SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934
(Amendment No. )
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement Confidential, for use of the Commission
only (as permitted by Rule 14a-6(e)(2)
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EXPRESS SCRIPTS, INC.
(Name of Registrant As Specified in its Charter)
(Name of Person(s) Filing Proxy Statement. If other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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:
[COMPANY LOGO INSERTED HERE]
EXPRESS SCRIPTS, INC.
14000 Riverport Drive
Maryland Heights, Missouri 63043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 27, 1998
The 1998 Annual Meeting of Stockholders of EXPRESS SCRIPTS, INC., a
Delaware corporation (the "Company"), will be held at the Radisson Hotel, 11228
Lone Eagle Drive, Bridgeton, Missouri 63044, on Wednesday, May 27, 1998, at 9:30
a.m., to consider and act upon the following matters:
1. to elect ten (10) directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and
qualified;
2. to approve the Second Amendment to the Company's Amended and Restated 1994
Stock Option Plan;
3. to amend the Company's Certificate of Incorporation to increase the number
of authorized shares of Class A Common Stock to 75,000,000 shares;
4. to ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the Company's current fiscal year; and
5. to transact such other business as may properly come before the meeting or
any adjournments thereof.
Only stockholders of record at the close of business on March 31, 1998, are
entitled to notice of and to vote at the Meeting. At least ten days prior to the
Meeting, a complete list of stockholders entitled to vote will be available for
inspection by any stockholder for any purpose germane to the Meeting, during
ordinary business hours, at the office of the Secretary of the Company at 14000
Riverport Drive, Maryland Heights, Missouri 63043. As a stockholder of record,
you are cordially invited to attend the Meeting in person. If you do not expect
to be present, please complete, sign and date the enclosed Proxy and mail it
promptly in the enclosed envelope. The return of the enclosed Proxy will not
affect your right to vote in person if you attend the Meeting.
By Order of the Board of Directors.
/s/ Thomas M. Boudreau
Thomas M. Boudreau
Secretary
14000 Riverport Drive
Maryland Heights, Missouri 63043
April 22, 1998
THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE PROXY IS
RETURNED IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN THE UNITED
STATES.
[COMPANY LOGO INSERTED HERE]
EXPRESS SCRIPTS, INC.
14000 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
------------------
1998 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Express Scripts, Inc., a Delaware
corporation (the "Company"), to be voted at the 1998 Annual Meeting of
Stockholders of the Company (the "Meeting") and any adjournment thereof. The
Meeting will be held at the Radisson Hotel, 11228 Lone Eagle Drive, Bridgeton,
Missouri 63044 on Wednesday, May 27, 1998, at 9:30 a.m., for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders and in this
Proxy Statement. This Proxy Statement and the accompanying Proxy will first be
sent or given to stockholders on or about April 22, 1998.
A Proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked, will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted (i) for the nominees for director named in this Proxy Statement,
(ii) for the proposal to approve the Second Amendment to the Company's Amended
and Restated 1994 Stock Option Plan (the "Amendment to the 1994 Plan"), (iii)
for the proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Class A Common Stock to 75,000,000 (the
"Amendment to the Certificate of Incorporation"), (iv) for ratification of the
appointment of Price Waterhouse LLP as independent accountants for the Company
for 1998, and (v) in accordance with the judgment of the person or persons
voting the proxies on any other matter that may be brought before the Meeting.
Each such Proxy granted may be revoked at any time thereafter by writing to the
Secretary of the Company prior to the Meeting, by executing and delivering a
subsequent proxy or by attending and voting in person at the Meeting, except as
to any matter or matters upon which, prior to such revocation, a vote shall have
been cast pursuant to the authority conferred by such Proxy.
VOTING SECURITIES
Stockholders of record as of the close of business on March 31, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournments thereof. On the Record Date there were 9,269,270 outstanding
shares of the Company's Class A Common Stock, $.01 par value per share (the
"Class A Common Stock"), and 7,510,000 outstanding shares of the Company's Class
B Common Stock, $.01 par value per share (the "Class B Common Stock", which,
together with the Class A Common Stock, are hereinafter collectively referred to
as the "Common Stock"). All of the outstanding shares of the Class B Common
Stock are owned by NYLIFE HealthCare Management, Inc. ("NYLIFE HealthCare"), a
Delaware corporation and an indirect subsidiary of New York Life Insurance
Company, a mutual insurance company organized and existing under the laws of the
State of New York ("New York Life").
The Class B Common Stock is convertible into shares of Class A Common Stock
on a share-for-share basis at any time at the option of the holder, and will be
automatically converted to Class A Common Stock upon any transfer to any entity
other than New York Life or its affiliates. Each holder of the Class A Common
Stock is entitled to one vote for each share held by such holder and each holder
of the Class B Common Stock is entitled to ten votes for each share held by such
holder. In all respects other than voting power and the convertibility of the
Class B Common Stock, the Class A Common Stock and Class B Common Stock are
identical. The Class A Common Stock and the Class B Common Stock vote together
as a single class on all matters except where Delaware law or the Company's
Certificate of Incorporation require otherwise.
The presence, in person or by proxy, of the holders of shares entitled to
cast a majority of the votes of all outstanding shares entitled to vote shall
constitute a quorum at the Meeting. A stockholder who abstains from a vote by
registering an abstention vote will be deemed present at the Meeting for quorum
purposes but will not be deemed to have voted on the particular matter under
consideration. Similarly, in the event a nominee holding shares for beneficial
owners votes on certain matters pursuant to discretionary authority or
instructions from beneficial owners, but with respect to one or more other
matters does not receive instructions from beneficial owners and does not
exercise discretionary authority (a so-called "non-vote"), the shares held by
the nominee will be deemed present at the Meeting for quorum purposes but will
not be deemed to have voted on such other matters. Thus, on the votes for the
proposals to elect directors and ratify the appointment of accountants, where
the outcome depends upon the votes cast, abstentions and non-votes will have no
effect. However, on the proposal to approve the Amendment to the 1994 Plan,
where approval depends upon the affirmative vote of a majority of the votes
eligible to be cast at a meeting of the Stockholders of the Company voting as a
single class, and the proposal to approve the Amendment to the Certificate of
Incorporation, where the affirmative votes of a majority of the total voting
power of the outstanding Class A Common Stock and Class B Common Stock voting
together as a single class and voting separately by class are necessary for the
proposed amendment to be approved, abstentions and non-votes will have the
effect of votes against the proposals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
February 1, 1998 (unless otherwise noted) by (i) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
Class A Common Stock or Class B Common Stock, (ii) each of the five most highly
compensated executive officers and each director of the Company, and (iii) all
executive officers and directors of the Company as a group. Included are amounts
of shares which may be acquired on February 1, 1998 or within 60 days of
February 1, 1998 pursuant to the exercise of stock options by employees or
outside directors. Unless otherwise indicated, each of the persons or entities
listed below exercise sole voting and investment power over the shares that each
of them beneficially owns.
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER PERCENT OF CLASS
CLASS A COMMON STOCK:
Howard Atkins................. 0 *
Judith E. Campbell............ 0 *
Richard M. Kernan, Jr......... 0 *
Richard A. Norling(1)......... 24,000 *
Frederick J. Sievert.......... 0 *
Stephen N. Steinig............ 0 *
Seymour Sternberg(2).......... 3,000 *
Barrett A. Toan(3)............ 151,000 1.6%
Howard L. Waltman(4).......... 4,800 *
Norman Zachary(5)............. 17,000 *
Stuart L. Bascomb(6).......... 21,150 *
Thomas M. Boudreau(7)......... 13,900 *
Linda L. Logsdon(8)........... 12,500 *
David A. Lowenberg(9)......... 22,400 *
Directors and Executive
Officers as a Group (18
persons)(10)................ 290,350 3.1%
Pilgrim Baxter &
Associates, Ltd.(11)........ 1,220,700 13.2%
825 Duportail Road
Wayne, Pennsylvania 19087
AMVESCAP PLC(12).............. 930,100 10.0%
11 Devonshire Square
London, England EC2M 4YR
Wasatch Advisors, Inc.(13).... 543,869 5.9%
68 South Main Street, Ste.400
Salt Lake City, UT 84101
CLASS B COMMON STOCK:
NYLIFE HealthCare Management,
Inc.(14)(15)(16)............ 7,510,000 100.0%
- ---------------
* Indicates less than 1%
<FN>
(1) Consists of options for 24,000 shares granted under the Amended and Restated
1992 Stock Option Plan for Outside Directors (the "Outside Directors Plan").
(2) Excludes 180 shares held by Mr. Sternberg's son, as to which shares
Mr. Sternberg disclaims beneficial ownership.
(3) Includes options for 139,000 shares granted under the Company's Amended and
Restated 1992 Employee Stock Option Plan (the "1992 Plan") and the Amended
and Restated 1994 Employee Stock Option Plan (the "1994 Plan"; together with
the 1992 Plan, the "Plans"). The shares subject to the options are
restricted from transfer with the transfer restriction lapsing as to 20% of
such shares on each anniversary date of the date of grant. The transfer
restriction is subject to complete lapse in the event of a "change in
control" of the Company (as defined in the Plans) or termination of
Mr. Toan's employment by reason of death, disability or retirement or by the
Company without cause. Upon termination of Mr. Toan's employment, the
Company will purchase any shares issued upon the exercise of the option that
remain subject to the transfer restriction, at the lesser of the option
exercise price or the then current market value of the Class A Common Stock.
(4) Consists of options for 4,800 shares granted under the Outside Directors
Plan.
(5) Consists of options for 17,000 shares granted under the Outside Directors
Plan.
(6) Includes options for 16,000 shares granted under the Plans and 5,150 shares
owned by Mr. Bascomb, of which 1,650 shares are held as co-trustee (with
shared voting and dispositive power) of a trust for the benefit of his
mother.
(7) Consists of options for 13,900 shares granted under the Plans.
(8) Includes options for 10,000 shares granted under the Plans.
(9) Consists of options for 22,400 shares granted under the Plans.
(10) Includes options for 266,700 shares granted under the Outside Directors
Plan and the Plans.
(11) The information with respect to the beneficial ownership of these shares as
of December 31, 1997 has been obtained from a copy of an Amendment No. 3 to
Schedule 13G dated January 10, 1998. Such filing reports that the
beneficial owner is a registered investment advisor and it shares voting
power with respect to all of the shares reported but has sole dispositive
power as to all of the shares reported.
(12) The information with respect to the beneficial ownership of these shares as
of December 31, 1997 has been obtained from a copy of an Amendment No. 1 to
Schedule 13G dated February 9, 1998. Such filing reports that the
beneficial owner is a parent holding company and it shares voting power and
dispositive power as to all of the shares reported.
(13) The information with respect to the beneficial ownership of these shares as
of December 31, 1997 has been obtained from a copy of an Amendment No. 2 to
Schedule 13G dated February 11, 1998. Such filing reports that the
beneficial owner is a registered investment advisor and it has sole voting
and sole dispositive power as to all of the shares reported.
(14) Messrs. Atkins, Kernan, Sievert, Steinig and Sternberg, and Ms. Campbell,
directors of the Company, are also directors and/or hold various executive
positions with New York Life and/or NYLIFE HealthCare, as described herein.
All of the foregoing directors disclaim beneficial ownership of the
Company's Class B Common Stock owned by NYLIFE HealthCare.
(15) Each share of Class B Common Stock has ten (10) votes per share and will
automatically convert upon transfer (other than to New York Life or its
affiliates) at any time into shares of Class A Common Stock on a
share-for-share basis and otherwise at the option of NYLIFE HealthCare.
NYLIFE HealthCare is an indirect, wholly owned subsidiary of New York Life
that has 89.0% of the voting power of the Common Stock of the Company.
(16) If converted to Class A Common Stock, the Class B Common Stock
would represent approximately 44.8% of the outstanding Class A Common
Stock.
</FN>
I. ELECTION OF DIRECTORS
At the Meeting, the entire Board of Directors, comprised of ten directors,
is to be elected to serve until the next Annual Meeting of Stockholders or until
their successors shall be duly elected and qualified. The number of directors
was fixed by the Board of Directors pursuant to the Company's Bylaws. Unless
otherwise specified, all proxies will be voted in favor of the ten nominees
listed below as directors of the Company.
The Board of Directors has no reason to expect that any of the nominees
will be unable to stand for election at the date of the Meeting. If a vacancy
occurs among the original nominees prior to the Meeting, the proxies will be
voted for a substitute nominee named by the Board of Directors and for the
remaining nominees. Directors are elected by a plurality of the votes cast.
NYLIFE HealthCare has indicated its intention to vote its shares for election of
the ten nominees. Assuming NYLIFE HealthCare votes in favor of such nominees,
such vote would be sufficient to elect the nominees. The following information
is furnished as of March 1, 1998, with respect to each of the nominees for the
Board of Directors:
NAME, POSITION AND PRINCIPAL OCCUPATION
Howard Atkins, 47, was elected a director of the Company in January 1997,
to fill a vacancy on the Board created by the resignation of Lee M. Gammill, Jr.
He has been an Executive Vice President and the Chief Financial Officer of New
York Life since April, 1996. From September 1991 until joining New York Life,
Mr. Atkins was the Executive Vice President and Chief Financial Officer of
Midlantic Bank Corporation. Mr. Atkins is also a director of NYLCare Health
Plans, Inc. ("NYLCare"), a subsidiary of New York Life.
Judith E. Campbell, 50, was elected a director of the Company in November
1997, to fill a vacancy on the Board created by the resignation of Bernard N.
Del Bello. Ms. Campbell has been a Senior Vice President and the Chief
Information Officer of New York Life since June, 1997. From October, 1995 until
joining New York Life, Ms. Campbell was Senior Vice President of Consumer
Banking, Manager of Deposit Products, Consumer Payments and Direct Banking of
PNCBank. Ms. Campbell served as a Senior Vice President of Midlantic Bank
Corporation from May, 1992 until October, 1995, when Midlantic Bank was acquired
by PNCBank.
Richard M. Kernan, Jr., 57, was elected a director of the Company in March
1992. He has been an Executive Vice President and the Chief Investment Officer
of New York Life since March 1991. Mr. Kernan is also Chairman of New York Life
Worldwide Holdings, Inc., Trustee of The Mainstay Funds, and the Chairman and
CEO of Mainstay VP Series Fund, Inc., all subsidiaries of New York Life, and a
director of NYLIFE HealthCare, NYLCare and other New York Life subsidiaries.
Richard A. Norling, 52, was elected a director of the Company in March
1992. Mr. Norling has been the Chief Operating Officer of Premier, Inc., the
largest voluntary healthcare alliance in the U.S., since September 1997. From
July 1989 until joining Premier, Mr. Norling was the President and Chief
Executive Officer of Fairview Hospital and HealthCare Services, a regional
integrated network of hospitals, ambulatory care services and health care
management enterprises.
Frederick J. Sievert, 50, was elected a director of the Company in July
1995. Since January 1997, Mr. Sievert has been the Vice Chairman of New York
Life. From February 1995 to December 1996, Mr. Sievert was an Executive Vice
President of New York Life. From January 1992 to January 1995, Mr. Sievert was
Senior Vice President of New York Life in charge of financial management and
policyholder services for Individual Operations. Mr. Sievert is also a director
of NYLCare and other subsidiaries of New York Life.
Stephen N. Steinig, 52, was elected a director of the Company in January
1994. Since February 1994, Mr. Steinig has been Senior Vice President and Chief
Actuary of New York Life. From February 1992 to February 1994, he was Chief
Actuary and Controller of New York Life. From November 1989 to February 1992, he
held the position of Senior Vice President and Chief Actuary of New York Life.
Mr. Steinig is also a director of NYLCare and other New York Life subsidiaries.
Seymour Sternberg, 54, was elected a director of the Company in March 1992.
Mr. Sternberg is the Chairman, President and Chief Executive Officer of New York
Life. He has been with New York Life since February 1989, serving as the
President and Chief Operating Officer from October 1995 to April 1997, the Vice
Chairman from February to September 1995, and as an Executive Vice President
from March 1992 to February 1995. Mr. Sternberg is also Chairman, Chief
Executive Officer and President of NYLIFE Healthcare, and a director or an
officer of a number of other New York Life subsidiaries, including NYLCare.
Barrett A. Toan, 50, was elected Chief Executive Officer of the Company in
March 1992 and President and a director in October 1990. Mr. Toan has been an
executive employee of the Company since May 1989.
Howard L. Waltman, 65, was elected Chairman of the Board of the Company in
March 1992. Mr. Waltman has been a director of the Company since its inception
in September 1986. From 1983 until September 1992, Mr. Waltman was Chairman of
the Board and Chief Executive Officer of Sanus Corp. Health Systems, a wholly
owned subsidiary of New York Life, which is now known as NYLCare. From September
1992 to December 31, 1995, Mr. Waltman served as Chairman of the Board of
NYLCare.
Norman Zachary, 71, was elected a director of the Company in March 1992.
From June 1967 to November 1991, Mr. Zachary held various positions at Logica
Data Architects, Inc. (formerly known as Data Architects, Inc.) ("Logica"), a
consulting and software development company, including serving as President and
a director until November 1990. Logica provided consulting services to New York
Life from time to time.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee, an Audit Committee and
a Compensation Committee. During intervals between meetings of the Board of
Directors, the Executive Committee (comprised of Messrs. Kernan, Sievert,
Sternberg (Chairperson), Toan, Waltman and Zachary) has all the powers and
authority of the Board of Directors, except as otherwise provided by the Board
of Directors, the Company's Bylaws, or as required by law. The Audit Committee
(comprised of Messrs. Norling, Steinig and Zachary (Chairperson)) reviews the
internal controls of the Company and the objectivity of its financial reporting.
In addition, the Audit Committee must review and, by majority vote, approve
material transactions with related parties (see "Certain Relationships and
Related Transactions - Approval of Related Party Transactions"). A majority of
the Audit Committee must be unaffiliated with the Company and its affiliates.
The Compensation Committee (comprised of Messrs. Sievert (Chairperson),
Sternberg and Zachary) administers the Company's compensation plans. The Company
does not have a standing Nominating Committee.
During 1997, the Board of Directors held five meetings, the Executive
Committee held five meetings, the Audit Committee held four meetings and the
Compensation Committee held four meetings. Each director attended at least 75%
of the aggregate number of meetings held by the Board of Directors and the
Committees on which he or she served during 1997.
DIRECTORS' COMPENSATION
Directors of the Company who are also employed by the Company or New York
Life or its subsidiaries do not receive compensation for serving as directors.
During 1997, directors who were not employees of the Company or New York Life or
its subsidiaries received an annual retainer of $10,000 and a fee of $750 for
each Board or Committee meeting attended. The Company also reimburses
non-employee directors for out-of-pocket expenses incurred in connection with
attending Board and Committee Meetings.
Under the Outside Directors Plan, prior to the amendment thereto effective
January 24, 1996, each non-employee director received a one-time grant of a
ten-year option to purchase 14,000 shares of Class A Common Stock at an exercise
price equal to the fair market value of the Class A Common Stock at the date of
grant. This option became exercisable in three equal annual installments on the
first three anniversaries of the grant date. Mr. Norling and Mr. Zachary were
granted options to purchase 14,000 shares each upon the closing of the Company's
initial public offering in June 1992.
Effective January 24, 1996, each non-employee director who is first elected
or appointed as a non-employee director on or after such date shall receive a
ten-year option to purchase 24,000 shares of the Class A Common Stock as of the
date of the first Board meeting he or she attends as a non-employee director.
These options will become exercisable in five equal installments at the rate of
one-fifth per year on each anniversary of the grant date. In addition, each
non-employee director who was first elected or appointed as a non-employee
director prior to January 24, 1996 received an option to purchase 10,000 shares,
in addition to the 14,000 previously granted. These additional options vested in
two installments of 5,000 shares each on June 16, 1996 and June 16, 1997. The
exercise price of all options granted under the Outside Directors Plan is equal
to the fair market value of the Class A Common Stock at the date of grant. Mr.
Norling and Mr. Zachary were each granted options to purchase 10,000 additional
shares effective January 24, 1996, and Mr. Waltman was granted an option to
purchase 24,000 shares effective May 22, 1996.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's compensation plans, including the Company's stock
option plans for its employees. The Committee's overall recommendations
regarding compensation are subject to approval of the Board of Directors;
although the Committee has authority to grant stock options under the Company's
employee stock option plans, it now recommends stock option grants for executive
officers to, and acts in conjunction with, the full Board of Directors in
awarding stock options to such individuals in order to comply with the rules
adopted under Section 16 of the Securities Exchange Act of 1934.
COMPENSATION PLAN
The Company's general compensation policy for its executive officers,
including the Chief Executive Officer ("CEO"), is to provide (i) short term
compensation consisting of two components, a fixed base salary and a cash bonus
awarded based upon specific short term financial and non-financial objectives
for the individual and the Company, and (ii) long term compensation consisting
of options to purchase the Company's stock based upon the Committee's judgment
as to the relative contribution of each officer to the long term success of the
Company. The CEO also consults with the Committee regarding the compensation of
those executive officers whose base salary exceeds $100,000 or whose potential
bonus is in excess of $50,000. The Committee reviews compensation on an annual
basis.
The Company's policy is to combine short term compensation and long term
incentive compensation to create a total compensation package that is
competitive with compensation packages for executive officers of similar sized
companies in comparable businesses. In general the Company places greater
emphasis on incentive compensation than most comparable companies.
In November, 1997 the Company engaged a nationally recognized consulting
firm to review compensation levels for the Company's executive officers. The
study was based on a group of comparable companies in health care and
information intensive businesses (the "Comparator Companies"). The consultant
determined that the Company's executive officers, including its CEO, were
generally compensated at a level significantly lower than the median of total
compensation received by executives in comparable positions at the Comparator
Companies. Accordingly, the Committee approved certain adjustments to the base
salary and bonus levels for the executive officers to take effect March, 1998 to
bring executive compensation approximately to the median level of compensation
for the Comparator Companies. The Committee also recommended long term incentive
compensation awards in the form of additional stock options, which were made in
the fall of 1997, as discussed below.
The Committee is continuing to study the impact of Section 162(m) of the
Internal Revenue Code on the deductibility of executive officer compensation.
The Committee is endeavoring to maximize the deductibility of compensation to
the extent practicable while maintaining competitive compensation.
COMPONENTS OF EXECUTIVE COMPENSATION
BASE SALARY: The Committee determines the salary ranges for each executive
officer position in the Company based upon the level and scope of
responsibilities of the position and the pay levels of similarly positioned
executive officers in companies deemed comparable by the Committee. The CEO's
evaluation of the level of responsibility of each position (other than his own)
and the performance of each other executive officer is of paramount importance
when base salary is determined. For 1997 compensation, which was determined in
late 1996, the Committee obtained information about the salary and total
compensation of officers in comparable companies through review of published
reports and periodic surveys.
ANNUAL BONUS COMPENSATION: Each executive officer's bonus has two
components: (i) an amount based on the Company's profitability goal, and (ii) an
amount based on achieving specific work plan objectives. For each executive
officer each component of the bonus is expressed as a specific dollar amount. In
general, the profitability component represents approximately 28 percent of the
total annual bonus amount, and the work plan objectives represent the remaining
72 percent. The potential bonus amount for 1997 for any executive officer (other
than the CEO) is between approximately 31 percent and 50 percent of the base
salary, depending on the extent to which that executive officer's department can
help meet certain Company-wide goals.
Executive officers are eligible for annual bonus payments only to the
extent that the Company meets certain predetermined profitability goals, which
are approved by the Board in its annual review of the Company's budget. For
1997, the goals were based on the Company's budgeted net income for 1997. If the
Company meets these profitability goals, the executive will receive the
specified profitability portion of the bonus.
In determining the amount of the work plan bonus component to be paid, the
Committee examines the executive's individual contribution to his or her
departmental work plan and the extent to which the departmental work plan goals
have been achieved. The departmental work plan goals are determined based upon
the departmental function, and include such items as development and marketing
of new products and programs within a specified time frame, systems enhancements
to support new products and programs, improvements in mail service pharmacy
processing costs and enhancements in the provider networks. The work plan bonus
for 1997 is available only to the extent that the Company's overall 1997
profitability goals are achieved.
For 1997, actual aggregate bonuses paid to current executive officers,
including the CEO, represented approximately 33% of the salaries and bonuses
paid to these officers, compared to 29% in 1996. Actual aggregate bonuses paid
to all current executive officers who received bonuses for 1997 represented
approximately 94% of the total amounts allocated for bonuses for these executive
officers and approximately 28% of the total bonus amounts paid to all employees
for 1997, compared to 80% and 26%, respectively, in 1996.
LONG TERM INCENTIVE COMPENSATION: Long term incentive compensation is in
the form of the Company's stock option plans, which are designed to align the
executive's incentive compensation more directly with stockholder values by
linking compensation to the performance of the Company's stock. Long term
compensation is also designed to encourage executives to make career commitments
to the Company. Each executive officer receives an initial option grant upon
employment with the Company, and typically receives an annual grant of
additional stock options thereafter. The size of an executive's stock option
award is based upon the CEO's and the Committee's subjective evaluation of the
contribution that the executive officer is expected to make to overall growth
and profitability of the Company during the vesting period of the options. The
Committee also considers comparable long term incentive compensation levels at
the Comparator Companies.
Stock options are granted with an exercise price equal to the market value
on the date of grant and constitute compensation only if the Company's stock
price increases thereafter. The Committee has discretion to determine the
vesting schedule for each option grant and generally has made grants that become
exercisable in equal amounts over five years. In general, executives must be
employed by the Company at the time of vesting in order to exercise their
options. Reference is made to the text of the Company's Stock Option Plans for
detailed information on the terms of these plans.
SEVERANCE ARRANGEMENTS: On January 27, 1998, the Board of Directors
authorized the Company to enter into severance agreements with certain
executives selected by the Board of Directors, upon recommendation of the
Compensation Committee. The severance agreements are designed generally to
encourage the Company's key management personnel to remain with the Company and
its subsidiaries and to continue to devote their full attention to the Company's
business, without distraction from personal uncertainties and risks created by
certain events that are not within their control. The severance agreements are
operative only in the event the executive's employment with the Company or any
of its subsidiaries, as the case may be, terminates for any reason other than
death, disability or "cause", or in the event that the executive voluntarily
terminates employment for "good reason" (as such terms are defined in the
agreements). The severance benefit thereunder generally will be an amount equal
to (i) one year's salary at the rate in effect on the date of termination, plus
(ii) an amount equal to the current year's bonus potential multiplied by the
average percentage of the bonus potential realized by the executive over the
preceding three years, prorated for the portion of the year of termination
during which the executive was employed by the Company. Six executives,
including all of the executive officers named in the Summary Compensation Table
below (the "Named Officers") other than the Company's CEO, have entered into
such agreements with the Company. (The CEO has previously entered into an
employment agreement with the Company that includes a severance agreement.) See
"Executive Compensation-Severance Agreements" herein for additional information
regarding the severance agreements.
THE CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Committee evaluates the performance of the CEO for purposes of
recommending to the Board his annual base pay adjustment and annual bonus
awards. The Committee also determines his annual stock option award. The factors
considered in recommending an increase in the CEO's salary in 1997 related to
the overall performance of the Company, particularly the increase in revenues,
membership, net income and earnings per share, which were subjectively evaluated
by the Committee. Another factor was the percentage increase in salary allocated
to certain senior executives of the Company in general, although this factor was
of secondary importance.
Under his employment agreement with the Company, the CEO may earn an annual
bonus of up to 80% of his base salary based upon achievement of performance
objectives set by the Board upon recommendation of the Committee. Mr. Toan's
bonus award for 1997 performance was recommended by the Committee based upon the
Company's attainment of its profitability and enrollment goals, which were
weighted equally, and for his performance of the 1997 non-financial work plan
objectives that were assigned to him. The factors used in the non-financial work
plan objectives related to such items as new product introductions,
strengthening of the Company's management information systems, and development
and implementation of a new marketing plan, all of which were subjectively
weighted.
In November, 1997, the Committee, acting jointly with the Board of
Directors, awarded the CEO additional options to acquire shares of the Company's
Class A Common Stock in view of the importance of his expected contribution to
the Company's long term goals of sustaining revenue and earnings growth,
increasing market penetration and improving service effectiveness and
efficiency.
March 2, 1998 COMPENSATION COMMITTEE
Frederick J. Sievert, Chairman
Seymour Sternberg
Norman Zachary
The Compensation Committee Report on Executive Compensation and the
performance graph below shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Sternberg is the Chairman, President and Chief Executive Officer of New
York Life; Chairman, President and Chief Executive Officer of NYLIFE HealthCare;
and a director of NYLCare. Mr. Sievert is the Vice Chairman of New York Life and
a director of NYLCare. The Company is a party to agreements with NYLCare, a
subsidiary of NYLIFE HealthCare, under which the Company provides pharmacy
benefit management services to certain group policyholders of NYLCare and
various pharmacy benefit management, informed decision counseling, vision care
and infusion therapy services to health maintenance organizations owned or
managed by NYLCare. In 1997, the Company derived $208,118,000, or 16.9% of its
net revenues, from services provided to NYLCare. See "Certain Relationships and
Related Transactions" for a more complete description of this and certain other
transactions involving the Company and New York Life or its affiliates,
including NYLCare.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return of the Company's Class A Common Stock, commencing January 1, 1993, with
the cumulative total return on the Standard & Poor's Health Care 500 Index and
the Standard & Poor's 500 Index, to the end of 1997. These indices are included
only for comparative purposes as required by Securities and Exchange Commission
rules in effect as of the date of this Proxy Statement and do not necessarily
reflect management's opinion that such indices are an appropriate measure of the
relative performance of the Class A Common Stock, and are not intended to
forecast or be indicative of possible future performance of the Class A Common
Stock.
[Performance Graph, in tubular format, follows]
INDEXED RETURNS
Years Ending
Base
Period
Company/Index Dec92 Dec93 Dec94 Dec95 Dec96 Dec97
- -------------------------------------------------------------------------------------------------------------------------
EXPRESS SCRIPTS INC -CL 100 144.07 225.29 312.65 219.93 367.83
HEALTH CARE-500 100 91.60 103.61 163.55 197.49 283.82
S&P 500 COMP INDEX 100 110.08 111.53 153.45 188.68 251.63
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for all services rendered in all capacities to the
Company for the fiscal years ended December 31, 1997, 1996 and 1995, by the
Company's chief executive officer and its other four most highly compensated
executive officers (the "Named Officers"):
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------------------------------------------------------------------------------------------------
BARRETT A. TOAN 1997 332,256(3) 250,000(3) -- 28,000(4) 2,000(2)
PRESIDENT, CHIEF 1996 290,769(3) 204,000(3) -- 28,000 2,000(2)
EXECUTIVE OFFICER 1995 253,269(3) 170,000(3) -- 14,000 1,000(2)
AND DIRECTOR
STUART L. BASCOMB 1997 210,815 95,380 -- 8,200(4) 2,000(2)
EXECUTIVE VICE 1996 193,877 80,000 -- 8,000 2,000(2)
PRESIDENT 1995 172,223 62,800 -- 5,000 1,000(2)
THOMAS M. BOUDREAU
SENIOR VICE PRESIDENT OF 1997 191,109 65,000 -- 8,200(4) 2,000(2)
ADMINISTRATION, GENERAL 1996 174,462 52,500 -- 10,000 2,000(2)
COUNSEL AND SECRETARY 1995 151,962 43,680 -- 6,000 1,000(2)
LINDA L. LOGSDON
SENIOR VICE PRESIDENT 1997 187,786 100,000 -- 6,500(4) 0
OF HEALTH MANAGEMENT 1996 20,192(5) 48,000 -- 50,000 0
SERVICES 1995 N/A N/A -- N/A N/A
DAVID A. LOWENBERG
SENIOR VICE PRESIDENT 1997 150,769 63,844 -- 5,100(4) 2,000(2)
AND DIRECTOR OF SITE 1996 145,000 53,000 -- 10,000 2,000(2)
OPERATIONS 1995 141,827 49,200 -- 15,000 1,000(2)
- -------------------
<FN>
(1) Consists of amounts earned pursuant to the Company's annual bonus plan.
Effective with 1995, that portion of the bonus based on each Named
Officer's workplan objectives is evaluated based on workplan performance
from March 15 through the following March 14.
(2) Consists of the Company's matching contribution in connection with the
Company's 401(k) Plan, established effective January 1, 1994.
(3) Represents compensation awarded pursuant to the Company's annual bonus plan
and the Employment Agreement between Mr. Toan and the Company.
(4) Consists of stock options awarded on November 25, 1997. The stock options
awarded were conditioned upon the employee executing a nondisclosure and
noncompetition agreement with the Company.
(5) Ms. Logsdon joined the Company on November 4, 1996.
</FN>
STOCK OPTIONS
The table below sets forth certain information on the grants of stock
options to the Named Officers pursuant to Plans for each Named Officer's 1997
performance.
OPTION GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN GRANT DATE
OPTIONS FISCAL YEAR(2) EXERCISE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) PRICE ($/SH)(3) DATE ($)(4)
- ---- -------------- -------------- --------------- ---- ------
Barrett A. Toan 28,000(5) 15.3% $57.00 11/25/07 $668,080
Stuart L. Bascomb 8,200(6) 4.5% 57.00 11/25/07 195,652
Thomas M. Boudreau 8,200(6) 4.5% 57.00 11/25/07 195,652
Linda L. Logsdon 6,500(6) 3.6% 57.00 11/25/07 155,090
David A. Lowenberg 5,100(6) 2.8% 57.00 11/25/07 121,686
- ------------------
<FN>
(1) Consists of options awarded on November 25, 1997.
(2) Total options granted to employees in fiscal year 1997 includes all options
granted to employees in 1997, other than those awarded on January 29, 1997,
which were attributable to 1996.
(3) Represents the closing price per share as reported on the Nasdaq National
Market ("Nasdaq") on November 24, 1997, the last date preceding the date of
grant on which a transaction was reported.
(4) Such estimated value is derived using the Black-Scholes method taking into
account the following key assumptions: (a) volatility of 43.498% calculated
using daily stock prices for the 12-month period prior to the grant date;
(b) 0% dividend yield; (c) an interest rate of 5.88%, which represents the
interest rate on U.S. Treasury securities on the date of grant with a
maturity date corresponding to that of the option term; (d) 10 year option
term; and (e) an exercise price equal to the fair market value at the date
of grant. The resulting Black-Scholes value was discounted by approximately
35.32%, which consists of a discount of approximately 11.38% to reflect the
probability of forfeiture due to termination prior to vesting, and a
discount of approximately 23.94% to reflect the probability of a shortened
option term due to termination of employment prior to the option expiration
date. The actual value of the options will depend on the excess of the
market price of the shares over the exercise price on the date the options
are exercised, and may vary significantly from the theoretical values
estimated by the Black-Scholes model.
(5) Such options are fully exercisable from date of grant. The shares subject
to the options are restricted from transfer with the transfer restriction
lapsing as to 20% of such shares on each anniversary of the date of grant.
The transfer restriction is subject to complete lapse in the event of a
"change of control" of the Company (as defined in the Plan) or termination
of Mr. Toan's employment by reason of death, disability, retirement or by
the Company without cause. Upon termination of Mr. Toan's employment, the
Company will repurchase any shares issued upon exercise of the options that
remain subject to the transfer restriction, at the lesser of the option
exercise price or the then current market value for the Class A Common
Stock.
(6) Becomes exercisable as to 20% of the shares subject to the option on each
anniversary of the date of grant. The options shall terminate in the event
of a "change of control" of the Company, whereby the Company shall pay the
employee an amount equal to the excess of the "market price" over the
exercise price thereof, for the vested options or all options, depending on
whether an offer of "comparable employment" is made to and accepted by the
employee. The options terminate upon termination of employment unless the
employee dies, retires or is permanently disabled, or his or her employment
is terminated without cause.
</FN>
The Company has no plan under which it may grant stock appreciation rights.
The table set forth below provides certain information with respect to the
1997 fiscal year-end value of options to purchase the Company's Class A Common
Stock granted to the Named Officers and options exercised during such period.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options
End at Fiscal Year End (2)
SHARES ACQUIRED ON Exercisable/ Exercisable/
NAME EXERCISE VALUE REALIZED (1) UNEXERCISABLE UNEXERCISABLE
- ---- -------- ------------------ ------------- -------------
Barrett A. Toan 71,000 $2,660,235 139,000/0 $3,577,375/$0
Stuart L. Bascomb 41,800 $1,447,724 13,400/27,000 $455,950/$531,900
Thomas M. Boudreau 8,900 $ 170,252 10,700/40,600 $328,375/$968,600
Linda L. Logsdon ---- ---- 8,000/48,500 $260,000/$1,336,000
David A. Lowenberg ---- ---- 17,400/32,700 $692,394/$661,248
- --------------------
<FN>
(1) Based on the difference between the sale price and the exercise price.
(2) Based on $61.00, the closing price of the Class A Common Stock as reported
on the Nasdaq on December 31, 1997. On March 9, 1998, the closing price of
the Class A Common Stock was $82.75.
</FN>
EMPLOYMENT AGREEMENTS
Effective as of April 1, 1992, the Company entered into an Employment
Agreement with Mr. Toan for an initial term extending through March 31, 1996 (as
amended by a letter agreement dated February 28, 1996, the "Agreement"). On
April 1, 1995, and on each April 1 thereafter, the term of the Agreement is
renewed for a new term of two years unless either party has given one year
notice of termination. Neither party has given the required notice as of the
date of this Proxy Statement, thus the term of this Agreement was renewed. The
Agreement provides for annual base compensation of $330,000, subject to increase
in the discretion of the Board of Directors. Pursuant to the Agreement, Mr. Toan
is also eligible for bonus awards of up to 80% of his base salary, consisting of
up to 30% for meeting financial objectives, up to 20% for exceeding such
financial objectives and up to 30% for meeting or exceeding non-financial
objectives. The financial objectives, which are based on attaining a net income
target, and the non-financial objectives, which are based on reaching targets
such as growth in the number of plan participants, expansion of the scope of
services offered by the Company and expansion of the markets in which such
services are offered, will be determined each year by the Board of Directors in
its discretion. Pursuant to the Agreement, effective upon the Company's initial
public offering in June 1992, Mr. Toan received options to purchase 140,000
shares of Class A Common Stock under the 1992 Plan, which are exercisable at
$6.50 per share, and has received additional options on an annual basis. These
options are nonqualified options and are exercisable in full immediately. If Mr.
Toan exercises any of the options prior to the fifth anniversary of the date of
grant, however, the shares received upon exercise, to the extent exceeding a
number of shares equal to the product of (x) 20% of the number of shares subject
to the options, and (y) the number of whole years elapsed since the date of
grant, will be "restricted shares" and subject to forfeiture until such fifth
anniversary. A pro rata portion of the restricted shares received will vest on
each succeeding anniversary until the fifth anniversary after the date of grant,
except that the restricted shares will vest upon the occurrence of a "change of
control" of the Company or if Mr. Toan's employment is terminated due to his
death, disability, retirement or by the Company without cause. If Mr. Toan's
employment is terminated without cause, the Agreement provides that base
compensation will continue to be paid until the later of (a) the expiration of
the term of the Agreement, or (b) 24 months after the termination of employment.
Under such circumstances, Mr. Toan will also be paid a pro rata portion of
incentive compensation for services prior to termination.
SEVERANCE AGREEMENTS
On January 27, 1998, the Board of Directors authorized the Company to enter
into severance agreements with executives selected by the Board of Directors
upon recommendation of the Compensation Committee. The severance agreements are
designed generally to encourage the Company's key management personnel to remain
with the Company and its subsidiaries and to continue to devote their full
attention to the Company's business without distraction from personal
uncertainties and risks created by certain events that are not within their
control. The severance agreements are operative only in the event the
executive's employment with the Company terminates for reasons discussed below.
Six executives, including all of the Named Officers other than the Company's
CEO, have entered into such agreements with the Company (The CEO has previously
entered into an employment agreement with the Company that includes a severance
agreement - see "Employment Agreements" above).
The severance agreements generally provide that, in the event of
termination of the executive's employment with the Company for any reason other
than death or disability (as defined in the agreements) and other than for
"cause" (as defined in the agreements, relating generally to acts constituting a
felony, gross dishonesty or gross misconduct or willful violations of
obligations to the Company), or in the event that the executive terminates
employment for "good reason" (as defined in the agreements, relating generally
to breaches of the agreement by the Company or changes in the executive's job
location, title, authority, duties, compensation or benefits), the executive
will be entitled to receive, subject to certain conditions, a cash severance
benefit payable in four substantially equal quarterly payments in an aggregate
amount equal to: (i) twelve (12) times the monthly base salary being paid to the
executive immediately prior to the date of termination plus (ii) an amount equal
to the product of (x) the executive's "bonus potential" (as determined in
accordance with the agreements) for the year in which the date of termination
occurs, multiplied by (y) the average percentage of the bonus potential earned
by the executive for the three full years immediately preceding such year (or
such shorter period if the executive was employed by the Company for less than
three full years and received or was eligible to receive a bonus during such
period), which product will be prorated for the portion of the year of
termination in which the executive was employed by the Company. As a condition
to receiving severance benefits an executive must execute a release of certain
claims against the Company, and in specified circumstances, agree to certain
non-competition restrictions. All payments will be discontinued in the event of
a breach by the executive. Any amounts earned by the executive from employment
with a third party prior to the final payment of amounts payable under the
severance agreement will reduce the severance benefit due the executive
thereunder, except that no such reduction will be required in the event the date
of termination occurs within 18 months following a "change in control" (as
defined in the severance agreements). The severance agreements also are subject
to certain arbitration provisions. The agreements continue through December 31,
1999, and renew automatically for additional one year terms unless either party
provides notice as specified in the agreements; provided, that the agreements
will continue for two years beyond the month in which any change in control
occurs.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until April 1992, the Company was a direct subsidiary of NYLCare, which was
a subsidiary of New York Life. Since April 1992, both the Company and NYLCare
have been direct subsidiaries of NYLIFE HealthCare, which is an indirect
subsidiary of New York Life. NYLIFE HealthCare is the beneficial owner of
7,510,000 shares (or 100%) of the Class B Common Stock. On March 16, 1998, New
York Life announced that it had reached an agreement with Aetna U.S. HealthCare,
Inc. ("Aetna") pursuant to which Aetna will acquire NYLCare (the "New York
Life/Aetna Transaction"). In connection therewith, the Company and Aetna reached
an agreement to amend certain of the terms and provisions of the agreements
between the Company and NYLCare (the "Aetna Amendments"), such Aetna Amendments
to become effective upon the consummation of the New York Life/Aetna
Transaction, which the parties announced is expected to close in the third
quarter of 1998. The material terms and provisions of the Aetna Amendments are
discussed with the related agreements below.
The Company is also a party to a series of agreements with Premier
Purchasing Partners, L.P., (formerly known as American HealthCare Systems
Purchasing Partners, L.P.; the "Partnership"), a healthcare group purchasing
organization affiliated with Premier, Inc. (formerly known as APS Healthcare,
Inc.; "Premier"). Premier is the largest voluntary healthcare alliance in the
U.S., formed as a result of the mergers in late 1995 of three predecessor
alliances, American HealthCare Systems, Premier Health Alliance and SunHealth
Alliance. The Premier alliance includes more than 240 integrated healthcare
systems that own or operate approximately 750 hospitals and are affiliated with
another 1,080 hospitals. Mr. Norling, who has served as a member of the Board of
Directors of the Company since March, 1992, has served as the Chief Operating
Officer of Premier since September, 1997.
APPROVAL OF RELATED PARTY TRANSACTIONS
In an effort to minimize conflicts, the Company's Bylaws require that any
material transaction with a related party be approved by the Company's Audit
Committee, which currently consists of three directors. A Bylaw provision, which
cannot be changed without the affirmative vote of a majority of the outstanding
Class A Common Stock, requires that a majority of directors on the Audit
Committee be persons who are not directors of New York Life or its subsidiaries
(other than the Company) or officers or employees of New York Life or its
subsidiaries. A material transaction is a transaction that, by itself, would be
required to be disclosed in the Company's proxy statement under the Securities
and Exchange Commission's rules and regulations as in effect at the time of the
transaction. In general, under the Securities and Exchange Commission's rules
and regulations as in effect on the date of this Proxy Statement, a material
transaction would be any transaction, or series of similar transactions, in
which the amount involved exceeds $60,000.
RELATIONSHIP WITH NEW YORK LIFE AND NYLCARE
PHARMACY BENEFIT MANAGEMENT - INDEMNITY PLANS
Through an agreement with New York Life, which was assigned to NYLCare
effective January 1, 1996, the Company provides pharmacy benefit management
services to certain group indemnity policyholders of NYLCare (formerly group
indemnity policyholders of New York Life) and certain contract holders whose
health benefit plans provide indemnity style benefits for which NYLCare provides
administrative services only (such services formerly being provided by New York
Life). The agreement was amended and restated effective September 1, 1995, and
again amended effective January 1, 1997. Since January 1, 1997, the Company has
shared certain retrospective discounts received from drug manufacturers with
NYLCare with respect to the foregoing business at a fixed amount per
prescription, conditioned upon the policyholders/contract holders participation
in the Company's ExpressPreferenceSM drug therapy management program. The term
of the agreement expires December 31, 1999, subject to a review of the Company's
fees and charges on January 1, 1999. If the parties are unable to agree to
revised fees and charges, the agreement may be terminated by either party upon
60 days prior notice. In consideration for its services, the Company receives
fees from NYLCare which it believes are competitive with those received from
unrelated clients. The Company and NYLCare also indemnify each other against all
loss, damage or expense that such party may sustain as a result of any
negligence or willful misconduct or unnecessary delay by the indemnifying
party's performance under the agreement and, in the Company's case, any material
misrepresentation or breach of a representation or warranty by the Company in
the agreement. In connection with the sale of NYLCare to Aetna and pursuant to
the Aetna Amendments, the Company will continue to serve members of the NYLCare
indemnity programs at the current contract rates until such members are
converted to Aetna health insurance policies; provided that Aetna shall assume
responsibility for formulary management and retrospective discount program
administration upon consummation of the New York Life/Aetna Transaction, and the
Company shall receive a fixed amount per prescription in lieu of the current
arrangement.
PHARMACY BENEFIT MANAGEMENT, VISION AND INFUSION THERAPY SERVICE AGREEMENTS -
MANAGED CARE PLANS
The Company and NYLCare are parties to an agreement (the "Original
Agreement") which first became effective January 1, 1992. The Original Agreement
was amended and restated effective January 1, 1995 (the "Amended Agreement")
and, pursuant thereto, the Company and various NYLCare subsidiaries have entered
into pharmacy benefit management (PBM), managed vision care ("Vision") and
infusion therapy service ("Infusion Therapy") agreements (collectively, the
"Site Agreements"). The initial term of the Amended Agreement will expire on
December 31, 1999, and it may be extended for additional one-year terms unless
terminated by either party upon notice given at least 90 days prior to the end
of the initial term or any anniversary date; provided that the Company and
Aetna, pursuant to the Aetna Amendments, have agreed to amend and otherwise
extend certain provisions of the Amended Agreement until December 31, 2003, as
more particularly described below. The Amended Agreement supersedes the Original
Agreement in its entirety for any transaction occurring or circumstances arising
after January 1, 1995.
THE AMENDED AGREEMENT AND THE SITE AGREEMENTS - PRE-AETNA AMENDMENTS
Under the Amended Agreement, NYLCare is required to use the Company as the
exclusive provider of the managed care products and services provided by the
Company to its clients for all health maintenance organizations ("HMOs") in
which NYLCare, directly or indirectly, holds at least a majority interest (the
"NYLCare Owned Sites"), subject to certain exceptions with respect to infusion
therapy services, as discussed below. In addition, NYLCare agreed to use its
best efforts to use the Company as the exclusive provider of such managed care
products and services to any HMOs which NYLCare does not own, but for which it
provides health care management services (the "NYLCare Managed Sites"), subject
to certain exceptions, including the condition that the prices the Company
offers are reasonably competitive with those available from third-party
providers.
In the Amended Agreement, the Company is also the exclusive provider of
such services to NYLCare Owned Sites that may be established in the future,
unless the Company elects otherwise within 60 days of being notified that
NYLCare has acquired or established a new site. If NYLCare is required to use
the Company's pharmacy products for a new NYLCare Owned Site, the Company must
offer such site its most favorable pricing for such products for HMOs located in
the same metropolitan area at that time. If there is no HMO in that area, the
Company must offer such site the most favorable pricing offered by the Company
to any other client in that area or, if there is no such client, a client of
comparable size in the same census region, provided that such price may not be
above the prices payable by existing NYLCare Owned Sites under the agreements
the Company has with those sites. The Company believes that the terms of the
Amended Agreement are no less favorable to the Company than the terms that could
have been obtained in an arm's length transaction with an unaffiliated third
party.
Pursuant to the Amended Agreement and the PBM Site Agreements, the Company
now provides PBM services to each of the NYLCare Owned Sites in Chicago,
Connecticut, Dallas, Houston, Maine, New Jersey, New York, Seattle and the
Baltimore/Washington D.C. area, and the NYLCare Managed Site in North Carolina.
The agreements with the Dallas, Houston, New York, New Jersey and
Baltimore/Washington D.C. sites provide for an annual decrease in the rates for
pharmacy services that the Company provides through December 31, 1999, with an
additional reduction in the rates for the price of mail pharmacy services
provided to these sites compared to the prices offered by the Company to other
HMOs in their respective market area, from January 1, 1996, through December 31,
1999.
In the Amended Agreement, NYLCare also agreed to assist the Company in
product design and promotion and in the development and promotion of drug
formularies. In the PBM Site Agreements for each NYLCare Owned Site, the Company
agrees to develop and maintain drug formularies for each NYLCare Owned Site.
Pursuant to the Amended Agreement, the Company agreed to negotiate retrospective
discounts from drug manufacturers for drugs used by members of health plans
sponsored by the NYLCare Owned Sites ("volume-based discounts"). In the Amended
Agreement, the first $400,000 of volume-based discounts will be allocated to the
Company and discounts in excess of that amount will be allocated 25% to the
Company and 75% to NYLCare, except that certain volume-based discounts
attributable to prescription drug usage by members of certain Medicare health
plans sponsored by the NYLCare Owned Sites above certain amounts will be
allocated 50% to NYLCare and 50% to the Company. For the year ended December 31,
1997, volume-based discounts aggregating $5,803,000 were allocated to the
Company.
Each PBM Site Agreement for a NYLCare Owned Site provides that the Company
and each site shall defend and indemnify the other for claims and costs
resulting from the grossly negligent acts or omissions or intentional misconduct
in connection with the performance of the agreements. The Amended Agreement has
an identical provision with respect to NYLCare and the Company. No claims have
been made under any of these indemnities.
In accordance with the Amended Agreement and the Vision Site Agreements,
the Company continues to provide vision services for the Chicago, Dallas,
Houston, New Jersey, New York and the Baltimore/Washington D.C. NYLCare Owned
Sites.
The Company also continues to provide Infusion Therapy services to the
NYLCare Owned Sites in Dallas, Houston, New Jersey, New York and the
Baltimore/Washington D.C. area, pursuant to the Amended Agreement and the
Infusion Therapy Site Agreements. Under the Infusion Therapy Site Agreements for
the Dallas, Houston and the Baltimore/Washington, D.C. sites, these sites are
not required to use the Company as the exclusive provider of Infusion Therapy
services so long as the Company receives, for each year during the term of the
Amended Agreement, 80% of the aggregate amount that such HMO paid in the prior
year, calculated on a member month basis, for non-maternity, out-patient
Infusion Therapy services to all providers (the "Guaranteed Amount"). For the
other NYLCare Owned Sites and future NYLCare Owned Sites, once such site's total
payments for Infusion Therapy services equal or exceed $1.3 million in any year,
such site is released from the requirement to use the Company as its exclusive
provider of Infusion Therapy services so long as it pays the Company the
applicable Guaranteed Amount. In the Infusion Therapy Site Agreements, the
Company also agrees to give these sites a discount for fees for these services
if the volume of services purchased from the Company exceeds certain thresholds
in any year. The Company also provides infusion therapy services to three
NYLCare preferred provider organizations under separate agreements that are
terminable by either party upon 30 days prior written notice.
THE AMENDED AGREEMENT AND THE SITE AGREEMENTS - POST-AETNA AMENDMENTS
Upon consummation of the New York Life/Aetna Transaction, the Aetna
Amendments shall take effect. From and after that date and continuing through
December 31, 2003, the Company will provide PBM services to 1.4 million
NYLCare/Aetna HMO members in lieu of the exclusivity requirements described
above. The existing contract pricing shall remain in effect through December 31,
1999, and, thereafter, certain pricing adjustments, which the Company believes
reflect an appropriate market price, will be instituted. Aetna will assume
responsibility for formulary development and promotion activities, as well as
management of volume-based discount programs, and the Company will receive a
fixed amount per prescription in lieu of the current percentage-based allocation
method.
The Company will also be the preferred Infusion Therapy provider to the
NYLCare/Aetna HMO members located in the geographic areas currently served by
the Company through December 31, 2003. Specifically, the current pricing terms
of the Infusion Therapy Site Agreements are extended until December 31, 2000,
and, thereafter, limited price adjustments may take effect under certain
circumstances. A minimum annual revenue guaranty is provided in lieu of the
Guaranteed Amount described above. The Vision Site Agreements will continue
under their current terms through December 31, 1999.
In connection with the Aetna Amendments, the Company and New York Life have
reached an agreement in principle whereby New York Life will make certain
transition-related payments to the Company in 1999. The agreement is subject to
the approval of the Company's Audit Committee.
INFORMED DECISION COUNSELING SERVICE AGREEMENT
The Company also provides informed decision counseling services to NYLCare
HMO members and group indemnity policyholders pursuant to an agreement dated as
of April 1, 1997, which expires March 31, 1999. The Company believes that the
terms of the agreement are no less favorable to the Company than the terms that
could have been obtained in an arm's length transaction with an unaffiliated
third party and, pursuant to the Aetna Amendments, the Company and Aetna will
extend the term of the agreement until December 31, 1999.
For the year ended December 31, 1997, the net revenues that the Company
derived from all services provided to NYLCare were approximately $208,118,000,
or 16.9% of total net revenues for such period, of which approximately
$22,734,000 was attributable to vision, infusion therapy and informed decision
counseling services. As of January 1, 1998, the Company provides PBM services to
approximately 1.4 million NYLCare HMO members and approximately 500,000 NYLCare
group health insurance policyholders.
OTHER AGREEMENTS AND TRANSACTIONS
The Company and New York Life are parties to an agreement that provides
that, so long as New York Life, directly or through one or more of its
majority-owned subsidiaries, owns 10% or more of the Class B Common Stock, New
York Life will not engage directly, or through any of its majority-owned
subsidiaries, with certain exceptions relating to the ordinary course of its
investment and its claims processing activities, in a business that derives
substantial revenues, as defined in such agreement, from one or more of the
following activities within the United States (the "Protected Business"): the
provision of pharmacy benefit management services (including dispensing
prescription drugs, monitoring cost and quality of pharmacy services,
establishing a network of retail pharmacies, processing claims for prescription
drugs, performing drug utilization review and assisting in the design of
prescription drug programs for benefit plans), and the provision of vision care
and home infusion therapy services. New York Life and its majority-owned
subsidiaries may (i) engage in portfolio investment activities, without any of
the entities in which they invest being subject to the foregoing restrictions,
(ii) process claims for prescription drugs in connection with processing medical
claims under insurance policies, (iii) acquire entities engaged in all or any
aspect of the Protected Business, unless any such entity derived a majority of
its consolidated revenues from the Protected Business in the first year
proceeding such acquisition, and (iv) continue to operate the business of such
acquired entities as they may thereafter develop or expand. The foregoing does
not in any way restrict the activities of entities in which New York Life and
its subsidiaries own less than a majority equity interest. This agreement will
not be affected by the New York Life/Aetna Transaction.
For an annual premium of $5,800, the Company has obtained a $2.5 million
life insurance policy from New York Life on the life of Mr. Toan. New York Life
maintains Directors and Officers/Corporation Reimbursement ("D&O") insurance
covering directors and officers of New York Life and its subsidiaries for
certain expenses and liabilities of such directors and officers while acting in
their capacity as such while New York Life maintains voting control of the
Company. The total amount of New York Life's D&O insurance is $100 million
aggregate each policy year with a $5 million deductible amount for corporate
liability and up to $10,000 for individual liability. The Company did not incur
any annualized premium expense for insurance covering the first $5 million of
such D&O liability deductible for 1997 because the premium was waived by the
insurer. There is no assurance that New York Life will provide excess D&O
insurance for the Company in the future.
From 1989, when NYLCare acquired all of the outstanding stock of the
Company, through June 15, 1992, the Company was included in consolidated groups
with New York Life for federal income tax purposes. The Company is no longer
entitled by law to be included in the consolidated tax groups and will continue
as a party to the tax allocation agreements only for purposes of adjustments to
tax liabilities for the years in which it was included in those consolidated
groups.
INTERCOMPANY ACCOUNT
The Company maintains an intercompany account for payments to NYLCare,
which, historically, was used for miscellaneous expenses related primarily to
salary and other expenses for the Chairman of the Board and a certain sublease
between the companies. This intercompany account is now primarily used for
NYLCare's portion of the volume based discounts earned by the Company which, for
the period January 1, 1997 to February 28, 1998, were approximately $13,648,000.
The highest outstanding balance at any one time since January 1, 1997, was
approximately $8,466,000. As of February 28, 1998, the balance of such account
was approximately $6,310,000.
RELATIONSHIP WITH THE PARTNERSHIP AND PREMIER
On December 31, 1995, the Company entered into a series of agreements with
the Partnership, which, among other things, designate the Company as Premier's
exclusive preferred provider of outpatient PBM services to shareholders of
Premier and their affiliated healthcare entities, plans and facilities which
participate in the Partnership's purchasing programs. The term of the
relationship is ten years, subject to early termination by the Partnership at
five years upon payment of an early termination fee to the Company. Premier is
required to promote the Company as the preferred PBM provider to its
shareholders and their affiliates. An individual Premier member or affiliated
managed care plan is not required to enter into a PBM agreement with the
Company, but if it does so, the term of the agreement will be five years.
As a result of the number of Premier plan members that receive PBM services
from the Company and the outcome of certain joint drug purchasing initiatives,
the Company issued 227,273 shares of its Class A Common Stock to the Partnership
in May, 1996. The Partnership could also become entitled to receive up to an
additional 2,250,000 shares, depending on the number of members in
Premier-affiliated managed care plans that contract for the Company's PBM
services. If the Partnership earns stock totaling over 5% of the Company's total
voting stock, it is entitled to have its designee nominated for election to the
Board of Directors.
For the year ended December 31, 1997, the net revenues that the Company
derived from services provided to the Premier affiliates were approximately
$82,351,000, or 6.7% of total net revenues for such period. Under the terms of
the agreements with the Partnership, as of January 1, 1998, the Company was
providing service to 20 Premier affiliates representing approximately 1.0
million members.
II. PROPOSAL TO APPROVE THE SECOND AMENDMENT TO THE COMPANY'S AMENDED
AND RESTATED 1994 STOCK OPTION PLAN
BACKGROUND
On June 6, 1994, the Board of Directors of the Company adopted the 1994
Stock Option Plan, which provides for the grant of nonqualified stock options
and incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to certain officers and other key
employees of the Company or certain subsidiaries. On March 22, 1995, the Board
of Directors adopted the Amended and Restated 1994 Stock Option Plan (the
"Plan"), which was approved by the stockholders of the Company on May 24, 1995,
and amended by the Board of Directors and stockholders on January 29, 1997 and
May 28, 1997, respectively, to increase the number of shares of Class A Common
Stock which may be issued thereunder. The purposes of the Plan are to further
the growth, development and financial success of the Company by providing
incentives to those officers and other key employees who have the capacity for
contributing in substantial measure toward the growth and profitability of the
Company and to assist the Company in attracting and retaining employees with the
ability to make such contributions.
On January 27, 1998, the Board of Directors adopted an amendment to the
Plan (the "Second Amendment") which is described below under "Proposed
Amendment". NYLIFE HealthCare has indicated its intention to vote its shares for
approval of the Second Amendment. Assuming NYLIFE HealthCare votes in favor of
such amendment, such vote would be sufficient to approve such amendment. If the
Second Amendment to the Plan is not approved, the existing plan would continue
in effect.
SUMMARY OF THE PLAN
The complete text of the Second Amendment to the Plan, as approved by the
Board of Directors, subject to stockholder approval, is set forth in Exhibit A
to this Proxy Statement. The following summary of certain provisions of the Plan
is qualified in its entirety by reference to the text of the Plan.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). A total of 460,000 shares of Class A Common Stock
have been reserved for grants of options under the Plan, subject to antidilution
adjustments as provided in the Plan and a proposed increase in the total number
of shares available for grant, as described below.
The Committee has the power to interpret the Plan and to determine and
interpret the terms of each option agreement (which need not be identical),
including, without limitation, (i) which eligible employees will be granted
options, (ii) the number of options that will be granted to an employee (subject
to the limitations set forth in the Plan), (iii) whether or not the options
granted are incentive stock options or nonqualified stock options, (iv) the
exercise price of the options, (v) the form of consideration that may be used to
pay for the shares issued upon exercise of an option, and (vi) when an option
will vest or become exercisable, and whether and to what extent the shares
received upon exercise will be "restricted shares" for a period of time, and
subject to forfeiture. No more than 150,000 options may be granted to any one
individual under the Plan. Options have been granted to 94 officers and other
key employees from time to time under the Plan, six of which have forfeited
their unexercised options upon termination of their employment with the Company.
The exercise price of an option may not be less than 100% of the fair
market value of the Class A Common Stock at the time of the grant (110% of the
fair market value in the case of an incentive stock option granted to an
individual who at the time of grant beneficially owns more than 10% of the total
combined voting power of all classes of stock of the Company (a "10%
stockholder")). Such fair market value shall generally be considered to be the
closing sale price per share on Nasdaq on the last trading day preceding the
date of grant. The purchase price is to be paid in cash, by check or, at the
discretion of the Committee and upon such terms as the Committee may approve, by
delivering previously owned shares, having shares withheld or exercising
pursuant to a "cashless exercise" procedure, or any combination thereof.
The term of each option shall be no longer than ten years from the date of
grant (five years in the case of an incentive stock option granted to an
individual who is a 10% stockholder).
At the time of exercise of a nonqualified stock option, the optionee is
required to pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any taxes required to be withheld by reason
of such exercise. The Committee may permit optionees to satisfy withholding
obligations by delivering previously owned shares or by electing to have shares
withheld.
Options are not transferable other than by will or under the laws of
descent and distribution, and are exercisable during the lifetime of the
optionee only by the optionee or his or her guardian or legal representative.
Subject to the "change in control" provision referred to below, all options
terminate immediately in the event of termination of employment for any reason,
except as follows: if such employment is terminated due to death, permanent
disability (as defined in the Plan), retirement (as defined in the Plan), or by
the Company without cause (as defined in the Plan), all outstanding options will
immediately become exercisable and will remain exercisable for three months
following such termination; provided, that the Committee may, in its discretion,
permit the option to be exercised after such period. In no event, however, may
an option be exercised beyond the original term of such option. The Committee
also has the discretion to determine whether and to what extent unvested
restricted shares will vest or be forfeited upon an optionee's termination of
employment.
If an option expires or terminates without having been exercised in full,
or any restricted shares received upon exercise of an option are forfeited, such
shares will again be available for grant of options.
In the event that the outstanding shares of Class A Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger or other subdivision, consolidation, recapitalization,
reclassification, stock split, issuance of warrants or rights, stock dividend,
combination of shares or similar event, appropriate adjustments will be made by
the Committee in the number and kind of shares subject to and which may be
subject to options under the Plan, and the purchase price per share, to prevent
dilution or enlargement of benefits granted to, or available for, optionees.
The Committee may accelerate the exercisability of any option, or the
vesting of any restricted shares, at any time. Options granted under the Plan
prior to the amendment and restatement thereof in 1995 become fully exercisable,
and restricted shares will fully vest, upon the occurrence of a "change in
control" of the Company, which, for purposes of such option grants, means the
occurrence of any of the following events at a time when New York Life is not
the beneficial owner of fifty percent or more of the combined voting power for
the election of directors of the Company: (i) any person (other than the Company
or any parent corporation or subsidiary or related employee benefit plan)
becomes the beneficial owner of securities representing fifty percent or more of
the combined voting power for the election of directors of the Company; (ii) a
change in the majority of the members of the Board of Directors during any
period of two consecutive years that is not approved by a vote of at least
two-thirds of the members of the Board who were members at the beginning of such
two-year period; (iii) the stockholders of the Company approve a merger or
consolidation involving the Company that results in existing stockholders owning
80% or less of the combined voting power of the voting securities of the Company
after such merger or consolidation, other than a recapitalization or similar
transaction in which no "person" acquires more than fifty percent of the
combined voting power for the election of directors; or (iv) the stockholders of
the Company approve a plan of complete liquidation or an agreement providing for
the sale or disposition of all or substantially all of the Company's assets or
any transaction having a similar effect.
With respect to all other options granted under the Plan, in the event of a
"change in control", all outstanding options, whether or not previously
exercisable and vested, will terminate and any restricted shares will be
redeemed by the Company and, in either case, the Company will pay the optionee a
specified amount in lieu of such options or restricted shares. For options
granted after the Plan was amended and restated, the term "change of control"
means the occurrence of one of the following events: (i) the first date on which
both of the following conditions shall exist: (A) New York Life shall have
ceased to be the ultimate beneficial owner of securities representing fifty
percent or more of the combined voting power for the election of directors, and
(B) a person (other than the Company or any parent corporation or subsidiary or
related employee benefit plan) becomes the beneficial owner of securities
representing fifty percent or more of the combined voting power for the election
of directors of the Company; (ii) the stockholders of the Company approve a plan
of complete liquidation of the Company; or (iii) the stockholders of the Company
approve an agreement for the sale or disposition of all or substantially all of
the Company's assets or any transaction having a similar effect. Upon the
occurrence of such a change of control, the Company will pay the optionee a
specified amount in lieu of such options or restricted shares, and such amount
will be determined based upon whether an offer of "comparable employment" is
made to and accepted by the optionee. For purposes of the foregoing, "comparable
employment" means employment with the Company or its successor following a
change in control pursuant to which (i) the employee's responsibilities and
duties are substantially the same and the other terms and conditions of
employment are not materially more burdensome; (ii) his or her aggregate
compensation is substantially the same; and (iii) the employee is not required
to relocate unless the Company or its successor pays the cost of such
relocation, appropriate cost of living adjustments are made, the employee is
employed under a written contract for a term of not less than three years, and
the employee is required to make only one such move during the first three years
of the written contract.
The Board of Directors may at any time terminate or modify the Plan, except
that without the approval of the stockholders it may not increase the number of
shares as to which options may be granted, change the class of persons eligible
to participate in the Plan, change the minimum purchase price of shares subject
to the options, extend the maximum period for granting or exercising options, or
otherwise materially increase the benefits accruing to optionees under the Plan.
The Plan will terminate on June 6, 2004. No termination or amendment of the Plan
may, without the consent of the optionee to whom an option has been granted,
alter or impair any rights or obligations under any option theretofore granted.
PROPOSED AMENDMENTS
Under the proposed Second Amendment to the Plan, effective January 27,
1998, the number of shares which may be issued under the Plan would be increased
from 460,000 shares of Class A Common Stock to 960,000 shares of Class A Common
Stock.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee does not realize income on the grant
of an incentive stock option. If an optionee exercises an incentive stock option
in accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option or within one
year from the date of the exercise, the optionee will not realize any ordinary
income by reason of the exercise, and the Company will be allowed no deduction
by reason of the grant or the exercise. The optionee's basis in the shares
acquired upon exercise will be the amount of cash paid upon exercise. Provided
the optionee holds the shares acquired as a capital asset at the time of sale or
other disposition of the shares, his or her gain or loss, if any, recognized on
the sale or other disposition, will be a capital gain or loss. The amount of his
or her gain or loss will be the difference between the amount realized on the
disposition of the shares and his or her basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise, the optionee
will realize ordinary income at the time of disposition equal to the excess, if
any, of the lesser of (a) the amount realized on the disposition, or (b) the
fair market value of the shares on the date of exercise over the optionee's
basis in the shares. The Company will be entitled to a deduction in an amount
equal to such income. The excess, if any, of the amount realized on disposition
of such shares over the fair market value of the shares on the date of exercise
will be treated as a long- or short-term capital gain, depending upon the
holding period of the shares, provided the optionee holds the shares as a
capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is tax
preference income for purposes of computing the alternative minimum tax
applicable to individuals.
NONQUALIFIED STOCK OPTIONS. Nonqualified stock options do not qualify for
the special tax treatment accorded to incentive stock options under the Code.
Although an optionee does not recognize income at the time of the grant of the
option, he or she recognizes ordinary income upon the exercise of a nonqualified
stock option in an amount equal to the excess of the fair market value of the
stock on the date of exercise of the option over the amount of cash paid for the
stock.
As a result of the optionee's exercise of a nonqualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. If the optionee pays all or part of the
option price of a nonqualified stock option by surrendering shares already owned
by such optionee, certain additional tax rules apply.
The excess of the fair market value of the stock on the date of exercise of
a nonqualified stock option over the exercise price is not a tax preference
item.
RESTRICTED SHARES. An optionee does not recognize income upon receipt of
restricted shares (unless he or she elects, within thirty days of the transfer
of restricted shares, to recognize income currently). Upon the lapse of the
restriction, the optionee will recognize income in an amount equal to the fair
market value of the shares on the date the restriction lapses and the Company
will be entitled to a tax deduction equal to the same amount.
If the optionee elects to recognize income within thirty days of receipt of
the shares, he or she will recognize income in an amount equal to the fair
market value of the shares on the date of receipt of the restricted shares and
the Company will be entitled to a tax deduction equal to the same amount.
CHANGE IN CONTROL. If there is an acceleration of the vesting or payment of
benefits and/or an acceleration of the exercisability of stock options upon a
change in control, all or a portion of the accelerated benefits may constitute
"Excess Parachute Payments" under Section 280G of the Code. The optionee
receiving an Excess Parachute Payment incurs an excise tax of 20% of the amount
of the payment in excess of the employee's average annual compensation over the
five calendar years preceding the year of the change in control, and the Company
is not entitled to a deduction for such payment.
The foregoing is a summary of the Federal income tax consequences to the
participants in the Plan and to the Company, based upon current income tax laws,
regulations and rulings.
STOCK OPTION AWARDS
The following table shows options which have been granted under the Plan to
date to each of the Named Officers and certain specified groups (including
options which have been exercised):
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
NUMBER OF EXERCISE PRICE PER
NAME AND POSITION SHARES SHARE (1)
BARRETT A. TOAN 56,000(2) $45.0625(7)
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
STUART L. BASCOMB 18,200(3) $43.8819(7)
EXECUTIVE VICE PRESIDENT
THOMAS M. BOUDREAU 12,200(3) $49.1721(7)
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
LINDA L. LOGSDON 46,500(3) $32.4839(7)
SENIOR VICE PRESIDENT OF HEALTH
MANAGEMENT SERVICES
DAVID A. LOWENBERG 9,100(3) $46.5055(7)
SENIOR VICE PRESIDENT AND DIRECTOR
OF SITE OPERATIONS
Executive Officer Group (4) 247,500(3) $46.0040(7)
Non-Executive Officer Director 0 ---
Group(5)
Non-Executive Officer Employee 168,335(3) $44.4307(7)
Group(6)
- -----------------------------
<FN>
(1) The closing price of the Company's Class A Common Stock as reported on Nasdaq on March 9, 1998, was $82.75.
(2) See Note 5 to "Option Grants in Fiscal Year 1997" on page 9.
(3) See Note 6 to "Option Grants in Fiscal Year 1997" on page 9.
(4) Consists of nine persons.
(5) Consists of nine persons.
(6) Consists of 85 persons.
(7) Exercise prices shown are weighted averages of the actual exercise prices
for stock options granted to the individuals or members of the groups, as
applicable.
</FN>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE SECOND
AMENDMENT TO THE AMENDED AND RESTATED 1994 STOCK OPTION PLAN.
III. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK
The Board of Directors has proposed an amendment to Article Four of the
Certificate of Incorporation of the Company increasing the number of shares of
Class A Common Stock which the Company is authorized to issue to 75,000,000
shares. The number of shares of Class B Common Stock which the Company is
authorized to issue will remain at 22,000,000.
The Certificate of Incorporation presently authorizes the Company to issue
5,000,000 shares of Preferred Stock, issuable in series, the terms of which may
be fixed by the Board of Directors, 30,000,000 shares of Class A Common Stock
and 22,000,000 shares of Class B Common Stock. The Class B Common Stock is
convertible, share-for-share, into Class A Common Stock at the option of the
holder and automatically so converts upon any transfer to any person or entity
other than New York Life or its affiliates. In stockholder votes, each share of
Class A Common Stock has one vote and each share of Class B Common Stock has ten
votes. Under the Certificate of Incorporation, the outstanding Class B Common
Stock is entitled to equal treatment (payable in shares of Class B Common Stock)
with the Class A Common Stock in the event of any Common Stock dividend or
split. In all respects other than voting power and the convertibility of the
Class B Common Stock, the shares of Class A Common Stock and Class B Common
Stock are identical.
Other than Premier, the holders of the Common Stock do not have preemptive
rights as to additional issues of Common Stock or, other than the Class B Common
Stock, conversion rights. Premier's has a contractual right pursuant to its
agreements with the Company to maintain its proportionate interest in the
Company's Class A Common Stock should the Company issue additional shares of its
Class A Common Stock in a firm commitment public offering. Therefore, should the
Board of Directors elect to issue additional shares of Class A Common Stock,
existing stockholders (other than potentially Premier) would not have any
preferential rights to purchase such shares. In addition, the shares of Common
Stock are not subject to redemption or to any further calls or assessments and
are not entitled to the benefit of any sinking fund provisions.
At March 31, 1998, no shares of Preferred Stock, 9,269,270 shares of
Class A Common Stock and 7,510,000 shares of Class B Common Stock were issued
and outstanding, and a total of 12,080,784 shares of Class A Common Stock were
reserved for future issuance upon conversion of the outstanding Class B Common
Stock (7,510,000 shares), for issuance upon exercise of stock options granted or
which may be granted under the Company's two employee stock option plans and its
stock option plan for outside directors (1,667,100 shares, including the 500,000
shares proposed under the Amendment to the 1994 Plan), and for issuance in
connection with the Company's strategic alliances with certain of its clients
(2,903,684 shares).
The Board of Directors is recommending that the authorized Class A Common
Stock be increased so that the Company will have additional shares available for
such proper corporate purposes as the Board may determine, without having the
further need to seek stockholder authorization. Such purposes might include,
among other corporate purposes, the issuance of additional shares as stock
dividends or stock splits, as consideration for the acquisition of properties or
businesses or in capital raising transactions and the reservation of additional
shares for use in compensation plans or for conversion of Preferred Stock,
should the Board determine to provide conversion rights to one or more series of
the Preferred Stock which it may establish. The future issuance of shares of
Class A Common Stock may, depending on the circumstances, have a dilutive effect
on the earnings per share, voting power and other interests of the existing
stockholders. Except for the presently reserved shares, the Company has no
present plans, understandings or commitments for the issuance of any of the
additional shares of Class A Common Stock. The Board of Directors does not
presently intend to seek stockholder approval of any particular issuance of
shares unless such approval is required by law or the rules of The Nasdaq Stock
Market. The Company reserves the right to seek a further increase in authorized
shares from time to time in the future as considered appropriate by the Board of
Directors.
If the proposed amendment is approved, the first paragraph of Article 4 of
the Certificate of Incorporation will read as follows:
"4. The total number of shares of stock which the
Corporation has authority to issue is 102,000,000 shares, of which (i)
5,000,000 shares are preferred stock, par value $0.01 per share (the
"Preferred Stock"), and (ii) 97,000,000 shares are common stock,
consisting of 75,000,000 shares of Class A Common Stock, par value
$0.01 per share (the "Class A Common Stock"), and 22,000,000 shares of
Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock")."
Assuming stockholders' approval of this proposal, the required amendment of
the Certificate of Incorporation will become effective at the close of business
on June 12, 1998, or as soon thereafter as practicable.
The affirmative votes of a majority of the total voting power of the
outstanding Class A Common Stock and Class B Common Stock voting together as a
single class and voting separately by class are necessary for the proposed
amendment to be approved. Therefore, abstentions and broker non-votes (which may
occur if a beneficial owner of stock where shares are held in a brokerage or
bank account fails to provide the broker or bank voting instructions as to such
shares) effectively count as votes against the proposal. NYLIFE HealthCare has
indicated its intention to vote its Class B Common Stock in favor of the
proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION.
IV. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP served as the Company's independent
accountants for the year ended December 31, 1997. The Board of Directors has
appointed, subject to stockholder ratification, Price Waterhouse LLP to act in
that capacity for the year ending December 31, 1998. A representative of Price
Waterhouse LLP is expected to be present at the Meeting with the opportunity to
make a statement if he or she desires to do so and to be available to respond to
appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1998.
STOCKHOLDER PROPOSALS
In accordance with the Bylaws of the Company, a stockholder who at any
annual meeting of stockholders of the Company intends to nominate a person for
election as a director or present a proposal must so notify the Secretary of the
Company, in writing describing such nominee(s) or proposal and providing
information concerning such stockholder and the reasons for and interest of such
stockholder in the proposal. Generally, to be timely, such notice must be
received by the Secretary during the 30 day period that ends 60 days before the
anniversary of the prior years' annual meeting. Any person interested in making
such a nomination or proposal should request a copy of the relevant Bylaw
provisions from the Secretary of the Company. These Bylaw provisions are
separate from and in addition to the Securities and Exchange Commission's
requirements that a stockholder must meet to have a proposal included in the
Company's proxy statement.
Stockholder proposals intended to be presented at the 1999 Annual Meeting
must be received by the Company no later than December 24, 1998, in order to be
eligible for inclusion in the Company's proxy statement and proxy relating to
that meeting. Upon receipt of any proposal, the Company will determine whether
to include such proposal in accordance with regulations governing the
solicitation of proxies.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters other
than those specifically described above and knows of no matters other than the
foregoing to come before the Meeting. If any other matters or motions properly
come before the Meeting, it is the intention of the persons named in the
accompanying Proxy to vote such Proxy in accordance with their judgment on such
matters or motions, including any matters dealing with the conduct of the
Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies for the
Meeting. Brokerage houses, banks, custodians, nominees and fiduciaries are being
requested to forward the proxy material to beneficial owners and their
reasonable expenses therefor will be reimbursed by the Company. Solicitation
will be made by mail and also may be made personally or by telephone by the
Company's officers, directors and employees, without special compensation for
such activities.
By Order of the Board of Directors
/s/ Thomas M. Boudreau
Thomas M. Boudreau
April 22, 1998 Secretary
EXHIBIT A
SECOND AMENDMENT TO
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
RECITALS
A. Express Scripts, Inc. (the "Company") has an Amended and Restated 1994
Stock Option Plan which was amended and restated on March 22, 1995 and approved
by the stockholders on May 24, 1995, and which was subsequently amended by the
Board of Directors of the Company (the "Board") and approved by the stockholders
on January 29, 1997 and May 29, 1997, respectively (as amended, the "Plan").
B. On January 27, 1998, the Board approved an increase in the number of
shares which may be issued pursuant to the Plan.
AMENDMENT
1. DEFINITIONS. Capitalized terms set forth in this Second Amendment to the
Plan (the "Second Amendment") shall be as defined in the Plan.
2. AMENDMENT TO SECTION 2.1, SHARES SUBJECT TO PLAN. Section 2.1 of the
Plan is amended by deleting the number "460,000" in the first sentence thereof
and inserting in lieu thereof the number "960,000."
3. EFFECTIVE DATE OF THE SECOND AMENDMENT; STOCKHOLDER APPROVAL. The
effective date of this Second Amendment shall be January 27, 1998. This Second
Amendment shall be submitted for the approval of the stockholders of the
Corporation at the next annual meeting thereof on May 27, 1998, and if not
approved by the stockholders this Second Amendment shall be null and void.
Dear Shareholder:
The annual meeting of Stockholders of Express Scripts, Inc. will be held at
the Radisson Hotel, 11228 Lone Eagle Drive, Bridgeton, Missouri 63044, at 9:30
a.m. on Wednesday, May 27, 1998.
It is important that your shares be represented at this meeting. Whether or
not you plan to attend the meeting, please review the enclosed proxy materials,
complete the attached proxy form below, and return it promptly in the envelope
provided.
Please Detach and Mail in the Envelope Provided
- -------------------------------------------------------------------------------
X Please mark your
votes as in this
example.
FOR ALL THE WITHHOLD NOMINEE: HOWARD ATKINS
NOMINEES AUTHORITY TO JUDITH E. CAMPBELL
LISTED AT RIGHT VOTE FOR ALL RICHARD M. KERNAN, JR.
(except as marked NOMINEES LISTED RICHARD A. NORLING
to the AT RIGHT FREDERICK J. SIEVERT
contrary below) STEPHEN N. STEINIG
SEYMOUR STERNBERG
(1) ______ ______ BARRETT A. TOAN
Election HOWARD L. WALTMAN
of NORMAN ZACHARY
Directors
For Against Abstain
(2) Approval of the
Second Amendment to
the Company's Amended
and Restated 1994
Stock Option Plan ____ _____ ____
(3) Approval of an
Amendment to the
Company's Certificate
of Incorporation ____ _____ ____
(4) Ratification of
The appointment of
Price Waterhouse LLP
as the Company's
independent
accountants for 1998 ____ _____ _____
INSTRUCTION: To withhold authority to vote for any
individual nominee, print
that nominee's name below.
- --------------------------------------------------
This Proxy will be voted "FOR" items 1,2, 3 and 4 if no
instruction to the contrary is indicated. If any other
business is presented at the meeting, the proxy will be
voted in accordance with the recommendation of management.
(YOU ARE REQUESTED TO COMPLETE, SIGN AND RETURN THIS PROXY PROMPTLY)
- --------------------------------------------------------------------------------
EXPRESS SCRIPTS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Barrett A. Toan and Stuart L. Bascomb, or
either one of them, as proxies for the undersigned with full power of
substitution, to vote all shares of the Common Stock of the undersigned in
Express Scripts, Inc. (the "Company") at the Annual Meeting of Stockholders of
the Company to be held on May 27, 1998 at 9:30 A.M., at the Radisson Hotel,
11228 Lone Eagle Drive, Bridgeton, Missouri 63044, or at any adjournment
thereof, upon the matters described in the Notice of such Meeting and
accompanying Proxy Statement, receipt of which is acknowledged, and upon such
other business as may properly come before the Meeting or any adjournments
thereof, hereby revoking any proxies heretofore given.
Dated:_________________________ _______________________________
(Signature)
______________________________
(Signature if held jointly)
APPENDIX I
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. PURPOSES; DEFINITIONS
The purposes of the Plan are to further the growth, development and
financial success of the Company by providing incentives to those officers and
other key employees who have the capacity for contributing in substantial
measure toward the growth and profitability of the Company and to assist the
Company in attracting and retaining employees with the ability to make such
contributions.
To accomplish such purposes, the Plan provides that the Company may grant
Incentive Stock Options and Nonqualified Stock Options.
Whenever the following terms are used in the Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the willful failure by an Employee to perform his duties
with the Company, a Parent or a Subsidiary or the willful engaging in conduct
which is injurious to the Company, a Parent or any Subsidiary, monetarily or
otherwise, as determined by the Committee in its sole discretion, provided that,
if the Employee has entered into an employment agreement with the Company, the
Committee, in its sole discretion, may determine to substitute the definition
set forth in such agreement.
"Change in Control" shall mean the following:
(i) the first date on which both of the following conditions shall exist:
(A) New York Life Insurance Company ("New York Life") shall have ceased to be a
Parent, and (B) a "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than the Company or a Related Entity is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power for the election of directors of the Company's
then outstanding securities;
(ii) the shareholders of the Company approve a plan of complete liquidation
of the Company; or
(iii) the shareholders of the Company approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets
or any transaction having a similar effect.
"Change in Control Date" shall mean, in the case of a Change in Control
defined in clause (i) or (ii) of the definition thereof, the date on which the
event occurs, and in the case of a Change in Control defined in clause (iii) of
the definition thereof, the date on which the transaction closes.
"Change in Control Price" shall mean, in a Change in Control transaction in
connection with which New York Life receives consideration for the transfer or
cancellation of its voting securities, the per share amount received by New York
Life; and in the case of any other Change in Control transaction, the greater of
the highest Fair Market Value or the highest price per share paid in a bona fide
transaction related to such Change in Control at any time during the 60 days
immediately preceding the Change in Control Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in Section 6.1.
"Company" shall mean Express Scripts, Inc., a Delaware corporation, and any
successor corporation.
"Comparable Employment" shall mean employment with the Company any
successor to the Company's business following a Change in Control pursuant to
which:
(i) the responsibilities and duties of the Employee are substantially the
same as before the Change of Control (such changes as are a necessary
consequence of the fact that the securities of the Company are no longer
publicly traded if the Company's securities cease to be publicly traded as a
consequence of the Change of Control shall not be considered a change in
responsibilities or duties), and the other terms and conditions of employment
following the Change in Control do not impose on the Employee obligations
materially more burdensome than those to which the Employee was subject prior to
the Change in Control;
(ii) the aggregate compensation (including salary, bonus and other benefit
plans, including option plans) of such Employee is substantially economically
equivalent to or greater than such Employee's aggregate compensation immediately
prior to the Change in Control Date. In making such determination there shall be
taken into account all contingent or unvested compensation, under
performance-based compensation plans or otherwise, with appropriate adjustment
for rights of forfeiture, vesting rules and other contingencies to payment; and
(iii) the Employee is not required to relocate from the metropolitan area
of his or her residence immediately preceding the Change in Control (A) unless
the Company or such successor pays the cost of such relocation (including any
loss and expenses that the employee may incur upon the sale of his or her
residence), (B) if the relocation is to an area with a higher cost of living
than the area of the Employee's residence prior to such relocation, such
Employee's compensation is equitably adjusted to account for such difference,
(C) unless the Employee is employed under a written contract for a term of not
less than three (3) years, and (D) is required to make only one such move during
the first three years of the written contract.
"Effective Date" shall have the meaning set forth in Section 7.1.
"Employee" shall mean any employee (including any officer whether or not a
director) of the Company, or of any corporation which is then a Subsidiary that
has been designated by the Board to participate in the Plan.
"Early Retirement" shall mean retirement by an Employee from active
employment with the Company, a Parent or any Subsidiary (i) with the express
consent for purposes of the Plan of the Committee or such officer of the Company
as the Committee may designate from time to time, or (ii) pursuant to the early
retirement provisions of a pension plan maintained by the Company, a Parent or
any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" per Share as of a particular date shall mean, unless
otherwise determined by the Committee:
(i) the closing sales price per Share on a national securities exchange for
the last preceding date on which there was a sale of Shares on such exchange;
(ii) if clause (i) does not apply and the Shares are then quoted on the
National Association of Securities Dealers Automated Quotation system (known as
"NASDAQ"), the closing price per Share as reported on such system for the last
preceding date on which a sale was reported;
(iii) if clause (i) or (ii) does not apply and the Shares are then traded
on an over-the-counter market, the average of the closing bid and asked prices
for the Shares in such over-the-counter market for the last preceding date on
which such bid and asked prices were quoted; or
(iv) if the Shares are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the Committee in its
discretion may determine.
"Incentive Stock Option" shall mean an Option intended to be and designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" shall mean an Option that is not an Incentive
Stock Option.
"Normal Retirement" shall mean retirement by an Employee from active
employment with the Company, a Parent or any Subsidiary (i) on or after
attainment of age sixty-five (65), or (ii) pursuant to the normal retirement
provisions of a pension plan maintained by the Company, a Parent or any
Subsidiary.
"Option" shall mean an option to purchase Shares (including Restricted
Shares, if the Committee so determines) granted pursuant to the Plan.
"Option Agreement" shall mean an Option Agreement to be entered into
between the Company and an Optionee, which shall set forth the terms and
conditions of the Options granted to such Optionee.
"Optionee" shall mean an Employee to whom an Option has been granted
pursuant to the Plan.
"Parent" shall mean any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of the corporations (other
than the Company), or if each group of commonly controlled corporations, then
(i) is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of one or more of the other corporations
in such chain representing fifty percent (50%) or more of the combined voting
power for the election of directors for such corporation, or (ii) if the
determination of whether a corporation is a Parent is being made to determine
whether the requirements governing Incentive Stock Options have been met, owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock of such corporation.
"Payment Date" shall mean a date not later than ten (10) business days
following the Change in Control Date.
"Permanent Disability" shall mean that the Employee has suffered physical
or mental incapacity of such nature as to prevent him from engaging in or
performing the principal duties of his customary employment or occupation on a
continuing or sustained basis, provided that, if an Employee has entered into an
employment agreement with the Company, the Committee, in its sole discretion,
may determine to substitute the definition set forth in such agreement. All
determinations as to the date and extent of disability of any Employee shall be
made by the Committee upon the basis of such evidence as it deems necessary or
desirable.
"Plan" shall mean this Express Scripts, Inc. 1994 Stock Option Plan, as
hereinafter amended from time to time.
"Related Entity" shall mean a Parent, a Subsidiary or any employee benefit
plan (including a trust forming a part of such Plan) maintained by the Company,
a Parent or a Subsidiary.
"Restricted Shares" shall mean Shares which are received by an Optionee
upon the exercise of an Option and are subject to the restrictions described in
Section 4.2(c).
"Restriction Period" shall mean the period during which Restricted Shares
are subject to the restrictions set forth in Section 4.2(c).
"Retirement" shall mean Early Retirement or Normal Retirement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Company's Class A Common Stock, .01 par
value.
"Stockholder Approval Date" shall have the meaning set forth in Section
7.1.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
"Ten-Percent Stockholder" shall mean an Employee, who, at the time an
Incentive Stock Option is to be granted to the Employee, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
a Parent or a Subsidiary.
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Employee and the Company, a Parent or a Subsidiary is
terminated for any reason whatsoever, but excluding any termination where there
is a simultaneous reemployment by either the Company, a Parent or a Subsidiary.
2. SHARES SUBJECT TO THE PLAN
2.1 SHARES SUBJECT TO PLAN
The maximum number of Shares that may be issued or transferred pursuant to
Options under this Plan shall initially be 210,000. The Company shall reserve
such number of Shares for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly out
of each. If any Shares that have been subject to an Option cease to be subject
thereto, or any Restricted Shares received by an Optionee upon the exercise of
an Option are forfeited to the Company in accordance with the Option Agreement,
such Shares may again be the subject of Options hereunder.
2.2 CHANGES IN COMPANY'S SHARES
In the event that the outstanding Shares are hereafter changed into or
exchanged for a different number or kind of shares or other securities of the
Company, or of another corporation, by reason of reorganization, merger or other
subdivision, consolidation, recapitalization, reclassification, stock split,
issuance of warrants or rights, stock dividend, combination of shares or similar
event, appropriate adjustments shall be made by the Committee in the number and
kind of Shares subject to and which may be subject to Options under this Plan,
and the purchase price per Share, to prevent dilution or enlargement of the
benefits granted to, or available for, Optionees, including adjustments of the
limitations in Section 2.1 of the maximum number and kind of shares which may be
issued hereunder as Shares.
3. ELIGIBILITY FOR OPTION GRANTS
Any Employee who is employed on the senior staff, or as a member of the
sales force or who is designated by the Committee as a key Employee shall be
eligible to receive Options under this Plan. In no event shall any Options be
granted to any member of the Board who is not an Employee. The Committee shall
from time to time, in its sole discretion:
(a) select from among the eligible Employees (including Optionees who have
previously received Options) such of them as in its opinion should be permitted
to receive Options under this Plan;
(b) determine the number of Shares to be subject to each Option granted to
such selected Employees; provided, that in no event shall Options be granted to
any Employee in excess of 150,000;
(c) determine the terms and conditions applicable to each Option (which
need not be identical), consistent with the Plan; and
(d) establish such conditions as to the manner of exercise of such Options
as it may deem necessary, including but not limited to, requiring Optionees to
enter into agreements regarding transferability and other restrictions with
respect to Shares issuable upon exercise of such Options.
4 TERMS OF OPTIONS AND SHARES
4.1 OPTION AGREEMENT
Options shall be granted only pursuant to an Option Agreement, which shall
be executed by the Optionee and an authorized officer of the Company and which
shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan, including appropriate vesting arrangements. The
aggregate Fair Market Value (determined as of the date of grant) of the Shares
with respect to which Incentive Stock Options granted under this Plan and all
other option plans of the Company, the Parent and any Subsidiary become
exercisable by an Employee during any calendar year shall not exceed $100,000.
To the extent the limitation set forth in the preceding sentence is exceeded,
the Options with respect to such excess amount shall be treated as Nonqualified
Stock Options.
4.2 TERMS
The Options granted hereunder shall have the following terms and
conditions:
(a) PRICE. The purchase price for the Shares subject to an Option, or the
manner in which such purchase price is to be determined, shall be determined by
the Committee, in its sole discretion, and set forth in the Option Agreement,
provided that the purchase price per Share shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share as of the date the Option is
granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder).
(b) TERM. Options shall be for such term as the Committee shall determine,
and as shall be set forth in each Option Agreement, provided that no Option
shall be exercisable after the expiration of ten years from the date it is
granted (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
(c) VESTING. Options shall be exercisable in such installments (which need
not be equal) and at such times as may be designated by the Committee and set
forth in the Option Agreement. To the extent not exercised, installments shall
accumulate and may be exercised, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option, or the vesting of any Restricted
Shares, or portion thereof at any time.
The Committee may in its discretion provide that all or a part of the
Shares received by an Optionee upon the exercise of a Nonqualified Stock Option
shall be Restricted Shares subject to any or all of the following restrictions
or conditions:
(i) Subject to the provisions of the Plan and the Option Agreement, during
a period set by the Committee commencing with the date of the grant of the
Option (the "Restriction Period"), the Optionee may not be permitted to sell,
transfer, pledge or assign the Restricted Shares. The Committee in its
discretion may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may determine
in its discretion,
(ii) Except as provided in this clause (ii) and clause (i) above, the
Optionee shall have, with respect to the Restricted Shares, all of the rights of
a shareholder of the Company, including the right to vote the Shares and the
right to receive any cash dividends. Stock dividends issued with respect to
Restricted Shares shall be treated as additional Restricted Shares that are
subject to the same restrictions and other terms and conditions that apply to
the Shares with respect to which such dividends are issued.
(iii) Subject to the applicable provisions of the Option Agreement and this
Section, upon Termination of Employment during the Restriction Period, all
Shares still subject to restriction will vest, or be forfeited, in accordance
with the terms and conditions established by the Committee at grant.
(iv) If and when the Restriction Period expires without a prior forfeiture
of the Restricted Shares, certificates for an appropriate number of unrestricted
Shares shall be delivered to the Optionee promptly.
(d) Termination of Employment. Except as provided in this Section 4.2(d) or
in the Option Agreement evidencing such an Option, in the event of a Termination
of Employment of an Optionee, all outstanding Options held by such Optionee
shall terminate immediately, provided that, if such Termination of Employment is
due to the Optionee's death, Permanent Disability, or Retirement or by the
Company, a Parent or a Subsidiary without Cause, all outstanding Options held by
such Optionee shall immediately become fully exercisable to the extent not so
exercisable, shall remain exercisable for a period of three months following
such Termination of Employment, and shall thereafter terminate. Notwithstanding
the foregoing, (i) the Committee may provide, either at the time an Option is
granted or thereafter, that the Option may be exercised after the period
provided for in this Section 4.2(d), but in no event beyond the term of the
Option, and (ii) no provision in this Section 4.2(d) shall extend the exercise
period of an Option beyond its original term.
4.3 NON-TRANSFERABILITY
No Option granted under the Plan shall be transferable by the Optionee to
whom granted otherwise than by will or the laws of descent and distribution, and
an Option may be exercised during the lifetime of such Optionee only by the
Optionee or his guardian or legal representative. The terms of such Option shall
be binding upon the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
4.4 METHOD OF EXERCISE
The exercise of an Option shall be made only by a written notice delivered
in person or by mail to the Secretary of the Company at the Company's principal
executive office, specifying the number of Shares to be purchased and
accompanied by full payment therefor and otherwise in accordance with the Option
Agreement pursuant to which the Option was granted. The purchase price for any
Shares purchased pursuant to the exercise of an Option shall be paid in full
upon such exercise in cash, by check or, at the discretion of the Committee and
upon such terms and conditions as the Committee shall approve, by transferring
previously owned Shares to the Company, having Shares withheld or exercising
pursuant to a "cashless exercise" procedure, or any combination thereof. Any
Shares transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding the date
of exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Option Agreement evidencing the Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such
Option Agreement to the Optionee. Not less than one hundred (100) Shares may be
purchased at any time upon the exercise of an Option unless the number of Shares
so purchased constitutes the total number of Shares then purchasable under the
Option or the Committee determines otherwise in its sole discretion.
4.5 RIGHTS AS STOCKHOLDER
No Optionee shall be deemed for any purpose to be or to have the rights and
privileges of the owner of any Shares subject to any Option unless and until (a)
the Option shall have been exercised pursuant to the terms thereof, and (b) the
Company shall have issued the Shares to the Optionee.
5. CHANGE IN CONTROL PROVISIONS
5.1 IMPACT OF CHANGE IN CONTROL EVENT
Notwithstanding anything herein to the contrary, in the event of a Change
in Control (i) all outstanding Options, whether or not previously exercisable
and vested, shall terminate immediately and become null and void on the Change
in Control Date, and (ii) any Restricted Shares shall be redeemed by the Company
and canceled as of the Change in Control Date; and in either case the Company
shall pay such Optionee the amount, if any, determined in accordance with
Section 5.2 in lieu of such options or Restricted Shares.
5.2 PAYMENT FOR OPTIONS AND RESTRICTED SHARES
(a) NO OFFER OF COMPARABLE EMPLOYMENT. If an Optionee is not offered
Comparable Employment with the Company or any successor to the Company's
business on or prior to the Change in Control Date, the Company shall pay the
Optionee for each of his Options that was terminated pursuant to Section 5.1 an
amount equal to the excess, if any of the Change in Control Price over the
purchase price for the shares subject to such Option, and for each Restricted
Share that was redeemed and canceled, an amount equal to the Change in Control
Price. Such aggregate amount shall be paid to the Optionee by the Company in a
cash lump sum on the Payment Date.
(b) OFFER OF COMPARABLE EMPLOYMENT ACCEPTED. If an Optionee is offered and
accepts Comparable Employment with the Company or any successor to the Company's
business, the Company shall pay the Optionee for each of his Options that was
canceled pursuant to Section 5.1 an amount equal to the excess, if any, of the
Change in Control Price over the purchase price for the shares subject to such
Option, and for each Restricted Share that was redeemed and canceled, an amount
equal to the Change in Control Price. Such aggregate amount shall be paid to the
Optionee as follows:
(i) any amount attributable to Options that were vested on or prior to the
Change in Control Date shall be paid to the Optionee on the Payment Date.
(ii) any amount attributable to Options that would have become vested after
the Change in Control Date but prior to the second anniversary of the Change in
Control Date, or to Restricted Shares the transferability and forfeiture
restrictions on which would have lapsed during such period, shall be paid to the
Optionee on the date that the Options otherwise would have vested or the
restrictions on such Restricted Shares otherwise would have lapsed, as the case
may be; and
(iii) any other amounts due to the Optionee and not disbursed pursuant to
the preceding clauses (i) and (ii) shall be paid in two cash installments on the
first and second anniversary of the Change in Control Date, the first
installment being equal to one-half of the amount that would have been paid in
the absence of the preceding clause (ii) above minus the amount of any payment
made prior to such first installment pursuant to the preceding clause (ii), and
the second installment being equal to the remaining balance due to the Optionee.
Notwithstanding the foregoing, in the event of a Termination of Employment
of the Optionee at any time before such second anniversary, other than by reason
of (A) the Optionee's death, Permanent Disability or Retirement, (B) termination
by the Company or any successor to the Company's business without Cause, or (C)
termination by the Employee after his employment ceases for any reason to be
Comparable Employment, the Optionee shall forfeit any right to, an shall not be
paid, any unpaid installments. In the case of a Termination of Employment for
any reason specified in clause (A), (B) or (C) of the preceding sentence, all
unpaid installments shall be paid to the Optionee in a cash lump sum within
thirty (30) days of such Termination of Employment.
(c) OFFER OF COMPARABLE EMPLOYMENT REJECTED. If an Optionee is offered
Comparable Employment with the Company or any successor to the Company's
business and he rejects such offer, the Company will pay to the Optionee for
each of his Options that was fully vested immediately prior to the Change in
Control Date, an amount equal to the excess, if any, of the Change in Control
Price over the purchase price for the shares subject to such Option, and for
each Restricted Share that was redeemed and canceled an amount equal to the
lesser of (i) the Change in Control Price, or (ii) the amount paid by the
Optionee to acquire such Restricted Shares from the Company. Except as provided
in the preceding sentence, the Company shall not be required to pay, and the
Optionee shall not be entitled to receive, any amount under this Section 5 or
otherwise in connection with the cancellation of any other Options pursuant to
Section 5.1. Any amount payable to the Optionee hereunder shall be payable on
the Payment Date.
5.3 ESCROW OF DEFERRED PAYMENTS
(a) Any amount that may become payable to Optionees pursuant to Section
5.2(b) above shall be deposited on the Payment Date in escrow with a U.S. bank
with unrestricted capital and surplus of not less than $100,000,000. Such funds
shall be invested in securities issued or fully guaranteed as to both principal
and interest by the U.S. Government. Interest earned shall be allocated ratably
among the Optionees receiving payment of such funds and, if any amounts are
forfeited by an Optionee, to the Company, and shall be disbursed when such
payments are made.
(b) DISBURSEMENTS
(i) Subject to the following clauses (ii) and (iii), the escrow agreement
shall provide for disbursements to Optionees in accordance with a schedule
attached thereto and prepared in accordance with Section 5.2(b)(ii) and (iii).
(ii) If an Optionee forfeits his rights to any payments from the escrow,
the Company shall give written notice thereof contemporaneously to the escrow
agent and the Optionee by certified or registered mail (in the case of the
Optionee, to the last known address of the Optionee on the records of the
Company), stating the reason for such forfeiture and the amount thereof. The
escrow agent shall disburse the amount stated in such notice to the Company
thirty (30) days after receipt thereof unless prior to such time the escrow
agent receives written notice of objection from the Optionee. If a notice of
objection is received, the escrow agent shall disburse such funds only upon
order of a court of competent jurisdiction or upon written instructions signed
by both the Company and the Optionee.
(iii) If an Optionee or his successor in interest becomes entitled to a
payment from the escrow prior to the time stated in the schedule, the Optionee
or such successor shall give written notice thereof contemporaneously to the
escrow agent and the Company by certified or registered mail, stating the reason
for such accelerated payment and the amount thereof. The escrow agent shall
disburse the amount stated in such notice to the Optionee or such successor
thirty (30) days after receipt thereof unless prior to such time the escrow
agent receives written notice of objection from the Company. If a notice of
objection is received, the escrow agent shall disburse such funds only upon
order of a court of competent jurisdiction or upon written instructions signed
by both the Company and the Optionee.
5.4 PARACHUTE PAYMENTS
In the event that the aggregate present value of the payments to an
Optionee under this Plan, and any other plan, program, or arrangement maintained
by the Company (a Subsidiary or, if applicable, a Parent) constitutes an "excess
parachute payment" (within the meaning of Section 280G(b)(1) of the Code) and
the excise tax on such payment would cause the net parachute payments (after
taking into account federal, state and local income and excise taxes) to which
the Optionee otherwise would be entitled, to be less than what the Optionee
would have netted (after taking into account federal, state and local income
taxes) had the present value of his total parachute payments equaled $1.00 less
than three times his "base amount" (within the meaning of Section 280G(b)(3)(A)
of the Code), the Optionee's total "parachute payments" (within the meaning of
Section 280G(b)(2)(A) of the Code) shall be reduced (by the minimum possible
amount) so that their aggregate present value equals $1.00 less than three times
such base amount. For purposes of this calculation, it shall be assumed that the
Optionee's tax rate will be the maximum marginal federal, state and local income
tax rate on earned income, with such maximum federal rate to be computed with
regard to Section 1(g) of the Code, if applicable. In the event that the
Optionee and the Company or any successor to the Company's Business are unable
to agree as to the amount of the reduction described above, if any, the Optionee
shall select a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to the Change in Control that
resulted in the characterization of the payments as parachute payments) by the
Company regarding federal income tax or employee benefit matters and such law
firm or accounting firm shall determine, at the Company's expense, the amount of
such reduction and such determination shall be final and binding upon the
Optionee and the Company or such successor.
6. ADMINISTRATION
6.1 COMPENSATION COMMITTEE
The Plan shall be administered by the Committee which shall consist of at
least three directors of the Company, appointed by the Board and holding office
at the pleasure of the Board. All Committee members shall be members of the
Board. All members of the Committee must be "disinterested persons," as such
term is described in Rule 16b-3 adopted by the Securities and Exchange
Commission under the Exchange Act, if and as such Rule is in effect and to the
extent required by Section 162(m) of the Code and the Regulations promulgated
thereon, an "outside director" within the meaning thereof.
6.2 DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its terms and provisions. The Committee shall
have the power to interpret the Plan and the Option Agreements and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
6.3 MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a telephonic or other meeting or by a
memorandum or other written instrument signed by a majority of the Committee .
6.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee may receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
the Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, or other persons. The Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
7. OTHER PROVISIONS
7.1 EFFECTIVE DATE
(a) EFFECTIVE DATE. The Plan shall become effective as of the date of the
adoption of the Plan by the Board, subject to the approval of the Plan by a
majority of the Company's stockholders (the "Effective Date"), and shall
continue in effect until June 6, 2004 or until the Change in Control Date,
whichever is sooner; provided, that termination of the Plan shall not affect the
rights of any Optionee with respect to Options granted or Restricted Shares
acquired contemporaneously with or prior to such termination. Notwithstanding
anything herein or in any Option Agreement to the contrary, Options granted
hereunder shall not vest and may not be exercised prior to the date of
stockholder approval (the "Stockholder Approval Date"), and, in the event that
the Stockholder Approval Date has not occurred on or prior to June 6, 1995 (or
such later date as determined by the Board in its sole discretion), all Options
granted prior to such date shall be null and void and of no effect, retroactive
to the date of grant, and the Plan shall be null and void and of no effect,
retroactive to the date of Board approval.
(b) EFFECT OF CERTAIN AMENDMENTS. The amendments approved by the Board of
Directors on March 22, 1995, other than the amendments to sections 2.1, 3(b) and
6.1 hereof, shall be effective only with respect to Options granted after such
date, provided, however, that the Committee may enter into agreements with
Optionees whose options were granted prior to such date to make such amendments
applicable, in whole or in part, to such Options.
7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board; provided,
however, that, except as provided in Section 2.2, no amendment shall be
effective unless approved by the affirmative vote of a majority of the votes
eligible to be cast at a meeting of stockholders of the Company held within
twelve (12) months of the date of adoption of such amendment, where such
amendment will:
(a) increase the number of Shares as to which Options may be granted under
the Plan;
(b) change the class of persons eligible to participate in the Plan;
(c) change the minimum purchase price of Shares pursuant to Options as
provided herein;
(d) extend the maximum period for granting or exercising Options provided
herein; or
(e) otherwise materially increase the benefits accruing to Optionees under
the Plan.
From and after the Effective Date, neither the amendment, suspension nor
termination of the Plan shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option theretofore granted. No
Options may be granted during any period of suspension nor after termination or
expiration of the Plan.
7.3 EFFECT OF PLAN UPON OTHER COMPENSATION AND INCENTIVE PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in the Plan
shall be construed to limit the right of the Company or any Subsidiary to
establish any other forms of incentives or compensation for Employees of the
Company or any Subsidiary.
7.4 REGULATIONS AND OTHER APPROVALS; GOVERNING LAW
(a) The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof.
(b) The obligation of the Company to sell or deliver Shares with respect to
Options granted under the Plan shall be subject to all applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
(c) The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority or to obtain
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder for Employees granted Incentive Stock Options.
(d) Each Option is subject to the requirement that, if at any time the
Committee determines, in its sole discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
(e) In the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act, and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the Securities
Act or regulations thereunder, and the Committee may require any individual
receiving Shares pursuant to the Plan, as a condition precedent to receipt of
such Shares, to represent to the Company in writing that the Shares acquired by
such individual are acquired for investment only and not with a view to
distribution. The certificate for such shall include any legend that the
Committee deems appropriate to reflect any restrictions on transfer.
7.5 WITHHOLDING OF TAXES
No later than the date as to which an amount first becomes includable in
the gross income of an Optionee for Federal income tax purposes with respect to
any Option granted under the Plan, the Optionee shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law or the Company to be
withheld with respect to such amount. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company, a
Parent and any Subsidiary shall, to the extent permitted by law have the right
to deduct any such taxes from any payment of any kind otherwise due to the
Optionee. In its discretion, the Committee may permit Optionees to satisfy
withholding obligations by delivering previously owned Shares or by electing to
have Shares withheld.
7.6 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan or in any Option Agreement shall confer upon any
Optionee any right to continue in the employ of the Company, a Parent or any
Subsidiary or shall interfere with or restrict in any way the right of the
Company, a Parent and any Subsidiary, which are hereby expressly reserved, to
remove, terminate or discharge any Optionee at any time for any reason
whatsoever, with or without Cause.
7.7 TITLES; CONSTRUCTION
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan. The masculine pronoun
shall include the feminine and neuter and the singular shall include the plural,
when the context so indicates.
PRIOR TO AMENDMENT AND RESTATEMENT, SECTION 5, WHICH WILL CONTINUE TO
GOVERN CURRENTLY OUTSTANDING AWARDS OF STOCK OPTIONS AND RESTRICTED SHARES,
FORMERLY PROVIDED AS FOLLOWS:
5. CHANGE IN CONTROL PROVISIONS
In the event of a Change in Control, (a) all outstanding Options not
previously exercisable and vested shall immediately become fully exercisable and
vested, and (b) the transferability and forfeiture restrictions applicable to
any Restricted Shares to the extent not already lapsed, shall lapse and no
longer be applicable, and such Shares shall be deemed fully vested and owned by
the Optionee.
"Change in Control" shall mean the occurrence of any of the following
events at a time when New York Life Insurance Company, A New York mutual life
insurance company, or any successor thereto is not a Parent:
(i) any "person," as such term is used in Section 13(d) and 14(d) of the
Exchange Act, (other than the Company or a Related Entity, without the approval
of the Board, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power for the election of
directors of the Company's then outstanding securities;
(ii) during any period of two consecutive years beginning on or after the
effective date of the Plan, individuals who at the beginning of such period
constitute the Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv)) whose election by the Board
or nomination for election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved (unless the approval of the election or
nomination for election of such new directors was in connection with an actual
or threatened election or proxy contest), cease for any reason to constitute at
least a majority thereof;
(iii) the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (x) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than eighty percent (80%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (y) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as defined above in clause (i)) acquires more than fifty
percent (50%) of the combined voting power for the election of directors of the
Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets or any transaction having a similar
effect.
FIRST AMENDMENT TO
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
RECITALS
A. Express Scripts, Inc. (the "Company") has an Amended and Restated 1994
Stock Option Plan (the "Plan") which was amended and restated on March 22, 1995
and approved by the stockholders on May 24, 1995.
B. On January 29, 1997, the Board of Directors of the Company (the "Board")
approved an increase in the number of shares which may be issued pursuant to the
Plan.
AMENDMENT
1. DEFINITIONS. Capitalized terms set forth in this First Amendment to the
Plan (the "First Amendment") shall be as defined in the Plan.
2. AMENDMENT TO SECTION 2.1, SHARES SUBJECT TO PLAN. Section 2.1 of the
Plan is amended by deleting the number "210,000" in the first sentence thereof
and inserting in lieu thereof the number "460,000."
3. EFFECTIVE DATE OF THE FIRST AMENDMENT; STOCKHOLDER APPROVAL. The
effective date of this First Amendment shall be January 29, 1997. This First
Amendment shall be submitted for the approval of the stockholders of the
Corporation at the next annual meeting thereof on May 28, 1997, and if not
approved by the stockholders this First Amendment shall be null and void.
SECOND AMENDMENT TO
EXPRESS SCRIPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
RECITALS
A. Express Scripts, Inc. (the "Company") has an Amended and Restated 1994
Stock Option Plan which was amended and restated on March 22, 1995 and approved
by the stockholders on May 24, 1995, and which was subsequently amended by the
Board of Directors of the Company (the "Board") and approved by the stockholders
on January 29, 1997 and May 29, 1997, respectively (as amended, the "Plan").
B. On January 27, 1998, the Board approved an increase in the number of
shares which may be issued pursuant to the Plan.
AMENDMENT
1. DEFINITIONS. Capitalized terms set forth in this Second Amendment to the
Plan (the "Second Amendment") shall be as defined in the Plan.
2. AMENDMENT TO SECTION 2.1, SHARES SUBJECT TO PLAN. Section 2.1 of the
Plan is amended by deleting the number "460,000" in the first sentence thereof
and inserting in lieu thereof the number "960,000."
3. EFFECTIVE DATE OF THE SECOND AMENDMENT; STOCKHOLDER APPROVAL. The
effective date of this Second Amendment shall be January 27, 1998. This Second
Amendment shall be submitted for the approval of the stockholders of the
Corporation at the next annual meeting thereof on May 27, 1998, and if not
approved by the stockholders this Second Amendment shall be null and void.