<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ENVOY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
ENVOY CORPORATION
TWO LAKEVIEW PLACE
15 CENTURY BOULEVARD, SUITE 600
NASHVILLE, TENNESSEE 37214
(615) 885-3700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders (the "Annual Meeting") of ENVOY
Corporation (the "Company") will be held at 10:00 a.m., local time, on Thursday,
June 4, 1998, at the Willis Corroon Conference Center, 26 Century Boulevard,
Room 104-B, Nashville, Tennessee, for the following purposes:
1. To elect two (2) Directors to hold office for a term of three
(3) years or until their successors are duly elected and
qualified;
2. To consider and act upon a proposal to ratify, confirm and
approve the ENVOY Corporation 1998 Stock Incentive Plan;
3. To transact such other business as properly may come before
the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 14, 1998
are entitled to notice of and to vote at the Annual Meeting. Your attention is
directed to the Proxy Statement accompanying this notice for a complete
statement regarding matters to be acted upon at the Annual Meeting.
By order of the Board of Directors,
GREGORY T. STEVENS
Vice President, General Counsel and Secretary
Nashville, Tennessee
April 23, 1998
================================================================================
WE URGE YOU TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE COMPLETE, DATE AND SIGN THE ATTACHED PROXY CARD AND
RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
YOU MAY REVOKE THE PROXY AT ANY TIME BEFORE IT IS VOTED.
================================================================================
<PAGE> 3
ENVOY CORPORATION
TWO LAKEVIEW PLACE
15 CENTURY BOULEVARD, SUITE 600
NASHVILLE, TENNESSEE 37214
(615) 885-3700
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors of ENVOY
Corporation (the "Company") for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at the Willis Corroon Conference Center, 26 Century
Boulevard, Room 104-B, Nashville, Tennessee, on Thursday, June 4, 1998, at 10:00
a.m., local time, and any adjournment thereof, for the purposes set forth in the
foregoing Notice of Annual Meeting of Shareholders. This proxy material was
first mailed to shareholders on or about April 23, 1998.
A shareholder who signs and returns a proxy may revoke the same at any
time before the authority granted thereby is exercised by attending the Annual
Meeting and electing to vote in person, by filing with the Secretary of the
Company a written revocation or by duly executing a proxy bearing a later date.
Unless revoked, the shares represented by the proxy will be voted at the Annual
Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted FOR the election of the two
director nominees and FOR approval of the ENVOY Corporation 1998 Stock Incentive
Plan.
The Board of Directors knows of no other matters which are to be
brought to a vote at the Annual Meeting. However, if any other matter properly
does come before the Annual Meeting, the persons appointed in the proxy or their
substitutes will vote in accordance with their best judgment on such matters.
Only holders of the Company's common stock, no par value (the "Common
Stock"), and holders of the Company's Series B convertible preferred stock, no
par value (the "Series B Preferred Stock"), at the close of business on April
14, 1998 (the "Record Date") are entitled to vote at the Annual Meeting. On the
Record Date, the Company had 21,100,783 issued and outstanding shares of Common
Stock and 2,800,000 issued and outstanding shares of Series B Preferred Stock.
Holders of the Common Stock and Series B Preferred Stock will be entitled to one
vote for each share of Common Stock or Series B Preferred Stock so held, which
may be given in person or by proxy duly authorized in writing.
The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling and mailing this
Proxy Statement. Such solicitation will be made by mail and also may be made by
the Company's executive officers or employees personally or by telephone or
telegram. The Company does not anticipate paying any compensation to any other
party other than its regular employees for this solicitation of proxies, but may
reimburse brokerage firms and others for their reasonable expenses in forwarding
solicitation material to beneficial owners.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of shares of Common Stock and Series B Preferred Stock as
of the Record Date by (i) all shareholders of the Company known to be beneficial
owners of more than 5% of the outstanding shares of either class of stock; (ii)
each director of the Company; (iii) the executive officers named in the Summary
Compensation Table; and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
Amount and
TITLE OF NAME AND ADDRESS OF Nature of Beneficial Percent
CLASS BENEFICIAL OWNERS Ownership(1) of Class(2)
- --------- ------------------- ------------- -------------
<S> <C> <C>
Series B General Atlantic Partners 25, L.P...... 2,800,000(3) 100%/11.7%
Preferred c/o General Atlantic Service Corporation
Three Pickwick Plaza, Ste 200
Greenwich, CT 06830
Series B GAP Coinvestment Partners, L.P......... 2,800,000(3) 100%/11.7%
Preferred c/o General Atlantic Service Corporation
Three Pickwick Plaza, Ste 200
Greenwich, CT 06830
Series B William E. Ford........................ 2,804,000(4) 100%/11.7%
Preferred/ c/o General Atlantic Service Corporation
Common Three Pickwick Plaza, Ste 200
Greenwich, CT 06830
Common Transamerica Investment Services, Inc. and
Affiliates 3,028,000(5) 14.4%
1150 South Olive Street
Los Angeles, CA 90015
Common Richard B. McIntyre.................... 2,131,010(6) 10.1%
Common The TCW Group, Inc./Robert Day......... 1,102,400(7) 5.2%
Common Jim D. Kever........................... 710,526(8) 3.3%
Common Fred C. Goad, Jr....................... 681,723(9) 3.2%
Common W. Marvin Gresham...................... 266,517(10) 1.3%
Common Laurence E. Hirsch..................... 116,500(11) *
Common Richard A. McStay...................... 45,050(12) *
Common Kevin M. McNamara...................... 30,331(13) *
Common Sheila H. Schweitzer ................. 16,762(14) *
Common Harlan F. Seymour .................... 4,000(15) *
All Executive Officers and
Directors as a Group (11 persons)
Common ........................... 1,876,049(16) 8.5%
Series B Preferred ............... 2,800,000 100%
Common and Series B
Preferred (as converted).......... 4,676,049(17) 18.7%
</TABLE>
2
<PAGE> 5
- ---------------------------------------
* Less than one percent
(1) For the purpose of determining "beneficial ownership," the rules of the
Securities and Exchange Commission ("SEC") require that every person
who has or shares the power to vote or dispose of shares of stock be
reported as a "beneficial owner" of all shares as to which such power
exists. As a consequence, multiple persons may be deemed to be the
"beneficial owners" of the same securities. The SEC rules also require
that certain shares of stock that a beneficial owner has the right to
acquire within sixty days of such date pursuant to the exercise of
stock options are deemed to be outstanding for the purpose of
calculating the percentage ownership of such owner but are not deemed
outstanding for the purpose of calculating the percentage ownership of
any other person. At the close of business on the Record Date, there
were 21,100,783 and 2,800,000 shares of Common Stock and Series B
Preferred Stock, respectively, outstanding.
(2) If indicated, the second percentage assumes conversion of all
outstanding shares of Series B Preferred Stock into Common Stock.
(3) Pursuant to an agreement dated November 30, 1995 and effective as of
March 6, 1996 (the "Series B Purchase Agreement"), General Atlantic
Partners 25, L.P. and GAP Coinvestment Partners, L.P. acquired
2,417,171 and 382,829 shares, respectively, of Series B Preferred
Stock, each of which shares of Series B Preferred Stock is convertible
into one share of Common Stock (subject to adjustment). General
Atlantic Partners 25, L.P. and GAP Coinvestment Partners, L.P. are
affiliated parties; therefore, their ownership is aggregated for
purposes of the above table, and each is deemed to beneficially own all
2,800,000 shares of Series B Preferred Stock.
(4) Mr. Ford, a director of the Company, is a managing member of General
Atlantic Partners LLC, the general partner of General Atlantic Partners
25, L.P., and a general partner of GAP Coinvestment Partners, L.P. and,
therefore, is deemed to beneficially own 2,800,000 shares of Series B
Preferred Stock. Mr. Ford disclaims beneficial ownership of such shares
except to the extent of his pecuniary interests. Ownership also
includes 4,000 shares issuable pursuant to exercisable options for the
purchase of Common Stock.
(5) Based on information set forth in a Schedule 13G, dated February 13,
1998, filed with the SEC jointly by Transamerica Occidental Life
Insurance Company ("Occidental"), Transamerica Life Insurance and
Annuity Company ("TALIAC"), Transamerica Insurance Corporation of
California ("TICC"), and Transamerica Investment Services, Inc.
("TIS"), all of which are direct and indirect subsidiaries of
Transamerica Corporation. Occidental reported that it has shared voting
and shared dispositive power over 2,190,000 shares of Common Stock,
1,110,000 of which Occidental owns directly, and 1,080,000 of which are
owned by Occidental's subsidiary, TALIAC. TICC reported that it has
shared voting and shared dispositive power over 2,190,000 shares owned
by its subsidiary Occidental and its indirect subsidiary TALIAC. TIS
reported that it has shared voting power and shared dispositive power
over 3,028,000 shares of Common Stock pursuant to separate arrangements
whereby TIS acts as investment advisor to certain individuals and
entities, including Occidental and TALIAC.
(6) Based on information set forth in a Schedule 13G, dated March 4, 1998,
filed with the SEC by Richard B. McIntyre. Mr. McIntyre reported that
he has sole voting power and sole dispositive power over 2,131,010
shares of Common Stock.
(7) Based on information set forth in a Schedule 13G, dated February 12,
1998, filed with the SEC jointly by the TCW Group, Inc., ("TCW") and
Robert Day, an individual who may be deemed to control TCW. TCW and
Robert Day each reported that they have sole voting power and sole
dispositive power over 1,102,400 shares of Common Stock held by
subsidiaries of TCW (including Trust Company of the West, TCW Asset
Management Company and TCW Funds Management, Inc.) and Robert Day
(including Oakmont Corporation and Cypress International Partners
Limited.)
(8) Includes 490,000 shares issuable pursuant to exercisable options for
the purchase of Common Stock.
(9) Includes 460,000 shares issuable pursuant to exercisable options for
the purchase of Common Stock.
(10) Includes 25,120 shares owned by Mr. Gresham's children, 36,850 shares
owned by Mr. Gresham's wife, and 12,000 shares issuable pursuant to
exercisable options for the purchase of Common Stock. Mr. Gresham
disclaims beneficial ownership of the shares held by his wife and
children.
(11) Includes 19,500 shares issuable pursuant to exercisable options for the
purchase of Common Stock.
(12) Includes 1,300 shares owned by Mr. McStay's children and 12,000 shares
issuable pursuant to exercisable options for the purchase of Common
Stock. Mr. McStay disclaims beneficial ownership of the shares held by
his children.
(13) Includes 30,000 shares issuable pursuant to exercisable options for the
purchase of Common Stock.
(14) Includes 16,667 shares issuable pursuant to exercisable options for the
purchase of Common Stock.
(15) Includes 2,000 shares issuable pursuant to exercisable options for the
purchase of Common Stock.
(16) Includes 1,046,167 shares issuable pursuant to exercisable options for
the purchase of Common Stock.
(17) Assumes conversion of the 2,800,000 shares of the Series B Preferred
Stock and includes 1,046,167 shares issuable pursuant to exercisable
options for the purchase of Common Stock.
3
<PAGE> 6
PROPOSAL ONE - ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eight members.
Under the terms of the Company's Amended and Restated Charter, the members of
the Board of Directors are divided into three classes. Each director is selected
to serve a three-year term and shall hold office until the Annual Meeting for
the year in which such term expires and until the incumbent director's successor
is duly elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Each class is to consist,
as nearly as practicable, of one-third of the total number of directors
constituting the Board of Directors. The two directors to be elected at the
Annual Meeting will serve until the Annual Meeting of Shareholders in 2001 (the
"Class III" Directors), three directors currently serving on the Board of
Directors will continue to serve until the Annual Meeting of Shareholders in
1999 (the "Class I" Directors) and three directors currently serving on the
Board of Directors will continue to serve until the Annual Meeting of
Shareholders in 2000 (the "Class II Directors").
Unless contrary instructions are received, shares of voting securities
of the Company represented by duly executed proxies will be voted in favor of
the election of the nominees named below. If for any reason a nominee is unable
to serve as a director, it is intended that the proxies solicited hereby will be
voted for such substitute nominee as the Board of Directors of the Company may
propose. The Board of Directors has no reason to expect that the nominees will
be unable to serve; therefore, at this time it does not have any substitute
nominees under consideration.
The nominees for election shall be elected by a plurality of the votes
cast by the shares of Common Stock and Series B Preferred Stock entitled to vote
at the Annual Meeting. Shareholders have no right to vote cumulatively for
directors, but rather each shareholder shall have one vote for each share of
Common Stock and Series B Preferred Stock held by such shareholder for each
director.
The following persons are the nominees for election to serve as Class
III Directors. Both nominees are presently directors of the Company. Certain
information relating to the nominees, which has been furnished to the Company by
the individuals named, is set forth below.
<TABLE>
<CAPTION>
CLASS OF DIRECTOR;
ANNUAL MEETING AT
NAME OF DIRECTOR WHICH TERM EXPIRES BACKGROUND INFORMATION
- ---------------------------- ------------------------- ---------------------------------------------------------
<S> <C> <C>
Fred C. Goad, Jr. III; 1998 Mr. Goad, 57, has served as the Company's Chairman and
Co-Chief Executive Officer since August 1995, and as a
Director since the Company's incorporation in August 1994.
Prior to such time, he served as the Company's President
from the date of incorporation until assuming the title of
Chairman and Co-Chief Executive Officer in August 1995.
Mr. Goad served as Chief Executive Officer and a Director
of ENVOY Corporation, a Delaware corporation and former
parent corporation to the Company ("Old Envoy"), from
September 1985 through June 6, 1995. Mr. Goad also is a
Director of Performance Food Group Company, a food
distribution company, and Oacis Healthcare Systems, Inc.,
a clinical health care software and services company.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
CLASS OF DIRECTOR;
ANNUAL MEETING AT
NAME OF DIRECTOR WHICH TERM EXPIRES BACKGROUND INFORMATION
- ---------------------------- ------------------------- ---------------------------------------------------------
<S> <C> <C>
Kevin M. McNamara III; 1998 Mr. McNamara, 42, has served as the Company's Senior
Vice President and Chief Financial Officer since February
1996, and as a Director since July 1997. Before joining
the Company, Mr. McNamara served as President of
NaBANCO Merchant Services Corporation, a wholly-
owned subsidiary of National Bancard Corporation
("NABANCO"), from October 1994 to December 1995.
Prior to such time, Mr. McNamara served as Senior
Executive Vice President and Chief Financial Officer of
NABANCO from January 1992 through September 1994.
</TABLE>
The following six persons currently are members of the Board of
Directors and will continue in their present positions after the Annual Meeting.
The following persons are not nominees, and shareholders are not being asked to
vote for them. Certain information relating to the following persons, which has
been furnished to the Company by the individuals named, is set forth below.
<TABLE>
<CAPTION>
CLASS OF DIRECTOR;
ANNUAL MEETING AT
NAME OF DIRECTOR WHICH TERM EXPIRES BACKGROUND INFORMATION
- ---------------------------- ------------------------- ---------------------------------------------------------
<S> <C> <C>
Jim D. Kever I; 1999 Mr. Kever, 45, has served as the Company's President and
Co-Chief Executive Officer since August 1995, and as a
Director since the Company's incorporation in August
1994. Prior to such time, he served as the Company's
Executive Vice President, Secretary and General Counsel
from the date of incorporation until assuming the title of
President and Co-Chief Executive Officer in August 1995.
Mr. Kever had served as Secretary, Treasurer and General
Counsel and as a Director of Old Envoy since 1981 and as
Executive Vice President since 1984. Mr. Kever also is a
Director of Transaction Systems Architects, Inc., a supplier
of electronic payment software products and network
integration solutions, and 3D Systems Corporation, a
manufacturer of technologically advanced solid imaging
systems and prototype models.
Laurence E. Hirsch I; 1999 Mr. Hirsch, 52, has served as a Director of the Company
since February 1995 and had served as a Director of Old
Envoy from 1987 through June 6, 1995. Mr. Hirsch has
served as the President of Centex Corporation, a
corporation engaged in home building, mortgage banking
and related businesses, from March 1985 to July 1991, as
its Chief Executive Officer since July 1988, and as its
Chairman of the Board of Directors since July 1991.
Mr. Hirsch also serves as a Director of Commercial Metals
Company, a company engaged in the manufacturing and
recycling of steel and metal products, and as a Trustee of
BlackRock Investors, Inc., a registered investment
company.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
CLASS OF DIRECTOR;
ANNUAL MEETING AT
NAME OF DIRECTOR WHICH TERM EXPIRES BACKGROUND INFORMATION
- ---------------------------- ------------------------- ---------------------------------------------------------
<S> <C> <C>
William E. Ford I; 1999 Mr. Ford, 36, was appointed a Director of the Company on
March 6, 1996 in connection with the closing under the
Series B Purchase Agreement pursuant to which the holders
of the Series B Preferred Stock are entitled to elect one
director to the Company's Board of Directors. Mr. Ford
has served as a managing member of General Atlantic
Partners LLC, the general partner of General Atlantic
Partners 25, L.P. and as a general partner of GAP
Coinvestment Partners, L.P. since 1991. Mr. Ford also
serves as a Director of GT Interactive Software
Corporation, a provider of entertainment and educational
consumer software; MAPICS, Inc., a provider of enterprise
resource planning software applications for manufacturing
enterprises; LHS Group, Inc., a provider of scaleable
client/server-based billing solutions to carriers in the
telecommunications industry; SS&C Technologies, Inc., a
financial software company; and E*Trade Group, Inc., a
discount on-line electronic brokerage company.
W. Marvin Gresham II; 2000 Mr. Gresham, 68, has served as a Director of the Company
since February 1995 and had served as a Director of Old Envoy
from 1981 through June 6, 1995. Mr. Gresham is the
retired President of Gresham Drugs, Inc., a chain of pharmacies
in the state of Florida.
Richard A. McStay II; 2000 Mr. McStay, 61, has served as a Director of the Company
since February 1995 and had served as a Director of Old
Envoy from 1985 through June 6, 1995. Mr. McStay
served as President of Southern Capital Advisors, Inc., the
investment advisory subsidiary of Morgan Keegan &
Company, Inc., from 1986 until his retirement in March
1998, and is a Director of TBC Corporation, a wholesaler
of automobile tires and accessories.
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
CLASS OF DIRECTOR;
ANNUAL MEETING AT
NAME OF DIRECTOR WHICH TERM EXPIRES BACKGROUND INFORMATION
- ---------------------------- ------------------------- ---------------------------------------------------------
<S> <C> <C>
Harlan F. Seymour II; 2000 Mr. Seymour, 48, has served as the Company's Senior
Vice President of Corporate Strategy and Development
since August 1997, and as a Director since October
1996. Before joining the Company as a full-time
employee in August 1997, Mr. Seymour was a partner in
Jefferson Capital Partners, Ltd., an investment banking
firm, from September 1996 to June 1997. Prior to such
time, he served as Executive Vice President and Chief
Operating Officer, Business Development, of Trigon Blue
Cross Blue Shield, a leading health care insurance
services company ("Trigon") from August 1994 to June
1996. Before joining Trigon, Mr. Seymour was with
First Financial Management Corporation ("FFMC") for
11 years, serving in a variety of senior corporate
positions, where his last responsibility was President and
Chief Executive Officer of First Health Services
Corporation, a wholly-owned subsidiary of FFMC.
</TABLE>
The Board of Directors held five (5) meetings during the fiscal year
ended December 31, 1997. The Board of Directors has an Audit, Compensation and
Executive Committee, but does not have a nominating committee.
The Audit Committee has been established for the purpose of
recommending the Company's auditors, reviewing the scope of their engagement,
consulting with such auditors, reviewing the results of the audit examination,
acting as a liaison between the Board of Directors and the auditors and
reviewing various Company policies, including those related to accounting and
internal control management. It also is the function of the Audit Committee to
ensure that the Company's financial statements accurately reflect the Company's
financial position and results of operations. Messrs. McStay (Chairman) and Ford
currently comprise the Audit Committee, which held two (2) meetings during
fiscal 1997.
The purpose of the Compensation Committee is to establish, among other
things, salaries, bonuses and other compensation for the Company's executives
and to administer the Company's stock option and other employee benefit plans.
Messrs. Gresham (Chairman) and Hirsch currently comprise the Compensation
Committee, which met two (2) times during fiscal 1997.
The Executive Committee is authorized generally to act on behalf of the
Board of Directors between scheduled meetings, subject to certain limitations
and applicable corporate law. The Executive Committee is also given specific
authorization by the Board of Directors, from time to time, with respect to
certain matters. Messrs. Goad (Chairman), Hirsch and Kever currently comprise
the Executive Committee, which did not meet during fiscal 1997.
All incumbent directors, except Mr. Kever, attended more than 75% of
the meetings of the Board of Directors and the respective committees of which
they were members during fiscal 1997.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table provides information as to annual, long-term and
other compensation during the last three fiscal years for the Company's Co-Chief
Executive Officers and each of the Company's three other most highly compensated
executive officers serving at the end of fiscal 1997 (the "Named Executive
Officers"). The three year period reflects compensation paid to such persons by
Old Envoy prior to the June 6, 1995 distribution. Immediately following the
distribution Old Envoy was merged with and into First Data Corporation ("FDC"),
and its separate corporate existence ceased.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME & FISCAL COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS ($)(2) ($)(3) (#)(4) ($)(5)
- ----------------------- ------ ------------ ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Fred C. Goad, Jr., 1997 173,654 157,500 N/A 45,000 6,827
Chairman of the Board 1996 157,500 175,000 N/A 0 5,357
and Co-Chief Executive 1995 140,000 183,160 N/A 500,000 5,357
Officer
Jim D. Kever, 1997 173,654 157,500 N/A 45,000 4,542
President and Co-Chief 1996 165,495 175,000 N/A 0 3,425
Executive Officer 1995 135,618 183,160 N/A 500,000 3,425
Kevin M. McNamara, 1997 173,654 78,750 N/A 45,000 1,789
Senior Vice President 1996 160,417 87,500 89,195(6) 50,000 0
and Chief Financial 1995 N/A N/A N/A 100,000 N/A
Officer
Harlan F. Seymour 1997 67,308 78,750 N/A 127,000 0
Senior Vice President of 1996 N/A N/A N/A N/A N/A
Corporate Strategy and 1995 N/A N/A N/A N/A N/A
Development
Sheila H. Schweitzer, 1997 136,219 35,000 N/A 45,000 1,637
Senior Vice President of 1996 121,000 29,000 15,774(6) 100,000 300
Operations 1995 50,416 7,250 N/A N/A N/A
</TABLE>
(1) Salaries paid for services rendered have been listed in the year paid.
Messrs. McNamara and Seymour and Ms. Schweitzer joined the Company as
of February 1, 1996, August 1, 1997 and July 31, 1995, respectively;
therefore, such Named Executive Officer's compensation for the partial
year includes only compensation actually received by such person from
the Company for such year.
(2) Cash bonuses have been listed in the year earned but generally were
paid in the following year.
(3) Except as indicated, the amount of perquisites, personal benefits and
other items paid to or for any Named Executive Officer, as determined
in accordance with the rules of the SEC relating to executive
compensation, did not exceed the lesser of $50,000 or 10% of salary and
bonus from the Company.
(4) All options granted to the Named Executive Officers were granted
pursuant to the Company's Amended and Restated 1995 Employee Stock
Incentive Plan (the "1995 Employee Plan") and, in the case of Mr.
Seymour, the Company's Amended and Restated 1995 Stock Option Plan for
Outside Directors (the "1995 Director Plan"), prior to his joining the
Company as a full-time employee in August 1997, with exercise prices
equal to the fair market value (as defined in the plans) of the Common
Stock on the grant dates. During 1997, 1996 and 1995, the Company
issued no stock appreciation rights ("SARs") or restricted stock awards
and maintained no "long-term incentive plan," as such term is defined
in applicable SEC rules.
(5) In each of the years presented, the Company paid insurance premiums of
$5,057 and $3,125 for the benefit of Messrs. Goad and Kever,
respectively. In addition, the following amounts are included to
indicate the value of matching contributions made in shares of the
Company's Common Stock to the Company's 401(k) Profit Sharing Plan in
1997: Mr. Goad, $1,770; Mr. Kever, $1,417; Mr. McNamara, $1,789; and
Ms. Schweitzer, $1,637. Such contributions are 100% vested.
(6) Represents relocation, moving expenses and associated reimbursement
amounts.
8
<PAGE> 11
The following table summarizes certain information regarding stock
options granted to the Named Executive Officers during fiscal 1997. No SARs have
been granted by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO POTENTIAL REALIZABLE VALUE
UNDERLYING EMPLOYEES EXERCISE AT ASSUMED ANNUAL RATES
OPTIONS IN FISCAL PRICE EXPIRATION OF STOCK APPRECIATION FOR
NAME GRANTED (#) 1997 ($/SHARE) DATE OPTION TERM
---- ----------- ---- --------- ---- -----------
5%($) 10%($)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Fred C. Goad, Jr. 45,000(1) 5.5% $21.25 5/1/07 601,380 1,524,016
Jim D. Kever 45,000(1) 5.5% $21.25 5/1/07 601,380 1,524,016
Kevin M. McNamara 45,000(1) 5.5% $21.25 5/1/07 601,380 1,524,016
Harlan F. Seymour 2,000(2) 0.2% $35.00 6/19/07 44,023 111,562
125,000(3) 15.2% $27.50 8/11/07 2,161,825 5,478,490
Sheila H. Schweitzer 45,000(1) 5.5% $21.25 5/1/07 601,380 1,524,016
</TABLE>
- --------------
(1) These options were granted pursuant to the 1995 Employee Plan and vest
on August 10, 2000.
(2) These options were granted pursuant to the 1995 Director Plan and vest
on June 19, 1998.
(3) These options were granted pursuant to the 1995 Employee Plan and vest
on July 31, 2000.
The following table summarizes certain information with respect to
stock option exercises of the Named Executive Officers during fiscal 1997 and
fiscal 1997 year-end option values.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS HELD AT MONEY OPTIONS HELD AT
DECEMBER 31, 1997(2) DECEMBER 31, 1997(3)
(#) ($)
---------------------------- --------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred C. Goad, Jr. 105,000 2,327,850 376,667 378,333 9,094,057 6,916,868
Jim D. Kever 105,000 2,327,850 406,667 378,333 9,854,107 6,916,868
Kevin M. McNamara N/A N/A 30,000 165,000 333,750 1,458,125
Harlan F. Seymour N/A N/A 0 127,000 0 203,125
Sheila H. Schweitzer N/A N/A 8,333 161,667 62,456 919,919
</TABLE>
- ------------
(1) Represents gain on exercise of options in the year ended December 31,
1997.
(2) Represents options that were exercisable and unexercisable as of
December 31, 1997.
(3) Value based on market value of the Common Stock on December 31, 1997,
$29.125, minus the aggregate exercise price.
9
<PAGE> 12
DIRECTOR COMPENSATION
Members of the Board of Directors of the Company, other than those
directors who are employees of the Company, receive: (a) a monthly fee of $1,250
and (b) a fee of $1,000 per Board of Director or separately scheduled committee
meeting attended. In addition, each non-employee director is reimbursed for
out-of-pocket expenses incurred in attending Board of Director and committee
meetings. Non-employee directors are eligible to receive annually an option to
purchase 2,000 shares of the Common Stock pursuant to the 1995 Director Plan
and, subject to the approval of the 1998 Stock Incentive Plan at the Annual
Meeting (see "Proposal Two"), directors also would be eligible to receive
options for the purchase of Common Stock under such plan. Assuming shareholder
approval of the 1998 Stock Incentive Plan is obtained, the 2,000 share option
grant to the directors will continue to be made under the 1995 Director Plan
until such time as all stock options available under the 1995 Director Plan have
been granted. Following such time, grants would be made to non-employee
directors under the 1998 Stock Incentive Plan. Options granted under both plans
have an exercise price per share equal to the fair market value on the date of
grant and vest on the first anniversary following the date of grant. Directors
who also are employees do not receive any additional compensation for their
services as directors or as members of committees.
EMPLOYMENT AGREEMENTS
Each of the Named Executive Officers are employed by the Company under
employment agreements. The employment agreements of Messrs. Goad and Kever were
assumed by the Company from Old Envoy and had an initial term of one year. Mr.
McNamara was employed as of February 1, 1996 pursuant to an employment agreement
with an initial two-year term. Mr. Seymour was employed as of August 1, 1997
pursuant to a three-year employment agreement. As of January 1, 1998, Ms.
Schweitzer entered into a three-year employment agreement with the Company. Each
of these employment agreements are automatically extended for additional
one-year periods unless terminated by either party.
Under the terms of their respective employment agreements, each of
Messrs. Goad and Kever is employed at annual base salaries as determined by the
Compensation Committee, plus an annual bonus of up to 100% of their base
salaries based on the achievement of corporate operating results, consistent
with the cash bonus incentive program for other executives. See "Compensation
Committee Report on Executive Compensation -- Co-Chief Executive Officers
Compensation." Messrs. McNamara and Seymour and Ms. Schweitzer also are employed
at annual base salaries as determined by the Compensation Committee, plus an
annual bonus of up to a specified percentage of their base salary, subject to
performance criteria established by the Chairman and President of the Company.
Messrs. McNamara and Seymour each is eligible to receive an annual bonus of up
to 50% of his then current base salary, and Ms. Schweitzer is eligible to
receive an annual bonus of up to 25% of her then current base salary. Under
their employment agreements, the Named Executive Officers also have the right to
participate in the Company's annual stock incentive programs and receive certain
fringe benefits, including the right to participate in all Company group benefit
plans.
The employment agreements also provide the Named Executive Officers
with certain enumerated benefits upon the occurrence of certain termination and
change in control events, as follows:
(a) If either (i) the Company at any time terminates the
executive's employment for cause (as defined in the employment
agreements), or (ii) before any change in control of the Company (as
defined in the employment agreements), the executive voluntarily
resigns while there is no material failure by the Company to perform
its obligations under his employment agreement, Messrs. Goad, Kever and
McNamara each will be entitled to receive his base salary on a pro rata
basis through the date of termination. If the Company at any time
terminates Mr. Seymour's employment for cause (as defined in his
employment agreement), Mr. Seymour will be entitled to receive his base
salary on a pro rata basis plus reimbursement of expenses through the
date of termination. If before the occurrence of an initial change in
control event, the Company terminates Mr. Seymour's employment for any
reason other than cause (as defined in his employment agreement), Mr.
Seymour will be entitled to receive a lump sum payment equal to his
then current annual base salary and the average of his annual bonus
received during the two proceeding years ("Average Bonus"). If before
the occurrence of an
10
<PAGE> 13
initial change in control event, Mr. Seymour voluntarily resigns for
any reason other than death or disability, then Mr. Seymour will be
entitled to receive his then current base salary paid in accordance
with the Company's regular payroll practices over the twelve-month
period following termination.
(b) If either (i) before an initial change in control event (as
defined in the employment agreements), the executive's employment is
terminated as a result of his failure to discharge his duties in a
manner consistent with the effective administration of the Company's
affairs, or (ii) before a change in control, the executive resigns as a
result of a material failure by the Company to perform its obligations
under his employment agreement, Messrs. Goad, Kever and McNamara will
each be entitled to a lump sum payment equal to his base salary plus
Average Bonus.
(c) If before the occurrence of an initial change in control
event, the Company terminates the executive's employment other than for
cause or a failure of the executive to discharge his duties in a manner
consistent with the effective administration of the Company's affairs,
Messrs. Goad, Kever and McNamara will each be entitled to receive the
greater of (i) his annual base salary and Average Bonus or (ii) his
base salary and cash bonuses due for the unexpired term of his
employment agreement.
(d) If either (i) after an initial change in control event occurs,
the Company terminates the executive's employment for any reason other
than cause or his death or disability, or (ii) after a change in
control, the executive voluntarily resigns, the Company will pay
Messrs. Goad and Kever a lump sum termination payment equal to 2.99
times the sum of the executive's then annual base salary and Average
Bonus. In such event, Mr. McNamara will receive a lump sum termination
payment equal to two times the sum of his then current annual base
salary and Average Bonus and Mr. Seymour will receive a lump sum
termination payment equal to the sum of his then current annual base
salary and Average Bonus.
(e) Contemporaneously with the occurrence of a change in control,
the Board of Directors or Compensation Committee will accelerate all
outstanding options previously granted to each of Messrs. Goad, Kever,
McNamara and Seymour under any Company stock option, stock appreciation
or other employee incentive plan that are not otherwise exercisable by
the executives at the time the change in control occurs. Alternatively,
in the case of Mr. Seymour, the Company has the option of paying to Mr.
Seymour an amount in cash equal to the excess of the fair market value
over the exercise price per share as of the date the change in control
occurs, in lieu of accelerating the vesting of his options.
(f) During the initial three year term of Ms. Schweitzer's
employment agreement, the Company may terminate Ms. Schweitzer only for
cause (as defined in her employment agreement). If (i) the Company
terminates Ms. Schweitzer's employment without cause following the
initial three-year term or (ii) Ms. Schweitzer resigns because of the
uncured material failure by the Company to perform its obligations
under her employment agreement, then Ms. Schweitzer will be entitled to
receive her base salary paid in accordance with the Company's regular
payroll practices for a period of six months and, in the event she is
unable to obtain other full-time employment during such period, the
Company will continue to pay to her the base salary for up to an
additional 18 months.
11
<PAGE> 14
Payments made to each of Messrs. Goad, Kever, McNamara and Seymour
under his employment agreement (and all other incentive agreements of the
Company to which the executive is a party) will not be limited, in the event of
a change in control, by the provisions of Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"). Pursuant the employment
agreements of each of Messrs. Goad, Kever, McNamara and Seymour, the Company
will pay to the executive an amount equal to the excise tax under Section 4999
of the Code, if any, incurred or to be incurred by the executive by reason of
the payments under his employment agreement, acceleration of vesting of stock
options, or payments under any other plan, agreement or understanding between
such executive and the Company, constituting Excess Parachute Payments (as
defined in the employment agreements and Sections 280G(b) and 4999 of the Code),
plus all excise taxes and federal, state and local income taxes incurred or to
be incurred by the executive with respect to receipt of the payments thereunder.
In addition, if any of Messrs. Goad, Kever, Seymour or McNamara institutes
litigation brought in good faith to enforce any of his rights under his
employment agreement, the Company will indemnify the executive for his
reasonable attorney's fees and disbursements incurred in any such litigation.
Indemnification by the Company under such employment agreements is also provided
in the event an excise tax is assessed against the executive and such additional
payment was not previously paid to the executive. In such event, the Company
will indemnify the executive for the amount of such tax, including interest and
penalties incurred, reasonable fees and expenses and the related federal, state
and local income taxes incurred with respect to payment of the excise tax.
Each of the employment agreements also have non-competition provisions
applicable during the term of employment and thereafter as specified below, and
the parties thereto are required to maintain the confidential nature of trade
secrets and proprietary information. Pursuant to the terms of the employment
agreements, each of Messrs. Goad and Kever has agreed not to compete with the
Company for a period of 18 months, each of Messrs. McNamara and Seymour has
agreed not to compete for a period of 12 months, and Ms. Schweitzer has agreed
not to compete for a period of 24 months following termination of employment
with the Company.
In addition to the above provisions, Messrs. Goad and Kever have
entered into five-year non-competition agreements with the Company, of which FDC
is an express third-party beneficiary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Gresham and Hirsch. No
executive officer or employee of the Company served during fiscal 1997 as a
member of the Compensation Committee. The Company has no required disclosures
regarding Compensation Committee interlocks and insider participation in
compensation decisions.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed entirely of directors who are
not employees of the Company and is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies, including the compensation to be paid to the
Co-Chief Executive Officers and each of the other executive officers of the
Company.
The objectives of the Company's executive compensation program are to:
- Create incentives for and support the achievement of desired
Company performance and long-term appreciation in stock price.
- Provide compensation that will attract and retain superior
talent and reward performance.
- Align the executive's interests with the success of the
Company by placing a portion of pay at risk with payout
dependent upon corporate performance.
The Company's executive compensation program provides each executive
the opportunity to earn an overall level of compensation that is competitive
within the electronic transaction processing services industry, as well as
within a
12
<PAGE> 15
broader group of companies of comparable size and complexity to the Company. The
companies used for comparison are among the companies within the Nasdaq Computer
and Data Processing Stock Index used in the performance graph set forth below
under the heading "Stock Performance Graph." Actual compensation levels may be
greater or less than average competitive levels in surveyed companies, as
compensation is based upon annual and long-term Company performance as well as
individual performance. The Compensation Committee makes its recommendations
concerning executive compensation based on the external and internal factors
described below.
EXECUTIVE COMPENSATION PROGRAM
The Company purposely has limited the components of its executive
compensation program to base salary, annual cash bonus and stock options. These
components are in addition to various benefits, including medical and savings
plans available generally to employees of the Company.
Base Salary
Base salary levels were determined subjectively for the Company's
executives by the Compensation Committee, which it believes are generally less
than the amounts reported as paid to senior executives with similar
responsibilities at other companies in the electronic transaction processing
services industry. The employment agreements set forth the base salary and
bonus, termination, severance and change in control arrangements for each of the
Named Executive Officers, and the Compensation Committee believes the agreements
adequately provide for the continued services and attention of such officers.
See "Employment Agreements." The level of fixed compensation set in the
employment agreements and that is paid to other executives is consistent with
the Company's historical practice of combining comparatively limited fixed pay
for its most senior executives with performance based cash bonuses and
longer-term incentives provided by stock option grants. Base salaries of
managers and other senior employees are recommended by Messrs. Goad and Kever,
as Co-Chief Executive Officers, based on objective and subjective factors
including various indicators of performance such as acquisition of new
customers, retention of existing customer base and the development of new
products for the Company.
Bonuses
The Company's annual incentive program for executives provides direct
financial incentives in the form of an annual cash bonus to executives who
achieve their business unit's and the Company's annual goals. The Compensation
Committee directs management to establish threshold, target and optimal goals
for Company and business unit performance at the beginning of each fiscal year.
Individual performance also may be taken into account in determining bonuses.
The Compensation Committee fixed the amount of the total bonus payable to each
executive based on a percentage of such executive's base salary (other than as
specified pursuant to employment agreements) and granted to Messrs. Goad and
Kever, as Co-Chief Executive Officers, subjective discretion as to the
allocation of that bonus. During 1997, the stated Company performance objectives
were met and the Compensation Committee approved bonuses for individual
officers, including the Named Executive Officers, at 90% of the maximum
allowable bonus for each officer as recommended by the Co-Chief Executive
Officers. Bonuses payable to the Named Executive Officers for 1997 were
determined by the provisions of their respective employment agreements, which
were approved by the Compensation Committee at the time executed. See
"Employment Agreements." Contractual provisions relating to bonuses contained in
employment agreements are earned based on the established performance criteria,
but are not in addition to the bonus amounts specified in the annual bonus
incentive program.
Stock Options
The Company's stock option program for executives and other employees
is designed to align executive and shareholder long-term interests by creating a
strong and direct link between executive pay and shareholder return, and to
enable the Company's executives to develop and maintain a significant, long-term
ownership position in Common Stock. Stock option awards to executives currently
are made under the 1995 Employee Plan, which is administered by the Compensation
Committee. Awards under the 1995 Employee Plan may be made to key employees,
including
13
<PAGE> 16
executive officers, of the Company and any subsidiaries or affiliates of the
Company, and to consultants of the Company, its subsidiaries or affiliates, but
may not be granted to any director who is not an employee of the Company. Actual
awards are made only at the discretion of the Compensation Committee.
During 1997, the Compensation Committee granted options under the 1995
Employee Plan to purchase an aggregate of 824,000 shares of Common Stock, of
which 305,000 shares were subject to options granted to the Named Executive
Officers, at exercise prices equal to the fair market value on the dates of
grant. See "Option Grants in Last Fiscal Year." The Compensation Committee will
continue to evaluate the number of options granted to employees and the
percentage of shares granted to the Named Executive Officers.
The Compensation Committee and the Board of Directors have recommended
the adoption of the 1998 Stock Incentive Plan, which will make options for an
additional 2,000,000 shares of Common Stock available for issuance to employees
and certain non-discretionary grants to non-employee Directors. See "Proposal
Two - Approval of ENVOY Corporation 1998 Stock Incentive Plan."
CO-CHIEF EXECUTIVE OFFICERS COMPENSATION
The Compensation Committee believes the compensation of the Co-Chief
Executive Officers is consistent with its general policies concerning executive
compensation and is appropriate in light of the Company's financial objectives
and performance. Messrs. Goad and Kever are employed pursuant to the terms of
employment agreements, which are described in this Proxy Statement. See
"Employment Agreements." Messrs. Goad and Kever each had a base salary of
$175,000 for 1997. For fiscal year 1998, the base salaries of Messrs. Goad and
Kever will be $200,000. Messrs. Goad and Kever each were paid a bonus of
$157,500 for 1997 as compared to $175,000 for 1996. The Co-Chief Executive
Officers' annual bonus is measured based on their annual base salary and the
achievement of corporate operating results, consistent with the cash bonus
incentive program for other executives. As of the Record Date, Mr. Goad owned
221,723 shares of Common Stock and held vested options to purchase an additional
376,667 shares and unvested options to purchase an additional 378,333 shares. As
of the Record Date, Mr. Kever owned 220,526 shares of Common Stock and held
vested options to purchase an additional 406,667 shares and unvested options to
purchase an additional 378,333 shares. The Compensation Committee believes that
the significant equity interests in the Company held by Messrs. Goad and Kever
align their interests with the interests of shareholders. The Compensation
Committee further believes Messrs. Goad and Kever have managed the Company well
in a challenging business climate and have done an excellent job in coordinating
the development of the Company.
SECTION 162(M) PROVISIONS
The Omnibus Budget Reconciliation Act passed by Congress in 1993
imposes a limitation, included as Section 162(m) of the Code, on the
deductibility of certain compensation paid to chief executive officers and
certain other executive officers of publicly traded companies. Compensation paid
to these officers in excess of $1,000,000 cannot be claimed as a tax deduction
by such companies unless such compensation qualifies for an exemption as
performance-based compensation under Section 162(m) of the Code. It is
anticipated that compensation in respect of stock options granted by the Company
will qualify for an exemption as performance-based compensation under Section
162(m) of the Code, if the exercise price per share for such options and SARs is
at least equal to the fair market value per share of the Common Stock on the
date of grant. No other types of awards subject to the limitations of Section
162(m) of the Code have been granted by the Company.
W. Marvin Gresham
Laurence E. Hirsch
14
<PAGE> 17
STOCK PERFORMANCE GRAPH
The following line graph compares the percentage change in the
Company's cumulative shareholder return on the Common Stock with that of The
Nasdaq Stock Market Index and the Nasdaq Computer and Data Processing Stock
Index (Standard Industrial Classification, Industry Group No. 737) over the
period of time from June 7, 1995, (the initial trading date of the Common Stock)
through December 31, 1997. The respective returns assume reinvestment of any
dividends paid.
<TABLE>
<CAPTION>
06/07/95 12/31/95 12/31/96 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ENVOY Corporation 100 227 492 382
NASDAQ 100 120 148 182
NASDAQ Computer & Data
Processing Stocks 100 123 152 187
</TABLE>
15
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 27, 1998, the Company completed business combinations with
Professional Office Services, Inc. and its affiliated company, Automated Revenue
Management, Inc., and XpiData, Inc. As a result of these business combinations,
the sole shareholder of Professional Office Services, Inc., Richard B. McIntyre,
became a 10.1% shareholder of the Company. The Company, through its wholly owned
subsidiary Envoy/ExpressBill, Inc., is party to a lease agreement in Toledo,
Ohio with a partnership of which Richard B. McIntyre is a general partner. The
lease term is for 15 years beginning March 1, 1998, and annual lease payments
will be $457,500 through February 28, 2003; $503,250 through February 28, 2008;
and $553,575 through February 28, 2013. In the opinion of management, the terms
of the lease arrangement are fair and reasonable and are as favorable to the
Company as those which could have been obtained from an independent third party
at the time of the lease agreement's execution.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and The Nasdaq Stock Market. The executive officers,
directors and greater than ten percent shareholders are required by federal
securities regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on the Company's review of the copies of such forms and
written representations from certain reporting persons furnished to the Company,
the Company believes that its executive officers, directors and greater than ten
percent beneficial owners were in compliance with all applicable filing
requirements.
PROPOSAL TWO - APPROVAL OF ENVOY CORPORATION 1998 STOCK INCENTIVE PLAN
The following is a summary of the 1998 Stock Incentive Plan (the "1998
Stock Plan"). This summary is qualified in its entirety by the actual terms of
the 1998 Stock Plan, which is attached hereto as Exhibit A and incorporated
herein by reference.
DESCRIPTION OF THE PLAN
The Company believes that a key element of director, officer, and
employee compensation is stock-based incentive compensation. Such compensation
advances the interests of the Company by encouraging and providing for the
acquisition of equity interests in the Company by directors, officers, and
employees, thereby providing substantial motivation for superior performance. In
that regard, the Board of Directors and the shareholders approved the 1995
Employee Plan and the 1995 Director Plan providing for awards of up to 3,000,000
and 60,000 shares of Common Stock, respectively. As of the Record Date, the
Company had stock options outstanding for an aggregate of 3,443,502 shares of
Common Stock, including options for the purchase of 2,812,036 and 24,000 shares
outstanding and 97,966 and 36,000 shares available for future grant under the
1995 Employee Plan and the 1995 Director Plan, respectively. On February 20,
1998, the Board of Directors adopted, subject to shareholder approval, the 1998
Stock Plan and has recommended its submission to the Company's shareholders.
Under the 1998 Stock Plan, the Compensation Committee has the authority
to grant to employees and consultants of the Company, and the Board of Directors
has the authority to grant to directors who are not employed by the Company
("Outside Directors"), the following types of awards: (1) stock options and (2)
stock appreciation rights. The Compensation Committee has the power to delegate
certain authority to the Company's Co-Chief Executive Officers or to a committee
composed of officers of the Company to grant, on behalf of the Compensation
Committee, non-qualified stock options, subject to such guidelines as the
Compensation Committee may determine from time to time. Pursuant to the 1998
Stock Plan, 2,000,000 shares of Common Stock have been reserved and, subject to
shareholder approval, will be available for issuance thereunder.
16
<PAGE> 19
The maximum number of shares of Common Stock for which awards may be
made under the 1998 Stock Plan to any officer of the Company or other person
whose compensation may be subject to the limitations on deductibility under
Section 162 (m) of the Code is 500,000 during any single year. Any shares as to
which an option or other award expires, lapses unexpired, or is forfeited,
terminated, or canceled may become subject to a new option or other award.
Incentive stock options ("ISOs") and non-qualified stock options may be
granted for such number of shares as the Compensation Committee may determine
and may be granted alone, in conjunction with, or in tandem with other awards
under the 1998 Stock Plan or cash awards outside the 1998 Stock Plan. A stock
option will be exercisable at such times and subject to such terms and
conditions as the Compensation Committee may determine. In the case of an ISO,
however, the term will be no more than ten years after the date of grant (five
years for certain 10% shareholders). The option price for an ISO will not be
less than 100% (110% in the case of certain 10% shareholders) of the fair market
value of the Common Stock as of the date of grant and for any non-qualified
stock option will not be less than 50% of the fair market value as of the date
of grant. ISOs granted under the 1998 Stock Plan may not be transferred or
assigned other than by will or by the laws of descent and distribution.
Non-qualified stock options and stock appreciation rights may not be transferred
or assigned without the prior written consent of the Compensation Committee
other than (i) transfers by the optionee to a member of his or her immediate
family or a trust for the benefit of the optionee or a member of his or her
immediate family, or (ii) transfers by will or by the laws of descent and
distribution. Options may be exercised in whole or in part by delivering to the
Company written notice and payment in full, either in cash, shares of Common
Stock or such other instrument as the Company may accept.
Stock appreciation rights may be granted under the 1998 Stock Plan in
conjunction with all or part of a stock option and will be exercisable only when
the underlying stock option is exercisable. Once a stock appreciation right has
been exercised, the related portion of the stock option underlying the stock
option appreciation right will terminate. Upon the exercise of a stock
appreciation right, the Company will pay to the employee or consultant in cash,
Common Stock, or a combination thereof (the method of payment to be at the
discretion of the Committee), an amount equal to the excess of the fair market
value of the Common Stock on the exercise date over the option price, multiplied
by the number of stock appreciation rights being exercised.
The 1998 Stock Plan also provides for automatic grants of non-qualified
stock options to Outside Directors. Under the 1998 Stock Plan, options to
purchase 2,000 shares of Common Stock automatically will be granted to Outside
Directors upon their initial election to the Board of Directors. Options to
purchase 2,000 shares also automatically will be granted to each Outside
Director at each annual meeting of shareholders if such director has served the
Company as a director for the eleven months prior to the date of such meeting.
Outside Director options will enable the Outside Director to purchase shares of
Common Stock at the fair market value of the Common Stock on the date of grant
and vest with respect to all shares on the first anniversary of the date of
grant, if such Outside Director is still serving as a director on such date.
Assuming shareholder approval is obtained, grants will not be made to Outside
Directors under the 1998 Stock Incentive Plan until such time as all stock
options available under the 1995 Director Plan have been granted.
If there is a change in control or a potential change in control of the
Company, stock appreciation rights and limited stock appreciation rights, and
any stock options which are not then exercisable, will become fully exercisable
and vested. For purposes of the 1998 Stock Plan, a change in control is defined
generally to include (i) any person or entity, other than the Company or a
wholly-owned subsidiary of the Company, becoming the beneficial owner of the
Company's securities having 35% or more of the combined voting power of the then
outstanding securities that may be cast for the election of directors; (ii) in
connection with a cash tender, exchange offer, merger or other business
combination, sale of assets or contested election, less than a majority of the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors being held in the aggregate by
the holders of the Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such transaction; and
(iii) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board of Directors ceasing to
constitute at least a majority thereof, unless the election of each director
first elected during such period was approved by a vote of at least two-thirds
of the directors of the Company then still in office who were directors of the
Company at the beginning of any such period. Stock options, stock appreciation
rights and limited stock appreciation rights will, unless otherwise determined
by the Compensation Committee in its sole discretion, be cashed
17
<PAGE> 20
out on the basis of the change in control price (as defined in the 1998 Stock
Plan). The change in control price will be the highest price per share paid in
any transaction reported on the Nasdaq National Market or paid or offered to be
paid in any bona fide transaction relating to a change in control or potential
change in control at any time during the immediately preceding 60-day period, as
determined by the Compensation Committee.
The Board may amend, alter, or discontinue the 1998 Stock Plan,
provided that no amendment may be made which would impair the rights of an
optionee or participant under an award made under the 1998 Stock Plan without
the participant's consent. The 1998 Stock Plan will terminate on, and no award
may be granted later than, the tenth anniversary of the date of adoption of the
1998 Stock Plan, but the exercise date of awards granted prior to such tenth
anniversary may extend beyond that date. No grant shall have an exercise period
in excess of ten years from the date of grant.
Because awards under the 1998 Stock Plan are at the discretion of the
Compensation Committee (except with respect to the Outside Director grants), the
benefits that will be awarded under the 1998 Stock Plan to persons other than
Outside Directors are not currently determinable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the Federal income tax aspects of
awards made under the 1998 Stock Plan based upon the federal income tax laws in
effect on the date hereof. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
Incentive Stock Options. No taxable income is realized by the
participant upon the grant or exercise of an ISO. If Common Stock is issued to a
participant pursuant to the exercise of an ISO, and if no disqualifying
disposition of the shares is made by the participant within two years of the
date of grant or within one year after the transfer of the shares to the
participant, then: (a) upon the sale of the shares, any amount realized in
excess of the option price will be taxed to the participant as a mid-term or
long-term capital gain, and any loss sustained will be a capital loss, and (b)
no deduction will be allowed to the Company for Federal income tax purposes. The
exercise of an ISO will give rise to an item of tax preference that may result
in an alternative minimum tax liability for the participant unless the
participant makes a disqualifying disposition of the shares received upon
exercise.
If Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of the holding periods described above, then generally:
(a) the participant will realize ordinary income in the year of disposition in
an amount equal to the excess, if any, of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price paid for such shares, and (b) the Company will be entitled
to deduct any such recognized amount. Any further gain or loss realized by the
participant will be taxed as short-term, mid-term, or long-term capital gain or
loss, as the case may be, and will not result in any deduction by the Company.
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the participant's
employment, the option will generally be taxed as a non-qualified stock option.
Non-Qualified Stock Options. With respect to non-qualified stock
options: (a) no income is realized by the participant at the time the option is
granted; (b) generally upon exercise of the option, the participant realizes
ordinary income in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares on the date of
exercise and the Company will be entitled to a tax deduction in the same amount;
and (c) at disposition, any appreciation (or depreciation) after date of
exercise is treated either as short-term, mid-term, or long-term capital gain or
loss, depending upon the length of time that the participant has held the
shares.
Stock Appreciation Rights. No income will be realized by a participant
in connection with the grant of an SAR. When the SAR is exercised, the
participant generally will be required to include as taxable ordinary income in
the year of exercise, an amount equal to the amount of cash and the fair market
value of any shares received. The Company will be entitled to a deduction at the
time and in the amount included in the participant's income by reason of the
exercise.
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If the participant receives Common Stock upon exercise of an SAR, the
post-exercise appreciation or depreciation will be treated in the same manner
discussed above under "Non-Qualified Stock Options."
The 1998 Stock Plan is not intended to be a "qualified plan" under
Section 401(a) of the Code.
RECOMMENDATION
The Board of Directors believes it is in the best interests of the
Company and its shareholders to adopt the 1998 Stock Incentive Plan. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP, independent certified public
accountants, served as the Company's independent public accountants for the year
ended December 31, 1997. The Board of Directors, upon recommendation of the
Audit Committee, has appointed Ernst & Young LLP to audit the accounts of the
Company for fiscal 1998. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
he or she so desires, and is expected to be available to respond to appropriate
questions.
DEADLINE FOR SUBMISSION TO SHAREHOLDERS
OF PROPOSALS TO BE PRESENTED AT THE
1999 ANNUAL MEETING OF SHAREHOLDERS
Any proposal intended to be presented for action at the 1999 Annual
Meeting of Shareholders by any shareholder of the Company must be received by
the Secretary of the Company not later than December 23, 1998 in order for such
proposal to be considered for inclusion in the Company's proxy statement and
proxy relating to the 1999 Annual Meeting of Shareholders. Nothing in this
paragraph shall be deemed to require the Company to include any shareholder
proposal that does not meet all the requirements for such inclusion established
by the SEC at the time in effect.
METHOD OF COUNTING VOTES
Unless a contrary choice is indicated, all duly executed proxies will
be voted in accordance with the instructions set forth on the proxy card.
Abstentions and "non-votes" will be counted for purposes of determining a
quorum. Proposals submitted for shareholder approval, other than the election of
directors, will be approved if the votes for exceed the votes against each
proposal; therefore, abstentions will have no effect on such proposals. Because
directors are elected by a plurality of the votes cast, abstentions also are not
considered in the election of directors. A "non-vote" occurs when a nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner.
MISCELLANEOUS
To avoid unnecessary expense, it is important that proxies be returned
promptly. Therefore, shareholders who do not expect to attend in person are
urged, regardless of the number of shares of stock they own, to date, sign and
return the enclosed proxies promptly.
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EXHIBIT A
ENVOY CORPORATION
1998 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Envoy Corporation 1998 Stock Incentive Plan (the
"Plan") is to enable Envoy Corporation (the "Corporation") to attract, retain
and reward key employees of and consultants to the Corporation and its
Subsidiaries and Affiliates, and directors who are not also employees of the
Corporation, and to strengthen the mutuality of interests between such key
employees, consultants, and directors by awarding such key employees,
consultants, and directors performance-based stock incentives and/or other
equity interests or equity-based incentives in the Corporation, as well as
performance-based incentives payable in cash. The provisions of the Plan are
intended to satisfy the requirements of Section 16(b) of the Exchange Act, and
shall be interpreted in a manner consistent with the requirements thereof, as
now or hereafter construed, interpreted, and applied by regulations, rulings,
and cases. The Plan is also designed so that awards granted hereunder intended
to comply with the requirements for "performance-based" compensation under
Section 162(m) of the Code may comply with such requirements. The creation and
implementation of the Plan will not diminish or prejudice other compensation
plans or programs approved from time to time by the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Corporation and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Corporation.
C. "Cause" has the meaning provided in Section 5(i) of the Plan.
D. "Change in Control" has the meaning provided in Section 8(b) of the
Plan.
E. "Change in Control Price" has the meaning provided in Section 8(d)
of the Plan.
F. "Common Stock" means the Corporation's Common Stock, no par value
per share.
G. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
H. "Committee" means the Committee referred to in Section 2 of the
Plan.
I. "Corporation" means Envoy Corporation, a corporation organized under
the laws of the State of Tennessee, or any successor corporation.
J. "Disability" means disability as determined under the Corporation's
Group Long Term Disability Insurance Plan.
K. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Corporation at or before the time of such retirement,
from active employment with the Corporation and any Subsidiary
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or Affiliate prior to age 65, in accordance with any applicable early retirement
policy of the Corporation then in effect or as may be approved by the Committee.
L. "Effective Date" has the meaning provided in Section 12 of the Plan.
M. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
N. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on Nasdaq or such
other market or exchange as is the principal trading market for the Common
Stock, or, if no such sale of a share of Common Stock is reported on Nasdaq or
other exchange or principal trading market on such date, the fair market value
of a share of Common Stock as determined by the Committee in good faith.
O. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
P. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
Q. "Nasdaq" means The Nasdaq Stock Market.
R. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
S. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
T. "Normal Retirement" means retirement from active employment with the
Corporation and any Subsidiary or Affiliate on or after age 65.
U. "Outside Director" means a member of the Board who is not an officer
or employee of the Corporation or any Subsidiary or Affiliate of the
Corporation.
V. "Outside Director Option" means an award to an Outside Director
under Section 7 below.
W. "Performance Goals" means performance goals based on one or more of
the following criteria: (i) pre-tax income or after-tax income; (ii) operating
cash flow; (iii) operating profit; (iv) return on equity, assets, capital, or
investment; (v) earnings or book value per share; (vi) sales or revenues; (vii)
operating expenses; (viii) Common Stock price appreciation; and (ix)
implementation, management, or completion of critical projects or processes.
Where applicable, the Performance Goals may be expressed in terms of attaining a
specified level of the particular criteria or the attainment of a percentage
increase or decrease in the particular criteria, and may be applied to one or
more of the Corporation or any Subsidiary, or a division or strategic business
unit of the Corporation, or may be applied to the performance of the Corporation
relative to a market index, a group of other companies, or a combination
thereof, all as determined by the Committee. The Performance Goals may include a
threshold level of performance below which no payment will be made (or no
vesting will occur), levels of performance at which specified payments will be
made (or specified vesting will occur), and a maximum level of performance above
which no additional payment will be made (or at which full vesting will occur).
Each of the foregoing Performance Goals shall be determined, to the extent
applicable, in accordance with generally accepted accounting principles and
shall be subject to certification by the Committee; provided, that the Committee
shall have the authority to make equitable adjustments to the Performance Goals
in recognition of unusual or non-recurring events affecting the Corporation or
any Subsidiary or the financial statements of the Corporation or any Subsidiary,
in response to changes in applicable laws or regulations, or to account for
items of
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gain, loss, or expense determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a segment of business or
related to a change in accounting principles.
X. "Plan" means this Envoy Corporation 1998 Stock Incentive Plan, as
amended from time to time.
Y. "Retirement" means Normal or Early Retirement.
Z. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
AA. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Corporation all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Common Stock covered by such Stock
Option (or such portion thereof), subject, where applicable, to the pricing
provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
BB. "Stock Option" or "Option" means any option to purchase shares of
Common Stock granted pursuant to Section 5 below.
CC. "Subsidiary" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
Except as provided below, the Plan shall be administered by a Committee
of not less than two Non-Employee Directors, who shall be appointed by the Board
and who shall serve at the pleasure of the Board. The functions of the Committee
specified in the Plan may be exercised by an existing Committee of the Board
composed exclusively of Non-Employee Directors. The initial Committee shall be
the Compensation Committee of the Board. In the event there are not at least two
Non-Employee Directors on the Board, the Plan shall be administered by the Board
and all references herein to the Committee shall refer to the Board.
The Committee shall have the power to delegate authority to the
Corporation's Chief Executive Officer(s), or to a committee composed of
executive officers of the Corporation, to grant, on behalf of the Committee,
Non-Qualified Stock Options exercisable at Fair Market Value on the date of
grant, subject to such guidelines as the Committee may determine from time to
time. Options granted pursuant to such delegated authority in accordance
herewith shall be deemed, to the extent permitted under applicable law, to have
been granted by the Committee for all purposes under the Plan.
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other key employees and consultants eligible under
Section 4: (i) Stock Options and (ii) Stock Appreciation Rights.
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees of and consultants
to the Corporation and its Subsidiaries and Affiliates to whom Stock
Options and/or Stock Appreciation Rights may from time to time be
granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options and/or Stock Appreciation Rights,
or any combination thereof, are to be granted hereunder to one or more
eligible persons;
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(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of Common
Stock relating thereto, based in each case on such factors as the
Committee shall determine, in its sole discretion); and to amend or
waive any such terms and conditions to the extent permitted by Section
9 hereof;
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash instead of Common Stock;
(f) to determine whether, to what extent, and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan;
(g) to determine whether, to what extent, and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(h) to determine the terms, conditions, and restrictions of
any Performance Goals and the number of Options or SARs subject
thereto;
(i) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(j) to impose any holding period required to satisfy Section
16 under the Exchange Act.
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan; and, except as expressly set
forth herein or otherwise required by law, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding on all persons, including the
Corporation and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares
of Common Stock that may be issued under the Plan shall be 2,000,000
shares. The shares of Common Stock issuable under the Plan may consist,
in whole or in part, of authorized and unissued shares. No officer of
the Corporation or other person whose compensation may be subject to
the limitations on deductibility under Section 162(m) of the Code shall
be eligible to receive awards pursuant to this Plan relating to in
excess of 500,000 shares of Common Stock in any fiscal year (the
"Section 162(m) Maximum").
(b) If any shares of Common Stock that have been optioned
cease to be subject to a Stock Option, such shares shall again be
available for distribution in connection with future awards under the
Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock
split or other change in corporate structure affecting the Common
Stock, an appropriate substitution or adjustment shall be made in the
maximum number of shares that may be awarded under the Plan, in the
number and option price of shares subject to outstanding Options
granted under the Plan,
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in the Performance Goals, in the number of shares underlying Outside
Director Options to be granted under Section 7 hereof, in the Section
162(m) Maximum, and in the number of shares subject to other
outstanding awards granted under the Plan as may be determined to be
appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any award shall always be a whole number.
An adjusted option price shall also be used to determine the amount
payable by the Corporation upon the exercise of any Stock Appreciation
Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees and Outside Directors of and consultants
to the Corporation and its Subsidiaries and Affiliates who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Corporation and/or its Subsidiaries and Affiliates are eligible to be
granted awards under the Plan. Outside Directors are eligible to receive awards
pursuant to Section 7 and not pursuant to any other provisions of the Plan.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may
be granted only to individuals who are employees of the Corporation or any
Subsidiary of the Corporation.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Options granted to officers, key employees and consultants under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% (or, in the case
of any employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or of
any of its Subsidiaries, not less than 110%) of the Fair Market Value
of the Common Stock at grant, in the case of Incentive Stock Options,
and not less than 50% of the Fair Market Value of the Common Stock at
grant, in the case of Non-Qualified Stock Options.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Stock Option shall be exercisable more than
ten years (or, in the case of an employee who owns stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Corporation or any of its Subsidiaries or parent
corporations, no Incentive Stock Option shall be exercisable more than
five years) after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant. The Committee may
provide that a Stock Option shall vest over a period of future service
at a rate specified at the time of grant, or that the Stock Option is
exercisable only in installments. If the Committee provides, in its
sole discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time at or after grant, in whole or in part, based on
such factors as the Committee shall determine in its sole discretion.
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(d) Method of Exercise. Subject to whatever installment
exercise restrictions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by check, note, or such
other instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or (except in the case of an
Incentive Stock Option) after grant, payment in full or in part may
also be made in the form of shares of Common Stock already owned by the
optionee or, in the case of a Non-Qualified Stock Option, shares
subject to such Option or another award hereunder (in each case valued
at the Fair Market Value of the Common Stock on the date the Option is
exercised). If payment of the exercise price is made in part or in full
with Common Stock, the Committee may award to the employee a new Stock
Option to replace the Common Stock which was surrendered. No shares of
Common Stock shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other
rights of a shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid in
full for such shares, and, if requested, has given the representation
described in Section 11(a). All Incentive Stock Options granted under
the Plan shall be exercisable, during the optionee's lifetime, only by
the optionee.
(e) Bonus for Taxes. In the case of a Non-Qualified Stock
Option or an optionee who elects to make a disqualifying disposition
(as defined in Section 422(a)(1) of the Code) of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, the Committee in
its discretion may award at the time of grant or thereafter the right
to receive upon exercise of such Stock Option a cash bonus calculated
to pay part or all of the federal and state, if any, income tax
incurred by the optionee upon such exercise.
(f) Termination by Death. Subject to Section 5(j), if an
optionee's employment by the Corporation and any Subsidiary or (except
in the case of an Incentive Stock Option) Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter
be exercised, to the extent such option was exercisable at the time of
death or (except in the case of an Incentive Stock Option) on such
accelerated basis as the Committee may determine at or after grant (or
except in the case of an Incentive Stock Option, as may be determined
in accordance with procedures established by the Committee) by the
legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such other
period as the Committee may specify at or after grant) from the date of
such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Subject to Section
5(j), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (i) three years (or such
other period as the Committee may specify at or after grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter, in
the case of a Non-Qualified Stock Option and (ii) one year from the
date of termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter, in the case of
an Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
Committee shall specify at or after grant), any unexercised
Non-Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of any period that would apply if
such Stock Option were a Non-Qualified Stock Option, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Subject to Section
5(j), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates
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by reason of Normal or Early Retirement, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of such Retirement or (except in the case
of an Incentive Stock Option) on such accelerated basis as the
Committee may determine at or after grant (or, except in the case of an
Incentive Stock Option, as may be determined in accordance with
procedures established by the Committee), for a period of (i) three
years (or such other period as the Committee may specify at or after
grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the case of a Non-Qualified Stock Option and (ii) three
months from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the event of an Incentive Stock Option; provided
however, that, if the optionee dies within the period specified in (i)
above (or other such period as the Committee shall specify at or after
grant), any unexercised Non-Qualified Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination
of employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise period applicable to
Incentive Stock Options, but before the expiration of the period that
would apply if such Stock Option were a Non-Qualified Stock Option, the
option will thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. Subject to Section 5(j), unless
otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or (except in the case of an Incentive
Stock Option) after grant, if an optionee's employment by the
Corporation and any Subsidiary or (except in the case of an Incentive
Stock Option) Affiliate is involuntarily terminated for any reason
other than death, Disability or Normal or Early Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be
exercised, to the extent otherwise then exercisable, for the lesser of
three months or the balance of such Stock Option's term if the
involuntary termination is without Cause. For purposes of this Plan,
"Cause" means (i) a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or (ii) a
participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Corporation or
any Subsidiary or Affiliate, in each case as determined by the
Committee, in its sole direction. Unless otherwise determined by the
Committee, if an optionee voluntarily terminates employment with the
Corporation and any Subsidiary or (except in the case of an Incentive
Stock Option) Affiliate (except for Disability, Normal or Early
Retirement), the Stock Option shall thereupon terminate; provided,
however, that the Committee at grant or (except in the case of an
Incentive Stock Option) thereafter may extend the exercise period in
this situation for the lesser of three months or the balance of such
Stock Option's term.
(j) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or, without the
consent of the optionee(s) affected, to disqualify any Incentive Stock
Option under such Section 422. No Incentive Stock Option shall be
granted to any participant under the Plan if such grant would cause the
aggregate Fair Market Value (as of the date the Incentive Stock Option
is granted) of the Common Stock with respect to which all Incentive
Stock Options are exercisable for the first time by such participant
during any calendar year (under all such plans of the Company and any
Subsidiary) to exceed $100,000. To the extent permitted under Section
422 of the Code or the applicable regulations thereunder or any
applicable Internal Revenue Service pronouncement:
(i) if (x) a participant's employment is terminated
by reason of death, Disability, or Retirement and (y) the
portion of any Incentive Stock Option that is otherwise
exercisable during the post-termination period specified under
Section 5(f), (g) or (h), applied without regard to the
$100,000 limitation contained in Section 422(d) of the Code,
is greater than the portion of such Option that is immediately
exercisable as an "Incentive Stock Option" during such
post-termination period under Section 422, such excess shall
be treated as a Non-Qualified Stock Option; and
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<PAGE> 29
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of
such Option that is not exercisable as an Incentive Stock
Option by reason of the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a Non-Qualified
Stock Option.
(k) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash or Common Stock an Option previously
granted, based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer
is made.
(l) Performance and Other Conditions. The Committee may
condition the exercise of any Option upon the attainment of specified
Performance Goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the option
agreement, any such conditional Option shall vest six months prior to
its expiration if the conditions to exercise have not theretofore been
satisfied.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such
Stock Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of such Stock Option. A Stock
Appreciation Right or applicable portion thereof granted with respect
to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject
to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full number
of shares covered by a related Stock Option. A Stock Appreciation Right
may be exercised by an optionee, subject to Section 6(b), in accordance
with the procedures established by the Committee for such purpose. Upon
such exercise, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be
exercisable to the extent that the related Stock Appreciation Rights
have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6
of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash
and/or shares of Common Stock equal in value to the excess of
the Fair Market Value of one share of Common Stock over the
option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
When payment is to be made in shares, the number of shares to
be paid shall be calculated on the basis of the Fair Market
Value of the shares on the date of exercise. When payment is
to be made in cash, such amount shall be calculated on the
basis of the Fair Market Value of the Common Stock on the date
of exercise.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option
would be transferable under Section 11(h) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been
exercised for the
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<PAGE> 30
purpose of the limitation set forth in Section 3 of the Plan
on the number of shares of Common Stock to be issued under the
Plan.
(v) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a
Potential Change in Control, the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the
Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
(vi) The Committee may condition the exercise of any
Stock Appreciation Right upon the attainment of specified
Performance Goals or other factors as the Committee may
determine, in its sole discretion. Unless specifically
provided in the related agreement, any such conditional Stock
Appreciation Right shall vest six months prior to its
expiration if the conditions to exercise theretofore have not
been satisfied.
SECTION 7. AWARDS TO OUTSIDE DIRECTORS.
(a) The provisions of this Section 7 shall apply only to
awards to Outside Directors in accordance with this Section 7. The
Committee shall have no authority to determine the timing of or the
terms or conditions of any award under this Section 7.
(b) A Non-Qualified Stock Option to purchase 2,000 shares of
Common Stock will be granted to Outside Directors upon their initial
appointment or election to the Board, with an exercise price equal to
the Fair Market Value of the Common Stock on the date of grant.
(c) On the date of each Annual Meeting of Shareholders of the
Corporation, each Outside Director will receive an automatic grant of a
Non-Qualified Stock Option to purchase 2,000 shares of Common Stock,
provided that such Outside Director has served as such for at least
eleven months as of the date of the Annual Meeting. The exercise price
of each option granted pursuant to this Section 7(c) shall equal the
Fair Market Value of such Common Stock on the date of grant.
(d) Each Outside Director Option shall vest and become
exercisable on the first anniversary of the date of grant if the
grantee is still a member of the Board on such date, but shall not be
exercisable before such date except as provided in Section 8. Each
Outside Director Option shall expire, if unexercised, on the tenth
anniversary of the date of grant.
(e) Outside Director options may be exercised in accordance
with Section 5(d) hereto.
(f) Recipients of Outside Director Options shall enter into a
stock option agreement with the Corporation setting forth the exercise
price and other terms as provided herein.
(g) Upon termination of an Outside Director's service as a
director of the Corporation, (i) all Outside Director Options shall be
governed by the provisions of Sections 5(f), 5(h), and 5(i) hereof as
if Outside Directors were employees of the Corporation, except that
there shall be no discretion to accelerate the vesting of any Outside
Director Options in connection with the termination of service of any
individual Outside Director.
(h) The number of shares underlying Outside Director Options
to be awarded in the future shall be adjusted automatically in the same
manner as the number of shares underlying outstanding Stock Options are
adjusted under Section 3(c) hereof at any time that Stock Options are
adjusted under Section 3(c) hereof.
(j) The Board, in its sole discretion, may determine to reduce
the size of any Outside Director Option prior to grant or to postpone
the vesting and exercisability of any Outside Director Option prior to
grant.
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<PAGE> 31
SECTION 8. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 8(b);
or
(2) a "Potential Change in Control" as defined in
Section 8(c), but only if and to the extent so determined by
the Committee or the Board at or after grant (subject to any
right of approval expressly reserved by the Committee or the
Board at the time of such determination);
(i) subject to the limitations set forth below in
this Section 8(a), any Stock Appreciation Right, Stock Option
or Outside Director Option awarded under the Plan not
previously exercisable and vested shall become fully
exercisable and vested.
(ii) subject to the limitations set forth below in
this Section 8(a), the value of all outstanding Stock Options,
Stock Appreciation Rights and Outside Director Options, in
each case to the extent vested, shall, unless otherwise
determined by the Board or Committee in its sole discretion
prior to any Change in Control, be cashed out on the basis of
the "Change in Control Price" as defined in Section 8(d) as of
the date such Change in Control or such Potential Change in
Control is determined to have occurred or such other date as
the Board or Committee may determine prior to the Change in
Control.
(iii) The Board or the Committee may impose
additional conditions on the acceleration or valuation of any
award in the award agreement.
(b) Definition of Change in Control. For purposes of Section
8(a), a "Change in Control" means the happening of any of the
following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Corporation or a wholly-owned subsidiary thereof or any
employee benefit plan of the Corporation or any of its
Subsidiaries, becomes the beneficial owner of the
Corporation's securities having 35% or more of the combined
voting power of the then outstanding securities of the
Corporation that may be cast for the election of directors of
the Corporation (other than as a result of an issuance of
securities initiated by the Corporation in the ordinary course
of business); or
(ii) as the result of, or in connection with, any
cash tender or exchange offer, merger or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Corporation or any successor corporation or
entity entitled to vote generally in the election of the
directors of the Corporation or such other corporation or
entity after such transaction are held in the aggregate by the
holders of the Corporation's securities entitled to vote
generally in the election of directors of the Corporation
immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Corporation's shareholders, of each director
of the Corporation first elected during such period was
approved by a vote of at least two-thirds of the directors of
the Corporation then still in office who were directors of the
Corporation at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 8(a), a "Potential Change in Control" means the happening of
any one of the following:
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<PAGE> 32
(i) The approval by shareholders of an agreement by
the Corporation, the consummation of which would result in a
Change in Control of the Corporation as defined in Section
8(b); or
(ii) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Corporation or a Subsidiary or any Corporation
employee benefit plan (including any trustee of such plan
acting as such trustee)) of securities of the Corporation
representing 5% or more of the combined voting power of the
Corporation's outstanding securities and the adoption by the
Committee of a resolution to the effect that a Potential
Change in Control of the Corporation has occurred for purposes
of this Plan.
(d) Change in Control Price. For purposes of this Section 8,
"Change in Control Price" means the highest price per share paid in any
transaction reported on Nasdaq or such other exchange or market as is
the principal trading market for the Common Stock, or paid or offered
in any bona fide transaction related to a Potential or actual Change in
Control of the Corporation at any time during the 60 day period
immediately preceding the occurrence of the Change in Control (or,
where applicable, the occurrence of the Potential Change in Control
event), in each case as determined by the Committee except that, in the
case of Incentive Stock Options and Stock Appreciation Rights relating
to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such
Stock Appreciation Rights or, where applicable, the date on which a
cash out occurs under Section 8(a)(ii).
SECTION 9. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter or discontinue the Plan without
shareholder approval to the fullest extent permitted by the Exchange Act and the
Code; provided, however, that no amendment, alteration, or discontinuation shall
be made which would impair the rights of an optionee or participant under a
Stock Option, Stock Appreciation Right or Outside Director Option theretofore
granted, without the participant's consent. The Committee may amend the terms of
any Stock Option or other award theretofore granted, prospectively or
retroactively, but, subject to Section 3 above, no such amendment shall impair
the rights of any holder without the holder's consent.
SECTION 10. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Corporation, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Corporation. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or payments in lieu of or with
respect to awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected participant, the existence
of such trusts or other arrangements is consistent with the "unfunded" status of
the Plan.
SECTION 11. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent
to and agree with the Corporation in writing that the optionee or
participant is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for shares of Common Stock or other
securities delivered under the Plan shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Commission, Nasdaq or any other stock exchange upon which the Common
Stock is then listed, and any
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<PAGE> 33
applicable Federal or state securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Corporation or any Subsidiary or Affiliate any right to
continued employment with the Corporation or a Subsidiary or Affiliate,
as the case may be, nor shall it interfere in any way with the right of
the Corporation or a Subsidiary or Affiliate to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Corporation, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes
of any kind required by law to be withheld with respect to such amount.
The Committee may require withholding obligations to be settled with
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Corporation under the Plan shall be conditional on such payment or
arrangements and the Corporation and its Subsidiaries or Affiliates
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
participant.
(e) The actual or deemed reinvestment of dividends (or other
types of Plan awards) at the time of any dividend payment shall only be
permissible if sufficient shares of Common Stock are available under
Section 3 for such reinvestment (taking into account then outstanding
Stock Options and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the
performance of his duties; provided that within 60 days after
institution of any such action, suit or proceeding, the Committee
member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Stock Option, Stock Appreciation Right, Outside Director
Option or other right issued under this Plan is transferable by the
participant without the prior written consent of the Committee, or, in
the case of an Outside Director, the Board, other than (i) transfers by
an optionee to a member of his or her Immediate Family or a trust for
the benefit of the optionee or a member of his or her Immediate Family
or (ii) transfers by will or by the laws of descent and distribution.
The designation of a beneficiary will not constitute a transfer.
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<PAGE> 34
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
SECTION 12. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date of approval of the Plan by a
majority of the votes cast by the holders of the Corporation's Common Stock (the
"Effective Date").
SECTION 13. TERM OF PLAN.
No Stock Option, Stock Appreciation Right or Outside Director Option
award shall be granted pursuant to the Plan on or after the tenth anniversary of
the Effective Date of the Plan, but awards granted prior to such tenth
anniversary may be extended beyond that date.
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<PAGE> 35
APPENDIX A
ENVOY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON THURSDAY, JUNE 4, 1998.
The undersigned hereby appoints Fred C. Goad, Jr. and Jim D. Kever, and
either of them, as proxies, with full power of substitution, to vote all shares
of the undersigned as shown on the reverse side of this proxy at the Annual
Meeting of Shareholders of ENVOY Corporation at 10:00 a.m., local time, on
Thursday, June 4, 1998 at the Willis Corroon Conference Center, 26 Century
Boulevard, Room 104-B, Nashville, Tennessee, and any adjournments thereof.
PROPOSAL ONE - ELECTION OF DIRECTORS:
[ ] FOR all of the following Class III nominees (except as indicated to the
contrary below):
Fred C. Goad, Jr. Kevin M. McNamara
AGAINST the following nominee (please print name)
---------------------------------------------------------------------------
WITHHOLD AUTHORITY (ABSTAIN) to vote for the following nominee (please
print name)
---------------------------------------------------------------------------
[ ] AGAINST all nominees [ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for all
nominees
PROPOSAL TWO - APPROVAL OF THE ENVOY CORPORATION 1998 STOCK INCENTIVE PLAN:
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
IMPORTANT: PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO CHOICE
IS SPECIFIED, SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION OF DIRECTORS
AND FOR APPROVAL OF THE ENVOY CORPORATION 1998 STOCK INCENTIVE PLAN.
Date: , 1998.
----------------
PLEASE SIGN HERE
AND RETURN PROMPTLY
-----------------------------
-----------------------------
Please sign exactly as your
name appears at left. If
shares are registered in the
names of two or more persons,
each should sign. Executors,
administrators, trustees,
guardians and attorneys
should show their full
titles. If a corporation is
the shareholder, the
corporate officer should sign
in full corporate name and
title, such as President or
other officer. If a
partnership or limited
liability company is the
shareholder, please sign in
such organization's name by
an authorized person.
- --------------------------------------------------------------------------------
If you have changed your address, please PRINT your new address on this line.
