option granted to Outside Directors or
Subsidiary Directors under this Article VIII may be exercised
shall be five (5) years after the Date of Grant.
(b) EXERCISABILITY OF NONQUALIFIED STOCK OPTIONS.
(1) Unless otherwise determined by the Board and specified in
the Award Agreement, all Nonqualified Stock Options
granted to Outside Directors or Subsidiary Directors
pursuant to Section 8.01 shall become exercisable with
respect to one-third of the shares subject to the
Nonqualified Stock Options on each of the three succeeding
anniversaries of the Date of Grant; provided, however,
that the Outside Director or the Subsidiary Director shall
not be entitled to exercise any portion of such
Nonqualified Stock Option that has become exercisable
until the Market Value Threshold has been satisfied.
(2) If the Outside Director does not purchase in any year the
full number of shares which the Outside Director is
entitled to purchase in that year, the Outside Director
shall be entitled to purchase in any subsequent year such
previously unpurchased shares in addition to those shares
the Outside Director is otherwise entitled to purchase.
(3) In the event a Nonqualified Stock Option is immediately
exercisable at the Date of Grant, the manner of exercising
such Option in the event it is not immediately exercised
in full shall be specified in the Award Agreement.
(4) The Board may accelerate the exercise date of any
Nonqualified Stock Option which is not immediately
exercisable at the Date of Grant as the Board, in its
discretion, deems advisable.
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(5) The Award Agreement shall set forth all provisions
relating to the exercisability of Nonqualified Stock
Options.
8.04 MANNER OF OPTION EXERCISE. A Nonqualified Stock Option may be
exercised by an Outside Director or a Subsidiary Director in whole
or in part, subject to the conditions of this Plan and subject to
such other administrative rules as the Board may deem advisable, by
delivering to the principal office of the Corporation written notice
of the number of whole shares with respect to which the Nonqualified
Stock Option is being exercised and by paying the purchase price for
such shares in full. The exercise of the Nonqualified Stock Option
shall be deemed effective upon receipt of such notice by the
Corporation and upon payment that complies with the terms of this
Plan. As soon as practicable after the effective exercise of the
Nonqualified Stock Option, the Outside Director or Subsidiary
Director shall be recorded on the stock transfer books of the
Corporation as the owner of the shares purchased and the Corporation
shall deliver to the Outside Director or Subsidiary Director one or
more duly issued stock certificates evidencing such ownership.
8.05 PAYMENT OF OPTION PRICE. Upon the exercise of any Nonqualified
Stock Option granted to an Outside Director or Subsidiary Director
pursuant to this Article VIII, the purchase price for such shares of
Stock subject to such Option shall be paid in cash unless the Board,
in its sole discretion and subject to any applicable rules or
regulations it may adopt, allows such payment to be made, in whole
or in part, by the transfer from the Outside Director or Subsidiary
Director to the Corporation of previously acquired shares of Stock.
Any Stock so transferred shall be valued at Fair Market Value on the
day immediately preceding the effective exercise of the Nonqualified
Stock Option. For purposes of this Section 8.05, "previously
acquired shares of Stock" shall include shares of Stock that are
already owned by the Outside Director or Subsidiary Director at the
time of exercise.
8.06 RIGHTS AS A SHAREHOLDER. The Outside Director or Subsidiary
Director shall have no rights as a shareholder with respect to any
shares of Stock subject to a Nonqualified Stock Option until the
Outside Director or Subsidiary Director becomes the holder of record
of such shares. Except as provided in Section 4.03, no adjustments
shall be made for dividends or other cash distributions or for other
rights that have a record date preceding the date the Outside
Director or Subsidiary Director becomes the holder of record of such
shares of Stock.
8.07 TERMINATION OF STATUS AS A DIRECTOR. Unless otherwise determined by
the Board and specified in the Award Agreement, in the event that an
Outside Director's membership on the Board or a Subsidiary
Director's membership on the Subsidiary Board terminates, the
following provisions shall apply:
(a) If the Outside Director's membership on the Board or the
Subsidiary Director's membership on the Subsidiary Board
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terminates for any reason other than the Outside
Director's or Subsidiary Director's death or disability,
the Outside Director or Subsidiary Director shall be
entitled to exercise any Nonqualified Stock Option granted
to such Outside Director or Subsidiary Director pursuant
to this Article VIII to the extent such Option was
exercisable as of the date of such termination for a
period of three (3) months following the date of such
termination unless such Option, by its terms, expires
before the end of such three-month period; provided,
however, that the Outside Director or Subsidiary Director
shall not be entitled to exercise any Nonqualified Stock
Option pursuant to this Section 8.07(a) unless, prior to
the expiration of the exercise period specified herein,
the Market Value Threshold has been satisfied. To the
extent that the Nonqualified Stock Option is not
exercisable as of the date the Outside Director's
membership on the Board or the Subsidiary Director's
membership on the Subsidiary Board terminates for any
reason other than death or disability, or to the extent
the Outside Director or Subsidiary Director does not
exercise such Option within the period specified in this
Section 8.07(a), all rights of the Outside Director or
Subsidiary Director under such Option shall be forfeited.
(b) If the Outside Director's membership on the Board or the
Subsidiary Director's membership on the Subsidiary Board
terminates because of disability, the Outside Director or
Subsidiary Director shall be entitled to exercise any
Nonqualified Stock Option to the extent such Option was
exercisable as of the date the Outside Director's
membership on the Board or the Subsidiary Director's
membership on the Subsidiary Board is terminated by reason
of disability for a period of twelve (12) months following
the date of such termination unless such Option, by its
terms, expires before the end of such twelve-month period;
provided, however, that the Outside Director or Subsidiary
Director shall not be entitled to exercise any
Nonqualified Stock Option pursuant to this Section 8.07(b)
unless, prior to the expiration of the exercise period
specified herein, the Market Value Threshold has been
satisfied. To the extent that such Option was not
exercisable as of the date the Outside Director's
membership on the Board or the Subsidiary Director's
membership on the Subsidiary Board terminates because of
disability, or if the Outside Director or Subsidiary
Director does not exercise the Nonqualified Stock Option
within the twelve-month period specified in this Section
8.07(b), all rights of the Outside Director or Subsidiary
Director under such Option shall be forfeited. For
purposes of this Section 8.07(b), "disability" shall mean
a mental or physical condition of
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the Outside Director or Subsidiary Director resulting from
illness, injury or disease which, as determined by the
Board, causes the Outside Director to resign from the
Board or the Subsidiary Director to resign from the
Subsidiary Board and is reasonably expected to be of long
and indefinite duration or result in death.
(c) If the Outside Director or Subsidiary Director dies (i)
while a member of the Board or Subsidiary Board, (ii)
within the three (3) months following the termination of
the Outside Director's membership on the Board or the
termination of the Subsidiary Director's membership on the
Subsidiary Board in the case of Section 8.07(a) above, or
(iii) within the twelve (12) months following the
termination of the Outside Director's membership on the
Board or the termination of the Subsidiary Director's
membership on the Subsidiary Board in the case of Section
8.07(b) above, any Nonqualified Stock Option granted to
such Outside Director or Subsidiary Director shall become
immediately exercisable in full and may be exercised by
the Outside Director's or Subsidiary Director's estate or
any person who acquired the right to exercise any
Nonqualified Stock Option granted to such Outside Director
or Subsidiary Director pursuant to this Article VIII by
bequest or inheritance until the date such Option expires
as specified in Section 8.03(a) above. Notwithstanding
the foregoing, the Outside Director's or Subsidiary
Director's estate or any person who acquired the right to
exercise such Nonqualified Stock Option by bequest or
inheritance shall not be entitled to exercise any portion
of such Option pursuant to this Section 8.07(c) unless,
prior to the expiration of the exercise period specified
herein, the Market Value Threshold has been satisfied.
8.08 INVESTMENT PURPOSE. The Corporation shall require, as a condition
to the grant and exercise of any Nonqualified Stock Option pursuant
to this Article VIII, that any Stock acquired pursuant to such
Nonqualified Stock Option shall be acquired only for investment if,
in the opinion of counsel for the Corporation, such condition is
required or deemed advisable under securities laws or any other
applicable law, regulation or rule of any government or governmental
agency. In this regard, if requested by the Corporation, the
Outside Director or Subsidiary Director, prior to the acquisition of
any shares of Stock pursuant to any Nonqualified Stock Option, shall
execute an investment letter to the effect that the Outside Director
or Subsidiary Director is acquiring shares of Stock pursuant to such
Option for investment purposes only and not with the intention of
making any distribution of such shares and will not dispose of the
shares in violation of the applicable federal and state securities
laws.
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ARTICLE IX - RESTRICTED STOCK AWARDS
9.01 GRANT OF RESTRICTED STOCK AWARDS. In accordance with the provisions
of the Plan, the Committee shall approve, following recommendation
by management of the Corporation or its Subsidiaries, the Eligible
Employees to whom Restricted Stock Awards shall be granted, shall
determine the number of shares to be subject to each Restricted
Stock Award, the time at which the Restricted Stock Award is to be
granted, the manner in which restrictions on the transferability of
shares of Stock represented by the Restricted Stock Award will lapse
including the extent to which such restrictions may lapse upon the
Participant's termination of employment, which may differ depending
upon the reason for such termination, subject to the provisions of
Section 9.03, and such other provisions of the Restricted Stock
Award as the Committee may deem necessary or desirable. The
Committee shall determine the form of Award Agreement that shall
evidence each Restricted Stock Award and shall determine the terms,
conditions and other provisions of each Award Agreement, which may
vary from Participant to Participant. Each participant shall enter
into an Award Agreement with the Corporation with respect to the
grant of each Restricted Stock Award.
9.02 RESTRICTIONS ON TRANSFER. The shares of Stock awarded pursuant to a
Restricted Stock Award shall be subject to the following
restrictions:
(a) No such share of Stock may be sold, transferred, assigned,
pledged, encumbered or otherwise alienated or hypothecated
unless and only to the extent that restrictions shall have
lapsed in accordance with the Plan and the Award Agreement.
(b) Upon the grant of a Restricted Stock Award, the
Corporation shall cause to be issued stock certificates
representing the shares subject to such Restricted Stock
Award in the Participant's name. The Corporation shall
hold such stock certificates until the restrictions set
forth in 9.02(a) lapse in accordance with the Plan and the
Award Agreement. Once the restrictions have lapsed with
respect to all or part of the shares subject to the
Restricted Stock Award, such stock certificates shall be
distributed to the Participant.
(d) Notwithstanding the provisions of Section 9.02(b), and
subject to any terms, conditions or other restrictions set
forth in the Award Agreement, a Participant receiving a
Restricted Stock Award shall, as of the Date of Grant,
have the right to vote such shares of Stock and to receive
dividends and other distributions made with respect to
such shares, but the Participant shall not, unless
otherwise determined by the Committee, have any other
rights as a shareholder. The terms, conditions and
restrictions set forth in the
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Award Agreement shall also apply to any additional shares
of Stock received by a Participant as the result of any
dividend paid on the shares of Stock subject to the
Restricted Stock Award or as the result of any stock
split, stock distribution or combination of shares that
affects the shares of Stock subject to the Restricted
Stock Award.
9.03 LAPSING OF RESTRICTIONS. The Committee shall have the discretion to
determine the times and extent to which restrictions on the
transferability of shares under each Restricted Stock Award shall
lapse, and the Award Agreement shall set forth all provisions
relating to the lapsing of such restrictions.
9.04 MODIFICATION OF LAPSING SCHEDULE. The Committee may, in its sole
discretion, modify the rate at which restrictions on transferability
of shares under a Restricted Stock Award shall lapse. Any such
modification shall apply only to those shares of Stock which are
restricted as of the effective date of the modification, and shall
be reflected in a resolution adopted by the Committee and, if deemed
appropriate by the Committee, in an amendment to any Award Agreement
with respect to which it applies.
ARTICLE X - PERFORMANCE UNITS
10.01 GRANT OF PERFORMANCE UNITS. In accordance with the provisions of the
Plan, the Committee shall approve, following recommendation by the
management of the Corporation or its Subsidiary, the Eligible
Employees to whom Performance Unit Awards shall be granted, and
shall determine the number of Performance Units to be subject to
each Performance Unit Award, the time at which such Performance Unit
Award shall be granted, the extent to which Performance Units may
vest upon the Participant's termination of employment, which may
differ depending upon the reason for such termination, and such
other provisions of the Performance Unit Award as the Committee may
deem necessary or desirable. The Committee shall determine the form
of Award Agreement that shall evidence each Performance Unit Award
and shall determine the terms, conditions and other provisions of
each Award Agreement, which may vary from Participant to
Participant. Each Participant shall enter into an Award Agreement
with the Corporation with respect to the grant of each Performance
Unit Award.
10.02 VESTING OF PERFORMANCE UNITS. Each Performance Unit Award Agreement
shall set forth:
(a) The Performance Period over which Performance Units may vest;
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(b) The initial or cumulative Performance Goals which must be
satisfied prior to vesting of any portion of the
Performance Units represented by the Performance Unit
Award. Unless otherwise determined by the Committee, such
Performance goals shall, for purposes of valuing each
Performance Unit under Section 10.03, include threshold,
target and maximum levels.
(c) The vesting schedule with respect to the Performance
Units, shall be determined by the Committee and shall
depend upon the attainment of the initial or cumulative
Performance Goals set forth in the Award Agreement.
10.03 VALUATION OF PERFORMANCE UNITS. The dollar value of each
Performance Unit that becomes vested and payable to a Participant
pursuant to Section 10.02(c) shall be determined by the Committee in
accordance with the formula set forth in the Award Agreement and in
accordance with any corresponding initial or cumulative Performance
Goals.
10.04 PAYMENT OF PERFORMANCE UNIT AWARDS. The value of Performance Units
that have vested shall be paid to the Participant within thirty (30)
calendar days after the Committee determines whether the applicable
Performance Goals have been attained after the end of the
Performance Period. Such payment may, at the discretion of the
Committee, be made in cash, stock or any combination thereof. Any
payment to be made to a Participant shall be subject to the
applicable withholding requirements described in Section 15.06.
10.05 AMENDMENT OF PERFORMANCE UNIT AWARDS. The Committee may, at any
time during a Performance Period, suspend, modify or terminate a
Performance Unit Award upon the occurrence of any extraordinary
event which substantially affects the Corporation or the Subsidiary,
including, but not limited to, a merger, consolidation, exchange,
divestiture (including a spin-off), reorganization or liquidation of
the Corporation or Subsidiary or the sale by the Corporation or
Subsidiary of substantially all of its assets and the consequent
discontinuance of its business.
ARTICLE XI - CHANGE OF CONTROL
11.01 DEFINITIONS. For purposes of this Article XI, the following
definitions shall apply:
(a) "CHANGE OF CONTROL" shall mean any of the following events:
(1) A merger or consolidation to which the Corporation is
a party if the individuals and entities who were
shareholders
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of the Corporation immediately prior to the effective
date of such merger or consolidation have,
immediately following the effective date of such
merger or consolidation, beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of less than fifty percent (50%) of the
total combined voting power of all classes of
securities issued by the surviving corporation for
the election of directors of the surviving
corporation;
(2) The direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Corporation
representing, in the aggregate, twenty percent (20%)
or more of the total combined voting power of all
classes of the Corporation's then issued and
outstanding securities by any person or entity or by
a group of associated persons or entities acting in
concert;
(3) The sale of the properties and assets of the
Corporation substantially as an entirety, to any
person or entity which is not a wholly-owned
subsidiary of the Corporation;
(4) The shareholders of the Corporation approve any plan
or proposal for the liquidation of the Corporation; or
(5) A change in the composition of the Board at any time
during any consecutive twenty-four (24) month period
such that the "Continuity Directors" cease for any
reason to constitute at least a seventy percent (70%)
majority of the Board. For purposes of this event,
"Continuity Directors" means those members of the
Board who either:
(i) were directors at the beginning of such
consecutive twenty-four (24) month period; or
(ii) were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board of
Directors.
(b) "CHANGE OF CONTROL ACTION" shall mean any payment
(including any benefit or transfer of property) in the
nature of compensation to or for the benefit of a
Participant, Outside Director or Subsidiary Director under
any arrangement which is considered to be contingent on a
Change of Control for purposes of Internal Revenue Code
Section 280G. As used in this definition, the term
"arrangement" means any agreement between a Participant,
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Outside Director or Subsidiary Director and the
Corporation or its Subsidiary and shall include, without
limitation, any and all of the Corporation's or
Subsidiary's salary, bonus, incentive, restricted stock,
stock option, compensation or benefit plans, programs or
arrangements and this Plan.
(c) "CHANGE OF CONTROL TERMINATION" shall mean, with respect
to a Participant, Outside Director or Subsidiary Director,
any of the following events occurring within two (2) years
after a Change of Control:
(1) The termination of the Participant's employment by
the Corporation or its Subsidiary for any reason,
with or without cause, except for conduct by the
Participant constituting (i) a felony involving moral
turpitude under either federal law or the law of the
state of the Corporation's incorporation or (ii) the
Participant's willful failure to fulfill his
employment duties with the Corporation or its
Subsidiary; provided, however, that for purposes of
this clause (ii), an act or failure to act by the
Participant shall not be "willful" unless it is done,
or omitted to be done, in bad faith and without any
reasonable belief that the Participant's action or
omission was in the best interests of the Corporation
or its Subsidiary; or
(2) The termination of employment with the Corporation or
its Subsidiary by the Participant for Good Reason.
With respect to an Outside Director or Subsidiary Director, "Change
of Control Termination" shall mean the termination of the Outside
Director's status as a member of the Board for any reason within two
(2) years after a Change of Control.
(d) "GOOD REASON" shall mean a good faith determination by the
Participant, in the Participant's sole and absolute
judgment, that any one or more of the following events has
occurred without the Participant's express written consent
after a Change of Control:
(1) A change in the Participant's reporting
responsibilities, titles or offices as in effect
immediately prior to the Change of Control, or any
removal of the Participant from or any failure to
re-elect the Participant to any of such positions,
which has the effect of diminishing the Participant's
responsibility or authority;
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(2) A reduction by the Corporation or its Subsidiary in
the Participant's base salary as in effect
immediately prior to the Change of Control or as the
same may be increased from time to time thereafter;
(3) A requirement imposed by the Corporation or its
Subsidiary on the Participant that results in the
Participant being based at a location that is outside
of a twenty-five (25) radius mile of the
Participant's job location at the time of the Change
of Control;
(4) Without the adoption of a replacement plan, program
or arrangement that provides benefits to the
Participant that are equal to or greater than those
benefits that are discontinued or adversely affected:
(a) The failure by the Corporation or Subsidiary to
continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock
ownership, purchase, option, life insurance,
health, accident, disability, or any other
employee compensation or benefit plan, program
or arrangement, in which the Participant is
participating immediately prior to a Change of
Control; or
(b) The taking of any action by the Corporation or
its Subsidiary that would adversely affect the
Participant's participation or materially
reduce the Participant's benefits under any of
such plans, programs or arrangements; or
(5) Any action by the Corporation or its Subsidiary that
would materially adversely affect the physical
conditions existing at the time of the Change of
Control in or under which the Participant performs
his or her employment duties; or
(6) If the Participant's primary employment duties are
with a Subsidiary of the Corporation, the sale,
merger, contribution, transfer or any other
transaction relating to the Corporation's ownership
interest in such Subsidiary and which decreases such
ownership interest below the level specified in
Section 2.28; or
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(7) Any material breach by the Corporation or its
Subsidiary of any employment agreement between the
Participant and the Corporation or its Subsidiary.
"Good Reason" shall not include the Participant's death or
termination for any reason other than the events specified in
clauses (1) through (7) above.
11.02 ACCELERATION OF VESTING/PUT OPTION. Subject to the "Limitation on
Change of Control Compensation" contained in Section 11.03, in the
event of a Change of Control Termination of a Participant, Outside
Director or Subsidiary Director, and without further action of the
Board, the Committee or otherwise:
(a) Each Incentive Stock Option or Nonqualified Stock Option
granted to such Participant, Outside Director or
Subsidiary Director pursuant to this Plan shall become
immediately exercisable in full, any restrictions that may
apply to the exercisability of the Incentive Stock Option
or Nonqualified Stock Option, including but not limited to
the Market Value Threshold if applicable, shall be deemed
to be satisfied (notwithstanding any provision in the Plan
or the Award Agreement to the contrary), and the Incentive
Stock Option or Nonqualified Stock Option shall remain
exercisable until the expiration of such Option;
(b) All restrictions on the transferability of shares of Stock
subject to each Restricted Stock Award granted to such
Participant shall immediately lapse and be of no further
force or effect;
(c) The value of all Performance Units awarded to such
Participant shall immediately become payable,
notwithstanding any provision in the Plan or Award
Agreement to the contrary. For purposes of this Section
11.02(c), the value of such Performance Units shall be
calculated (i) by determining the value of such
Performance Units pursuant to the formula set forth in the
Award Agreement and assuming that the Company has achieved
the target level of any Performance Goals relating to such
Performance Units, and (ii) by multiplying the value
determined in (i) by a fraction, the numerator of which
shall be the number of days the Participant worked for the
Corporation or its Subsidiary during the Performance
Period relating to such Performance Units immediately
prior to the Change in Control Termination, and the
denominator of which shall be the number of days in such
Performance Period.
(d) Within thirty (30) days following the Change of Control
Termination, the Participant may, by written election
delivered to an officer of the Corporation, require the
Corporation to purchase,
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within five (5) days following delivery of the election,
the shares of the Participant's Stock with respect to
which restrictions have lapsed in accordance with Section
11.02(b), at a price equal to the Fair Market Value of
such shares of Stock on the day prior to the Change of
Control; provided, however, that if a Participant is a
Section 16(b) Participant and if the Change of Control
Termination occurs within the six (6) month period
following the later of the Participant's most recent
purchase of Stock which is subject to Section 16(b) of the
1934 Act or the grant of the applicable Restricted Stock
Award, then, to the extent necessary to comply with Rule
16b-3, as amended, the Participant shall be entitled to
deliver the written election specified herein within
thirty (30) days following the expiration of such
six-month period, and the thirty-five (35) day period
referenced in clause Section 11.02(e) shall commence upon
the expiration of such six-month period. For purposes of
this Section 11.02(d), a "purchase of Stock which is
subject to Section 16(b) of the 1934 Act" shall, to the
extent provided by Section 16(b) of the Securities and
Exchange Act of 1934 and the General Rules and Regulations
issued thereunder, include the establishment of or
increase in a call equivalent position or the liquidation
of or decrease in a put equivalent position with respect
to such Stock.
(e) To the extent a Participant has not sold shares of Stock
to the Corporation pursuant to Section 11.02(d),
certificates for such shares of Stock, with no restrictive
language, shall be delivered to the Participant within
thirty-five (35) days following the Change of Control
Termination.
11.03 LIMITATION ON CHANGE OF CONTROL COMPENSATION. A Participant,
Outside Director or Subsidiary Director shall not be entitled to
receive any Change of Control Action which would, with respect to
the Participant, constitute a "parachute payment" for purposes of
Internal Revenue Code Section 280G. In the event any Change of
Control Action would, with respect to the Participant, constitute a
"parachute payment," the Participant shall have the right to
designate those Change of Control Action(s) which would be reduced
or eliminated so that the Participant will not receive a "parachute
payment."
11.04 LIMITATIONS ON COMMITTEE'S AND BOARD'S ACTIONS. Prior to a Change
of Control, a Participant, Outside Director or Subsidiary Director
shall have no rights under this Article XI, and the Board shall have
the power and right, within its sole discretion, by a resolution
adopted by a two-thirds (2/3) majority to rescind, modify or amend
this Article XI without any consent of the Participant, Outside
Director or Subsidiary Director. In all other cases, and
notwithstanding the authority granted to the Committee or Board to
exercise discretion in interpreting,
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administering, amending or terminating this Plan, neither the
Committee nor the Board shall, following a Change of Control, have
the power to exercise such authority or otherwise take any action
which is inconsistent with the provisions of this Article XI.
Notwithstanding anything in this Article XI to the contrary, the
Board may restrict the rights of, or the applicability of this
Article XI to, Section 16(b) Participants, Outside Directors or
Subsidiary Directors to the extent necessary to comply with Section
16(b), or any successor provision, of the Securities Exchange Act of
1934, as amended.
ARTICLE XII - RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS
12.01 RELATIONSHIP TO EMPLOYMENT. Nothing contained in the Plan, nor in
any Award granted pursuant to the Plan, shall confer upon any
Participant any right with respect to continuance of employment by
the Corporation or its Subsidiaries, nor interfere in any way with
the right of the Corporation or its Subsidiaries to terminate the
Participant's employment at any time.
21.02 NONTRANSFERABILITY OF AWARD. No Incentive Stock Options, Restricted
Stock Awards or Performance Units shall be transferable, in whole or
in part, by the Participant, either voluntarily or involuntarily,
except by will or the laws of descent or distribution. If the
Participant attempts to transfer an Incentive Stock Option,
Restricted Stock Award or Performance Unit, or any portion of such
Option, Award or Unit, such transfer shall be void and the Incentive
Stock Option, Restricted Stock Award or Performance Unit shall
terminate. An Incentive Stock Option shall be exercisable during
the Participant's lifetime only by the Participant or by such
Participant's guardian or other legal representative.
Subject to the approval of the Committee, or, in the case of Outside
Directors or Subsidiary Directors, subject to the approval of the
Board, Nonqualified Stock Options granted under the Plan may be
transferred, for no consideration, by the Participant, the Outside
Director or Subsidiary Director to a member of the Participant's,
Outside Director's or Subsidiary Director's immediate family, to a
trust for the benefit of such family members or to a partnership in
which such family members are the only partners. The family member
to whom, or the trust or partnership to which, a Nonqualified Stock
Option has been transferred shall not be permitted to subsequently
transfer the Option, either voluntarily or involuntarily, unless
such transfer is to another family member, trust or partnership
which meets the requirements of this Section 12.02. No other
transfers of Nonqualified Stock Options, in whole or in part, by the
Participant, Outside Director or Subsidiary Director shall be
permitted, voluntarily or involuntarily, except by will or the laws
of descent and distribution. If the Participant, Outside Director
or Subsidiary Director attempts to transfer a
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Nonqualified Stock Option, or any portion of such Option, in a manner
not permitted by this Section 12.02, such transfer shall be void and
the Nonqualified Stock Option shall terminate.
ARTICLE XIII - AMENDMENT OR MODIFICATION
13.01 AUTHORITY TO AMEND AND PROCEDURE. Subject to the provisions of
Article XI, the Board or the Committee may, at any time and without
further action on the part of the shareholders of the Corporation,
terminate this Plan or make such amendments thereto as it deems
advisable and in the best interests of the Corporation or its
Subsidiaries; provided, however, that no such termination or
amendment shall, without the consent of a Participant, Outside
Director, or Subsidiary Director materially adversely affect or
impair the right of a Participant, Outside Director or Subsidiary
Director with respect to an Award already granted; and provided,
further, that no amendment shall, either directly or indirectly:
(a) Materially increase the total number of shares of Stock
that may be awarded under this Plan to all Participants,
Outside Directors and Subsidiary Directors, except for
adjustments described in Section 4.03 of this Plan;
(b) Materially increase the benefits accruing to Participants,
Outside Directors and Subsidiary Directors under the Plan;
or
(c) Materially modify the requirements as to eligibility for
participation in the Plan;
without the approval of the shareholders of the Corporation, but
only if such approval is required for compliance with the
requirements of any applicable law or regulation. Furthermore, the
Plan may not, without the approval of the shareholders of the
Corporation, be amended in any manner that will cause Incentive
Stock Options to fail to meet the requirements of Internal Revenue
Code Section 422.
ARTICLE XIV - EFFECTIVE DATE AND DURATION OF PLAN
14.01 EFFECTIVE DATE OF PLAN. The Plan shall be deemed effective upon its
adoption by the Board, subject to the approval of Section 4.01 by
the shareholders of the Corporation within twelve (12) months
following the adoption of the Plan by the Board. If Section 4.01 of
the Plan is not approved by the shareholders of the
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Corporation, all provisions of the Plan, including Section 4.01,
as originally adopted on September 14, 1992, shall continue in full
force and effect.
14.02 DURATION OF THE PLAN. Incentive Stock Options may be granted
pursuant to this Plan from time to time during a period of ten (10)
years from the Effective Date of the Plan. Nonqualified Stock
Options, Restricted Stock Awards and Performance Unit Awards may be
granted pursuant to this Plan from time to time after the Effective
Date of the Plan and until the Plan is discontinued or terminated by
the Board or the Committee.
ARTICLE XV - GENERAL PROVISIONS
15.01 CONSTRUCTION AND HEADINGS. The headings of the Articles, Sections
and their subparts within the Plan are for convenience only and are
not meant to be of substantive significance, and such headings shall
not add to or detract from the meaning of such Article, Section or
subpart.
15.02 GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of
the State of Minnesota, without regard to the conflict of laws
provisions of any jurisdiction.
15.03 SUCCESSOR AND ASSIGNS. This Plan shall be binding upon and inure to
the benefit of the successors and assigns of the Corporation and its
Subsidiaries, including, without limitation, whether by way of
merger, consolidation, operation of law, assignment, purchase or
other acquisition of substantially all of the assets or business of
the Corporation or any of its Subsidiaries, and any and all such
successors and assigns shall absolutely and unconditionally assume
all of the Corporation's or the Subsidiary's obligations hereunder;
provided, however, that this Section 15.03 shall not apply with
respect to the successors or assigns of a Subsidiary in the event
that, prior to a Change of Control, the Subsidiary is sold, merged,
contributed or in any other manner transferred or for any other
reason ceases to be a Subsidiary of the Corporation.
15.04 SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations and covenants of the parties contained in or made
pursuant to the Plan, any Award Agreement and any other notices or
agreements in connection therewith, including, without limitation,
any notice of exercise of an Incentive Stock Option or a
Nonqualified Stock Option, shall survive the execution and delivery
of such notices and agreements and shall survive the exercise of any
Incentive Stock Option or Nonqualified Stock Option, the payment of
such Option's exercise price and the delivery and receipt of the
shares of Stock subject to such Option, and shall remain in full
force and effect.
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15.05 ABSENCE OF LIABILITY OF DIRECTORS AND COMMITTEE MEMBERS. No member
of the Board or of the Committee shall be liable, with respect to
this Plan, for any act, whether by commission or omission, taken by
any other member of the Board or the Committee, or by any officer,
agent, or employee of the Corporation or its Subsidiaries, nor shall
any member of the Board or the Committee be liable, except in
circumstances involving such member's own bad faith, for anything
done or omitted to be done by any person in connection with this
Plan.
15.06 WITHHOLDING TAXES. The Corporation or its Subsidiaries is entitled
to:
(a) Withhold and deduct from future wages of a Participant or
from the cash portion of any Award, or make other
arrangements for the collection of, all legally required
amounts necessary to satisfy any and all federal, state
and local withholding and employment-related tax
requirements attributable to the Participant's exercise of
a Nonqualified Stock Option, attributable to the lapse of
restrictions on a Restricted Stock Award, attributable to
the payment of any Performance Unit Award, or otherwise
incurred with respect to any other provisions of the Plan;
or
(b) Require the Participant promptly to remit the amount of
such withholding tax obligations to the Corporation or the
Subsidiary before acting on the Participant's notice of
exercise of a Nonqualified Stock Option or before taking
any further action with respect to the Nonqualified Stock
Option or the issuance of any certificate with respect to
any shares of stock awarded under a Restricted Stock Award
or a Nonqualified Stock Option.
Subject to such rules as the Committee may adopt, the Committee may,
in its sole discretion, permit a Participant to satisfy such
withholding tax obligations, in whole or in part, with shares of
Stock of having an equivalent Fair Market Value or by electing to
have the Corporation or Subsidiary withhold shares of Stock having
an equivalent Fair Market Value and that are payable under an Award;
provided, however, that if the Participant is a Section 16(b)
Participant, such Participant must comply with the applicable
provisions of Rule 16b-3 or its successor, as then in effect, of the
General Rules and Regulations under the Securities and Exchange Act
of 1934, as amended.
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