<PAGE>
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
APRIL 21, 1999
------------------------
TO THE SHAREHOLDERS OF HEALTH RISK MANAGEMENT, INC.:
The 1999 Annual Meeting of Shareholders of Health Risk Management, Inc. will
be held at the Company's corporate offices, South Entrance, 10900 Hampshire
Avenue South, Bloomington, Minnesota, on Wednesday, April 21, 1999 at 1:00 p.m.,
Minnesota time, for the following purposes:
1. To elect Class A directors.
2. To approve a 400,000 share increase in the number of shares reserved for
the Company's Amended and Restated 1992 Long-Term Incentive Plan.
3. To approve the Company's 1999 Employee Stock Purchase Plan.
4. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year.
5. 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 March 10, 1999, 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: March 19, 1999
Bloomington, Minnesota
<PAGE>
HEALTH RISK MANAGEMENT, INC.
---------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1999
------------------------
INTRODUCTION
Your Proxy is solicited by the Board of Directors of Health Risk Management,
Inc. (the "Company") for use at the 1999 Annual Meeting of Shareholders to be
held on April 21, 1999, 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.
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 10900
Hampshire Avenue South, Bloomington, Minnesota 55438. 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 March 19, 1999.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 10, 1999, as the
record date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on March 10, 1999, 4,625,851 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
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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 11), and by all of the Company's current
directors and current executive officers as a group, as of March 10, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF DIRECTOR, EXECUTIVE OFFICER OR IDENTITY OF GROUP BENEFICIALLY OWNED(1) OF CLASS
- ------------------------------------------------------------ --------------------- --------
<S> <C> <C>
Chiplease, Inc. ............................................ 675,500(2) 14.60%
640 N. LaSalle Street, Suite 300
Chicago, IL 60610
Summit Capital Management, LLC ............................. 439,550(3) 9.50%
601 Union Street Suite 3900
Seattle, WA 98101
Dimensional Fund Advisors, Inc. ............................ 251,300(4) 5.43%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Gary T. McIlroy, M.D. ...................................... 386,110(5) 8.12%
10900 Hampshire Avenue South
Bloomington, MN 55438
Marlene Travis ............................................. 375,691(6) 7.95%
10900 Hampshire Avenue South
Bloomington, MN 55438
Thomas P. Clark............................................. 109,216(7) 2.34%
Adele M. Kimpell............................................ 13,200(8) *
William M. Smith............................................ 7,775(9) *
Vance Kenneth Travis........................................ 10,344(10) *
Ronald R. Hahn.............................................. 11,401(11) *
Robert L. Montgomery........................................ 12,480(12) *
Gary L. Damkoehler.......................................... 14,434(13) *
Raymond G. Schultze, M.D.................................... 4,434(14) *
All Current Executive Officers and Current Directors as a
Group (14 persons)........................................ 968,786(15) 19.50%
</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 March 10, 1999, 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 399,100 (8.63%) shares which Chiplease, Inc. represents are owned
by it and 276,400 (5.97%) shares which Chiplease represents are owned by
the secretary of Chiplease, Inc. and for which the secretary has sole
voting power and which was owned on August 28, 1998, the date of the most
recent Schedule 13D/A received by the Company from such shareholder.
(3) In its most recent Schedule 13G filed on February 10, 1999, Summit Capital
Management, LLC represents it has shared voting and investment power over
all such shares.
2
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(4) In its most recent Schedule 13G filing with the Securities and Exchange
Commission on February 11, 1999, Dimensional Fund Advisors, Inc. (DFI),
represents it has sole voting and investment power over all such shares.
DFI disclaims beneficial ownership of the shares.
(5) The number of shares set forth in the above table (i) includes 257,970
shares held by the Gary T. McIlroy Revocable Trust, for which Dr. McIlroy
is grantor and trustee, (ii) includes 128,140 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.
(6) The number of shares set forth in the above table (i) includes 274,948
shares held by the Marlene O. Travis Revocable Trust, for which Ms. Travis
is grantor and trustee, (ii) includes 100,743 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.
(7) Includes 62,568 shares held by Mr. Clark and 46,648 shares which Mr. Clark
has the right to acquire upon exercise of options.
(8) Includes 13,200 shares which Ms. Kimpell has the right to acquire upon
exercise of options.
(9) Includes 3,275 shares held by Mr. Smith and 4,500 shares which Mr. Smith
has the right to acquire upon exercise of options.
(10) Includes 4,643 shares held by Mr. Travis and 5,701 shares which Mr. Travis
has the right to acquire upon exercise of options.
(11) Includes 7,600 shares held by Mr. Hahn and 3,801 shares which Mr. Hahn has
the right to acquire upon exercise of options.
(12) Includes 3,462 shares held by Mr. Montgomery and 9,018 shares which Mr.
Montgomery has the right to acquire upon exercise of options.
(13) Includes 10,000 shares held by Mr. Damkoehler and 4,434 shares which Mr.
Damkoehler has the right to acquire upon exercise of options.
(14) Includes 4,434 shares which Mr. Schultze has the right to acquire upon
exercise of options.
(15) Includes 626,616 shares held by the current officers and directors, and
342,170 shares that current executive officers and directors as a group
have the right to acquire as of March 10, 1999, 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 A
will be elected at the Annual Meeting. The Class A directors will be elected to
a three-year term and, therefore, will hold office until the Company's 2002
Annual Meeting of Shareholders and until their successors have been duly elected
and qualified. The terms of Classes B and C continue until 2000 and 2001,
respectively.
The Board of Directors nominates Gary L. Damkoehler and Raymond G. Schultze,
M.D. for election as the Class A 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 A nominee
requires the affirmative vote of a
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<PAGE>
majority of the shares represented at the Annual Meeting with authority to vote
on such matter but not less than the affirmative vote of 1,156,464 shares.
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. 58 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 59 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 Administrative Officer from 1992 to June 1993;
Ms. Travis is married to Gary T. McIlroy, M.D.
Vance Kenneth Travis 73 Director 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 54 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
JAMS/Endispute, a provider of dispute
resolution services.
Robert L. Montgomery 62 Director Consultant regarding Health System Management to 1993
(Class C) Sutter Health since 1999. Prior to this he was
President, Western Division of Sutter Health
from 1996 to 1999. Mr. Montgomery served as
President and Chief Executive Officer of Alta
Bates Health System of Emeryville, California,
a vertically integrated full service
healthcare system, from 1989 to 1996, and from
1979 to March 1983.
Gary L. Damkoehler 59 Director Nominee Chairman, Chief Executive Officer and President 1996
(Class A) since 1988 of JSA Healthcare Corporation of
St. Petersburg, Florida, 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. 65 Director Nominee Chief Executive Officer and Medical Director 1996
(Class A) since 1997 of Toiyabe Dialysis Unit.
Consultant regarding healthcare managment
consulting (self-employed) since 1997. Prior
to this he was Professor of Medicine at the
UCLA School of Medicine from 1978 to 1997. Dr.
Schultze served as Director of the UCLA
Medical Center from 1980 to 1995; and
Administrative Vice Chancellor for UCLA from
1986 to 1992. Dr. Schultze currently is
providing consulting services to the County of
Los Angeles for the re-engineering of their
healthcare system.
</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.
5
<PAGE>
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 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 reviews 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 1998.
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 1998, the
Compensation Committee met once.
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 eighty nor more than one hundred 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 eight (8) meetings during fiscal 1998.
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.
6
<PAGE>
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
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.
Under current tax law, a deduction for compensation paid by a company to
each of the company's named executives may be disallowed 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 such steps as are necessary to comply with the deduction limits
imposed by tax law 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 employee's
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 1998, base salaries for the chief executive and certain
other executives were the same as fiscal 1997, which were generally toward the
mid-point of base salary levels for comparable health care organizations. In
fiscal 1998, the chief executive's base salary and certain other executives'
base salaries were the same as fiscal 1997 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.
7
<PAGE>
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 1998 no incentives under this Plan were stock
options and no cash bonuses were paid.
For fiscal 1998, the chief executive officer did not receive options as an
annual incentive and did not receive any cash bonus under the Plan.
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 1998, where no options
for shares were issued above under Annual Incentives, the Company issued the
chief executive officer options for 40,000 shares at an exercise price of
$12.625 per share under the Amended and Restated 1992 Long-Term Incentive Plan
on February 25, 1998.
PERFORMANCE UNITS. The Committee has determined that only annual cash
incentives and stock options should be granted to executives to simplify the
Company's compensation program, and decided that no Performance 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 1998 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 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
8
<PAGE>
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 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 1998 of $250,000 (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 1998 of
$200,000 (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
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.
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 1998 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS
OTHER ------------------------
ANNUAL COMPENSATION ANNUAL RESTRICTED SECURITIES
------------------------- COMPEN- STOCK UNDERLYING LTIP ALL OTHER
NAME AND POSITION YEAR SALARY BONUS SATION(1) AWARDS OPTIONS PAYOUTS COMPENSATION
- ------------------------------ ---- -------- ------- ---------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary T. McIlroy, M.D. ........ 1998 $278,000 $ 0(2) $ 9,837(10) 0 40,000(4) $ 0 $23,484(6)
Chairman & CEO 1997 278,000 0(2) 9,395(10) 0 15,000(2) 0 23,150(6)
1996 278,000 13,510 9,395(10) 0 40,000(4) 0 22,655(6)
33,138(3)
Marlene Travis ............... 1998 $250,000 $ 0(2) $ 9,837(10) 0 30,000(4) $ 0 $20,336(7)
President & COO 1997 250,000 0(2) 9,395(10) 0 12,500(2) 0 20,150(7)
1996 222,000 13,510 9,395(10) 0 33,333(4) 0 19,655(7)
23,298(3)
Thomas P. Clark .............. 1998 $200,000 $ 0(2) $10,902(10) 0 30,000(4) $ 0 $ 9,555(8)
CFO 1997 200,000 0(2) 10,460(10) 0 10,000(2) 0 9,150(8)
1996 167,500 11,580 10,460(10) 0 26,667(4) 0 8,655(8)
17,759(3)
Adele M. Kimpell ............. 1998 $156,420 $ 0(2) 0 0 3,600(4) $ 0 $ 3,361(5)
Executive V.P., Health Plan 1997 153,542 0(2) $ 0 0 4,000(2) 0 2,663(5)
and System Development 1996 128,169 6,000 0 0 9,000(4) 0 1,882(5)
5,000(3)
William M. Smith ............. 1998 $128,181 $15,000 $ 0 0 6,000(4) $ 0 $11,074(9)
Vice President Managed Care
Sales
</TABLE>
- ------------------------
(1) Does not include the payment of professional and monthly club dues, term
group 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 or the 1990 Stock Option 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 $2,655, $3,150, and $3,484 as Company
matching contributions under its 401(k) Salary Savings Plan or other
retirement payments for fiscal 1996, 1997, and 1998, 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 below in
"Employment Agreements" for fiscal 1996, 1997 and 1998, respectively.
(7) The amount reflected includes $2,655, $3,150, and $3,336 as Company
matching contributions under its 401(k) Salary Savings Plan or other
retirement payments for fiscal 1996, 1997 and 1998, respectively, and
$17,000 per year for a total premiums paid by the Company on the life
insurance policy covered by the Split-Dollar Agreement referred to below in
"Employment Agreements" for fiscal 1996, 1997 and 1998, respectively.
11
<PAGE>
(8) The amount reflected includes $2,655, $3,150, and $3,555 as Company
matching contributions under its 401(k) Salary Savings Plan or other
retirement payments for fiscal 1996, 1997 and 1998, 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 below in
"Employment Agreements" for fiscal 1996, 1997 and 1998, respectively.
(9) The amount reflected includes $2,492 as Company matching contributions
under its 401(k) Salary Savings Plan for 1998 and moving allowance of
$8,582.
(10) Includes auto allowance and medical coverage.
The following two stock option tables summarize option grants and exercises
during fiscal 1998 for the Chief Executive Officer and other named executive
officers, and the values of options granted during fiscal 1998 and held by such
persons at June 30, 1998.
STOCK OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------- --------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS 5%(3) 10%(3)
UNDERLYING GRANTED TO EXERCISE --------------------- ---------------------
OPTIONS EMPLOYEES IN OR BASE EXPIRATION STOCK STOCK
NAME GRANTED FISCAL YEAR PRICE DATE PRICE GAIN PRICE GAIN
- ------------------------------- ----------- --------------- --------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary McIlroy, M.D.............. 40,000(1) 16.8% $ 12.625 06/30/02 $ 15.60 $ 119,000 $ 19.10 $ 259,000
Marlene Travis................. 30,000(1) 12.6% $ 12.625 06/30/02 $ 15.60 $ 89,250 $ 19.10 $ 194,220
Thomas P. Clark................ 30,000(1) 12.6% $ 12.625 06/30/02 $ 15.60 $ 89,250 $ 19.10 $ 194,250
Adele M. Kimpell............... 3,600(1) 1.5% $ 12.625 06/30/02 $ 15.60 $ 10,710 $ 19.10 $ 23,310
William M. Smith............... 6,000(2) 2.5% $ 12.875 06/30/02 $ 16.24 $ 20,190 $ 20.26 $ 44,310
</TABLE>
- ------------------------
(1) One-third of the stock options granted as a long-term incentive became or
will become exercisable one year after January 1, 1998, the date of grant,
and on the next two anniversaries of the date of grant. Under the terms of
the 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) One-third of the stock options granted as a long-term incentive became or
will become exercisable one year after September 24, 1997, the date of
grant, and on the next two anniversaries of the date of grant. Under the
terms of the 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.
(3) 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 1998 AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE YEAR-END EXERCISABLE/ AT FISCAL YEAR-END(1)
ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------- ---------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Gary T. McIlroy, M.D............... 20,000 $ 122,500 103,188/74,950 $ 683,110/$218,391
Marlene Travis..................... 15,000 $ 91,615 81,585/58,046 $ 536,154/$165,418
Thomas P. Clark.................... 15,000 $ 68,445 32,209/52,217 $ 160,848/$146,489
Adele M. Kimpell................... -- -- 10,750/10,850 $ 50,188/$30,512
William M. Smith................... -- -- 2,000/4,000 $ 4,750/$9,500
</TABLE>
- ------------------------
(1) Market value of underlying securities at June 30, 1998 ($15.25), the
closing price of the Common Stock, minus the exercise price.
13
<PAGE>
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, 1993, through
February 26, 1999, 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.
COMPARISON OF THE PERIOD 06/30/93 TO 02/26/99
CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HRM PEER GROUP INDEX NASDAQ MARKET
<S> <C> <C> <C>
6/30/93 $100.00 $100.00 $100.00
6/30/94 76.47 112.39 109.66
6/30/95 123.53 113.98 128.61
6/30/96 123.53 147.80 161.89
6/30/97 158.82 192.45 195.02
6/30/98 179.41 203.24 258.52
2/26/99 111.03 181.79 315.17
</TABLE>
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; Chartwell RE Corp.; Citizens Financial Corp.;
Compdent Corporation; Conseco, Inc.; Everest Reinsurance Hld.; First
Commonwealth Inc.; Health Power, Inc.; Humana, Inc.; Maxicare Health Plans;
Medical Control Inc.; Mid Atlantic Medical Services, Inc.; Oxford Health Plans,
Inc.; Pacificare Health System B New, Inc.; Pacificare Health System Cl A;
Penncorp Financial Group; Provident American Corp.; RightChoice Managed Care;
Safeguard Health Enterprises; Sierra Health Services, Inc.; Torchmark
Corporation; Transamerica Corporation; Trigon Healthcare, Inc.; Union American
Holding; United Dental Care, Inc.; United Healthcare Corporation; United
Wisconsin Services; Unum Corporation; Washington National CP; and Westbridge
Capital Corp.
14
<PAGE>
APPROVAL OF INCREASE IN SHARES RESERVED FOR AMENDED AND
RESTATED 1992 LONG-TERM INCENTIVE PLAN
(PROPOSAL #2)
GENERAL
The Company currently has in effect an Amended and Restated 1992 Long-Term
Incentive Plan (the "Incentive Plan"). The Board has approved, subject to
shareholder approval, a 400,000 share increase in the number of shares reserved
for the Incentive Plan. The Board believes that the Incentive 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. The Company currently has approximately only 20,000
shares reserved for the grant of new options and restricted stock awards under
the Incentive Plan, and the increase is intended to replenish that reserve.
DESCRIPTION OF THE AMENDED AND RESTATED 1992 LONG-TERM INCENTIVE PLAN
A general description of the material features of the Incentive Plan
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 Incentive 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. As of March 10, 1999, the Company and its
subsidiaries and affiliates had 865 officers and employees, and there were five
nonemployee directors of the Company.
SHARES AVAILABLE. Assuming the shareholders approve the proposed increase
in the number of shares reserved, a total of approximately 957,000 shares of the
Company's Common Stock will be made available for issuance pursuant to currently
outstanding or future option grants, restricted stock awards and performance
units under the Incentive 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 Board of Directors will equitably adjust the number of shares reserved
for grant, the number of shares of stock subject to outstanding options and the
price per share of stock subject to an option in the event of certain increases
or decreases in the number of outstanding shares of Common Stock of the Company
effected as a result of stock splits, stock dividends, combination of shares,
reclassifications 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 below, the features of which are administered
by the Board of Directors, and certain provisions of the Plan, the Incentive
Plan is administered by the Compensation Committee. The Committee has broad
powers to administer and interpret the 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.
OPTIONS. Options granted under the Incentive 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
15
<PAGE>
do not qualify for special tax treatment under the I.R.C. No incentive stock
option may be granted with a per share exercise price less than the fair market
value of a share of the Company's Common Stock on the date the option is
granted. The per share exercise price for nonqualified stock options granted
under the Incentive Plan also will not generally be less than the fair market
value of the Company's Common Stock on the date the option is granted. The
closing sale price of a share of the Company's Common Stock was $8.50 on March
10, 1999. The exercise price generally must be paid in cash unless the Committee
permits payment in shares of the Company's 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. An incentive stock
option may not be transferred by an optionee except by will or the laws of
descent and distribution. In certain circumstances, a nonqualified option may be
transferred to a member of an 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.
Nonemployee directors of the Company are also eligible for nonqualified
stock options. As specified in the Incentive Plan, 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 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.
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 Incentive 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.
CHANGE OF CONTROL PROVISIONS. Following a "change of control termination,"
as described in the Incentive Plan, generally all options granted under the
Incentive 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 Plan may require the Company to
purchase any shares of stock awarded to the participant under the Plan as to
which 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 "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.
AMENDMENT. The Board of Directors or the Committee may terminate or amend
the Incentive 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 nor the Committee may terminate or amend the Plan to deny
participants the change of control benefits stated in the Plan. Neither the
Board of Directors nor the Committee may amend the Incentive 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
16
<PAGE>
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. "Incentive" stock options granted under the Incentive 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.
Under present law, an optionee will not realize any taxable income on the
date a nonqualified stock option is granted under the Incentive Plan. Upon
exercise of the option, however, the optionee must recognize, in the year of
exercise, ordinary income equal to the difference between the option price and
the fair market value of the Company's Common Stock on the date of exercise.
Upon the sale of the shares, any resulting gain or loss will be treated as
capital gain or loss. The Company will receive an income tax deduction in its
fiscal year in which nonqualified options are exercised, equal to the amount of
ordinary income recognized by those optionees exercising options, and must
withhold income and other employment-related taxes on such ordinary income.
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, including any lapse due to a "change of control termination."
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.
17
<PAGE>
NEW PLAN BENEFITS
The table below shows the total number of stock options and restricted stock
awards that have been received in prior fiscal years and to date in the current
fiscal year by the indicated individuals and groups under the Incentive Plan. No
performance unit awards have been granted under the Plan.
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
OF OPTIONS OF RESTRICTED
NAME AND POSITION/GROUP RECEIVED SHARES RECEIVED
- ---------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Gary T. McIlroy, M.D., Chairman and CEO........................................... 142,862 0
Marlene O. Travis, President and COO.............................................. 111,535 0
Thomas P. Clark, CFO.............................................................. 91,027 15,000(1)
Adele M. Kimpell, Executive VP, Health Plan and Systems Development............... 19,100 0
William M. Smith, VP Managed Care Markets......................................... 7,500
Current Executive Group........................................................... 418,924 15,000(1)
Current Non-Executive Director Group.............................................. 80,197 0
Current Non-Executive Officer Employee Group...................................... 197,500 0
</TABLE>
- ------------------------
(1) Restricted stock grant having a value of $150,000 on the date of grant,
based on the market value of the Company's Common Stock on such date.
Because future grants and awards under the Incentive Plan are subject to the
Compensation Committee's discretion or the nonemployee 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 approve the 400,000
share increase in the number of shares reserved for the Amended and Restated
1992 Long-Term Incentive Plan. Approval of such increase requires the
affirmative vote of a majority of the shares represented at the meeting with
authority to vote on such matter but not less than the affirmative vote of
1,156,464 shares.
APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL #3)
GENERAL
On February 17, 1999, the Board of Directors adopted, subject to shareholder
approval, the Company's 1999 Employee Stock Purchase Plan (the "Stock Purchase
Plan"). A general description of the basic features of the Stock Purchase Plan
is presented below, but such description is qualified in its entirety by
reference to the full text of the Stock Purchase Plan, a copy of which may be
obtained without charge upon written request to the Company's Chief Financial
Officer.
DESCRIPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
PURPOSE. The purpose of the Stock Purchase Plan is to encourage stock
ownership by the Company's employees and in so doing to provide an incentive to
remain in the Company's employ, to improve operations, to increase profits and
to contribute more significantly to the Company's success.
ELIGIBILITY. The Stock Purchase Plan permits employees to purchase stock of
the Company at a favorable price and possibly with favorable tax consequences to
the employees. Generally speaking, all full-time and part-time employees
(including officers) of the Company (or of those subsidiaries authorized by the
Board from time to time) who are customarily employed for more than 20 hours per
week are eligible to participate in any of the phases of the Stock Purchase
Plan. However, any employee who would
18
<PAGE>
own (as determined under the Internal Revenue Code), immediately after the grant
of an option, stock possessing 5% or more of the total combined voting power or
value of all classes of the stock of the Company cannot purchase stock through
the Stock Purchase Plan. Currently, this limitation excludes Gary T. McIlroy,
M.D. and Marlene O. Travis from participating. As of March 10, 1999, the Company
had approximately 865 full-time and part-time employees eligible to participate.
ADMINISTRATION; TERM. The Stock Purchase Plan will be administered by the
Compensation Committee. The Stock Purchase Plan gives broad powers to the
Committee to administer and interpret the Stock Purchase Plan, including the
authority to limit the number of shares that may be optioned under the Stock
Purchase Plan during a phase. The Stock Purchase Plan will terminate on October
31, 2009, unless the Board of Directors extends the term of the Plan.
OPTIONS. Unless otherwise determined by the Compensation Committee, phases
of the Stock Purchase Plan will commence on November 1 and end on October 31 of
each year, beginning November 1, 1999. Before the commencement date of the
phase, each participating employee must elect to have a certain percentage of
his or her compensation deducted during each pay period in such phase; provided,
however, that the payroll deductions during a phase must equal at least 1% of
the participant's compensation.
An employee may not increase or decrease his or her payroll deduction
percentage during a phase, nor may an employee request that any further payroll
deductions be discontinued. An employee may, however, request a withdrawal of
all accumulated payroll deductions at any time during the phase. An employee's
payroll deduction election will continue for all future phases of the Stock
Purchase Plan unless the employee changes his or her election or withdraws from
the Plan.
Based on the amount of accumulated payroll deductions made at the end of the
phase, shares will be purchased by each employee at the termination date of such
phase (generally 12 months after the commencement date). The purchase price to
be paid by the employees will be the lower of: (i) 85% of the closing price of
the Company's Common Stock quoted by the Nasdaq National Market as of the
commencement date of the phase; or (ii) 85% of the closing price of the
Company's Common Stock quoted by the Nasdaq National Market as of the
termination date of the phase.
The closing price of one share of the Company's Common Stock on March 10,
1999 was $8.50 per share.
As required by tax law, an employee may not, during any calendar year,
receive options under the Stock Purchase Plan for shares which have a total fair
market value in excess of $25,000 determined at the time such options are
granted. Any amount not used to purchase shares will be carried over to the next
phase, unless the employee requests a refund of that amount. No interest is paid
by the Company on funds withheld, and such funds are used by the Company for
general operating purposes.
If the employee dies or terminates employment for any reason before the end
of the phase, the employee's payroll deductions will be refunded, without
interest, after the end of the phase.
AMENDMENT. The Board of Directors may, from time to time, revise or amend
the Stock Purchase Plan as the Board may deem proper and in the best interest of
the Company or as may be necessary to comply with Section 423 of the Internal
Revenue Code (the "Code"); provided, that no such revision or amendment may (i)
increase the total number of shares for which options may be granted under the
Stock Purchase Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events, (ii) modify requirements as
to eligibility for participation in the Stock Purchase Plan, or (iii) materially
increase the benefits accruing to participants under the Stock Purchase Plan,
without prior approval of the Company's stockholders, if such approval is
required to comply with Code Section 423 or the requirements of Section 16(b) of
the Securities Exchange Act of 1934 (the "Act").
19
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SHARES RESERVED. Under the Stock Purchase Plan, 60,000 shares of the
Company's Common Stock have been initially reserved for issuance under the Stock
Purchase Plan. Beginning November 1, 2000, and each year thereafter, the shares
available for issuance under the Stock Purchase Plan will be increased by the
number of shares issued in the preceding phase, so that up to 60,000 shares will
be available for purchase in each phase of the Plan. The Board of Directors
shall equitably adjust the number of shares reserved for grant, the number of
shares of stock subject to outstanding options and the price per share of stock
subject to an option in the event of certain increases or decreases in the
number of outstanding shares of Common Stock of the Company effected as a result
of stock splits, stock dividends, combination of shares, reclassifications or
similar transactions.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK PURCHASE PLAN. Options granted
under the Stock Purchase Plan are intended to qualify for favorable tax
treatment to the employees under Code Sections 421 and 423. Employee
contributions are made on an after-tax basis. Under existing federal income tax
provisions, no income is taxable to the optionee upon the grant or exercise of
an option if the optionee remains an employee of the Company or one of its
subsidiaries at all times from the date of grant until three months before the
date of exercise. In addition, certain favorable tax consequences may be
available to the optionee if shares purchased pursuant to the Stock Purchase
Plan are not disposed of by the optionee within two years after the date the
option was granted nor within one year after the date of transfer of purchased
shares to the optionee. The Company generally will not receive an income tax
deduction upon either the grant or exercise of the option.
PLAN BENEFITS. Because participation in the Stock Purchase Plan is
voluntary, the future benefits that may be received by participating individuals
or groups under the Stock Purchase Plan cannot be determined at this time.
VOTE REQUIRED
The Board of Directors recommends that the shareholders approve the 1999
Employee Stock Purchase Plan. Approval of the Stock Purchase Plan requires the
affirmative vote of a majority of the shares represented at the meeting with
authority to vote on such matter but not less than the affirmative vote of
1,156,464 shares.
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 holder; 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, 1997
through June 30, 1998, all Section 16(a) filing requirements applicable to its
current and former officers, directors, and greater than ten-percent beneficial
owners were complied with except that one Form 5 reporting one transaction was
filed late by Robert Montgomery.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL #4)
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,
20
<PAGE>
1999. 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 1999
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 1999
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.
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the 1999
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 2000 annual meeting of shareholders must
received by the Company by November 18, 1999 to be considered for inclusion in
the Company's proxy statement and related proxy for the 2000 annual meeting of
shareholders. In addition, as provided in the Company's Bylaws, no shareholder
proposals received by the Company less than 80 days prior to the date of the
2000 annual meeting can be considered at the meeting.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K including consolidated
financial statements, together with a letter to shareholders for the fiscal year
ended June 30, 1998, accompanies, or has been furnished prior to, this Notice of
Annual Meeting and Proxy Statement. No part of such Report 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, 1998, TO ANY SHAREHOLDER OF THE COMPANY
UPON WRITTEN REQUEST. REQUESTS SHOULD BE SENT TO CHIEF FINANCIAL OFFICER, HEALTH
RISK MANAGEMENT, INC., 10900 HAMPSHIRE AVENUE SOUTH, BLOOMINGTON, MINNESOTA
55438. SUCH REQUESTS SHOULD INCLUDE A REPRESENTATION THAT THE SHAREHOLDER WAS
THE BENEFICIAL OWNER OF SHARES OF COMMON STOCK ON MARCH 10, 1999, THE RECORD
DATE FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS.
Dated: March 19, 1999
Bloomington, Minnesota
21
<PAGE>
HEALTH RISK MANAGEMENT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 ADOPTION BY BOARD OF DIRECTORS. By action of the Board of Directors
of Health Risk Management, Inc. (the "Corporation") on March 1, 1999,
subject to approval by its shareholders, the Corporation has adopted
an employee stock purchase plan pursuant to which eligible employees
of the Corporation and certain of its Subsidiaries may be offered the
opportunity to purchase shares of Stock of the Corporation. The terms
and conditions of this Plan are set forth in this plan document, as
amended from time to time as provided herein. The Corporation intends
that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended from time
to time, (the "Code") and shall be construed in a manner consistent
with the requirements of Code Section 423 and the regulations
thereunder.
1.02 SHAREHOLDER APPROVAL AND TERM. This Plan shall become effective upon
its adoption by the Board of Directors and shall remain in effect
until October 31, 2009, unless terminated earlier by the Board of
Directors pursuant to Section 16.01; provided, however, that the Plan
shall be subject to approval by the shareholders of the Corporation
within twelve (12) months after the Plan is adopted by the Board in
the manner provided under Code Section 423 and the regulations
thereunder. In the event the shareholders fail to approve the Plan
within twelve (12) months after the Plan is adopted by the Board, this
Plan shall not become effective and shall have no force and effect,
participation in the Plan shall immediately cease, all outstanding
options shall immediately be canceled and all payroll deductions shall
be returned to the Participants without interest. No shares of stock
shall be issued to any Participant for any Phase unless and until the
shareholders approve the Plan within such twelve-month period.
ARTICLE II - PURPOSE
2.01 PURPOSE. The primary purpose of the Plan is to provide an opportunity
for Eligible Employees of the Corporation to become shareholders of
the Corporation, thereby providing them with an incentive to remain in
the Corporation's employ, to improve operations, to increase profits
and to contribute more significantly to the Corporation's success.
ARTICLE III - DEFINITIONS
3.01 "ADMINISTRATOR" means the Board of Directors or such Committee
appointed by the Board of Directors to administer the Plan. The Board
or the Committee may, in
<PAGE>
its sole discretion, authorize the officers of the Corporation to
carry out the day-to-day operation of the Plan. In its sole
discretion, the Board may take such actions as may be taken by the
Administrator, in addition to those powers expressly reserved to the
Board under this Plan.
3.02 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of Health
Risk Management, Inc.
3.03 "COMPENSATION" means the Participant's total compensation as defined
in the Health Risk Management, Inc. 401(k) Salary Savings Plan, as
amended from time to time.
3.04 "CORPORATION" means Health Risk Management, Inc., a Minnesota
corporation.
3.05 "ELIGIBLE EMPLOYEE" means any employee who, as determined on or
immediately prior to an Enrollment Period, is a United States
full-time or part-time employee of the Corporation or one of its
Subsidiaries and is customarily employed for more than twenty (20)
hours per week.
3.06 "ENROLLMENT PERIOD" means the period determined by the Administrator
for purposes of accepting elections to participate during a Phase from
Eligible Employees.
3.07 "FISCAL YEAR" means the fiscal year of the Corporation, which is the
twelve-month period beginning July 1 and ending June 30 each year.
3.08 "PARTICIPANT" means an Eligible Employee who has been granted an
option and is participating during a Phase through payroll deductions,
but shall exclude those employees subject to the limitations described
in Section 9.03 below.
3.09 "PHASE" means the period beginning on the date that the option was
granted, otherwise referred to as the commencement date of the Phase,
and ending on the date that the option was exercised, otherwise
referred to as the termination date of the Phase.
3.10 "PLAN" means the Health Risk Management, Inc. 1999 Employee Stock
Purchase Plan.
3.11 "STOCK" means the voting common stock of the Corporation.
3.12 "SUBSIDIARY" means any corporation defined as a subsidiary of the
Corporation in Code Section 424(f) as of the effective date of the
Plan, and such other corporations that qualify as subsidiaries of the
Corporation under Code Section 424(f) as the Board approves to
participate in this Plan from time to time.
<PAGE>
ARTICLE IV - ADMINISTRATION
4.01 ADMINISTRATION. Except for those matters expressly reserved to the
Board pursuant to any provisions of the Plan, the Administrator shall
have full responsibility for administration of the Plan, which
responsibility shall include, but shall not be limited to, the
following:
(a) The Administrator shall, subject to the provisions of the
Plan, establish, adopt and revise such rules and procedures
for administering the Plan, and shall make all other
determinations as it may deem necessary or advisable for the
administration of the Plan;
(b) The Administrator shall, subject to the provisions of the
Plan, determine all terms and conditions that shall apply to
the grant and exercise of options under this Plan,
including, but not limited to, the number of shares of Stock
that may be granted, the date of grant, the exercise price
and the manner of exercise of an option. The Administrator
may, in its discretion, consider the recommendations of the
management of the Corporation when determining such terms
and conditions;
(c) The Administrator 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
shareholders of the Corporation and its Subsidiaries, the
Administrator, 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; and
(d) The Administrator shall keep minutes of its meetings or
other written records of its decisions regarding the Plan
and shall, upon requests, provide copies to the Board.
ARTICLE V - PHASES OF THE PLAN
5.01 PHASES. The Plan shall be carried out in one or more Phases of twelve
(12) months each. Unless otherwise determined by the Administrator,
in its discretion, Phases shall commence on November 1 of each fiscal
year during the term of the Plan, with the first phase commencing on
November 1, 1999, and ending on October 31, 2000. No two Phases shall
run concurrently.
<PAGE>
Notwithstanding anything in the Plan to the contrary, the
Administrator may, in its sole discretion, designate a special
commencement date for a phase but only with respect to those
individuals who become Eligible Employees after November 1 in
connection with a merger, purchase or similar transaction. Such
special phase shall terminate on the following October 31.
5.02 LIMITATIONS. The Administrator may, in its discretion, limit the
number of shares available for option grants during any Phase as it
deems appropriate. Without limiting the foregoing, in the event all
of the shares of Stock reserved for the grant of options under Section
12.01 is issued pursuant to the terms hereof prior to the commencement
of one or more Phases or the number of shares of Stock remaining is so
small, in the opinion of the Administrator, as to render
administration of any succeeding Phase impracticable, such Phase or
Phases may be canceled or the number of shares of Stock limited as
provided herein. In addition, if, based on the payroll deductions
authorized by Participants at the beginning of a Phase, the
Administrator determines that the number of shares of Stock which
would be purchased at the end of a Phase exceeds the number of shares
of Stock remaining reserved under Section 12.01 hereof for issuance
under the Plan, or if the number of shares of Stock for which options
are to be granted exceeds the number of shares designated for option
grants by the Administrator for such Phase, then the Administrator
shall make a pro rata allocation of the shares of Stock remaining
available in as nearly uniform and equitable a manner as the
Administrator shall consider practicable as of the commencement date
of the Phase or, if the Administrator so elects, as of the termination
date of the Phase. In the event such allocation is made as of the
commencement date of a Phase, the payroll deductions which otherwise
would have been made on behalf of Participants shall be reduced
accordingly.
ARTICLE VI - ELIGIBILITY
6.01 ELIGIBILITY. Subject to the limitations described in Section 9.03,
each employee who is an Eligible Employee on or immediately prior to
the commencement of a Phase shall be eligible to participate in such
Phase; provided, however, that the Administrator may, in its sole
discretion, establish a special eligibility date for certain Eligible
Employees who become eligible to participate in the Plan in connection
with a merger, purchase or similar transaction pursuant to Section
5.01. If, in the discretion of the Administrator, any Phase commences
on a date other than November 1 for any other reason, whether an
employee is an Eligible Employee shall be determined on a date
selected by the Administrator, which date shall be at least thirty
(30) days prior to the commencement date of the Phase.
<PAGE>
ARTICLE VII - PARTICIPATION
7.01 PARTICIPATION. Participation in the Plan is voluntary. An Eligible
Employee who desires to participate in any Phase of the Plan must
complete the Plan enrollment form provided by the Administrator and
deliver such form to the Administrator or its designated
representative during the Enrollment Period established by the
Administrator prior to the commencement date of the Phase.
7.02 SUBSEQUENT PHASES. An Eligible Employee who elects to participate in
a Phase of a fiscal year shall be deemed to have elected to
participate in each subsequent Phase unless such Participant exercises
his or her right to withdraw amounts previously withheld, as provided
under Article X hereof. In such event, such Participant must complete
a change of election form or a new Plan enrollment form and file such
form with the Administrator during the Enrollment Period prior to the
next Phase with respect to which the Eligible Employee wishes to
participate.
ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS
8.01 ENROLLMENT. Each Eligible Employee electing to participate shall
indicate such election on the Plan enrollment form and designate
therein a percentage of such Participant's Compensation during each
pay period during the Phase. Subject to the limitations of 9.03(a),
such percentage shall be at least one percent (1%) of such
Participant's Compensation to be paid during such Phase, and shall be
expressed in whole percentages. In order to be effective, such Plan
enrollment form must be properly completed and received by the
Administrator by the due date indicated on such form, or by such other
date established by the Administrator.
8.02 PAYROLL DEDUCTIONS. Payroll deductions for a Participant shall
commence with the paycheck issued immediately after the commencement
date of the Phase and shall terminate with the paycheck issued
immediately prior to the termination date of that Phase, unless the
Participant exercises his or her right to withdraw all accumulated
payroll deductions previously withheld during the Phase as provided in
Article X hereof. The authorized payroll deductions shall be made
over the pay periods of such Phase by deducting from the Participant's
Compensation for each such pay period that dollar amount specified by
the Participant in the Plan enrollment form.
Unless the Participant exercised his or her right to withdraw all
accumulated payroll deductions previously withheld during the
preceding Phase (in which event the Participant must complete a new
Plan enrollment form to continue participation for any subsequent
Phase), the Corporation shall continue to withhold from such
Participant's Compensation the same designated percentage specified by
the Participant in the most recent Plan enrollment form previously
completed by the Participant for all subsequent Phases; provided,
however, that the Participant may, if
<PAGE>
he or she so chooses, discontinue payroll deductions for any or all
such subsequent Phases by properly completing a new enrollment form
during the Enrollment Period for such subsequent Phase and delivering
such form to the Administrator by the due date for receipt of such
forms for that Phase.
8.03 CHANGE IN COMPENSATION DURING A PHASE. In the event that the
Participant's Compensation is increased or decreased during a Phase
for any reason so that the amount actually withheld on behalf of the
Participant as of the termination date of the Phase is different from
the amount anticipated to be withheld as determined on the
commencement date of the Phase, then the extent to which the
Participant may exercise his or her option shall be based on the
amounts actually withheld on his or her behalf, subject to the
limitations in Article IX. In the event of a change in the pay period
of any Participant, such as from biweekly to monthly, an appropriate
adjustment shall be made to the deduction in each new pay period so as
to insure the deduction of the proper amount authorized by the
Participant.
ARTICLE IX - OPTIONS
9.01 GRANT OF OPTION. Subject to Article X, a Participant who has elected
to participate in the manner described in Article VIII and who is
employed by the Corporation or a Subsidiary as of the commencement
date of a Phase shall be granted an option as of such date to purchase
that number of whole shares of Stock determined by dividing the total
amount to be credited to the Participant's account by the option price
per share set forth in Section 9.02(a) below. The option price per
share for such Stock shall be determined under Section 9.02 hereof,
and the number of shares exercisable shall be determined under Section
9.03 hereof.
9.02 OPTION PRICE. Subject to the limitations hereinbelow, the option
price for such Stock shall be the lower of the amounts determined
under paragraphs (a) and (b) below:
(a) Eighty-five percent (85%) of the closing price for a share
of the Corporation's Stock as reported on the Nasdaq National
Market, Nasdaq SmallCap Market or on an established securities
exchange as of the commencement date of the Phase; or
(b) Eighty-five percent (85%) of the closing price for a share
of the Corporation's Stock as reported on the Nasdaq National
Market, Nasdaq SmallCap Market or on an established securities
exchange as of the termination date of the Phase.
In the event that the commencement or termination date of a Phase is a
Saturday, Sunday or holiday, the amounts determined under the
foregoing subsections shall be determined using the price as of the
last preceding trading day.
<PAGE>
If the Corporation's Stock is not listed on the Nasdaq National
Market, Nasdaq SmallCap Market or on an established securities
exchange, then the option price shall equal the lesser of (i)
eighty-five percent (85%) of the fair market value of a share of the
Corporation's Stock as of the commencement date of the Phase; or
(ii) eighty-five percent (85%) of the fair market value of such stock
as of the termination date of the Phase. Such "fair market value"
shall be determined by the Board.
9.03 LIMITATIONS. No employee shall be granted an option hereunder:
(a) Which permits his or her rights to purchase Stock under all
employee stock purchase plans of the Corporation or its
Subsidiaries to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) of fair market value of such Stock
(determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time;
(b) If such employee would own and/or hold, immediately after
the grant of the option, Stock possessing five percent (5%) or
more of the total combined voting power or value of all classes
of stock of the Corporation or of any Subsidiary. For purposes
of determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code and the regulations thereunder shall
apply.
(c) Which, if exercised, would cause the limits established by
the Administrator under Section 5.02 to be exceeded.
9.04 EXERCISE OF OPTION. Subject to a Participant's right to withdraw in
the manner provided in Section 10.01, a Participant's option for the
purchase of shares of Stock will be exercised automatically on the
termination date of that Phase. However, in no event shall a
Participant be allowed to exercise an option for more shares of Stock
than can be purchased with the payroll deductions accumulated by the
Participant in his or her bookkeeping account during such Phase.
9.05 DELIVERY OF SHARES. As promptly as practicable after the termination
of any Phase, the Corporation's transfer agent or other authorized
representative shall deliver to each Participant herein certificates
for that number of whole shares of Stock purchased upon the exercise
of the Participant's option. The Corporation may, in its sole
discretion, arrange with the Corporation's transfer agent or other
authorized representative to establish, at the direction of the
Participant, individual securities accounts to which will be credited
that number of whole shares of Stock that are purchased upon such
exercise, such securities account to be subject to such terms and
conditions as may be imposed by the transfer agent or authorized
representative.
<PAGE>
The shares of the Corporation's common stock to be delivered to a
Participant pursuant to the exercise of an option under Section 9.04
of the Plan will be registered in the name of the Participant or, if
the Participant so directs by written notice to the Administrator
prior to the termination date of the Phase, in the names of the
Participant and one other person the Participant may designate as his
joint tenant with rights of survivorship, to the extent permitted by
law.
Any accumulated payroll deductions remaining after the exercise of the
Participant's option shall be returned to the Participant, without
interest, on the first paycheck issued for the payroll period which
begins on or immediately after the commencement date of next Phase;
provided, however, that the Corporation may, under rules of uniform
application, retain such remaining amount in the Participant's
bookkeeping account and apply it toward the purchase of shares of
Stock in the next succeeding Phase, unless the Participant requests a
withdrawal of such amount pursuant to Section 10.01.
ARTICLE X - WITHDRAWAL
OF PAYROLL WITHHOLDINGS
10.01 WITHDRAWAL. At any time during the Phase, a Participant may request a
withdrawal of all accumulated payroll deductions then credited to the
Participant's bookkeeping account by completing a change of election
form and filing such form with the Administrator. The Participant's
request shall be effective as of the beginning of the next payroll
period immediately following the date that the Administrator receives
the Participant's properly completed change of election form. As soon
as administratively feasible after such payroll period, all payroll
deductions credited to a bookkeeping account for the Participant will
be paid to such Participant, without interest, and no further payroll
deductions will be made during that Phase or any future Phase unless
the Participant completes a new Plan enrollment form as provided in
Section 8.02 above. If the Participant requests a withdrawal, the
option granted to the Participant under that Phase of the Plan shall
immediately lapse and shall not be exercisable. Partial withdrawals
of payroll deductions are not permitted. A participant may request a
withdrawal once during a Phase.
Notwithstanding the foregoing, in order to be effective for a
particular Phase, the Participant's request for withdrawal must be
properly completed and received by the Administrator on or before the
December 1 immediately preceding the termination date of the Phase, or
on or before such other date established by the Administrator.
Requests for withdrawal that are received after that due date shall
not be effective and no withdrawal shall be made, unless otherwise
determined by the Administrator.
<PAGE>
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01 TERMINATION. If, on or before the termination date of any Phase, a
Participant's employment terminates with the Corporation for any
reason, voluntarily or involuntarily, including by reason of
retirement or death, the payroll deductions credited to such
Participant's bookkeeping account for such Phase, if any, will be
returned to the Participant, without interest, and any options granted
to such Participant under the Plan shall immediately lapse and shall
not be exercisable. The return of such payroll deductions shall be
made to the Participant as soon as administratively practicable
following the Participant's termination of employment. In the event
that such termination occurs near the end of a Phase and the
Corporation is unable to discontinue payroll deductions for such
Participant for his or her final paycheck(s), such deductions shall
still be made but shall be returned to the Participant as provided
herein. In no event shall the accumulated payroll deductions be used
to purchase any shares of Stock.
If the option lapses as a result of the Participant's death, any
accumulated payroll deductions credited to the Participant's
bookkeeping account will be paid to the Participant's estate, without
interest. In the event a Participant dies after exercise of the
Participant's option but prior to delivery of the Stock to be
transferred pursuant to the exercise of the option under Section 9.04
above, any such Stock and/or accumulated payroll deductions remaining
after such exercise shall be paid by the Corporation to the
Participant's estate.
The Corporation will not be responsible for or be required to give
effect to the disposition of any cash or Stock or the exercise of any
option in accordance with any will or other testamentary disposition
made by such Participant or in accordance with the provisions of any
law concerning intestacy, or otherwise. No person shall, prior to the
death of a Participant, acquire any interest in any Stock, in any
option or in the cash credited to the Participant's bookkeeping
account during any Phase of the Plan.
11.02 SUBSIDIARIES. In the event that any Subsidiary ceases to be a
Subsidiary of the Corporation, the employees of such Subsidiary shall
be considered to have terminated their employment for purposes of
Section 11.01 hereof as of the date the Subsidiary ceased to be a
Subsidiary of the Corporation.
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01 SHARES RESERVED. The maximum number of shares of Stock which may be
issued upon the exercise of options to be granted under the Plan shall
be Sixty Thousand (60,000) shares (as appropriately adjusted for stock
splits, stock dividends,
<PAGE>
combination of shares, reclassifications or similar events as provided
in Section 14.01), plus an annual increase, beginning November 1,
2000, and each November 1 thereafter so long as the Plan is in effect,
equal to the number of shares issued upon the exercise of options in
the Phase ending on the immediately preceding October 31. Such shares
may be authorized but unissued shares of the Corporation (or the
number and kind of securities to which said shares may be adjusted in
accordance with Section 14.01 hereof). Shares subject to the
unexercised portion of any lapsed or expired option may again be
subject to option under the Plan.
12.02 RIGHTS AS SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to the
Participant's option until the date of the issuance of a stock
certificate evidencing such shares as provided in Section 9.05. No
adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property), distributions or other
rights for which the record date is prior to the date such stock
certificate is actually issued, except as otherwise provided in
Section 14.01 hereof.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01 BOOKKEEPING ACCOUNT. Payroll deductions for Participants shall be
credited to bookkeeping accounts, established by the Corporation for
each such Participant under the Plan. A Participant may not make any
cash payments into such account. Such account shall be solely for
bookkeeping purposes and shall not require the Corporation to
establish any separate fund or trust hereunder. All funds from
payroll deductions received or held by the Corporation under the Plan
may be used, without limitation, for any corporate purpose by the
Corporation, which shall not be obligated to segregate such funds from
its other funds. In no event shall Participants be entitled to
interest on the amounts credited to such bookkeeping accounts.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01 GENERAL. Subject to any required action by the shareholders of the
Corporation, in the event of an increase or decrease in the number of
outstanding 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 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
<PAGE>
subject to and reserved under the Plan and, to prevent the dilution or
enlargement of rights of those Eligible Employees to whom options have
been granted, shall adjust the number and kind of securities subject
to such outstanding options and, where applicable, the exercise price
per share for such securities.
In the event of sale by the Corporation of substantially all of its
assets and the consequent discontinuance of its business, or in the
event of a merger, exchange, consolidation, reorganization,
divestiture (including a spin-off), liquidation, reclassification or
extraordinary dividend (collectively referred to as a "transaction"),
after which the Corporation is not the surviving corporation, the
Board may, in its sole discretion, at the time of adoption of the plan
for such transaction, provide for one or more of the following:
(a) The acceleration of the exercisability of outstanding
options granted at the commencement of the Phase then in effect,
to the extent of the accumulated payroll deductions made as of
the date of such acceleration pursuant to Article VIII hereof;
(b) The complete termination of this Plan and a refund of
amounts credited to the Participants' bookkeeping accounts
hereunder; or
(c) The continuance of the Plan only with respect to completion
of the then current Phase and the exercise of options thereunder.
In the event of such continuance, Participants shall have the
right to exercise their options as to an equivalent number of
shares of stock of the corporation succeeding the Corporation by
reason of such transaction.
In the event of a transaction where the Corporation survives, then the Plan
shall continue in effect, unless the Board takes one or more of the actions
set forth above. The grant of an option 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 XV - NONTRANSFERABILITY OF OPTIONS
15.01 NONTRANSFERABILITY. Options granted under any Phase of the Plan shall
not be transferable and shall be exercisable only by the Participant
during the Participant's lifetime.
15.02 NONALIENATION. Neither payroll deductions granted to a Participant's
account, nor any rights with regard to the exercise of an option or to
receive Stock under any
<PAGE>
Phase of the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the Participant. Any such attempted
assignment, transfer, pledge or other disposition shall be null and
void and without effect, except that the Corporation may, at its
option, treat such act as an election to withdraw in accordance with
Section 10.01.
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01 GENERAL. The Plan may be terminated at any time by the Board of
Directors, provided that, except as permitted in Section 14.01 hereof,
no such termination shall take effect with respect to any options then
outstanding. The Board may, from time to time, amend the Plan as it
may deem proper and in the best interests of the Corporation or as may
be necessary to comply with Code Section 423, as amended, and the
regulations thereunder, or other applicable laws or regulations;
provided, however, no such amendment shall, without the consent of a
Participant, materially adversely affect or impair the right of a
Participant with respect to any outstanding option; and provided,
further, that no such amendment shall:
(a) increase the total number of shares for which options may be
granted under the Plan (except as provided in Section 14.01
herein);
(b) modify the group of Subsidiaries whose employees may be
eligible to participate in the Plan or materially modify any
other requirements as to eligibility for participation in
the Plan; or
(c) materially increase the benefits accruing to Participants
under the Plan;
without the approval of the Corporation's shareholders, if such
approval is required for compliance with Code Section 423, as amended,
and the regulations thereunder, or other applicable laws or
regulations.
<PAGE>
ARTICLE XVII - NOTICES
17.01 GENERAL. All notices, forms, elections or other communications in
connection with the Plan or any Phase thereof shall be in such form as
specified by the Corporation or the Administrator from time to time,
and shall be deemed to have been duly given when received by the
Participant or his or her personal representative or by the
Corporation or its designated representative, as the case may be.
<PAGE>
HEALTH RISK MANAGEMENT, INC.
AMENDED AND RESTATED 1992 LONG-TERM INCENTIVE PLAN
(AS AMENDED THROUGH FEBRUARY 17, 1999)
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.
<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 XIV 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.
<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.
<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
<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.
<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 One Million Two Hundred Thousand (1,200,000)
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 One Million Two Hundred Thousand
(1,200,000) shares of Stock for Awards under the Plan, the number of
shares of Stock available under the Plan shall remain at Eight Hundred
Thousand (800,000) 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, and as subsequently increased by approval of the Board and
shareholders.
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,
<PAGE>
reclassification, extraordinary dividend, divestiture (including a
spin-off) or 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
<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.
<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.
<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.
<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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
<PAGE>
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 Section
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
<PAGE>
shareholder. The terms, conditions and restrictions set
forth in the 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;
<PAGE>
(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
<PAGE>
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,
<PAGE>
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;
<PAGE>
(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
<PAGE>
(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,
<PAGE>
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,
<PAGE>
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.
12.02 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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
COMPANY #
CONTROL #
| PLEASE DETACH HERE |
<TABLE>
<S> <C>
1. ELECTION OF CLASS A DIRECTORS: Nominees: Gary L. FOR ALL nominees listed / / WITHHOLD AUTHORITY to vote
Damkoehler and Raymond G. Schultze, M.D. / / at left (except those whose for all nominees listed at left.
names have been written in the
box below).
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE WRITE THAT NOMINEE'S NAME IN THE BOX ----------------------------------------
PROVIDED TO THE RIGHT.)
----------------------------------------
2. AMENDED AND RESTATED 1992 LONG-TERM INCENTIVE PLAN.
Approve 400,000 share increase in number of shares / / For / / Against / / Abstain
reserved for Plan.
3. STOCK PURCHASE PLAN. Approve 1999 Employee / / For / / Against / / Abstain
Stock Purchase Plan.
4. INDEPENDENT AUDITORS. Ratification of selection / / For / / Against / / Abstain
of Ernst & Young LLP as the Company's independent
auditors for the 1999 fiscal year.
In their discretion, the appointed Proxies are authorized to vote upon such
other business as may properly come before the Meeting or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS GIVEN FOR ANY OF PROPOSALS #1 THROUGH #4, WILL BE VOTED FOR SUCH
PROPOSAL.
Dated: _________________________, 1999
------------------------------------------
(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).
</TABLE>
<PAGE>
HEALTH RISK MANAGEMENT, INC.
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1999 PROXY
- --------------------------------------------------------------------------------
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
1999 Annual Meeting of Shareholders and at any adjournment thereof, and the
undersigned hereby revokes all proxies previously given with respect to the
Annual Meeting.
SEE REVERSE FOR VOTING INSTRUCTIONS
