SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934
(Amendment No. )
Filed by the Registrant X
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
__ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
________________________________EXPRESS SCRIPTS, 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule )-11:*________________________________________________
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:_____________________________________________________________
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*Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
[COMPANY LOGO INSERTED HERE]
EXPRESS SCRIPTS, INC.
14000 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
The 1997 Annual Meeting of Stockholders of EXPRESS SCRIPTS, INC., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 14000 Riverport Drive, Maryland Heights, Missouri 63043, on Wednesday,
May 28, 1997, at 9:30 a.m., to consider and act upon the following matters:
1. to elect ten (10) directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and qualified;
2. to approve the First Amendment to the Company's Amended and Restated
1994 Stock Option Plan;
3. to ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the Company's current fiscal year; and
4. to transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on March 31, 1997, are
entitled to notice of and to vote at the Meeting. At least ten days prior to the
Meeting, a complete list of stockholders entitled to vote will be available for
inspection by any stockholder for any purpose germane to the Meeting, during
ordinary business hours, at the office of the Secretary of the Company at 14000
Riverport Drive, Maryland Heights, Missouri 63043. As a stockholder of record,
you are cordially invited to attend the Meeting in person. If you do not expect
to be present, please complete, sign and date the enclosed Proxy and mail it
promptly in the enclosed envelope. The return of the enclosed Proxy will not
affect your right to vote in person if you attend the Meeting.
By Order of the Board of Directors.
/s/ Thomas M. Boudreau
Thomas M. Boudreau
Secretary
14000 Riverport Drive
Maryland Heights, Missouri 63043
April 16, 1997
THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE PROXY IS
RETURNED IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN THE UNITED
STATES.
<PAGE>
[COMPANY LOGO INSERTED HERE]
EXPRESS SCRIPTS, INC.
14000 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
------------------
1997 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Express Scripts, Inc., a Delaware
corporation (the "Company"), to be voted at the 1997 Annual Meeting of
Stockholders of the Company (the "Meeting") and any adjournment thereof. The
Meeting will be held at the offices of the Company, 14000 Riverport Drive,
Maryland Heights, Missouri 63043 on Wednesday, May 28, 1997, at 9:30 a.m., for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders and in this Proxy Statement. This Proxy Statement and the
accompanying Proxy will first be sent or given to stockholders on or about April
16, 1997.
A Proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked, will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted (i) for the nominees for director named in this Proxy Statement,
(ii) for the proposal to approve the First Amendment to the Company's Amended
and Restated 1994 Stock Option Plan (the "Amendment to the 1994 Plan"), (iii)
for ratification of the appointment of Price Waterhouse LLP as independent
accountants for the Company for 1997, and (iv) in accordance with the judgment
of the person or persons voting the proxies on any other matter that may be
brought before the Meeting. Each such Proxy granted may be revoked at any time
thereafter by writing to the Secretary of the Company prior to the Meeting, by
executing and delivering a subsequent proxy or by attending and voting in person
at the Meeting, except as to any matter or matters upon which, prior to such
revocation, a vote shall have been cast pursuant to the authority conferred by
such Proxy.
VOTING SECURITIES
Stockholders of record as of the close of business on March 31, 1997 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournments thereof. On the Record Date there were 8,978,180 outstanding shares
of the Company's Class A Common Stock, $.01 par value per share (the "Class A
Common Stock"), and 7,510,000 outstanding shares of the Company's Class B Common
Stock, $.01 par value per share (the "Class B Common Stock", which, together
with the Class A Common Stock, are hereinafter collectively referred to as the
"Common Stock"). All of the outstanding shares of the Class B Common Stock are
owned by NYLIFE HealthCare Management, Inc. ("NYLIFE HealthCare"), a Delaware
corporation and an indirect subsidiary of New York Life Insurance Company, a
mutual insurance company organized and existing under the laws of the State of
New York ("New York Life").
The Class B Common Stock is convertible into shares of Class A Common Stock
on a share-for-share basis at any time at the option of the holder, and will be
automatically converted to Class A Common Stock upon any transfer to any entity
other than New York Life or its affiliates. Each holder of the Class A Common
Stock is entitled to one vote for each share held by such holder and each holder
of the Class B Common Stock is entitled to ten votes for each share held by such
holder. In all respects other than voting power and the convertibility of the
Class B Common Stock, the Class A Common Stock and Class B Common Stock are
identical. The Class A Common Stock and the Class B Common Stock vote together
as a single class on all matters except where Delaware law or the Company's
Certificate of Incorporation require otherwise.
The presence, in person or by proxy, of the holders of shares entitled to
cast a majority of the votes of all outstanding shares entitled to vote shall
constitute a quorum at the Meeting. A stockholder who abstains from a vote by
registering an abstention vote will be deemed present at the Meeting for quorum
purposes but will not be deemed to have voted on the particular matter under
consideration. Similarly, in the event a nominee holding shares for beneficial
owners votes on certain matters pursuant to discretionary authority or
instructions from beneficial owners, but with respect to one or more other
matters does not receive instructions from beneficial owners and does not
exercise discretionary authority (a so-called "non-vote"), the shares held by
the nominee will be deemed present at the Meeting for quorum purposes but will
not be deemed to have voted on such other matters. Thus, on the votes for the
proposals to elect directors and ratify the appointment of accountants, where
the outcome depends upon the votes cast, abstentions and non-votes will have no
effect. However, on the proposal to approve the Amendment to
1
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the 1994 Plan, where approval depends upon the affirmative vote of a
majority of the votes eligible to be cast at a meeting of the Stockholders of
the Company voting as a single class, abstentions and non-votes will have the
effect of votes against the proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
February 1, 1997 (unless otherwise noted) by (i) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
Class A Common Stock or Class B Common Stock, (ii) each of the five most highly
compensated executive officers and each director of the Company, and (iii) all
executive officers and directors of the Company as a group. Included are amounts
of shares which may be acquired on February 1, 1997 or within 60 days of
February 1, 1997 pursuant to the exercise of stock options by employees or
outside directors. Unless otherwise indicated, each of the persons or entities
listed below exercise sole voting and investment power over the shares that each
of them beneficially owns.
<TABLE>
Shares Beneficially Owned
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT OF CLASS
<S> <C> <C>
CLASS A COMMON STOCK:
Howard Atkins................. 0 *
Bernard N. Del Bello.......... 3,500 *
Richard M. Kernan, Jr......... 0 *
Richard A. Norling(1)......... 19,000 *
Frederick J. Sievert.......... 0 *
Stephen N. Steinig............ 0 *
Seymour Sternberg(2).......... 3,000 *
Barrett A. Toan(3)............ 185,000 2.1%
Howard L. Waltman............. 0 *
Norman Zachary(4)............. 12,000 *
Stuart L. Bascomb(5).......... 40,900 *
Susan M. Barrow, MD(6)........ 8,600 *
Thomas M. Boudreau(7)......... 10,800 *
Richard A. Calvert(8)......... 7,420 *
Directors and Executive
Officers as a Group (17
persons)(9)................ 315,620 3.5%
Pilgrim Baxter &
Associates(10).............. 1,201,100 13.4%
1125 Drummer Lane, Suite 300
Wayne, Pennsylvania 19087
AIM Management Group, Inc.(11) 1,173,600 13.1%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Wasatch Advisors, Inc.(12).... 1,061,050 11.8%
68 South Main Street, Ste.400
Salt Lake City, UT 89101
CLASS B COMMON STOCK:
NYLIFE HealthCare Management,
Inc.(13)(14)(15)............ 7,510,000 100.0%
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* Indicates less than 1%
<FN>
(1) Consists of options for 19,000 shares granted under the Amended and
Restated 1992 Stock Option Plan for Outside Directors (the "Outside
Directors Plan").
(2) Excludes 180 shares held by Mr. Sternberg's son, as to which shares
Mr. Sternberg disclaims beneficial ownership.
(3) Includes options for 182,000 shares granted under the Company's Amended
and Restated 1992 Employee Stock Option Plan (the "1992 Plan") and the
Amended and Restated 1994 Employee Stock Option Plan (the "1994 Plan";
together with the 1992 Plan, the "Plans"). The shares subject to the
options are restricted from transfer with the transfer restriction lapsing
as to 20% of such shares on each anniversary date of the date of grant.
The transfer restriction is subject to complete lapse in the event of a
"change in control" of the Company (as defined in the Plans) or
termination of Mr.Toan's employment by reason of death, disability or
retirement or by the Company without cause. Upon termination of Mr. Toan's
employment, the Company will purchase any shares issued upon the exercise
of the option that remain subject to the transfer restriction, at the
lesser of the option exercise price or the then current market value of
the Class A Common Stock.
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(4) Consists of options for 12,000 shares granted under the Outside Directors
Plan.
(5) Includes options for 33,600 shares granted under the Plans and 7,300 shares
owned by Mr. Bascomb, of which 3,300 shares are held as co-trustee (with
shared voting and dispositive power) of a trust for the benefit of his
mother.
(6) Consists of options for 8,600 shares granted under the Plans.
(7) Consists of options for 10,800 shares granted under the Plans.
(8) Consists of options for 7,420 shares granted under the Plans.
(9) Includes options for 297,820 shares granted under the Plans.
(10) The information with respect to the beneficial ownership of these shares
has been obtained from a copy of an Amendment No. 1 to Schedule 13G dated
February 14, 1997. Such filing reports that the beneficial owner is a
registered investment advisor and it shares voting power with respect to
all of the shares reported but has sole dispositive power as to all of the
shares reported.
(11) The information with respect to the beneficial ownership of these shares
has been obtained from a copy of a Schedule 13G dated February 12, 1997.
Such filing reports that the beneficial owner is a parent holding company
and it shares voting power and dispositive power as to all of the shares
reported.
(12) The information with respect to the beneficial ownership of these shares
has been obtained from a copy of an Amendment No. 1 to Schedule 13G dated
February 14, 1997. Such filing reports that the beneficial owner is a
registered investment advisor and it has sole dispositive power as to all
of the shares reported.
(13) Messrs. Atkins, Del Bello, Kernan, Sievert, Steinig and Sternberg,
directors of the Company, are also directors and/or hold various executive
positions with New York Life and/or NYLIFE HealthCare, as described herein.
All of the foregoing directors disclaim beneficial ownership of the
Company's Class B Common Stock owned by NYLIFE HealthCare.
(14) Each share of Class B Common Stock has ten (10) votes per share and will
automatically convert upon transfer (other than to New York Life or its
affiliates) at any time into shares of Class A Common Stock on a
share-for-share basis and otherwise at the option of NYLIFE HealthCare.
NYLIFE HealthCare is an indirect, wholly owned subsidiary of New York Life
that has 89.3% of the voting power of the Common Stock of the Company.
(15) If converted to Class A Common Stock, the Class B Common Stock
would represent approximately 45.6% of the outstanding Class A
Common Stock.
</FN>
</TABLE>
I. ELECTION OF DIRECTORS
At the Meeting, the entire Board of Directors, comprised of ten directors,
is to be elected to serve until the next Annual Meeting of Stockholders or until
their successors shall be duly elected and qualified. The number of directors
was fixed by the Board of Directors pursuant to the Company's By-laws. Unless
otherwise specified, all proxies will be voted in favor of the ten nominees
listed below as directors of the Company.
The Board of Directors has no reason to expect that any of the nominees
will be unable to stand for election at the date of the Meeting. If a vacancy
occurs among the original nominees prior to the Meeting, the proxies will be
voted for a substitute nominee named by the Board of Directors and for the
remaining nominees. Directors are elected by a plurality of the votes cast.
NYLIFE HealthCare has indicated its intention to vote its shares for election of
the ten nominees. Assuming NYLIFE HealthCare votes in favor of such nominees,
such vote would be sufficient to elect the nominees. The following information
is furnished as of March 1, 1997, with respect to each of the nominees for the
Board of Directors:
NAME, POSITION AND PRINCIPAL OCCUPATION
Howard Atkins, 46, was elected a director of the Company in January 1997,
to fill a vacancy on the Board created by the resignation of Lee M. Gammill, Jr.
He has been an Executive Vice President and the Chief Financial Officer of New
York Life since April, 1996. From September 1991 until joining New York Life,
Mr. Atkins was the Executive Vice President and Chief Financial Officer of
Midlantic Bank. Mr. Atkins is also a director of NYLCare Health Plans, Inc.
("NYLCare"), a subsidiary of New York Life.
Bernard N. Del Bello, 61, was elected a director of the Company in March
1992 and served as Secretary of the Company from March 1992 to October 1994.
Since December 1986, he has been Vice President and Deputy General Counsel of
New York Life. Mr. Del Bello is also a director of NYLIFE Healthcare.
Richard M. Kernan, Jr., 56, was elected a director of the Company in March
1992. He has been an Executive Vice President and the Chief Investment Officer
of New York Life since March 1991. From May 1984 to March 1991, he was Senior
Vice President of New York Life in charge of the Investment Department. Mr.
Kernan has been a director of New York Life Insurance and Annuity Corporation
and MacKay Shields Financial Corporation (both of which are subsidiaries of New
York Life) since March 1985 and December 1988, respectively. Mr. Kernan is also
Chairman of New York Life Worldwide Holding, Inc., also a subsidiary of New York
Life, and a director of NYLIFE Healthcare and NYLCare.
Richard A. Norling, 51, was elected a director of the Company in March
1992. Since July 1989, Mr. Norling has been President and Chief Executive
Officer of Fairview Hospital and HealthCare Services, a regional integrated
network of hospitals, ambulatory care services and health care management
enterprises.
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<PAGE>
Frederick J. Sievert, 49, was elected a director of the Company in July
1995. Since January 1997, Mr. Sievert has been the Vice Chairman of New York
Life. From February 1995 to December 1996, Mr. Sievert was an Executive Vice
President of New York Life. From January 1992 to January 1995, Mr. Sievert was
Senior Vice President of New York Life in charge of financial management and
policyholder services for Individual Operations. From July 1989 to November
1992, Mr. Sievert was Senior Vice President, Individual Operations of Royal
Maccabees, the U.S. life insurance subsidiary of The Royal Insurance Group of
London, England. Mr. Sievert is also a director of NYLCare.
Stephen N. Steinig, 51, was elected a director of the Company in January
1994. Since February 1994, Mr. Steinig has been Senior Vice President and Chief
Actuary of New York Life. From February 1992 to February 1994, he was Chief
Actuary and Controller of New York Life. From November 1989 to February 1992, he
held the position of Senior Vice President and Chief Actuary of New York Life.
Mr. Steinig is also a director of NYLCare.
Seymour Sternberg, 53, was elected a director of the Company in March 1992.
Mr. Sternberg is the President and Chief Operating Officer of New York Life. He
has been with New York Life since February 1989, serving as the Vice Chairman
from February to September 1995, as an Executive Vice President from March 1992
to February 1995 and as a Senior Vice President from February 1989 to March
1992. Mr. Sternberg is also Chairman, Chief Executive Officer and President of
NYLIFE Healthcare, and a director or an officer of a number of other New York
Life subsidiaries, including NYLCare.
Barrett A. Toan, 49, was elected Chief Executive Officer of the Company in
March 1992 and President and a director in October 1990. Mr. Toan has been an
executive employee of the Company since May 1989. From January 1985 to May 1989,
Mr. Toan served full-time as the Executive Director of Sanus of Missouri, Inc.
("SOMI"), a subsidiary of NYLCare. From May 1989 until March 1992, Mr. Toan
spent approximately one-half of his time performing services for the Company. He
was also Secretary of GenCare Health Systems, Inc., a St. Louis HMO, from May
1989 to March 1992. In March 1992, Mr. Toan resigned as Executive Director of
SOMI.
Howard L. Waltman, 64, was elected Chairman of the Board of the Company in
March 1992. Mr. Waltman has been a director of the Company since its inception
in September 1986. From 1983 until September 1992, Mr. Waltman was Chairman of
the Board and Chief Executive Officer of Sanus Corp. Health Systems, a wholly
owned subsidiary of New York Life, which is now known as NYLCare. From September
1992 to December 31, 1995, Mr. Waltman served as Chairman of the Board of
NYLCare.
Norman Zachary, 70, was elected a director of the Company in March 1992.
From June 1967 to November 1991, Mr. Zachary held various positions at Logica
Data Architects, Inc. (formerly known as Data Architects, Inc.) ("Logica"), a
consulting and software development company, including serving as President and
a director until November 1990. Logica provided consulting services to New York
Life from time to time.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee, an Audit Committee and
a Compensation Committee. During intervals between meetings of the Board of
Directors, the Executive Committee has all the powers and authority of the Board
of Directors, except as otherwise provided by the Board of Directors or as
required by law. The Audit Committee reviews the internal controls of the
Company and the objectivity of its financial reporting. In addition, the Audit
Committee must review and, by majority vote, approve material transactions with
related parties (see "Certain Relationships and Related Transactions - Approval
of Related Party Transactions"). A majority of the Audit Committee must be
unaffiliated with the Company and its affiliates. The Compensation Committee
administers the Company's compensation plans. The Company does not have a
standing Nominating Committee.
During 1996, the Board of Directors held 5 meetings, the Executive
Committee held 5 meetings, the Audit Committee held 3 meetings and the
Compensation Committee held 6 meetings. Each director attended at least 75% of
the aggregate number of meetings held by the Board of Directors and the
Committees on which he served during 1996, except Mr. Gammill, who attended
approximately 60%.
DIRECTORS' COMPENSATION
Directors of the Company who are also employed by the Company or New York
Life or its subsidiaries do not receive compensation for serving as directors.
During 1996, directors who were not employees of the Company or New York Life or
its subsidiaries received an annual retainer of $10,000 and a fee of $500 for
each Board or Committee meeting attended prior to January 24, 1996, and $750 for
each Board or Committee meeting attended thereafter. The Company also reimburses
non-employee directors for out-of-pocket expenses incurred in connection with
attending Board and Committee Meetings.
Under the Outside Directors Plan, prior to the amendment thereto effective
January 24, 1996, each non-employee director received a one-time grant of a
ten-year option to purchase 14,000 shares of Class A Common Stock at an exercise
price equal to the fair market value of the Class A Common Stock at the date of
grant. This option became exercisable in three equal annual installments on the
first three anniversaries of the grant date. Mr. Norling and Mr. Zachary were
granted options to purchase 14,000 shares each upon the closing of the Company's
initial public offering in June 1992.
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Effective January 24, 1996, each non-employee director who is first elected
or appointed as a non-employee director on or after such date shall receive a
ten-year option to purchase 24,000 shares of the Class A Common Stock as of the
date of the first Board meeting he or she attends as a non-employee director.
These options will become exercisable in five equal installments at the rate of
one-fifth per year on each anniversary of the grant date. In addition, each
non-employee director who was first elected or appointed as a non-employee
director prior to January 24, 1996 received an option to purchase 10,000 shares,
in addition to the 14,000 previously granted. These additional options vest in
two installments of 5,000 shares each on June 16, 1996 and June 16, 1997. The
exercise price of all options granted under the Outside Directors Plan is equal
to the fair market value of the Class A Common Stock at the date of grant. Mr.
Norling and Mr. Zachary were each granted options to purchase 10,000 additional
shares effective January 24, 1996, and Mr. Waltman was granted an option to
purchase 24,000 shares effective May 22, 1996.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's compensation plans, including the Company's stock
option plans for its employees. The Committee's overall recommendations
regarding compensation are subject to approval of the Board of Directors;
although the Committee has authority to grant stock options under the Company's
employee stock option plans, it now acts in conjunction with the full Board of
Directors in awarding stock options to executive officers in order to comply
with the new rules adopted under Section 16 of the Securities Exchange Act of
1934.
COMPENSATION PLAN
The Company's general compensation policy for its executive officers,
including the Chief Executive Officer ("CEO"), is to provide (i) short-term
compensation consisting of two components, a base annual salary which does not
vary and a cash bonus awarded based upon specific short-term financial and
non-financial objectives for the individual and the Company, and (ii) long-term
compensation consisting of options to purchase the Company's stock based upon
the Committee's judgment as to the relative contribution of each officer to the
long-term success of the Company. The CEO also consults with the Committee
regarding the compensation of those executive officers whose base salary exceeds
$100,000 or whose potential bonus is in excess of $50,000. The Committee reviews
compensation on an annual basis.
The Company's policy is to use short-term compensation and long-term
incentive compensation such that the total compensation package is competitive
with compensation packages for executive officers provided by similar sized
companies in businesses similar to the Company, based on periodic compensation
studies conducted by independent consultants. Base salaries and bonuses for 1996
were established considering companies in the managed care industry with
revenues, membership levels and services of comparable magnitude to the
Company's.
In the fall of 1995, the Company engaged an outside consultant to determine
the extent to which the Company's policy on short- and long-term compensation
was being met with respect to all senior managers of the Company, including the
executive officers, given the rapid growth of the Company. The consultant
determined, based upon a survey of 39 companies consisting primarily of
companies other than those in the Standard & Poor's Health Care - 500 Index,
that the Company's executive officers, including the chief executive officer,
are compensated at less than the average of the 50th percentile of the market
value of the total compensation received by persons in comparable positions at
these companies (to the extent these companies had comparable positions), while
a higher percentage of their compensation is in the form of short-term incentive
compensation. Accordingly, the Committee recommended to the Board of Directors
that certain adjustments be made for many senior managers, including all of the
executive officers, in base salary for 1996. Further adjustments have been
recommended for 1997 based on the results of the study. The Committee also
recommended, based on the survey, changes in long-term incentive compensation
awards in the form of stock options which were made in 1996 based on 1995
performance, as discussed below. The Committee is continuing to study the impact
of Section 162(m) of the Internal Revenue Code on the deductibility of executive
officer's compensation. The Committee is endeavoring to maximize the
deductibility of compensation to the extent practicable while maintaining
competitive compensation.
COMPONENTS OF EXECUTIVE COMPENSATION
BASE SALARY: The Committee determines the salary ranges for each executive
officer position in the Company based upon the level and scope of
responsibilities of the position and the pay levels of similarly positioned
executive officers in comparable companies. The CEO's evaluation of the level of
responsibility of each position (other than his own) and the performance of each
other executive officer is of paramount importance when base salary is
determined. For 1996 compensation, which was determined in late 1995, the
Committee obtained information about the salary and total compensation of
officers in similar companies through review of published reports and periodic
surveys.
ANNUAL BONUS COMPENSATION: Each executive officer's bonus has two
components: (i) an amount based on the Company's profitability goal, and (ii) an
amount based on achieving specific work plan objectives. For each individual,
each component is expressed as a specific dollar amount. In general, the
profitability component represents approximately 30 percent of the total annual
bonus amount, and the work plan objectives represent the remaining 70 percent.
The potential bonus amount for 1996 for any executive officer (other than the
CEO) is between approximately 33 percent and 50 percent of the base salary,
depending on the extent to which that executive officer's department can help
meet certain Company-wide goals.
5
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Executive officers are eligible for annual bonus payments only if the
Company meets certain predetermined profitability and membership goals, which
are approved by the Board in its annual review of the Company's budget. For
1996, the goals were based on the Company's budgeted net income for 1996 and
total membership in the Company's pharmacy benefit management programs.
If the Company meets these profitability and membership goals, the
executive will receive the specified profitability portion of the bonus. For the
executive to receive the work plan bonus, the Committee examines the executive's
individual contribution to his or her departmental work plan and whether and the
extent to which the departmental work plan goals are achieved. The departmental
work plan goals are determined based upon the departmental function, and include
such items as development and marketing of specific new products and programs
within a specified time frame, systems enhancements to support new products and
programs, improvements in mail service pharmacy processing costs and
enhancements in the provider networks. The work plan bonus for 1996 is available
only if the Company's overall 1996 profitability and membership goals are
achieved.
LONG-TERM INCENTIVE COMPENSATION: Long-term incentive compensation is in
the form of the Company's stock option plans, which are designed to align the
executive's incentive compensation more directly with stockholder values by
linking compensation to the long-term performance of the Company's stock.
Long-term compensation is also designed to encourage executives to make career
commitments to the Company. The size of an executive's stock option award is
based upon management's and the Committee's subjective evaluation of the
contribution an executive can and has made to overall growth and profitability
of the Company and the number of shares available for award under the stock
option plan.
Stock options are granted with an exercise price equal to the market value
on the date of grant and constitute compensation only if the Company's stock
price increases thereafter. The Committee has discretion to determine the
vesting schedule for each option grant and generally has made grants which
become exercisable in equal amounts over five years. Executives must be employed
by the Company at the time of vesting in order to exercise their options.
For 1996, actual aggregate bonuses paid to current executive officers,
including the CEO, represented approximately 29% of the total short-term
compensation paid to these officers, compared to 31% in 1995. Actual aggregate
bonuses paid to all current executive officers who received bonuses for 1996
represented approximately 80% of the total amounts allocated for bonuses for
these executive officers and approximately 26% of the total bonus amounts paid
to all employees for 1996, compared to 78% and 35%, respectively, in 1995.
THE CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Committee evaluates the performance of the CEO for purposes of
recommending to the Board his annual base pay adjustment and annual bonus
awards. The Committee also determines his stock option award. The factors
considered in recommending an increase in the CEO's salary in 1996 related to
the overall performance of the Company, particularly the increase in revenues,
membership, net income and earnings per share, which were subjectively evaluated
by the Committee. Another factor was the percentage increase in salary allocated
to certain senior executives of the Company in general, although this factor was
of less importance.
Under his employment agreement with the Company, the CEO may earn an annual
bonus of up to 80% of his base salary based upon achievement of performance
objectives set by the Board upon recommendation of the Committee. Mr. Toan's
bonus award for 1996 performance was recommended by the Committee based upon the
Company's attainment of its profitability and enrollment goals, which were
weighted equally, and for his performance of the 1996 non-financial work plan
objectives that were assigned to him. The factors used in the non-financial work
plan objectives related to such items as new product introductions,
strengthening of the Company's management information systems, and development
and implementation of a new marketing plan, all of which were subjectively
weighted.
In January, 1997, the Committee, acting jointly with the Board of
Directors, awarded the CEO additional options to acquire shares of the Company's
Class A Common Stock in particular recognition of the growth of revenue and
earnings and certain strategic initiatives.
February 26, 1997. COMPENSATION COMMITTEE
Frederick J. Sievert, Chairman
Seymour Sternberg
Norman Zachary
6
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Sternberg is the President and Chief Operating Officer of New York
Life; Chairman, Chief Executive Officer and President of NYLIFE HealthCare; and
a director of NYLCare. Mr. Sievert is the Vice Chairman of New York Life and a
director of NYLCare. The Company is a party to agreements with NYLCare, a
subsidiary of NYLIFE HealthCare, under which the Company provides pharmacy
benefit management services to certain group policyholders of NYLCare and
various pharmacy benefit management, vision care and infusion therapy services
to health maintenance organizations owned by NYLCare. In 1996, the Company
derived $152,311,000, or 19.7% of its net revenues, from services provided to
NYLCare. See "Certain Relationships and Related Transactions" for a more
complete description of this and certain other transactions involving the
Company and New York Life or its affiliates, including NYLCare.
The Compensation Committee Report on Executive Compensation and the
performance graph below shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return of the Company's Class A Common Stock, commencing June 9, 1992, the date
such stock was registered under Section 12 of the Securities Exchange Act of
1934, with the cumulative total return on the Standard & Poor's Health Care 500
Index and the Standard & Poor's 500 Index, to the end of 1996. These indices are
included only for comparative purposes as required by Securities and Exchange
Commission rules in effect as of the date of this Proxy Statement and do not
necessarily reflect management's opinion that such indices are an appropriate
measure of the relative performance of the Class A Common Stock, and are not
intended to forecast or be indicative of possible future performance of the
Class A Common Stock.
[Performance Graph, in tabular format, follows]
<TABLE>
<CAPTION>
INDEXED RETURNS
Base Years Ending
Period
Company/Index 9June92 Dec92 Dec93 Dec94 Dec95 Dec96
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
EXPRESS SCRIPTS INC -CL 100 250.96 361.55 565.40 784.63 551.94
HEALTH CARE-500 100 105.30 96.45 109.10 172.21 207.96
S&P 500 INDEX 100 109.42 120.45 122.04 167.90 206.45
</TABLE>
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for all services rendered in all capacities to the
Company for the fiscal years ended December 31, 1996, 1995 and 1994, by the
Company's chief executive officer and its other four most highly compensated
executive officers (the "Named Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM
----------------------------------------------------------- COMPENSATION
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($)(1) COMPENSATION ($) OPTIONS(#) COMPENSATION($)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
BARRETT A. TOAN 1996 $290,769(3) $204,000(3) -- 28,000(4) $2,000(2)
PRESIDENT, CHIEF 1995 253,269(3) 170,000(3) -- 14,000 1,000(2)
EXECUTIVE OFFICER 1994 246,667(3) 175,000(3) -- 28,000 1,000(2)
AND DIRECTOR
STUART L. BASCOMB 1996 193,877 80,000 -- 8,000(4) 2,000(2)
EXECUTIVE VICE 1995 172,223 62,800 -- 5,000 1,000(2)
PRESIDENT 1994 166,042 65,000 -- 10,000 1,000(2)
SUSAN M. BARROW, MD 1996 192,692 60,000(5) -- 7,000(4) 2,000(2)
SENIOR VICE PRESIDENT 1995 98,654(6) 74,000 -- 43,000 --
AND CHIEF SCIENCE 1994 -- -- -- -- --
OFFICER
THOMAS M. BOUDREAU
SENIOR VICE PRESIDENT, 1996 174,462 52,500 -- 10,000(4) 2,000(2)
GENERAL COUNSEL AND 1995 151,962 43,680 -- 6,000 1,000(2)
SECRETARY 1994 77,308(7) 46,250 -- 44,000 --
RICHARD A. CALVERT 1996 166,049 54,000 -- 7,000(4) 2,000(2)
SENIOR VICE PRESIDENT 1995 148,922 47,200 -- 3,500 1,000(2)
AND CHIEF INFORMATION 1994 145,979 51,850 -- 7,000 1,000(2)
SYSTEMS OFFICER
- -------------------
<FN>
(1) Consists of amounts earned pursuant to the Company's annual bonus plan.
Effective with 1995, that portion of the bonus based on each Named
Officer's workplan objectives is evaluated based on workplan performance
from April 1 through the following March 31.
(2) Consists of the Company's matching contribution in connection with the
Company's 401(k) Plan, established effective January 1, 1994.
(3) Represents compensation awarded pursuant to the Company's annual bonus plan
and the Employment Agreement between Mr. Toan and the Company.
(4) Consists of stock options awarded on January 29, 1997 for each Named
Officer's 1996 performance. The stock options awarded were conditioned upon
the employee executing a nondisclosure and noncompetition agreement with
the Company.
(5) Dr. Barrow is eligible for an additional bonus award of up to $10,000
based upon the achievement of certain workplan objectives.
(6) Dr. Barrow joined the Company on June 19, 1995.
(7) Mr. Boudreau joined the Company on June 27, 1994.
</FN>
</TABLE>
8
<PAGE>
STOCK OPTIONS
The table below sets forth certain information on the grants of stock
options to the Named Officers pursuant to Plans for each Named Officer's 1996
performance.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE($/SH)(3) DATE PRESENT VALUE($)(4)
<S> <C> <C> <C> <C> <C>
- ---- -------------- --------------- --------------- ---------- -------------------
Barrett A. Toan 28,000(5) 12.3% $34.00 1/29/07 $469,000
Stuart L. Bascomb 8,000(6) 3.5% 34.00 1/29/07 134,000
Susan M. Barrow 7,000(6)D 3.1% 34.00 1/29/07 117,250
Thomas M. Boudreau 10,000(6) 4.4% 34.00 1/29/07 167,500
Richard A. Calvert 7,000(6) 3.1% 34.00 1/29/07 117,250
- ------------------
<FN>
(1) Consists of options awarded on January 29, 1997 based on each Named
Officer's 1996 performance.
(2) Total options granted to employees in fiscal year 1996 includes all options
granted to employees in 1996, other than those awarded on January 11, 1996,
which were based upon the respective employees 1995 performance, and all
options awarded on January 29, 1997, which were awarded based upon the
respective employee's 1996 performance.
(3) Represents the closing price per share as reported on the Nasdaq National
Market ("Nasdaq") on January 28, 1997, the last date preceding the date of
grant on which a transaction was reported.
(4) Such estimated value is derived using the Black-Scholes method taking into
account the following key assumptions: (a) volatility of 56.75% calculated
using daily stock prices for the 12-month period prior to the grant date;
(b) 0% dividend yield; (c) an interest rate of 6.58%, which represents the
interest rate on U.S. Treasury securities on the date of grant with a
maturity date corresponding to that of the option term; (d) 10 year option
term; and (e) an exercise price equal to the fair market value at the date
of grant. The resulting Black-Scholes value was discounted by approximately
33%, which consists of a discount of approximately 11% to reflect the
probability of forfeiture due to termination prior to vesting, and a
discount of approximately 22% to reflect the probability of a shortened
option term due to termination of employment prior to the option expiration
date. The actual value of the options will depend on the excess of the
market price of the shares over the exercise price on the date the options
are exercised, and may vary significantly from the theoretical values
estimated by the Black-Scholes model.
(5) Such options are fully exercisable from date of grant. The shares subject
to the options are restricted from transfer with the transfer restriction
lapsing as to 20% of such shares on each anniversary of the date of grant.
The transfer restriction is subject to complete lapse in the event of a
"change of control" of the Company (as defined in the Plan) or termination
of Mr. Toan's employment by reason of death, disability, retirement or by
the Company without cause. Upon termination of Mr. Toan's employment, the
Company will repurchase any shares issued upon exercise of the option that
remain subject to the transfer restriction, at the lesser of the option
exercise price or the then current market value for the Class A Common
Stock.
(6) Becomes exercisable as to 20% of the shares subject to the option on each
anniversary of the date of grant. The options shall terminate in the event
of a "change of control" of the Company, whereby the Company shall pay the
employee an amount equal to the excess of the "market price" over the
exercise price thereof, for the vested options or all options, depending on
whether an offer of "comparable employment" is made to and accepted by the
employee. The options terminate upon termination of employment unless the
employee dies, retires or is permanently disabled, or his employment is
terminated without cause.
</FN>
</TABLE>
The Company has no plan under which it may grant stock appreciation rights.
9
<PAGE>
The table set forth below provides certain information with respect to the
1996 fiscal year-end value of options to purchase the Company's Class A Common
Stock granted to the Named Officers and options exercised during such period.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year at Fiscal Year End
SHARES ACQUIRED ON End (#)(2) Exercisable/ (#)(3) Exercisable/
NAME EXERCISE (#) VALUE REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- ---- ------------ --------------------- ------------- -------------
Barrett A. Toan ---- ---- 154,000/0 $2,733,500/$0
Stuart L. Bascomb ---- ---- 32,600/33,400 $677,850/$569,150
Susan M. Barrow, MD ---- ---- 8,000/35,000 $15,000/$60,000
Thomas M. Boudreau ----- ---- 9,600/32,400 $77,400/$225,600
Richard A. Calvert 13,720 $308,909.33 6,720/23,380 $78,505/$398,405
- ----------------------
<FN>
(1) Based on the difference between the sale price and the exercise price.
(2) Does not include options granted on January 29, 1997 based on the Named
Officer's 1996 performance.
(3) Based on $35.875, the closing price of the Class A Common Stock as
reported on the Nasdaq on December 31, 1996. On March 7, 1997,
the closing price of the Class A Common Stock was $35.25.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of April 1, 1992, the Company entered into an Employment
Agreement with Mr. Toan for an initial term extending through March 31, 1996 (as
amended by a letter agreement dated February 28, 1996, the "Agreement"). On
April 1, 1995, and on each April 1 thereafter, the term of the Agreement is
renewed for a new term of two years unless either party has given one year
notice of termination. Neither party has given the required notice as of the
date of this Proxy Statement, thus the term of this Agreement was renewed. The
Agreement provides for annual base compensation of $300,000, subject to increase
in the discretion of the Board of Directors. Pursuant to the Agreement, Mr. Toan
is also eligible for bonus awards of up to 80% of his base salary, consisting of
up to 30% for meeting financial objectives, up to 20% for exceeding such
financial objectives and up to 30% for meeting or exceeding non-financial
objectives. The financial objectives, which are based on attaining a net income
target, and the non-financial objectives, which are based on reaching targets
such as growth in the number of plan participants, expansion of the scope of
services offered by the Company and expansion of the markets in which vision
care services and infusion therapy services are offered, will be determined each
year by the Board of Directors in its discretion. Pursuant to the Agreement,
effective upon the Company's initial public offering in June 1992, Mr. Toan
received options to purchase 140,000 shares of Class A Common Stock under the
1992 Plan, which are exercisable at $6.50 per share. These options are
nonqualified options and are exercisable in full immediately. If Mr. Toan
exercises any of the options prior to the fifth anniversary of the date of
grant, however, the shares received upon exercise, to the extent exceeding a
number of shares equal to the product of (x) 20% of the number of shares subject
to the options and (y) the number of whole years elapsed since the date of
grant, will be "restricted shares" and subject to forfeiture until such fifth
anniversary. A pro rata portion of the restricted shares received will vest on
each succeeding anniversary until the fifth anniversary after the date of grant,
except that the restricted shares will vest upon the occurrence of a "change of
control" of the Company or if Mr. Toan's employment is terminated due to his
death, disability, retirement or by the Company without cause. In addition,
under the Agreement, over a period not to exceed six years from the date of the
Company's initial public offering, Mr. Toan is eligible for future awards of
options to purchase up to a maximum of 140,000 shares of Class A Common Stock
upon such terms as may be set by the Compensation Committee in accordance with
the terms of the stock option plans. If Mr. Toan's employment is terminated
without cause, the Agreement provides that base compensation will continue to be
paid until the later of (a) the expiration of the term of the Agreement, or (b)
24 months after the termination of employment. Under such circumstances, Mr.
Toan will also be paid a pro rata portion of incentive compensation for services
prior to termination.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until April 1992, the Company was a direct subsidiary of NYLCare, which was
a subsidiary of New York Life. Since April 1992, both the Company and NYLCare
have been direct subsidiaries of NYLIFE HealthCare, which is an indirect
subsidiary of New York Life. NYLIFE HealthCare is the beneficial owner of
7,510,000 shares (or 100%) of the Class B Common Stock.
APPROVAL OF RELATED PARTY TRANSACTIONS
In an effort to minimize conflicts, the Company's By-laws require that any
material transaction with a related party be approved by the Company's Audit
Committee, which currently consists of three directors. A By-law provision,
which cannot be changed without the affirmative vote of a majority of the
outstanding Class A Common Stock, requires that a majority of directors on the
Audit Committee be persons who are not directors of New York Life or its
subsidiaries (other than the Company) or officers or employees of New York Life
or its subsidiaries. A material transaction is a transaction that, by itself,
would be required to be disclosed in the Company's proxy statement under the
Securities and Exchange Commission's rules and regulations as in effect at the
time of the transaction. In general, under the Securities and Exchange
Commission's rules and regulations as in effect on the date of this Proxy
Statement, a material transaction would be any transaction, or series of similar
transactions, in which the amount involved exceeds $60,000.
RELATIONSHIP WITH NEW YORK LIFE AND NYLIFE HEALTHCARE
Through an agreement with New York Life, which was assigned to NYLCare
effective January 1, 1996, the Company provides pharmacy benefit management
services to certain group indemnity policyholders of NYLCare (formerly group
indemnity policyholders of New York Life) and certain contract holders whose
health benefit plans provide indemnity style benefits for which NYLCare provides
administrative services only (such services formerly being provided by New York
Life). The agreement was amended and restated effective September 1, 1995, and
again amended effective January 1, 1997. After said January 1, 1997, the Company
will share certain retrospective discounts received from drug manufacturers with
NYLCare with respect to the foregoing business at a fixed amount per
prescription, conditioned upon the policyholders/contract holders participation
in the Company's ExpressPreferenceSM drug therapy management program. The term
of the agreement expires December 31, 1999, subject to a review of the Company's
fees and charges on January 1, 1999. If the parties are unable to agree to
revised fees and charges, the agreement may be terminated by either party upon
60 days prior notice. The Company and NYLCare also indemnify each other against
all loss, damage or expense that such party may sustain as a result of any
negligence or willful misconduct or unnecessary delay by the indemnifying
party's performance under the agreement and, in the Company's case, any material
misrepresentation or breach of a representation or warranty by the Company in
the agreement.
In consideration for its services, the Company receives fees from NYLCare
which it believes are competitive with those received from unrelated clients.
For the year ended December 31, 1996, the net revenues that the Company derived
from services provided to NYLCare in connection with the group indemnity
policyholders, which services were previously provided to New York Life, were
$50,674,000, or 6.6% of total net revenues for such period. The Company believes
that NYLCare intends to continue to recommend the Company's services to its
group health insurance policyholders as their policies come up for renewal and
to new policyholders. As of January 1, 1997, NYLCare's group health insurance
policies cover approximately 730,000 participants, and the Company provides
pharmacy benefits to approximately 440,000 of those participants.
The Company and New York Life are parties to an agreement that provides
that, so long as New York Life, directly or through one or more of its
majority-owned subsidiaries, owns 10% or more of the Class B Common Stock, New
York Life will not engage directly, or through any of its majority-owned
subsidiaries, with certain exceptions relating to the ordinary course of its
investment and its claims processing activities, in a business that derives
substantial revenues, as defined in such agreement, from one or more of the
following activities within the United States (the "Protected Business"): the
provision of pharmacy benefit management services (including dispensing
prescription drugs, monitoring cost and quality of pharmacy services,
establishing a network of retail pharmacies, processing claims for prescription
drugs, performing drug utilization review and assisting in the design of
prescription drug programs for benefit plans), and the provision of vision care
and home infusion therapy services. New York Life and its majority-owned
subsidiaries may (i) engage in portfolio investment activities, without any of
the entities in which they invest being subject to the foregoing restrictions,
(ii) process claims for prescription drugs in connection with processing medical
claims under insurance policies, (iii) acquire entities engaged in all or any
aspect of the Protected Business, unless any such entity derived a majority of
its consolidated revenues from the Protected Business in the first year
proceeding such acquisition, and (iv) continue to operate the business of such
acquired entities as they may thereafter develop or expand. The foregoing does
not in any way restrict the activities of entities in which New York Life and
its subsidiaries own less than a majority equity interest.
In connection with the Company's lease of its St. Louis facility, NYLIFE
HealthCare had guaranteed the Company's obligations to pay rent and any related
interest or penalties. This guaranty was released effective May 8, 1996. In
connection with the Company's 15-year lease of its Tempe facility, NYLIFE
HealthCare had guaranteed prompt payment of 70% of the Company's obligations to
pay rent and any related interest and penalties. This guaranty was released
effective June 21, 1996.
For an annual premium of $5,800, the Company has obtained a $2.5 million
life insurance policy from New York Life on the life of Mr. Toan. New York Life
maintains Directors and Officers/Corporation Reimbursement ("D&O") insurance
covering directors and officers of
11
<PAGE>
New York Life and its subsidiaries for certain expenses and liabilities of
such directors and officers while acting in their capacity as such while New
York Life maintains voting control of the Company. The total amount of New York
Life's D&O insurance is $100 million aggregate each policy year with a $5
million deductible amount for corporate liability and up to $10,000 for
individual liability. The Company did not incur any annualized premium expense
for insurance covering the first $5 million of such D&O liability deductible for
1996 because the premium was waived by the insurer. There is no assurance that
New York Life will provide excess D&O insurance for the Company in the future.
TAX ALLOCATION AGREEMENTS
From 1989, when NYLCare acquired all of the outstanding stock of the
Company, through June 15, 1992, the Company was included in consolidated groups
with New York Life for federal income tax purposes. The Company is no longer
entitled by law to be included in the consolidated tax groups and will continue
as a party to the tax allocation agreements only for purposes of adjustments to
tax liabilities for the years in which it was included in those consolidated
groups.
PHARMACY BENEFIT, VISION AND INFUSION THERAPY SERVICE AGREEMENTS WITH NYLCARE
AND NYLCARE OWNED PLANS
The Company and NYLCare are parties to an agreement (the "Original
Agreement") which first became effective January 1, 1992. The Original Agreement
was amended and restated effective January 1, 1995 (the "Amended Agreement").
The initial term of the Amended Agreement will expire on December 31, 1999, and
it may be extended for additional one-year terms unless terminated by either
party upon notice given at least 90 days prior to the end of the initial term or
any anniversary date. The Amended Agreement supersedes the Original Agreement in
its entirety for any transaction occurring or circumstances arising after
January 1, 1995.
Under the Amended Agreement, NYLCare is required to use the Company as the
exclusive provider of the managed care products and services provided by the
Company to its clients for all health maintenance organizations ("HMOs") in
which NYLCare, directly or indirectly, holds at least a majority interest (the
"NYLCare Owned Sites"), subject to certain exceptions with respect to infusion
therapy services, as discussed below. In addition, NYLCare agreed to use its
best efforts to use the Company as the exclusive provider of such managed care
products and services to any HMOs which NYLCare does not own, but for which it
provides health care management services (the "NYLCare Managed Sites"), subject
to certain exceptions, including the condition that the prices the Company
offers are reasonably competitive with those available from third-party
providers.
In the Amended Agreement, the Company is also the exclusive provider of
such services to NYLCare Owned Sites that may be established in the future,
unless the Company elects otherwise within 60 days of being notified that
NYLCare has acquired or established a new site. If NYLCare is required to use
the Company's pharmacy products for a new NYLCare Owned Site, the Company must
offer such site its most favorable pricing for such products for HMOs located in
the same metropolitan area at that time. If there is no HMO in that area, the
Company must offer such site the most favorable pricing offered by the Company
to any other client in that area or, if there is no such client, a client of
comparable size in the same census region, provided that such price may not be
above the prices payable by existing NYLCare Owned Sites under the agreements
the Company has with those sites. The Company believes that the terms of the
Amended Agreement are no less favorable to the Company than the terms that could
have been obtained in an arm's length transaction with an unaffiliated third
party.
In the Amended Agreement, the Company agrees not to enter into agreements
with third parties that would prevent or restrict the Company from providing its
services to NYLCare Owned or Managed Sites. NYLCare is also required to share
certain medical data for its members with the Company to conduct outcome studies
and other analyses related to prescription drugs, subject to certain exceptions.
Pursuant to the Amended Agreement, the Company now provides pharmacy
benefit management services to each of the NYLCare Owned Sites in Chicago,
Connecticut, Dallas, Houston, Maine, New Jersey, New York, Seattle and the
Baltimore/Washington D.C. area, and the NYLCare Managed Site in North Carolina.
The agreements with the Dallas, Houston, New York, New Jersey and
Baltimore/Washington D.C. sites provide for an annual decrease in the rates for
pharmacy services that the Company provides through December 31, 1999, with an
additional reduction in the rates for the price of mail pharmacy services
provided to these sites compared to the prices offered by the Company to other
HMOs in their respective market area, from January 1, 1996, through December 31,
1999.
The Company continues to provide vision services for the Chicago, Dallas,
Houston, New Jersey, New York and the Baltimore/Washington D.C. NYLCare Owned
Sites.
The Company also continues to provide infusion therapy services to the
NYLCare Owned Sites in Dallas, Houston, New Jersey, New York and the
Baltimore/Washington D.C. area. Under the amended infusion therapy agreements
for the Dallas, Houston and the Baltimore/Washington, D.C. sites, these sites
are not required to use the Company as the exclusive provider of infusion
therapy services so long as the Company receives, for each year during the term
of the Amended Agreement, 80% of the aggregate amount that such HMO paid in the
prior year, calculated on a member month basis, for non-maternity, out-patient
infusion therapy services to all providers (the "Guaranteed Amount"). For the
other NYLCare Owned Sites and future NYLCare Owned Sites, once such site's total
payments for infusion therapy services equal or exceed $1.3 million in any year,
such site is released from the requirement to use the Company as its exclusive
provider of infusion therapy services so long as it pays the Company the
applicable Guaranteed Amount. In the amended agreements, the Company also agrees
to give
12
<PAGE>
these sites a discount for fees for these services if the volume of
services purchased from the Company exceeds certain thresholds in any year.
In the Amended Agreement, NYLCare also agreed to assist the Company in
product design and promotion and in the development and promotion of drug
formularies. In the amended agreements to provide pharmacy benefit management
services to each NYLCare Owned Site, the Company agrees to develop and maintain
drug formularies for each NYLCare Owned Site. Pursuant to the Amended Agreement,
the Company agreed to negotiate retrospective discounts from drug manufacturers
for drugs used by members of health plans sponsored by the NYLCare Owned Sites
("volume-based discounts"). In the Amended Agreement, the first $400,000 of
volume-based discounts will be allocated to the Company and discounts in excess
of that amount will be allocated 25% to the Company and 75% to NYLCare, except
that certain volume-based discounts attributable to prescription drug usage by
members of certain Medicare health plans sponsored by the NYLCare Owned Sites
above certain amounts will be allocated 50% to NYLCare and 50% to the Company.
For the year ended December 31, 1996, volume-based discounts aggregating
$3,064,000 were allocated to the Company.
Each amended agreement to provide pharmacy benefit services to a NYLCare
Owned Site provides that the Company and each site shall defend and indemnify
the other for claims and costs resulting from the grossly negligent acts or
omissions or intentional misconduct in connection with the performance of the
agreements. The Amended Agreement has an identical provision with respect to
NYLCare and the Company. No claims have been made under any of these
indemnities.
The Company also provides infusion therapy services to three NYLCare
preferred provider organizations under agreements that are terminable by either
party upon 30 days prior written notice. These agreements were not amended.
For the year ended December 31, 1996, the Company's total net revenues for
NYLCare sites were approximately $101,638,000, or 13.1% of total net revenues
for such period, of which approximately $4,462,000 were attributable to vision
services and approximately $13,188,000 were attributable to infusion therapy
services.
INTERCOMPANY ACCOUNT
The Company maintains an intercompany account for payments to NYLCare,
which, historically, was used for miscellaneous expenses related primarily to
salary and other expenses for the Chairman of the Board and a certain sublease
between the companies. This intercompany account is now primarily used for
NYLCare's portion of the volume based discounts earned by the Company which, for
the period January 1, 1996 to February 28, 1997, were approximately $9,280,000.
The highest outstanding balance at any one time since January 1, 1996, was
approximately $6,988,000. As of February 28, 1997, the balance of such account
was approximately $5,885,000.
II. PROPOSAL TO APPROVE THE FIRST AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
BACKGROUND
On June 6, 1994, the Board of Directors of the Company adopted the 1994
Stock Option Plan, which provides for the grant of nonqualified stock options
and incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to certain officers and other key
employees of the Company or certain subsidiaries. On March 22, 1995, the Board
of Directors adopted the Amended and Restated 1994 Stock Option Plan (the
"Plan"), which was approved by the stockholders of the Company on May 24, 1995.
The purposes of the Plan are to further the growth, development and financial
success of the Company by providing incentives to those officers and other key
employees who have the capacity for contributing in substantial measure toward
the growth and profitability of the Company and to assist the Company in
attracting and retaining employees with the ability to make such contributions.
On January 29, 1997, the Board of Directors adopted an amendment to the
Plan (the "First Amendment") which is described below under "Proposed
Amendment". NYLIFE HealthCare has indicated its intention to vote its shares for
approval of the First Amendment. Assuming NYLIFE HealthCare votes in favor of
such amendment, such vote would be sufficient to approve such amendment. If the
First Amendment to the Plan is not approved, the existing plan would continue in
effect.
SUMMARY OF THE PLAN
The complete text of the First Amendment to the Plan, as approved by the
Board of Directors, subject to stockholder approval, is set forth in Exhibit A
to this Proxy Statement. The following summary of certain provisions of the Plan
is qualified in its entirety by reference to the text of the Plan.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). A total of 210,000 shares of Class A Common Stock
have been reserved for grants of options under the Plan, subject to antidilution
adjustments as provided in the Plan and a proposed increase in the total number
of shares available for grant, as described below.
13
<PAGE>
The Committee has the power to interpret the Plan and to determine and
interpret the terms of each option agreement (which need not be identical),
including, without limitation, (i) which eligible employees will be granted
options, (ii) the number of options that will be granted to an employee (subject
to the limitations set forth in the Plan), (iii) whether or not the options
granted are incentive stock options or nonqualified stock options, and (iv) the
exercise price of the options, (v) the form of consideration that may be used to
pay for the shares issued upon exercise of an option, (vi) when an option will
vest or become exercisable, and whether and to what extent the shares received
upon exercise will be "restricted shares" for a period of time, and subject to
forfeiture. No more than 150,000 options may be granted to any one individual
under the Plan. Options have been granted to 59 officers and other key employees
from time to time under the Plan, 6 of which have forfeited their unexercised
options upon termination of their employment with the Company.
The exercise price of an option may not be less than 100% of the fair
market value of the Class A Common Stock at the time of the grant (110% of the
fair market value in the case of an incentive stock option granted to an
individual who at the time of grant beneficially owns more than 10% of the total
combined voting power of all classes of stock of the Company (a "10%
stockholder")). Such fair market value shall generally be considered to be the
closing sale price per share on Nasdaq on the last trading day preceding the
date of grant. The purchase price is to be paid in cash, by check or, at the
discretion of the Committee and upon such terms as the Committee may approve, by
delivering previously owned shares, having shares withheld or exercising
pursuant to a "cashless exercise" procedure, or any combination thereof.
The term of each option shall be no longer than ten years from the date of
grant (five years in the case of an incentive stock option granted to an
individual who is a 10% stockholder).
At the time of exercise of a nonqualified stock option, the optionee is
required to pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any taxes required to be withheld by reason
of such exercise. The Committee may permit optionees to satisfy withholding
obligations by delivering previously owned shares or by electing to have shares
withheld.
Options are not transferable other than by will or under the laws of
descent and distribution, and are exercisable during the lifetime of the
optionee only by the optionee or his or her guardian or legal representative.
Subject to the "change in control" provision referred to below, all options
terminate immediately in the event of termination of employment for any reason,
except as follows: if such employment is terminated due to death, permanent
disability (as defined in the Plan), retirement (as defined in the Plan), or by
the Company without cause (as defined in the Plan), all outstanding options will
immediately become exercisable and will remain exercisable for three months
following such termination; provided, that the Committee may, in its discretion,
permit the option to be exercised after such period. In no event, however, may
an option be exercised beyond the original term of such option. The Committee
also has the discretion to determine whether and to what extent unvested
restricted shares will vest or be forfeited upon an optionee's termination of
employment.
If an option expires or terminates without having been exercised in full,
or any restricted shares received upon exercise of an option are forfeited, such
shares will again be available for grant of options.
In the event that the outstanding shares of Class A Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger or other subdivision, consolidation, recapitalization,
reclassification, stock split, issuance of warrants or rights, stock dividend,
combination of shares or similar event, appropriate adjustments will be made by
the Committee in the number and kind of shares subject to and which may be
subject to options under the Plan, and the purchase price per share, to prevent
dilution or enlargement of benefits granted to, or available for, optionees.
The Committee may accelerate the exercisability of any option, or the
vesting of any restricted shares, at any time. Options granted under the Plan
prior to the amendment and restatement thereof become fully exercisable, and
restricted shares will fully vest, upon the occurrence of a "change in control"
of the Company, as such term was then defined. With respect to all other options
granted under the Plan, in the event of a "change in control", as now defined,
all outstanding options, whether or not previously exercisable and vested, will
terminate and any restricted shares will be redeemed by the Company, and, in
either case, the Company will pay the optionee a specified amount in lieu of
such options or restricted shares. The amount paid to the optionee will be
determined based upon whether an offer of "comparable employment" (as defined in
the Plan) is made to and accepted by the optionee.
The Board of Directors may at any time terminate or modify the Plan, except
that without the approval of the stockholders it may not increase the number of
shares as to which options may be granted, change the class of persons eligible
to participate in the Plan, change the minimum purchase price of shares subject
to the options, extend the maximum period for granting or exercising options, or
otherwise materially increase the benefits accruing to optionees under the Plan.
The Plan will terminate on June 6, 2004. No termination or amendment of the Plan
may, without the consent of the optionee to whom an option has been granted,
alter or impair any rights or obligations under any option theretofore granted.
PROPOSED AMENDMENTS
Under the proposed First Amendment to the Plan, effective January 29, 1997,
the number of shares which may be issued under the Plan would be increased from
210,000 shares of Class A Common Stock to 460,000 shares of Class A Common
Stock.
14
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee does not realize income on the grant
of an incentive stock option. If an optionee exercises an incentive stock option
in accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option or within one
year from the date of the exercise, the optionee will not realize any ordinary
income by reason of the exercise, and the Company will be allowed no deduction
by reason of the grant or the exercise. The optionee's basis in the shares
acquired upon exercise will be the amount of cash paid upon exercise. Provided
the optionee holds the shares acquired as a capital asset at the time of sale or
other disposition of the shares, his or her gain or loss, if any, recognized on
the sale or other disposition, will be a capital gain or loss. The amount of his
or her gain or loss will be the difference between the amount realized on the
disposition of the shares and his or her basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise, the optionee
will realize ordinary income at the time of disposition equal to the excess, if
any, of the lesser of (a) the amount realized on the disposition, or (b) the
fair market value of the shares on the date of exercise over the optionee's
basis in the shares. The Company will be entitled to a deduction in an amount
equal to such income. The excess, if any, of the amount realized on disposition
of such shares over the fair market value of the shares on the date of exercise
will be treated as a long- or short-term capital gain, depending upon the
holding period of the shares, provided the optionee holds the shares as a
capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is tax
preference income for purposes of computing the alternative minimum tax
applicable to individuals.
NONQUALIFIED STOCK OPTIONS. Nonqualified stock options do not qualify for
the special tax treatment accorded to incentive stock options under the Code.
Although an optionee does not recognize income at the time of the grant of the
option, he or she recognizes ordinary income upon the exercise of a nonqualified
stock option in an amount equal to the excess of the fair market value of the
stock on the date of exercise of the option over the amount of cash paid for the
stock.
As a result of the optionee's exercise of a nonqualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. If the optionee pays all or part of the
option price of a nonqualified stock option by surrendering shares already owned
by such optionee, certain additional tax rules apply.
The excess of the fair market value of the stock on the date of exercise of
a nonqualified stock option over the exercise price is not a tax preference
item.
RESTRICTED SHARES. An optionee does not recognize income upon receipt of
restricted shares (unless he or she elects, within thirty days of the transfer
of restricted shares, to recognize income currently). Upon the lapse of the
restriction, the optionee will recognize income in an amount equal to the fair
market value of the shares on the date the restriction lapses and the Company
will be entitled to a tax deduction equal to the same amount.
If the optionee elects to recognize income within thirty days of receipt of
the shares, he or she will recognize income in an amount equal to the fair
market value of the shares on the date of receipt of the restricted shares and
the Company will be entitled to a tax deduction equal to the same amount.
CHANGE IN CONTROL. If there is an acceleration of the vesting or payment of
benefits and/or an acceleration of the exercisability of stock options upon a
change in control, all or a portion of the accelerated benefits may constitute
"Excess Parachute Payments" under Section 280G of the Code. The optionee
receiving an Excess Parachute Payment incurs an excise tax of 20% of the amount
of the payment in excess of the employee's average annual compensation over the
five calendar years preceding the year of the change in control, and the Company
is not entitled to a deduction for such payment.
The foregoing is a summary of the Federal income tax consequences to the
participants in the Plan and to the Company, based upon current income tax laws,
regulations and rulings.
15
<PAGE>
STOCK OPTION AWARDS
The following table shows options which have been granted under the Plan to
date to each of the Named Officers and certain specified groups (including
options which have been exercised):
<TABLE>
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
<CAPTION>
NUMBER OF EXERCISE PRICE PER
NAME AND POSITION SHARES SHARE (1)
<S> <C> <C>
- ---------------------- ----------- -------------------
BARRETT A. TOAN 28,000(2) $33.125
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
STUART L. BASCOMB 10,000(3) $33.125
EXECUTIVE VICE PRESIDENT
SUSAN M. BARROW, MD 0 ---
SENIOR VICE PRESIDENT AND CHIEF
SCIENCE OFFICER
THOMAS M. BOUDREAU 4,000(3) $33.125
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
RICHARD A. CALVERT 7,000(3) $33.125
SENIOR VICE PRESIDENT AND CHIEF
INFORMATION SYSTEMS OFFICER
Executive Officer Group (4) 55,200(3) $33.125(6)
Non-Executive Officer Director 0 ---
Group(5)
Non-Executive Officer Employee Group 156,175(3) $31.143(6)
- -----------------------------
<FN>
(1) The closing price of the Company's Class A Common Stock as reported on
Nasdaq on March 7, 1997, was $35.25.
(2) See Note 5 to "Option Grants in Fiscal Year 1996" on page 9.
(3) See Note 6 to "Option Grants in Fiscal Year 1996" on page 9.
Certain of these options are contingent upon approval
of the proposed amendment to the Plan by the stockholders.
(4) Consists of 9 persons, 1 of whom is no longer employed by the Company.
(5) Consists of 9 persons.
(6) Exercise prices shown are weighted averages of the actual exercise prices
for stock options granted to members of the
groups.
</FN>
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE FIRST
AMENDMENT TO THE AMENDED AND RESTATED 1994 STOCK OPTION PLAN.
III. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP served as the Company's independent
accountants for the year ended December 31, 1996. The Board of Directors has
appointed, subject to stockholder ratification, Price Waterhouse LLP to act in
that capacity for the year ending December 31, 1997. A representative of Price
Waterhouse LLP is expected to be present at the Meeting with the opportunity to
make a statement if he or she desires to do so and to be available to respond to
appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1997.
STOCKHOLDER PROPOSALS
In accordance with the By-laws of the Company, a stockholder who at any
annual meeting of stockholders of the Company intends to nominate a person for
election as a director or present a proposal must so notify the Secretary of the
Company, in writing describing such nominee(s) or proposal and providing
information concerning such stockholder and the reasons for and interest of such
stockholder in the proposal. Generally, to be timely, such notice must be
received by the Secretary during the 30 day period that ends 60 days before the
anniversary of the prior years' annual meeting. Any person interested in making
such a nomination or proposal should request a copy of the relevant By-law
provisions from the Secretary of the Company. These By-law provisions are
separate from and in addition to the Securities and Exchange
16
<PAGE>
Commission's requirements that a stockholder must meet to have a proposal
included in the Company's proxy statement.
Stockholder proposals intended to be presented at the 1998 Annual Meeting
must be received by the Company no later than December 20, 1997, in order to be
eligible for inclusion in the Company's proxy statement and proxy relating to
that meeting. Upon receipt of any proposal, the Company will determine whether
to include such proposal in accordance with regulations governing the
solicitation of proxies.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters other
than those specifically described above and knows of no matters other than the
foregoing to come before the Meeting. If any other matters or motions properly
come before the Meeting, it is the intention of the persons named in the
accompanying Proxy to vote such Proxy in accordance with their judgment on such
matters or motions, including any matters dealing with the conduct of the
Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies for the
Meeting. Brokerage houses, banks, custodians, nominees and fiduciaries are being
requested to forward the proxy material to beneficial owners and their
reasonable expenses therefor will be reimbursed by the Company. Solicitation
will be made by mail and also may be made personally or by telephone by the
Company's officers, directors and employees, without special compensation for
such activities.
By Order of the Board of Directors
/s/ Thomas M. Boudreau
Thomas M. Boudreau
April 16, 1997 Secretary
17
<PAGE>
EXHIBIT A
FIRST AMENDMENT TO
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
RECITALS
A. Express Scripts, Inc. (the "Company") has an Amended and Restated 1994
Stock Option Plan (the "Plan") which was amended and restated on March 22, 1995
and approved by the stockholders on May 24, 1995.
B. On January 29, 1997, the Board of Directors of the Company (the "Board")
approved an increase in the number of shares which may be issued pursuant to the
Plan.
AMENDMENT
1. DEFINITIONS. Capitalized terms set forth in this First Amendment to the
Plan (the "First Amendment") shall be as defined in the Plan.
2. AMENDMENT TO SECTION 2.1, SHARES SUBJECT TO PLAN. Section 2.1 of the
Plan is amended by deleting the number "210,000" in the first sentence thereof
and inserting in lieu thereof the number "460,000."
3. EFFECTIVE DATE OF THE FIRST AMENDMENT; STOCKHOLDER APPROVAL. The
effective date of this First Amendment shall be January 29, 1997. This First
Amendment shall be submitted for the approval of the stockholders of the
Corporation at the next annual meeting thereof on May 28, 1997, and if not
approved by the stockholders this First Amendment shall be null and void.
18
<PAGE>
April 16, 1997
Dear Shareholder:
The annual meeting of Stockholders of Express Scripts, Inc. will be held at
the offices of the Company, 14000 Riverport Drive, Maryland Heights, Missouri
63043, at 9:30 a.m. on Wednesday, May 28, 1997.
It is important that your shares be represented at this meeting. Whether or
not you plan to attend the meeting, please review the enclosed proxy materials,
complete the attached proxy form below, and return it promptly in the envelope
provided.
- -------------------------------------------------------------------------------
A/X Please mark your votes as in this example.
FOR ALL THE NOMINEES WITHHOLD AUTHORITY
LISTED AT RIGHT TO VOTE FOR
(except as marked to the ALL NOMINEES
contrary below) LISTED AT RIGHT NOMINEES:
(1) Election of ___ ___
Directors Howard Atkins
Bernard N. Del Bello
Richard M. Kernan, Jr.
(INSTRUCTION: To withhold authority to vote for any Richard A. Norling
individual nominee, print that nominee's name below: Frederick J. Sievert
Stephen N. Steinig
_____________________________________________________ Seymour Sternberg
Barrett A. Toan
Howard L. Waltman
Norman Zachary
FOR AGAINST ABSTAIN
(2) Approval of the First Amendment to the ____ ______ ______
Company's Amended and Restated 1994
Stock Option Plan.
(3) Ratification of the appointment of Price ____ ______ ______
Waterhouse LLP as the Company's independent
accountants for 1997.
THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3 IF NO INSTRUCTION TO
THE CONTRARY IS INDICATED. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING,
THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF MANAGEMENT.
(YOU ARE REQUESTED TO COMPLETE, SIGN AND RETURN THIS PROXY PROMPTLY)
Signature ________________________ ______________________ Dated: _______, 1997
Signature if held
jointly
- -------------------------------------------------------------------------------
EXPRESS SCRIPTS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 28, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Barrett A. Toan and Stuart L. Bascomb, or
either one of them, as proxies for the undersigned with full power of
substitution, to vote all shares of the Common Stock of the undersigned in
Express Scripts, Inc. (the "Company") at the Annual Meeting of Stockholders of
the Company to be held on May 28, 1997 at 9:30 A.M., at the offices of the
Company, 14000 Riverport Drive, Maryland Heights, Missouri 63043, or at any
adjournment thereof, upon the matters described in the Notice of such Meeting
and accompanying Proxy Statement, receipt of which is acknowledged, and upon
such other business as may properly come before the Meeting or any adjournments
thereof, hereby revoking any proxies heretofore given.
19
<PAGE>
APPENDIX I
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. PURPOSES; DEFINITIONS
The purposes of the Plan are to further the growth, development and
financial success of the Company by providing incentives to those officers and
other key employees who have the capacity for contributing in substantial
measure toward the growth and profitability of the Company and to assist the
Company in attracting and retaining employees with the ability to make such
contributions.
To accomplish such purposes, the Plan provides that the Company may
grant Incentive Stock Options and Nonqualified Stock Options.
Whenever the following terms are used in the Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the willful failure by an Employee to perform his
duties with the Company, a Parent or a Subsidiary or the willful engaging in
conduct which is injurious to the Company, a Parent or any Subsidiary,
monetarily or otherwise, as determined by the Committee in its sole discretion,
provided that, if the Employee has entered into an employment agreement with the
Company, the Committee, in its sole discretion, may determine to substitute the
definition set forth in such agreement.
"Change in Control" shall mean the following:
(i) the first date on which both of the following conditions
shall exist: (A) New York Life Insurance Company ("New York Life")
shall have ceased to be a Parent, and (B) a "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act), other than the
Company or a Related Entity is the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of
the combined voting power for the election of directors of the
Company's then outstanding securities;
(ii) the shareholders of the Company approve a plan of
complete liquidation of the Company; or
(iii) the shareholders of the Company approve an agreement for
the sale or disposition by the Company of all or substantially all of
the Company's assets or any transaction having a similar effect.
"Change in Control Date" shall mean, in the case of a Change in Control
defined in clause (i) or (ii) of the definition thereof, the date on which the
event occurs, and in the case of a Change in Control defined in clause (iii) of
the definition thereof, the date on which the transaction closes.
"Change in Control Price" shall mean, in a Change in Control transaction in
connection with which New York Life receives consideration for the transfer or
cancellation of its voting securities, the per share amount received by New York
Life; and in the case of any other Change in Control transaction, the greater of
the highest Fair Market Value or the highest price per share paid in a bona fide
transaction related to such Change in Control at any time during the 60 days
immediately preceding the Change in Control Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in Section 6.1.
"Company" shall mean Express Scripts, Inc., a Delaware corporation, and any
successor corporation.
"Comparable Employment" shall mean employment with the Company any
successor to the Company's business following a Change in Control pursuant to
which:
(i) the responsibilities and duties of the Employee are
substantially the same as before the Change of Control (such changes as
are a necessary consequence of the fact that the securities of the
Company are no longer publicly traded if the Company's securities cease
to be publicly traded as a consequence of the Change of Control shall
not be considered a change in responsibilities or duties), and the
other terms and conditions of employment following the Change in
Control do not impose on the Employee obligations materially more
burdensome than those to which the Employee was subject prior to the
Change in Control;
(ii) the aggregate compensation (including salary, bonus and
other benefit plans, including option plans) of such Employee is
substantially economically equivalent to or greater than such
Employee's aggregate compensation immediately prior to the Change in
Control Date. In making such determination there shall be taken into
account all contingent or unvested compensation, under
performance-based compensation plans or otherwise, with appropriate
adjustment for rights of forfeiture, vesting rules and other
contingencies to payment; and
(iii) the Employee is not required to relocate from the
metropolitan area of his or her residence immediately preceding the
Change in Control (A) unless the Company or such successor pays the
cost of such relocation (including any loss and expenses that the
employee may incur upon the sale of his or her residence), (B) if the
relocation is to an area with a higher cost of living than the area of
the Employee's residence prior to such relocation, such Employee's
compensation is equitably adjusted to account for such difference, (C)
unless the Employee is employed under a written contract for a term of
not less than three (3) years, and (D) is required to make only one
such move during the first three years of the written contract.
"Effective Date" shall have the meaning set forth in Section 7.1.
"Employee" shall mean any employee (including any officer whether or not a
director) of the Company, or of any corporation which is then a Subsidiary that
has been designated by the Board to participate in the Plan.
"Early Retirement" shall mean retirement by an Employee from active
employment with the Company, a Parent or any Subsidiary (i) with the express
consent for purposes of the Plan of the Committee or such officer of the Company
as the Committee may designate from time to time, or (ii) pursuant to the early
retirement provisions of a pension plan maintained by the Company, a Parent or
any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" per Share as of a particular date shall mean, unless
otherwise determined by the Committee:
(i) the closing sales price per Share on a national
securities exchange for the last preceding date on which there was a
sale of Shares on such exchange;
(ii) if clause (i) does not apply and the Shares are then
quoted on the National Association of Securities Dealers Automated
Quotation system (known as "NASDAQ"), the closing price per Share as
reported on such system for the last preceding date on which a sale was
reported;
(iii) if clause (i) or (ii) does not apply and the Shares are
then traded on an over-the-counter market, the average of the closing
bid and asked prices for the Shares in such over-the-counter market for
the last preceding date on which such bid and asked prices were quoted;
or
(iv) if the Shares are not then listed on a national
securities exchange or traded in an over-the-counter market, such value
as the Committee in its discretion may determine.
"Incentive Stock Option" shall mean an Option intended to be and designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" shall mean an Option that is not an Incentive
Stock Option.
"Normal Retirement" shall mean retirement by an Employee from active
employment with the Company, a Parent or any Subsidiary (i) on or after
attainment of age sixty-five (65), or (ii) pursuant to the normal retirement
provisions of a pension plan maintained by the Company, a Parent or any
Subsidiary.
"Option" shall mean an option to purchase Shares (including Restricted
Shares, if the Committee so determines) granted pursuant to the Plan.
"Option Agreement" shall mean an Option Agreement to be entered into
between the Company and an Optionee, which shall set forth the terms and
conditions of the Options granted to such Optionee.
"Optionee" shall mean an Employee to whom an Option has been granted
pursuant to the Plan.
"Parent" shall mean any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of the corporations (other
than the Company), or if each group of commonly controlled corporations, then
(i) is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of one or more of the other corporations
in such chain representing fifty percent (50%) or more of the combined voting
power for the election of directors for such corporation, or (ii) if the
determination of whether a corporation is a Parent is being made to determine
whether the requirements governing Incentive Stock Options have been met, owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock of such corporation.
"Payment Date" shall mean a date not later than ten (10) business days
following the Change in Control Date.
"Permanent Disability" shall mean that the Employee has suffered physical
or mental incapacity of such nature as to prevent him from engaging in or
performing the principal duties of his customary employment or occupation on a
continuing or sustained basis, provided that, if an Employee has entered into an
employment agreement with the Company, the Committee, in its sole discretion,
may determine to substitute the definition set forth in such agreement. All
determinations as to the date and extent of disability of any Employee shall be
made by the Committee upon the basis of such evidence as it deems necessary or
desirable.
"Plan" shall mean this Express Scripts, Inc. 1994 Stock Option Plan, as
hereinafter amended from time to time.
"Related Entity" shall mean a Parent, a Subsidiary or any employee benefit
plan (including a trust forming a part of such Plan) maintained by the Company,
a Parent or a Subsidiary.
"Restricted Shares" shall mean Shares which are received by an Optionee
upon the exercise of an Option and are subject to the restrictions described in
Section 4.2(c).
"Restriction Period" shall mean the period during which Restricted Shares
are subject to the restrictions set forth in Section 4.2(c).
"Retirement" shall mean Early Retirement or Normal Retirement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Company's Class A Common Stock, .01 par
value.
"Stockholder Approval Date" shall have the meaning set forth in Section
7.1.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
"Ten-Percent Stockholder" shall mean an Employee, who, at the time an
Incentive Stock Option is to be granted to the Employee, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
a Parent or a Subsidiary.
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Employee and the Company, a Parent or a Subsidiary is
terminated for any reason whatsoever, but excluding any termination where there
is a simultaneous reemployment by either the Company, a Parent or a Subsidiary.
2. SHARES SUBJECT TO THE PLAN
2.1 SHARES SUBJECT TO PLAN
The maximum number of Shares that may be issued or transferred pursuant to
Options under this Plan shall initially be 210,000. The Company shall reserve
such number of Shares for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly out
of each. If any Shares that have been subject to an Option cease to be subject
thereto, or any Restricted Shares received by an Optionee upon the exercise of
an Option are forfeited to the Company in accordance with the Option Agreement,
such Shares may again be the subject of Options hereunder.
2.2 CHANGES IN COMPANY'S SHARES
In the event that the outstanding Shares are hereafter changed into or
exchanged for a different number or kind of shares or other securities of the
Company, or of another corporation, by reason of reorganization, merger or other
subdivision, consolidation, recapitalization, reclassification, stock split,
issuance of warrants or rights, stock dividend, combination of shares or similar
event, appropriate adjustments shall be made by the Committee in the number and
kind of Shares subject to and which may be subject to Options under this Plan,
and the purchase price per Share, to prevent dilution or enlargement of the
benefits granted to, or available for, Optionees, including adjustments of the
limitations in Section 2.1 of the maximum number and kind of shares which may be
issued hereunder as Shares.
3. ELIGIBILITY FOR OPTION GRANTS
Any Employee who is employed on the senior staff, or as a member of the
sales force or who is designated by the Committee as a key Employee shall be
eligible to receive Options under this Plan. In no event shall any Options be
granted to any member of the Board who is not an Employee. The Committee shall
from time to time, in its sole discretion:
(a) select from among the eligible Employees (including Optionees who
have previously received Options) such of them as in its opinion should be
permitted to receive Options under this Plan;
(b) determine the number of Shares to be subject to each Option granted
to such selected Employees; provided, that in no event shall Options be granted
to any Employee in excess of 150,000;
(c) determine the terms and conditions applicable to each Option
(which need not be identical), consistent with the Plan; and
(d) establish such conditions as to the manner of exercise of such
Options as it may deem necessary, including but not limited to, requiring
Optionees to enter into agreements regarding transferability and other
restrictions with respect to Shares issuable upon exercise of such Options.
4 TERMS OF OPTIONS AND SHARES
4.1 OPTION AGREEMENT
Options shall be granted only pursuant to an Option Agreement, which shall
be executed by the Optionee and an authorized officer of the Company and which
shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan, including appropriate vesting arrangements. The
aggregate Fair Market Value (determined as of the date of grant) of the Shares
with respect to which Incentive Stock Options granted under this Plan and all
other option plans of the Company, the Parent and any Subsidiary become
exercisable by an Employee during any calendar year shall not exceed $100,000.
To the extent the limitation set forth in the preceding sentence is exceeded,
the Options with respect to such excess amount shall be treated as Nonqualified
Stock Options.
4.2 TERMS
The Options granted hereunder shall have the following terms and
conditions:
(a) PRICE. The purchase price for the Shares subject to an Option, or
the manner in which such purchase price is to be determined, shall be determined
by the Committee, in its sole discretion, and set forth in the Option Agreement,
provided that the purchase price per Share shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share as of the date the Option is
granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder).
(b) TERM. Options shall be for such term as the Committee shall
determine, and as shall be set forth in each Option Agreement, provided that no
Option shall be exercisable after the expiration of ten years from the date it
is granted (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
(c) VESTING. Options shall be exercisable in such installments (which
need not be equal) and at such times as may be designated by the Committee and
set forth in the Option Agreement. To the extent not exercised, installments
shall accumulate and may be exercised, in whole or in part, at any time after
becoming exercisable, but not later than the date the Option expires. The
Committee may accelerate the exercisability of any Option, or the vesting of any
Restricted Shares, or portion thereof at any time.
The Committee may in its discretion provide that all or a part of the
Shares received by an Optionee upon the exercise of a Nonqualified Stock Option
shall be Restricted Shares subject to any or all of the following restrictions
or conditions:
(i) Subject to the provisions of the Plan and the Option
Agreement, during a period set by the Committee commencing with the
date of the grant of the Option (the "Restriction Period"), the
Optionee may not be permitted to sell, transfer, pledge or assign the
Restricted Shares. The Committee in its discretion may provide for the
lapse of such restrictions in installments and may accelerate or waive
such restrictions in whole or in part, based on service, performance
and/or such other factors or criteria as the Committee may determine in
its discretion,
(ii) Except as provided in this clause (ii) and clause (i)
above, the Optionee shall have, with respect to the Restricted Shares,
all of the rights of a shareholder of the Company, including the right
to vote the Shares and the right to receive any cash dividends. Stock
dividends issued with respect to Restricted Shares shall be treated as
additional Restricted Shares that are subject to the same restrictions
and other terms and conditions that apply to the Shares with respect to
which such dividends are issued.
(iii) Subject to the applicable provisions of the Option
Agreement and this Section, upon Termination of Employment during the
Restriction Period, all Shares still subject to restriction will vest,
or be forfeited, in accordance with the terms and conditions
established by the Committee at grant.
(iv) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Shares, certificates for an
appropriate number of unrestricted Shares shall be delivered to the
Optionee promptly.
(d) Termination of Employment. Except as provided in this Section 4.2(d)or
in the Option Agreement evidencing such an Option, in the event of a Termination
of Employment of an Optionee, all outstanding Options held by such Optionee
shall terminate immediately, provided that, if such Termination of Employment is
due to the Optionee's death, Permanent Disability, or Retirement or by the
Company, a Parent or a Subsidiary without Cause, all outstanding Options held by
such Optionee shall immediately become fully exercisable to the extent not so
exercisable, shall remain exercisable for a period of three months following
such Termination of Employment, and shall thereafter terminate. Notwithstanding
the foregoing, (i) the Committee may provide, either at the time an Option is
granted or thereafter, that the Option may be exercised after the period
provided for in this Section 4.2(d), but in no event beyond the term of the
Option, and (ii) no provision in this Section 4.2(d) shall extend the exercise
period of an Option beyond its original term.
4.3 NON-TRANSFERABILITY
No Option granted under the Plan shall be transferable by the Optionee to
whom granted otherwise than by will or the laws of descent and distribution, and
an Option may be exercised during the lifetime of such Optionee only by the
Optionee or his guardian or legal representative. The terms of such Option shall
be binding upon the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
4.4 METHOD OF EXERCISE
The exercise of an Option shall be made only by a written notice delivered
in person or by mail to the Secretary of the Company at the Company's principal
executive office, specifying the number of Shares to be purchased and
accompanied by full payment therefor and otherwise in accordance with the Option
Agreement pursuant to which the Option was granted. The purchase price for any
Shares purchased pursuant to the exercise of an Option shall be paid in full
upon such exercise in cash, by check or, at the discretion of the Committee and
upon such terms and conditions as the Committee shall approve, by transferring
previously owned Shares to the Company, having Shares withheld or exercising
pursuant to a "cashless exercise" procedure, or any combination thereof. Any
Shares transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding the date
of exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Option Agreement evidencing the Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such
Option Agreement to the Optionee. Not less than one hundred (100) Shares may be
purchased at any time upon the exercise of an Option unless the number of Shares
so purchased constitutes the total number of Shares then purchasable under the
Option or the Committee determines otherwise in its sole discretion.
4.5 RIGHTS AS STOCKHOLDER
No Optionee shall be deemed for any purpose to be or to have the rights and
privileges of the owner of any Shares subject to any Option unless and until (a)
the Option shall have been exercised pursuant to the terms thereof, and (b) the
Company shall have issued the Shares to the Optionee.
5. CHANGE IN CONTROL PROVISIONS
5.1 IMPACT OF CHANGE IN CONTROL EVENT
Notwithstanding anything herein to the contrary, in the event of a Change
in Control (i) all outstanding Options, whether or not previously exercisable
and vested, shall terminate immediately and become null and void on the Change
in Control Date, and (ii) any Restricted Shares shall be redeemed by the Company
and canceled as of the Change in Control Date; and in either case the Company
shall pay such Optionee the amount, if any, determined in accordance with
Section 5.2 in lieu of such options or Restricted Shares.
5.2 PAYMENT FOR OPTIONS AND RESTRICTED SHARES
(a) NO OFFER OF COMPARABLE EMPLOYMENT. If an Optionee is not offered
Comparable Employment with the Company or any successor to the Company's
business on or prior to the Change in Control Date, the Company shall pay the
Optionee for each of his Options that was terminated pursuant to Section 5.1 an
amount equal to the excess, if any of the Change in Control Price over the
purchase price for the shares subject to such Option, and for each Restricted
Share that was redeemed and canceled, an amount equal to the Change in Control
Price. Such aggregate amount shall be paid to the Optionee by the Company in a
cash lump sum on the Payment Date.
(b) OFFER OF COMPARABLE EMPLOYMENT ACCEPTED. If an Optionee is offered and
accepts Comparable Employment with the Company or any successor to the Company's
business, the Company shall pay the Optionee for each of his Options that was
canceled pursuant to Section 5.1 an amount equal to the excess, if any, of the
Change in Control Price over the purchase price for the shares subject to such
Option, and for each Restricted Share that was redeemed and canceled, an amount
equal to the Change in Control Price. Such aggregate amount shall be paid to the
Optionee as follows:
(i) any amount attributable to Options that were vested on or
prior to the Change in Control Date shall be paid to the Optionee on
the Payment Date.
(ii) any amount attributable to Options that would have become
vested after the Change in Control Date but prior to the second
anniversary of the Change in Control Date, or to Restricted Shares the
transferability and forfeiture restrictions on which would have lapsed
during such period, shall be paid to the Optionee on the date that the
Options otherwise would have vested or the restrictions on such
Restricted Shares otherwise would have lapsed, as the case may be; and
(iii) any other amounts due to the Optionee and not disbursed
pursuant to the preceding clauses (i) and (ii) shall be paid in two
cash installments on the first and second anniversary of the Change in
Control Date, the first installment being equal to one-half of the
amount that would have been paid in the absence of the preceding clause
(ii) above minus the amount of any payment made prior to such first
installment pursuant to the preceding clause (ii), and the second
installment being equal to the remaining balance due to the Optionee.
Notwithstanding the foregoing, in the event of a Termination of Employment
of the Optionee at any time before such second anniversary, other than by reason
of (A) the Optionee's death, Permanent Disability or Retirement, (B) termination
by the Company or any successor to the Company's business without Cause, or (C)
termination by the Employee after his employment ceases for any reason to be
Comparable Employment, the Optionee shall forfeit any right to, an shall not be
paid, any unpaid installments. In the case of a Termination of Employment for
any reason specified in clause (A), (B) or (C) of the preceding sentence, all
unpaid installments shall be paid to the Optionee in a cash lump sum within
thirty (30) days of such Termination of Employment.
(c) OFFER OF COMPARABLE EMPLOYMENT REJECTED. If an Optionee is offered
Comparable Employment with the Company or any successor to the Company's
business and he rejects such offer, the Company will pay to the Optionee for
each of his Options that was fully vested immediately prior to the Change in
Control Date, an amount equal to the excess, if any, of the Change in Control
Price over the purchase price for the shares subject to such Option, and for
each Restricted Share that was redeemed and canceled an amount equal to the
lesser of (i) the Change in Control Price, or (ii) the amount paid by the
Optionee to acquire such Restricted Shares from the Company. Except as provided
in the preceding sentence, the Company shall not be required to pay, and the
Optionee shall not be entitled to receive, any amount under this Section 5 or
otherwise in connection with the cancellation of any other Options pursuant to
Section 5.1. Any amount payable to the Optionee hereunder shall be payable on
the Payment Date.
5.3 ESCROW OF DEFERRED PAYMENTS
(a) Any amount that may become payable to Optionees pursuant to Section
5.2(b) above shall be deposited on the Payment Date in escrow with a U.S. bank
with unrestricted capital and surplus of not less than $100,000,000. Such funds
shall be invested in securities issued or fully guaranteed as to both principal
and interest by the U.S. Government. Interest earned shall be allocated ratably
among the Optionees receiving payment of such funds and, if any amounts are
forfeited by an Optionee, to the Company, and shall be disbursed when such
payments are made.
(b) DISBURSEMENTS
(i) Subject to the following clauses (ii) and (iii), the
escrow agreement shall provide for disbursements to Optionees in
accordance with a schedule attached thereto and prepared in accordance
with Section 5.2(b)(ii) and (iii).
(ii) If an Optionee forfeits his rights to any payments from
the escrow, the Company shall give written notice thereof
contemporaneously to the escrow agent and the Optionee by certified or
registered mail (in the case of the Optionee, to the last known address
of the Optionee on the records of the Company), stating the reason for
such forfeiture and the amount thereof. The escrow agent shall disburse
the amount stated in such notice to the Company thirty (30) days after
receipt thereof unless prior to such time the escrow agent receives
written notice of objection from the Optionee. If a notice of objection
is received, the escrow agent shall disburse such funds only upon order
of a court of competent jurisdiction or upon written instructions
signed by both the Company and the Optionee.
(iii) If an Optionee or his successor in interest becomes
entitled to a payment from the escrow prior to the time stated in the
schedule, the Optionee or such successor shall give written notice
thereof contemporaneously to the escrow agent and the Company by
certified or registered mail, stating the reason for such accelerated
payment and the amount thereof. The escrow agent shall disburse the
amount stated in such notice to the Optionee or such successor thirty
(30) days after receipt thereof unless prior to such time the escrow
agent receives written notice of objection from the Company. If a
notice of objection is received, the escrow agent shall disburse such
funds only upon order of a court of competent jurisdiction or upon
written instructions signed by both the Company and the Optionee.
5.4 PARACHUTE PAYMENTS
In the event that the aggregate present value of the payments to an
Optionee under this Plan, and any other plan, program, or arrangement maintained
by the Company (a Subsidiary or, if applicable, a Parent) constitutes an "excess
parachute payment" (within the meaning of Section 280G(b)(1) of the Code) and
the excise tax on such payment would cause the net parachute payments (after
taking into account federal, state and local income and excise taxes) to which
the Optionee otherwise would be entitled, to be less than what the Optionee
would have netted (after taking into account federal, state and local income
taxes) had the present value of his total parachute payments equaled $1.00 less
than three times his "base amount" (within the meaning of Section 280G(b)(3)(A)
of the Code), the Optionee's total "parachute payments" (within the meaning of
Section 280G(b)(2)(A) of the Code) shall be reduced (by the minimum possible
amount) so that their aggregate present value equals $1.00 less than three times
such base amount. For purposes of this calculation, it shall be assumed that the
Optionee's tax rate will be the maximum marginal federal, state and local income
tax rate on earned income, with such maximum federal rate to be computed with
regard to Section 1(g) of the Code, if applicable. In the event that the
Optionee and the Company or any successor to the Company's Business are unable
to agree as to the amount of the reduction described above, if any, the Optionee
shall select a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to the Change in Control that
resulted in the characterization of the payments as parachute payments) by the
Company regarding federal income tax or employee benefit matters and such law
firm or accounting firm shall determine, at the Company's expense, the amount of
such reduction and such determination shall be final and binding upon the
Optionee and the Company or such successor.
6. ADMINISTRATION
6.1 COMPENSATION COMMITTEE
The Plan shall be administered by the Committee which shall consist of at
least three directors of the Company, appointed by the Board and holding office
at the pleasure of the Board. All Committee members shall be members of the
Board. All members of the Committee must be "disinterested persons," as such
term is described in Rule 16b-3 adopted by the Securities and Exchange
Commission under the Exchange Act, if and as such Rule is in effect and to the
extent required by Section 162(m) of the Code and the Regulations promulgated
thereon, an "outside director" within the meaning thereof.
6.2 DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its terms and provisions. The Committee shall
have the power to interpret the Plan and the Option Agreements and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
6.3 MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a telephonic or other meeting or by a
memorandum or other written instrument signed by a majority of the Committee .
6.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee may receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
the Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, or other persons. The Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
7. OTHER PROVISIONS
7.1 EFFECTIVE DATE
(a) EFFECTIVE DATE. The Plan shall become effective as of the date of the
adoption of the Plan by the Board, subject to the approval of the Plan by a
majority of the Company's stockholders (the "Effective Date"), and shall
continue in effect until June 6, 2004 or until the Change in Control Date,
whichever is sooner; provided, that termination of the Plan shall not affect the
rights of any Optionee with respect to Options granted or Restricted Shares
acquired contemporaneously with or prior to such termination. Notwithstanding
anything herein or in any Option Agreement to the contrary, Options granted
hereunder shall not vest and may not be exercised prior to the date of
stockholder approval (the "Stockholder Approval Date"), and, in the event that
the Stockholder Approval Date has not occurred on or prior to June 6, 1995 (or
such later date as determined by the Board in its sole discretion), all Options
granted prior to such date shall be null and void and of no effect, retroactive
to the date of grant, and the Plan shall be null and void and of no effect,
retroactive to the date of Board approval.
(b) EFFECT OF CERTAIN AMENDMENTS. The amendments approved by the Board of
Directors on March 22, 1995, other than the amendments to sections 2.1, 3(b) and
6.1 hereof, shall be effective only with respect to Options granted after such
date, provided, however, that the Committee may enter into agreements with
Optionees whose options were granted prior to such date to make such amendments
applicable, in whole or in part, to such Options.
7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board; provided,
however, that, except as provided in Section 2.2, no amendment shall be
effective unless approved by the affirmative vote of a majority of the votes
eligible to be cast at a meeting of stockholders of the Company held within
twelve (12) months of the date of adoption of such amendment, where such
amendment will:
(a) increase the number of Shares as to which Options may be granted under
the Plan;
(b) change the class of persons eligible to participate in the Plan;
(c) change the minimum purchase price of Shares pursuant to Options as
provided herein;
(d) extend the maximum period for granting or exercising Options provided
herein; or
(e) otherwise materially increase the benefits accruing to Optionees under
the Plan.
From and after the Effective Date, neither the amendment, suspension nor
termination of the Plan shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option theretofore granted. No
Options may be granted during any period of suspension nor after termination or
expiration of the Plan.
7.3 EFFECT OF PLAN UPON OTHER COMPENSATION AND INCENTIVE PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in the Plan
shall be construed to limit the right of the Company or any Subsidiary to
establish any other forms of incentives or compensation for Employees of the
Company or any Subsidiary.
7.4 REGULATIONS AND OTHER APPROVALS; GOVERNING LAW
(a) The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof.
(b) The obligation of the Company to sell or deliver Shares with respect to
Options granted under the Plan shall be subject to all applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
(c) The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority or to obtain
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder for Employees granted Incentive Stock Options.
(d) Each Option is subject to the requirement that, if at any time the
Committee determines, in its sole discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
(e) In the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act, and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the Securities
Act or regulations thereunder, and the Committee may require any individual
receiving Shares pursuant to the Plan, as a condition precedent to receipt of
such Shares, to represent to the Company in writing that the Shares acquired by
such individual are acquired for investment only and not with a view to
distribution. The certificate for such shall include any legend that the
Committee deems appropriate to reflect any restrictions on transfer.
7.5 WITHHOLDING OF TAXES
No later than the date as to which an amount first becomes includable in
the gross income of an Optionee for Federal income tax purposes with respect to
any Option granted under the Plan, the Optionee shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law or the Company to be
withheld with respect to such amount. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company, a
Parent and any Subsidiary shall, to the extent permitted by law have the right
to deduct any such taxes from any payment of any kind otherwise due to the
Optionee. In its discretion, the Committee may permit Optionees to satisfy
withholding obligations by delivering previously owned Shares or by electing to
have Shares withheld.
7.6 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan or in any Option Agreement shall confer upon any
Optionee any right to continue in the employ of the Company, a Parent or any
Subsidiary or shall interfere with or restrict in any way the right of the
Company, a Parent and any Subsidiary, which are hereby expressly reserved, to
remove, terminate or discharge any Optionee at any time for any reason
whatsoever, with or without Cause.
7.7 TITLES; CONSTRUCTION
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan. The masculine pronoun
shall include the feminine and neuter and the singular shall include the plural,
when the context so indicates.
PRIOR TO AMENDMENT AND RESTATEMENT, SECTION 5, WHICH WILL CONTINUE TO
GOVERN CURRENTLY OUTSTANDING AWARDS OF STOCK OPTIONS AND RESTRICTED SHARES,
FORMERLY PROVIDED AS FOLLOWS:
5. CHANGE IN CONTROL PROVISIONS
In the event of a Change in Control, (a) all outstanding Options not
previously exercisable and vested shall immediately become fully exercisable and
vested, and (b) the transferability and forfeiture restrictions applicable to
any Restricted Shares to the extent not already lapsed, shall lapse and no
longer be applicable, and such Shares shall be deemed fully vested and owned by
the Optionee.
"Change in Control" shall mean the occurrence of any of the following
events at a time when New York Life Insurance Company, A New York mutual life
insurance company, or any successor thereto is not a Parent:
(i) any "person," as such term is used in Section 13(d) and
14(d) of the Exchange Act, (other than the Company or a Related Entity,
without the approval of the Board, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing fifty percent (50%) or more
of the combined voting power for the election of directors of the
Company's then outstanding securities;
(ii) during any period of two consecutive years beginning on
or after the effective date of the Plan, individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause
(i), (iii) or (iv)) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved (unless the approval
of the election or nomination for election of such new directors was in
connection with an actual or threatened election or proxy contest),
cease for any reason to constitute at least a majority thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (x)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than eighty percent
(80%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (y) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no "person" (as defined above in clause (i)) acquires more than
fifty percent (50%) of the combined voting power for the election of
directors of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets or any transaction having a similar effect.
