SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Provident American Corporation
- - -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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PROVIDENT AMERICAN CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 17, 1997
-------------------------
TO THE SHAREHOLDERS OF
PROVIDENT AMERICAN CORPORATION:
The Annual Meeting of Shareholders of Provident American Corporation (the
"Company") will be held at 9:00 A.M., prevailing time, on Tuesday, June 17,
1997, at The Jefferson House located at 2519 DeKalb Pike, Norristown,
Pennsylvania 19404, for the following purposes:
1. To elect nine (9) directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected;
2. To act upon the appointment of Coopers & Lybrand LLP as independent
public accountants for the Company for its 1997 fiscal year;
3. To approve the adoption of the Company's 1996 Employee Incentive Stock
Option Plan;
4. To consider and vote upon a proposal to amend the Company's Articles
of Incorporation to increase the number of authorized shares of the Company's
capital stock as follows: (i) Preferred Stock - from 5,000,000 to 20,000,000
shares; (ii) Common Stock - from 25,000,000 to 50,000,000; (iii) Class A
Common Stock - from 2,500,000 to 20,000,000; and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on May 9, 1997 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended December
31, 1996 is enclosed with this Proxy Statement.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you expect to attend the Annual Meeting in person,
please fill in, sign, and return the enclosed form of proxy in the envelope
provided. The shareholders attending the meeting may vote in person even if they
have returned a proxy.
By Order of the Board of Directors,
/s/ Michael F. Beausang, Jr.
-------------------------------------
MICHAEL F. BEAUSANG, JR.,
Secretary
Date: May 23, 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN
PLEASE MAIL YOUR PROXY PROMPTLY
PROVIDENT AMERICAN CORPORATION
PROXY STATEMENT
----------------
This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to shareholders on or about May 23, 1997, are furnished in
connection with the solicitation by the Board of Directors of Provident American
Corporation (the "Company") of proxies to be voted at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at 9:00 A.M., prevailing time, on
June 17, 1997, and at any adjournment thereof at the Company's Executive Offices
located at 2500 DeKalb Pike, Norristown, Pennsylvania 19404.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the shareholders. Any proxy not specifying to the contrary will be voted in
favor of the adoption of the proposals referred to in the Notice of Annual
Meeting and for the nominees for director listed in Item 1 hereof. A shareholder
who signs and returns a proxy in the accompanying form may revoke it at any time
before it is voted by giving written notice thereof to the Secretary of the
Company.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. Such solicitation will be made by mail and may also be made on
behalf of the Company by the Company's regular officers and employees in person
or by telephone or telegram. The Company, upon request therefor, will also
reimburse brokers or persons holding shares in their names or in the names of
nominees for their reasonable expenses in sending proxies and proxy materials to
beneficial owners.
The enclosed proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the meeting: (i)
matters which the Company does not know, a reasonable time before the proxy
solicitation, are to be presented at the meeting; (ii) approval of the minutes
of a prior meeting of shareholders, if such approval does not amount to
ratification of the action taken at the meeting; (iii) the election of any
person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this Proxy Statement
and form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange
Act of 1934, as amended; and (v) matters incident to the conduct of the meeting.
In connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
The Company is not currently aware of any matters which will be brought
before the Annual Meeting (other than procedural matters) which are not referred
to in the enclosed Notice of the Annual Meeting.
As of the close of business on May 9, 1997, the Company had outstanding
10,066,664 shares of Common Stock, $.10 par value, and 580,250 shares of Series
A Cumulative Convertible Preferred Stock, $1.00 par value, ("Series A
Preferred"), which will vote on an as-converted basis with four votes per share.
A majority of the outstanding shares of Common Stock and Series A Preferred,
together as a class will constitute a quorum at the Annual Meeting. In all
matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on the matter shall be the act of the shareholders.
Under the Pennsylvania Business Corporation Law, an abstention, notwithstanding
the authority to vote or broker non-vote will not have the same legal affect as
an "against" vote and will not be counted in determining whether the proposal
has received the required shareholder vote.
1
Only holders of Common and Series A Preferred Stock of record at the close
of business on May 9, 1997 will be entitled to notice of and to vote at the
Annual Meeting. Cumulative voting rights do not exist with respect to the
election of directors. Each share of Common Stock is entitled to one vote and
each share of Series A Preferred Stock (which is convertible into shares of
Class A Common Stock) is entitled to four votes on all matters to come before
the Annual Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Common Stock and Series A Preferred Stock
The following table sets forth, as of May 9, 1997, information with respect
to the beneficial ownership of the Company's Common Stock and Series A Preferred
Stock of (i) each person known by the Company to own beneficially more than 5%
of the Company's outstanding Common Stock, (ii) each director and nominee for
director of the Company, each of the executive officers of the Company named in
the "EXECUTIVE COMPENSATION" table of this Proxy Statement, and (iii) the
directors, nominees for directors, and executive officers of the Company as a
group.
STOCK OWNERSHIP OF DIRECTORS, NOMINEES, AND OFFICERS
MAY 9, 1997
Common Stock Series A Preferred
------------------------------------ --------------------------------
No. of Shares Percent No. of Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned(1) Class(2) Owned Class(2)
- - -------------------------------------- ---------------------- ----------- ------------------- ----------
Alvin H. Clemens .................. 3,827,869(3) 32.6% 1,100,000(4) 97.3%
Richard E. Field ..................... 707,500(5) 7.0%
Michael F. Beausang, Jr. ............ 37,608(6)(7) .4% 16,500 2.8%
James O. Bowles ..................... 75,000(8) .7%
Valerie C. Clemens .................. 228,333(7) 2.3%
Harold M. Davis ..................... 118,333(7) 1.2%
William C. Fay III .................. 59,000(9) .6%
John T. Gillin ..................... 23,333(7) .2%
Henry G. Hager ..................... 18,333(7) .2%
Frederick S. Hammer .................. 8,333(7) .1%
George W. Karr, Jr. .................. 18,333(7) .2%
P. Glenn Moyer ..................... 12,333(7) .1%
Anthony R. Verdi ..................... 65,261(10) .6% 5,500 1.0%
All directors and officers as a group
(13 persons for common stock
and 3 persons for preferred
stock) ........................... 3,992,069(11) 38.0% 1,122,000(4) 99.3%
2
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(1) Information furnished by directors and officers.
(2) Calculated as a percentage of outstanding shares plus each individual's (or
all Directors and Officers as a group) options to purchase Common Stock.
(3) Includes options granted to Mr. Clemens to purchase an additional 549,656
shares of the Company's Common Stock at a price of $.91 per share granted
pursuant to the Amended and Restated Stock Option Agreement dated as of
February 27, 1989, includes 550,000 shares of Series A Cumulative
Convertible Preferred Stock purchased by Mr. Clemens as of March 31, 1993
and also includes 550,000 options at $3.64 per share to purchase Series A
Cumulative Convertible Preferred Stock granted to Mr. Clemens pursuant to
the Amended and Restated Option to Purchase Preferred Shares dated as of
December 11, 1996. Includes an option to purchase 8,333 shares of the
Company's Common Stock at $8.75 per share. Mr. Clemens disclaims beneficial
ownership of 616,000 shares of the Company's Common Stock given by him to
The Mark Twain Trust in 1991 and 703,720 options to purchase additional
shares of the Company's Common Stock owned by a partnership in which Mr.
Clemens is a partner. Excludes shares of Series A Cumulative Convertible
Preferred Stock which may be issued under the Agreement to Grant Options
dated as of March 10, 1997. See "Employment Contracts and Change-in-Control
Arrangements." The Series A Cumulative Convertible Preferred Stock is voted
on an "as converted" basis, and is convertible on a share-for-share basis
into either Class A Common Stock (having four votes per share in connection
with matters submitted to shareholders for a vote) or into Common Stock.
(4) Includes options granted to Mr. Clemens to purchase 550,000 shares of
Series A Cumulative Convertible Preferred Stock at $3.64 per share. This
does not include shares of Series A Cumulative Convertible Preferred Stock
which may be issued under the Agreement to Grant Options dated as of March
10, 1997. See "Employment Contracts and Change-in-Control Arrangements."
(5) Includes stock purchase warrant to purchase 100,000 shares of the Company's
Common Stock.
(6) Includes 16,500 shares of Series A Cumulative Convertible Preferred Stock.
Includes shares owned beneficially by Mr. Beausang through Butera,
Beausang, Cohen & Brennan Employees' Pension Plan. Mr. Beausang disclaims
beneficial ownership of all shares owned directly or beneficially by his
wife, Deborah D. Beausang.
(7) Includes an option to purchase 8,333 shares of the Company's Common Stock.
(8) Mr. Bowles includes options to purchase 75,000 shares of the Company's
Common Stock.
(9) Includes options to purchase 59,000 shares of the Company's Common Stock.
(10) Includes 5,500 shares of Series A Cumulative Convertible Preferred Stock.
Includes an option to purchase 32,000 shares of the Company's Common Stock.
(11) Includes stock and options of all officers and directors to purchase an
aggregate of 166,000 shares and 66,664 shares, respectively, and options
granted to Mr. Clemens to (1) purchase an additional 549,656 shares of the
Company's Common Stock at a price of $.91 per share granted pursuant to the
Amended and Restated Stock Option agreement dated as of February 27, 1989
and (2) purchase an additional 8,333 shares of the Company's Common Stock
at $8.75 per share; includes 572,000 shares of Series A Cumulative
Convertible Preferred Stock and also includes 550,000 options at $3.64 per
share to purchase Series A Cumulative Convertible Preferred Stock granted
to Mr. Clemens pursuant to the Amended and Restated Stock Option Agreement
dated as of December 11, 1996.
3
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors by resolution has set the number of persons to be
elected to the Board of Directors at the Annual Meeting at nine, and has
designated the persons listed below to be nominees for election as directors.
All of the nominees are currently members of the Board. The Board of Directors
knows of no reason why any of the nominees will be disqualified or unable to
serve if elected. However, if any nominee should become unavailable for any
reason, proxies may be voted for another person nominated by the present Board
of Directors to fill the vacancy or the size of the Board may be reduced
accordingly. Directors of the Company hold office for a term of one year and
until their successors are duly elected.
The names of the nominees for directors, together with certain information
regarding them, are as follows:
Principal Occupation for
Served as Year Past Five Years and
Director Term Will Position(s) Held with
Name Age Since Expire the Company or Subsidiaries
- - -------------------------- ------ ------------ ------------ ----------------------------------------
Michael F. Beausang, Jr. 61 1989 1998 Director; Secretary and General Coun-
sel of the Company and Provident
Indemnity Life Insurance Company
("PILIC") since October 1989; Direc-
tor and Secretary of Provident Ameri-
can Life & Health Insurance Company
("PALHIC") since April 1996; Direc-
tor and Secretary of Maine National
Life Insurance Company ("Maine
National") 1984-1995; Partner in the
law firm of Butera, Beausang, Cohen
& Brennan since 1970; Director, Jef-
ferson Bank.
Alvin H. Clemens 59 1989 1998 Director; Chairman of the Board and
Chief Executive Officer of the Com-
pany and subsidiary companies since
October 1989 and President of the
Company and PILIC 1993-1996;
Director of PALHIC since April 1996;
President of Maine National 1989-
1995.
Valerie C. Clemens(1) 41 1989 1998 Director; Founder/Owner of Valerie's
Limited Showcase of Fashion 1984-
1990; Executive Director of Miss
America's Maine Scholarship Pageant
1985-1987.
4
Principal Occupation for
Served as Year Past Five Years and
Director Term Will Position(s) Held with
Name Age Since Expire the Company or Subsidiaries
- - --------------------- ------ ------------ ------------ -----------------------------------------
Harold M. Davis 61 1989 1997 Director; Chairman of the Board of
Realen Homes, Inc. since 1968.
John T. Gillin 57 1984 1997 Director; Self-employed since 1992;
Managing Director, Hopper Soliday
Corporation 1987-1992.
Henry G. Hager 63 1996 1997 Director; Partner in the law firm of
Stradley, Ronon, Stevens and Young
since 1994; President and Chief
Executive Officer of The Insurance
Federation of Pennsylvania since 1985.
Frederick S. Hammer 60 1996 1997 Director, Partner of Inter-Atlantic
Securities Corp. since 1994; Chairman
of the Board of Directors, National
Media Corp. since March 1996 and
member of the Board since 1994;
President of Mutual of America Capi-
tal Management Corp. 1992-1994,
Director; Ikon Office Solution since
1987.
George W. Karr, Jr. 59 1996 1997 Director; Chief Executive Officer of
Karr Barth Associates, Inc. since 1984.
P. Glenn Moyer 61 1989 1997 Director; Director, Maine National
1985-1995; Private Practice Attorney
since 1992; Partner in the law firm of
Butera, Beausang, Moyer & Cohen
from 1968 through 1992.
- - ------------
(1) Valerie C. Clemens is the wife of Alvin H. Clemens.
During 1996, the Company's Board of Directors held three (3) meetings.
Messrs. Alvin H. Clemens, James O. Bowles, William B. Fay, III, and Anthony
R. Verdi are the executive officers of the Company.
5
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors, pursuant to its powers, has designated
several committees of the Board, the functions and membership of which are
described below. The Board of Directors held three meetings in 1996.
The Executive/Compensation/Nominating Committee, on which Messrs. Clemens,
Davis, Gillin, and Karr currently serve, is appointed to act when a meeting of
the full Board of Directors is not feasible, administers the Company's
compensation matters, and also nominates directors and determines replacements
for directors when membership on the Board of Directors ends prior to the
expiration of a term. The Executive/Compensation/Nominating Committee held three
meetings during 1996.
The Audit Committee, comprised of Messrs. Gillin, Moyer, and Mrs. Clemens
(Mr. Beausang is an alternate), is appointed to recommend the selection of the
Company's auditors, review the scope and results of audits, review the adequacy
of the Company's accounting, financial and operating system, and supervise
special investigations. The Audit Committee held no meetings in 1996.
The Option Administration Committee, first established by the Board of
Directors on July 16, 1996, consists of James O. Bowles, Alvin H. Clemens,
Harold M. Davis, P. Glenn Moyer, and Anthony R. Verdi. Any options to be granted
to Messrs. Bowles, Clemens, or Verdi are subject to the approval of only Messrs.
Davis and Moyer, who are outside directors of the Company and as such are
disinterested persons.
In 1996, no director attended less than 75% of the aggregate of all
meetings of the Board of Directors and all meetings held by committees of the
Board on which such director served.
DIRECTOR COMPENSATION
Directors of the Company who are employees were not compensated for their
attendance at meetings; Directors who are not employees of the Company are paid
a fee of $1,000 for attendance at each meeting of the Board of Directors of the
Company, with no fee being paid for attendance at meetings of any of the
Company's subsidiaries, and $500 for attendance at each meeting of any committee
of the Board of Directors of the Company.
On July 16, 1996 the Board of Directors revised the compensation for the
Company's directors. These changes took effect as of October 1, 1996. Effective
October 1, 1996 the Company discontinued the payment of a quarterly retainer of
$1,500 to each non-employee Director, and in lieu thereof, adopted an
equity-based compensation program. In order to implement the new director
compensation program, Messrs. Clemens, Beausang, Davis, Gillin, Hager, Hammer,
Karr, Moyer and Mrs. Clemens each were granted options to purchase 25,000 shares
of the Company's Common Stock. The exercise prices for these options were equal
to the fair market value of the Company's Common Stock on the date of grant, the
options vest in installments of one-third per year commencing as of the date of
grant, except that upon the death of a Director or the failure of the Company to
nominate a Director for re-election, all remaining options immediately vest and
become immediately exercisable. Unvested options shall be forfeited if Board
service is otherwise terminated prior to two (2) years from the date of grant of
the option.
6
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires officers, Directors, and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of all such reports.
Based solely on its review of the reports received or written
representations that no other reports were required, the Company believes that,
for the fiscal year ended December 31, 1996, all filings required pursuant to
Section 16(a) of the 1934 Act applicable to its officers, Directors and greater
than ten percent beneficial owners of the Company's Common Stock were made.
REPORT OF THE EXECUTIVE/COMPENSATION/NOMINATING COMMITTEE
The compensation of the Company's executive officers is generally
determined by the Executive/Compensation/Nominating Committee (the "Executive
Committee") of the Board of Directors. The following report with respect to
certain compensation paid or awarded to the Company's executive officers during
1996 is furnished by the directors who comprise the Executive Committee:
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward, and retain the management talent required to achieve
aggressive corporate objectives in a highly competitive industry, and thereby
increase shareholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of the
Company's business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with a cash
incentive bonus which is based upon the Company's business, primarily in the
achievement of pre-determined financial goals. In general, as an executive
officer's level of management responsibility in the Company increases, a greater
portion of his or her potential total compensation depends upon the Company's
performance as measured by objective standards over one or more years.
Relationship of Compensation to Performance
As a person's level of responsibility in the Company increases, a greater
portion of potential total compensation opportunity is shifted to performance
incentives. The total of salary and bonus is intended to provide cash
compensation which is competitive in a mid-range when performance meets goals.
The overall salary range structure is maintained at a mid-range competitive
level to attract and retain the highest caliber of employees. Individual salary
rates are based on the salary range for the position as well as the length of
service, quality of performance in that position, and other key factors.
The performance-based incentive initially requires that earnings generate
sufficient funds to establish a bonus pool. Target bonus opportunities are
established for each position level. The level of each employee's bonus is based
on achievement for that year of corporate objectives which the Company believes
correlate to shareholder value and support the strategic goals of the Company.
7
Employment Contracts and Change-in-Control Arrangements
Effective February 19, 1997, the Company and Mr. Clemens entered into a new
Employment Contract which replaces Mr. Clemens's prior Employment Contract dated
as of January 1, 1993. Pursuant to the Employment Contract, Mr. Clemens is
employed as Chief Executive Officer of the Company for a five-year term which is
automatically extended so that on any day during which the agreement is in
effect, it shall have a then-current five year term. Mr. Clemens is paid a base
salary of $394,308, plus an annual cost of living increase, and such additional
incentive or bonus compensation as shall be deemed appropriate from time to time
by the Board of Directors of the Company. No bonus was paid to Mr. Clemens in
1996. The Employment Contract further provides for the provision of group life,
health, disability, major medical, and other insurance coverages for Mr. Clemens
and his family, and upon termination, provides termination benefits which
include the provision of health insurance for Mr. Clemens and his spouse for
life, a salary benefit of five times base salary in the event of Mr. Clemens's
death, disability, or termination without cause. The Employment Contract further
provides certain restrictions on Mr. Clemens's competition and disclosure of
confidential information.
In addition, pursuant to an Agreement to Grant Options dated as of March
10, 1997 (the "Option Contract"), the Company agreed to grant Mr. Clemens an
option to successively purchase up to 3,300,000 shares of the Company's Series A
Cumulative Convertible Preferred Stock ("Series A Preferred"), which option or
options will be granted upon any exercise by Mr. Clemens's of any previously
granted option to purchase Series A Preferred, and each subsequently granted
option to purchase shares of Series A Preferred from time to time. The rights
set forth in the Option Contract are limited as follows: (1) the number of
shares of Series A Preferred issuable upon each exercise of the Option Contract
shall be limited by the number of shares of Series A Preferred which shall, as
of the date of any such exercise, be authorized and unissued; (2) the number of
shares of Series A Preferred issuable upon the exercise of all of the Options
granted to Mr. Clemens under the Option Contract and under a previously granted
option to purchase 550,000 shares of Series A Preferred shall not in the
aggregate exceed 3,850,000 shares of Series A Preferred; and (3) except upon the
occurrence of a "change in control" (as defined herein), Mr. Clemens shall not
be permitted to exercise an option granted under the Option Contract (i) to
purchase more than 550,000 shares of Series A Preferred in any six-month period,
or (ii) the effect of which would be to permit Mr. Clemens to vote more than 55%
of the number of shares of the Company's Common Stock owned by Mr. Clemens at
such time. Upon the occurrence of a "change of control" of the Company, Mr.
Clemens shall have the right to immediately exercise all options to purchase
shares of Series A Preferred, and the Company will make a loan to him in an
amount equal to the aggregate exercise price of all options to purchase shares
of Series A Preferred which Mr. Clemens may then be entitled to exercise, plus
an amount equal to all federal and state income taxes incurred by Mr. Clemens in
connection with the exercise (the "Loan"). The Loan shall be unsecured, and
shall bear interest at the then applicable federal short-term rate, but not less
than six (6%) percent per annum, with interest and principal due and payable in
full five (5) years from the date of the Loan. For this purpose, a "change of
control" shall mean the acquisition by any individual, entity or group (within
the meaning of the Securities Exchange Act of 1934, as amended), of beneficial
ownership of 25% or more of either the then outstanding shares of the Common
Stock of the Company, or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors.
Mr. Bowles is employed as President of the Company pursuant to an Amended
and Restated Employment Contract dated as of November 7, 1996 for a three-year
term commencing as of October 1, 1996, which provides for a base salary of
$195,000, with an annual cost of living increase, and such additional incentive
or bonus compensation and certain insurance and other fringe benefits as shall
be deemed appropriate from time to time by the Executive Committee or the Board
of Directors of the Company. The Employment Contract further pro-
8
vides certain restrictions on Mr. Bowles's competition and disclosure of
confidential information. In addition, Mr. Bowles was granted an option to
purchase 50,000 shares of the Company's Common Stock at an exercise price equal
to the fair market value of a share of the Company's Common Stock on the date of
grant, which option is exercisable in its entirety as of the date of grant.
Executive Committee Interlocks and Insider Participation
Mr. Clemens, the Company's Chairman of the Board and Chief Executive
Officer, is a member of the Executive/Compensation/Nominating Committee;
however, Mr. Clemens does not vote upon any matters relating to his
compensation, fringe benefits, or with respect to the granting of any stock
options to him.
Certain Relationships and Related Transactions
The Company made a loan to Alvin H. Clemens, Chairman and Chief Executive
Officer of the Company in the original principal amount of $300,000,
collateralized by 100,000 shares of the Company's Common Stock owned by Mr.
Clemens and evidenced by a Promissory Note dated April 8, 1996, which was
repayable together with interest at the rate of 5.33% per annum on or before
April 8, 1999. The loan was amended effective April 8, 1997 to increase the
principal balance from $300,000 to $600,000, to change the interest rate from
5.33% to 5.75%, to change the repayment terms so that the loan shall be
repayable interest only for two years, with the entire principal balance,
together with all accrued interest, due and payable on April 8, 1999, and to
increase the collateral from 100,000 shares of the Company's Common Stock to
120,000 shares. As of May 9, 1997, the principal balance due under the Note was
$600,000 plus accrued interest.
The Company made a loan to John T. Gillin, a Director of the Company in the
original principal amount of $140,900, collateralized by 20,000 shares of the
Company's Common Stock owned by Mr. Gillin and evidenced by a Promissory Note
dated April 2, 1996, as amended by an Amendment to Promissory Note dated June
20, 1996, and a Second Amendment to Promissory Note dated February 1, 1997. The
loan was amended effective as of April 30, 1997 for the purpose of extending the
repayment terms of the Gillin Note and increasing the collateral to include a
pledge of Mr. Gillin's option to purchase 25,000 shares of the Company's Common
Stock dated July 16, 1996. As of May 9, 1997, the principal balance due under
the Note was $140,900 plus accrued interest.
Richard E. Field, former Chief Executive Officer of Richard E. Field &
Associates, Inc., d/b/a REF & Associates, Inc. ("REF") provides the Company's
insurance subsidiaries with exclusive marketing, sales, and product design
services as part of a 36 month Marketing and Consulting Agreement effected as of
January 1, 1996 ("Consulting Agreement"). The Company paid Mr. Field $300,000 in
1996 in connection with the Consulting Agreement. Upon the execution of the
Consulting Agreement, the Company issued a warrant to Mr. Field to purchase
100,000 shares of the Company's Common Stock at the market price per share as of
each of January 1, 1996, January 1, 1997, and January 1, 1998, provided PILIC
has realized annualized premium of at least $35 million, $45 million, and $50
million, respectively, for each of these calendar years. The annualized premium
threshold for the year ended December 31, 1996 was achieved, and accordingly,
Mr. Field is entitled to exercise 100,000 warrants for 1996.
In an unrelated transaction, on June 18, 1996, the Company acquired REF. In
this transaction Mr. Field was issued 457,500 shares of the Company's Common
Stock.
The Company's Secretary and General Counsel, Michael F. Beausang, Jr., is
also a member of the Board of Directors and a partner/shareholder in the law
firm of Butera, Beausang, Cohen & Brennan ("BBC&B"). The Company paid legal fees
of approximately $258,600 in 1996 to BBC&B.
9
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation for services in all capacities paid by the Company and its
subsidiaries for the past three years, to or on behalf of (i) the Chairman of
the Board, President and Chief Executive Officer of the Company at December 31,
1996, and (ii) each of the Other most highly compensated executive officers of
the Company serving at December 31, 1996:
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (d) (e)
Name and Other Annual
Principal Salary Bonus Compensation
Position(1) Year ($) ($) ($)
Alvin H. Clemens, 1996 386,662
Chairman of the Board 1995 381,814
and CEO 1994 356,494
James O. Bowles(3) 1996 130,000
President & Chief 1995
Operating Officer 1994
William C. Fay III 1996 111,958 173,570
Sr. Vice President 1995 120,802 89,108
Sales 1994 120,191
Anthony R. Verdi, 1996 128,072
Treasurer and CFO 1995 126,000
1994 127,549
John A. Muller, III(4) 1996 131,183
COO 1995 125,385
1994 113,508
Long-Term Compensation
Awards Payouts
(a) (f) (g) (h) (i)
Long Term
Restricted Securities Incentive
Name and Stock Underlying Plan All Other
Principal Award(s) Options Payouts Compensation(2)
Position(1) ($) (#) ($) ($)
Alvin H. Clemens,
75,000
15,748
Chairman of the Board
15,225
and CEO
26,036
James O. Bowles(3)
125,000
President & Chief
Operating Officer
William C. Fay III
160,000
3,080
Sr. Vice President
3,042
Sales
1,609
Anthony R. Verdi,
75,000
10,406
Treasurer and CFO
9,415
10,015
John A. Muller, III(4)
50,000
1,625
COO
1,568
10,000
1,407
(1) Includes Chairman of the Board, President and Chief Executive Officer and
the most highly compensated executive officers whose total annual salary and
bonus exceeded $100,000.
(2) Includes for 1996 and 1995, respectively, (a) Company contributions to
savings plan (Mr. Clemens $3,750 and $4,620; Mr. Fay $3,080 and 3,042 Mr.
Verdi $3,150 and $2,558; and Mr. Muller $1,625 and $1,568), and (b)
automobile expense allowances (Mr. Clemens $11,998 and $10,605; and Mr.
Verdi $7,256 and $6,857).
(3) Mr. Bowles joined the Company on May 1, 1996 as a result of the NIA
acquisition.
(4) Mr. Muller began his employment with the Company on November 23, 1992 and
voluntarily terminated on March 7, 1997.
10
Stock Options
The following table sets forth certain information with respect to stock
options granted to persons named in the Summary Compensation Table during the
year ended December 31, 1996:
Provident American Corporation
Options Grants in 1996
Number of % of total
Securities Options Exercise
Options Granted to Price
Name granted Employees $/Shr
- - ---------------------------- ------------- ------------- -----------
(a) (b) (c) (d)
- - ---------------------------- ------------- ------------- -----------
Alvin H. Clemens (1) 50,000 6% $11.00
Chairman of the Board, CEO
Alvin H. Clemens (1) 25,000 3% $ 8.75
Chairman of the Board, CEO
James O. Bowles 50,000 6% $10.00
President & COO
James O. Bowles 25,000 3% $ 6.00
President & COO
James O. Bowles 50,000 6% $11.00
President & COO
William C. Fay III 85,000 10% $ 6.00
Sr. Vice President, Sales
William C. Fay III 50,000 6% $10.00
Sr. Vice President, Sales
Anthony R. Verdi 50,000 6% $10.00
Treasurer and CFO
Anthony R. Verdi 25,000 3% $ 6.00
Treasurer and CFO
John A. Muller, III(1) 50,000 6% $10.00
COO
Potential Realizable Value
at Assumed Annual Rates
of Stock Appreciation for
Expiration Option Term alternative to
Name date 5% 10% f&g (2)
- - ---------------------------- ------------- ----------- ----------- ------------------
(a) (e) (f) (g) (h)
- - ---------------------------- ------------- ----------- ----------- ------------------
Alvin H. Clemens (1) 8/12/02 $ 187,053 $ 424,359 $ 165,000 (a)
Chairman of the Board, CEO
Alvin H. Clemens (1) 7/16/06 $ 45,398 $ 115,048 $ 116,000 (d)
Chairman of the Board, CEO
James O. Bowles 8/12/02 $ 170,048 $ 385,781 $ 165,000 (a)
President & COO
James O. Bowles 5/17/01 $ 51,014 $ 115,734 $ 45,000 (b)
President & COO
James O. Bowles 11/7/96 $ 187,053 $ 424,359 $ 165,000 (a)
President & COO
William C. Fay III 5/17/01 $ 173,449 $ 393,496 $ 303,450 (c)
Sr. Vice President, Sales
William C. Fay III 8/12/02 $ 170,048 $ 358,781 $ 297,000 (c)
Sr. Vice President, Sales
Anthony R. Verdi 8/12/02 $ 170,048 $ 385,781 $ 297,000 (c)
Treasurer and CFO
Anthony R. Verdi 5/17/01 $ 51,014 $ 115,734 $ 89,250 (c)
Treasurer and CFO
John A. Muller, III(1) 8/12/02 $ 0 $ 0 $ 0 (3)
COO
(1) Excludes any options which could be granted to Mr. Clemens under the Option
Contract described in Executive Compensation under caption "Employment and
Other Agreements".
(2) Based on the Black-Scholes option pricing model assuming; 0% dividend yield,
no adjustments for forfeitures and the following expected stock volatility,
length of time for exercise and risk free interest rate; (a) 71.8%, one year
and 5.55%, (b) 75%, one year and 5.5% (c) 73.9%, four years and 6.32% (d)
74.8%, 3 years and 6.21%, respectively.
(3) Mr. Muller forfeited all options granted to him in 1996 due to his voluntary
termination of employment on March 7, 1997.
11
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1996 by the persons named in
the Summary Compensation Table and the fiscal year end value of unexercised
options:
Provident American Corporation
Aggregate Option Exercises in 1996 and Year End Values
Number of
Shares Underlying Value of
Acquired Unexercised Unexercised In-the-
On exercise Value Options Money Options
Name (#) Realized ($) at 12/31/96 at 12/31/96 ($)
- - --------------------------- -------------- --------------- -------------- ---------------------
(a) (b) (c) (d) (e)
- - --------------------------- -------------- --------------- -------------- ---------------------
Alvin H. Clemens
Chairman of the Board, CEO
exercisable 0 $ 0 8,333 $ 43,748
unexercisable 66,667 $ 237,502
James O. Bowles
President & COO
exercisable 0 $ 0 60,000 $ 230,000
unexercisable 65,000 $ 270,000
William C. Fay III
Sr. Vice President, Sales
exercisable 42,000 $ 407,875
unexercisable 0 $ 0 118,000 $ 744,000
Anthony R. Verdi
Treasurer and CFO
exercisable 11,000 $135,135 27,000 $ 279,250
unexercisable 97,000 $ 270,000
John A. Muller, III (2)
COO
exercisable 26,500 $ 334,497
unexercisable 0 $ 0 48,500 $ 148,628
(1) Excludes non compensatory stock option to purchase 1,253,376 shares of
common stock at $0.91 issued to Mr. Clemens in 1989 of which Mr. Clemens
disclaims beneficial ownership of 703,720 shares owned by a partnership of
which Mr. Clemens is a partner, excludes option to purchase 550,000 shares
of Series A Cumulative Preferred Stock at $3.64 issued on April 1, 1993 in
connection with the purchase by Mr. Clemens of other shares of Preferred
Stock at such time, and also excludes any options which could be granted to
Mr. Clemens under the Option Contract dated March 10, 1997 described in Item
11 "Employment and Other Agreements".
(2) Ceased employment on March 7, 1997.
12
Performance Graph
The following graph compares the yearly percentage change in cumulative
total return (change in the year-end stock price plus reinvested dividends) to
the Company's shareholders against the cumulative total return of the NASDAQ
Market Index and the Peer Group Index (Media General Financial Services, Inc.,
Industry Group 261 - Life, Accident and Health) for the five years beginning
January 1, 1991:
Compare 5-Year Cumulative Total Return
Among Provident American Corporation
NASDAQ Market Index and Peer Group Index
300 |-------------------------------------------------------------------------|
| |
| * |
250 |-----------------------------------------------------------------------#-|
| |
| |
200 |-----------------------------------------------------------------------&-|
| # |
| & |
150 |-----------------------------#-------------------------------------------|
| # * |
| # & & |
100 |*#&-----------&----------------------------------------------------------|
| * |
| * |
50 |-------------------------------------------------------------------------|
| |
| * |
0 |--------------|--------------|--------------|-------------|--------------|
1991 1992 1993 1994 1995 1996
1991 1992 1993 1994 1995 1996
- - -------------------------------------------------------------------------------
* = Provident American Corp. 100 75 59.59 38.96 135.22 256.69
# = Peer Group 100 128.03 147.18 135.02 193.1 247.49
& = NASDAQ Market Index 100 100.98 121.13 127.17 164.96 204.98
Assumes $100 Invested on January 1, 1991
Assumes Dividend Reinvested
For the Year Ended December 31, 1996
13
ITEM 2
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The following resolution concerning the appointment of independent auditors
will be offered at the meeting:
"RESOLVED, That the appointment by the Board of Directors of the
Company of Coopers & Lybrand LLP to audit the accounts of the Company
and its subsidiaries for the fiscal year 1997 is hereby ratified and
approved."
Coopers & Lybrand LLP has been auditing the accounts of the Company and its
subsidiaries since December 1989. In recommending the approval by the
shareholders of the appointment of that firm, the Board of Directors is acting
upon the recommendation of the Audit Committee, which has satisfied itself as to
the firm's professional competence and standing. A representative of Coopers &
Lybrand LLP is expected to be present at the Annual Meeting and will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to appropriate questions.
ITEM 3
RATIFICATION OF ADOPTION OF THE COMPANY'S
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Board of Directors has adopted, and the shareholders are being
requested to approve the Company's 1996 Employee Incentive Stock Option Plan
(the "1996 ISO Plan"). The purpose of the 1996 ISO Plan is to afford an
incentive to key employees of the Company and its affiliates and subsidiaries to
acquire a proprietary interest in the Company and to enable the Company to
attract and retain such key employees.
Incentive Stock Option Plan
The 1996 ISO Plan permits the granting of options to purchase Common Stock
of the Company, including options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options") to key managerial employees of the Company and its
affiliates and subsidiaries. The options issued under the 1996 ISO Plan are
exercisable for up to five years at a price not less than the fair market value
of the shares on the date of grant. All options granted under the 1996 ISO Plan
have been granted at 100% of the fair market value of the shares on the date of
grant. The 1996 ISO Plan is administered by the Company's Option Administration
Committee and the Board of Directors. The Option Administration Committee is
authorized to select optionees and determine the number of shares for which
options are granted to each optionee, the exercise price of the options and the
other terms and conditions of the options.
The total number of shares of the Company's Common Stock that currently are
subject to the options granted under the 1996 ISO Plan may not exceed 950,000
shares in the aggregate.
The 1996 ISO Plan became effective as of January 1, 1996. The full text of
the 1996 ISO Plan is attached hereto as Exhibit "A".
The Board of Directors recommends a vote FOR the approval of the 1996
Employee Incentive Stock Option Plan. The affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock and the Series
A Preferred Stock voting on an as-converted basis is necessary to adopt the
proposed amendment.
14
ITEM 4
APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION
Proposed Amendment
The Board of Directors has unanimously approved and recommended the
adoption by the shareholders of the following amendment to the Company's
Articles of Incorporation (the "Amendment"):
RESOLVED, That Paragraph (a) of Article 5 of the Company's Articles of
Incorporation is hereby amended to read in its entirety as follows:
"5.(a) The aggregate number of shares which the Corporation shall have
authority to issue is: 50,000,000 shares of common stock, par value
$0.10 per share (the "Common Stock"); 20,000,000 shares of Class A
Common Voting Stock, par value $0.10 per share (the "Class A Stock"),
and 20,000,000 shares of preferred stock, par value $1.00 per share (the
"Preferred Stock")."
As of May 9, 1997 (i) of the 25,000,000 shares of Common Stock now
authorized to be issued under the Articles of Incorporation, 10,066,664 were
issued and outstanding and approximately 7,000,000 were reserved for issuance
under the Company's stock option plans and other contracts, (ii) of the
5,000,000 shares of Preferred Stock now authorized to be issued under the
Articles of Incorporation, 4,500,000 Shares are designated as Series A
Cumulative Convertible Preferred Stock ("Series A Preferred"), of which 580,250
shares are issued and outstanding, and an additional 3,850,000 shares have been
reserved for the exercise of outstanding options to purchase Series A Preferred,
and (iii) of the 2,500,000 shares of Class A Common Stock (having four votes per
share) authorized to be issued under the Articles of Incorporation, none of
which shares are issued and outstanding, but all of which are reserved in
connection with the optional conversion of the Series A Preferred into Class A
Common.
Purposes and Effects of Amendment
The Board believes that the proposed increase in authorized shares is
desirable because it will provide the Company with more flexibility to issue
shares of its capital stock as the need may arise without the expense and delay
of a special meeting of shareholders, unless shareholder action is required by
applicable law or under the rules of the NASDAQ Stock Market or any exchange on
which the Company's Common Stock may then be listed. Such shares could be issued
by the Board of Directors for proper corporate purposes, including in connection
with possible future stock dividends or stock splits, equity financings,
strategic investments or acquisitions, and grants of additional options or other
equity incentives to the Company's employees and other persons. Except for
issuances under the existing stock plans and the Option Contract, the Board of
Directors has no present plans or commitments with respect to the issuance of
the proposed additional authorized shares of capital stock.
Each additional share of capital stock authorized by the proposed Amendment
will have the same rights and privileges as each share of capital stock
currently authorized of the same class. Shareholders will have no statutory
preemptive rights to receive or purchase any of the capital stock authorized by
the proposed Amendment. The increase in authorized capital stock will not have
any immediate effect on the rights of existing shareholders. To the extent that
the additional authorized shares are issued in the future, they will decrease
the existing shareholders' percentage equity ownership and, depending on the
price at which they are issued, could be dilutive to the existing shareholders.
15
The increase in the authorized shares of capital stock could have an
anti-takeover effect. Shares of authorized and unissued capital stock could
(within the limits imposed by applicable law) be issued in one or more
transactions that would make a takeover of the Company more difficult, and
therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of capital stock, and such additional shares could be used to
dilute the stock ownership or voting rights of persons seeking to obtain control
of the Company.
Shareholder Approval
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock and the Series A Preferred Stock, voting on an as-converted
basis, is required for approval of the proposed Amendment. Thus, the effect of
an abstention or specified non-vote is the same as that of a vote against the
proposal. If the proposed Amendment is approved by the shareholders, it will
become effective upon filing and recording of Articles of Amendment as required
by the Pennsylvania Business Corporation Law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION.
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Shareholders for the year
ended December 31, 1996 with this Proxy Statement. Shareholders are referred to
the report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
ANNUAL REPORT ON FORM 10-K
Upon the written request of any beneficial owner as of May 9, 1997 of the
Company's Common Stock or Series A Preferred Stock, the Company will provide,
without charge, a copy of its Annual Report on Form 10-K (including financial
statements and schedules) for the year ended December 31, 1996. A list of
exhibits to the Annual Report will also be provided, and copies of such exhibits
will be furnished upon request and payment of a reasonable fee. Requests should
be directed to Anthony R. Verdi, Chief Financial Officer, Provident American
Corporation, 2500 DeKalb Pike, P.O. Box 511, Norristown, Pennsylvania
19404-0511.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions of
the proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 1998 Annual
Meeting of Shareholders must deliver such proposal in writing to the Secretary
of the Company at the Company's principal executive offices at 2500 DeKalb Pike,
P.O. Box 511, Norristown, Pennsylvania 19404- 0511, not later than January 1,
1998.
16
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors,
/s/ Michael F. Beausang, Jr.
-----------------------------------
Michael F. Beausang, Jr.
Secretary
Date: May 23, 1997
17
EXHIBIT "A"
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
PROVIDENT AMERICAN CORPORATION
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of this 1996 Employee Incentive Stock Option Plan ("Plan") is
to afford an incentive to key employees of Provident American Corporation
("PAMCO") and its affiliates and subsidiaries (collectively "the Company"), to
acquire a proprietary interest in PAMCO and to enable the Company to attract and
retain such key employees.
2. The Stock
Except as provided in Section 7 hereof, the number of shares of stock which
may be optioned and sold under the Plan is 950,000 shares of Common Stock, $.10
par value, of PAMCO (the 950,000 shares or any portion thereof shall hereinafter
be referred to as "Shares"). If options granted under this Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
Shares subject thereto shall again be available for the granting of options
under this Plan. Shares which are the subject of options to purchase may be made
available from authorized and unissued stock or from treasury stock.
3. Eligibility
An option shall be granted only to a person who at the time of the grant is
a key employee of the Company. The term "key employee" shall mean an employee
(including officers) who has responsibility for the management, administration,
or support of the management or administration of the Company. The Company's
Board of Directors (the "Board"), based upon the recommendation of the Committee
(defined in Section 8 hereof), shall determine from time to time the key
employees to whom options shall be granted, any criteria for such options, the
number of Shares subject to each option, the exercise price of the option, such
restrictions on exercise as are permitted under Section 422 of the Internal
Revenue Code of 1986, as it may be amended from time to time (the "Code"), and
the other terms and conditions thereof. An option shall not be granted to any
employee who owns, directly or indirectly, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company, unless such
option shall satisfy the special rules set forth in Section 422A(c)(8) of the
Code for the grant of an incentive stock option to such a 10-percent
shareholder. For purposes of this provision, ownership of stock in the Company
shall be determined under Section 425(d) of the Code.
4. Price
The price at which Shares may be purchased upon exercise of each option
("option price") shall be fixed by the Board at the time of the grant of such
option and shall not be less than 100% of the fair market value of the stock at
the time the option is granted. The Board shall, in good faith, determine the
fair market value of the stock based upon a reasonable method of valuation
adopted by the Board or the Committee, or such other method as may be permitted
by the Code, or regulations or rulings promulgated thereunder. In no event shall
the option price be less than the par value of the Shares. The Board will use
its best efforts to determine the fair market value of the Shares subject to the
option, but neither the Board nor the Company will be responsible for the
payment of any tax which may be imposed upon the participants, nor will they
reimburse participants for their payment of any tax so imposed. Neither the
Company, the Boards of Directors, the Committee nor any member thereof makes or
shall make any representation or warranty to any participant regarding the
consequences or effects of participation in the Plan for federal or state income
tax or any other purpose.
A-1
Nothing contained in this Plan or in any option agreement issued hereunder
shall impose any liability or responsibility on the Company, the Boards of
Directors, the Committee or any member of any of the foregoing to pay or
reimburse any participant for the payment of any tax arising out of, or on
account of the issuance of, an option or options hereunder to any participant, a
participant's exercise of any option issued under this Plan, or a participant's
sale, transfer or other disposition of any Shares acquired pursuant to the
exercise of an option issued hereunder. Any person receiving an option hereunder
shall expressly acknowledge and agree that such participation is voluntary and
that the participant will be solely responsible for all taxes to which he or she
may be or become subject as a consequence of such participation.
5. Option Terms
(a) Subject to the provisions and limitations of this Plan, and subject to
applicable securities, tax and other laws and regulations, options may be
granted at such time or times and pursuant to such terms and conditions as may
be determined by the Board at the recommendation of the Committee during the
period this Plan is in effect.
(b) Each option, which shall become exercisable in accordance with its
terms, must be exercised within five (5) years after the date on which it first
becomes exercisable. Each option shall further provide that it may not be
exercised in full or in part after the expiration of ten (10) years from the
date such option is granted. Unless otherwise provided in the stock option
agreement issued pursuant hereto and except as set forth below, options which
have been granted to an employee will continue to be exercisable only so long as
the optionee remains an employee of the Company. Notwithstanding anything to the
contrary contained in this Section 5, the Board may, in its sole discretion,
accelerate the option exercise period, based upon its evaluation of an
optionee's individual performance.
(c) Any option granted to an employee which, when aggregated with all other
incentive stock options granted after December 31, 1986, to such employee by the
Company, would result in shares having an aggregate fair market value
(determined for each share as of the date of grant of the option covering such
share) in excess of $100,000 becoming first available for purchase upon exercise
of the option during any calendar year shall be deemed to be a non-statutory
stock option and upon the exercise thereof, the gain shall be apportioned
accordingly between the gain attributable to the statutory stock options and the
non-statutory stock options in the order in which the options were granted.
(d) Shares to be purchased upon the exercise of any option shall be paid
for, in full, in cash, by wire transfer of funds to the Company's account, or by
certified check payable to the order of PAMCO. During the three (3) month period
immediately prior to the date the right to exercise an option expires only, the
shares to be purchased upon the exercise of that option may be purchased with
certificates of stock issued by PAMCO, which stock shall be assigned a fair
value by the Board in its discretion, and delivered to PAMCO at the time of such
exercise (including stock which is part of the option being exercised).
(e) Each option granted under the Plan shall be evidenced by a stock option
agreement between PAMCO and the employee. The Board shall initially make all
decisions as to the form of stock option agreement to be entered into with each
optionee. All forms of stock option agreement shall contain such provisions,
restrictions and conditions as are not inconsistent with this Plan but need not
be identical. The provisions of this Plan shall be set forth in full or
incorporated by reference in each stock option agreement.
(f) In the event an optionee becomes permanently and totally disabled,
dies, retires or otherwise ceases to be employed by the Company for any reason,
including leaves of absence (other than a termination for cause),
A-2
such optionee, or the executors, administrators, legatees or distributees of the
estate of the optionee, shall have the right to exercise any option which became
exercisable prior to retirement or cessation of employment but only within a
period of three (3) months from the date of cessation of employment (but in any
event not later than the termination date of the option), after which time any
unexercised portion of all outstanding options shall expire. If the optionee
dies during such three-month period, the executors, administrators, legatees or
distributees of the optionee's estate shall have the right to exercise such
options during the remainder of such period. In the event an option is exercised
by the executors, administrators, legatees or distributees of the estate of the
optionee, PAMCO shall be under no obligation to issue Shares hereunder unless
and until PAMCO is satisfied that the person (or persons) exercising the option
is the duly-appointed legal representative of the optionee's estate or the
proper legatee or distributee thereof. In no event and under no circumstances
may an option be exercised by an employee (or his personal representative) after
termination of the optionee's employment for cause.
6. Non-Transferability
No option granted hereunder shall be transferable by the optionee other
than by will or by the laws of descent and distribution, and options shall be
exercisable, during the optionee's lifetime only by such optionee; provided,
however, that in the event an optionee shall be subject to a legal disability,
his legal representative may exercise an option on his behalf.
7. Stock Dividends or Recapitalization
In the event of a stock dividend paid in shares of the class of stock
subject to any option outstanding hereunder, or capitalization,
reclassification, splitup or combination of shares with respect to said class of
stock, the Committee shall make appropriate adjustments to the option price
under such option and to the kind and number of shares as to which such option
is then exercisable, so that the optionee's proportionate interest shall be
maintained as before the occurrence of such event, and in any case an
appropriate adjustment shall also be made to the total number and kind of Shares
of stock reserved for the future granting of options under this Plan. Any such
adjustment made by the Committee pursuant to this Plan shall be binding upon the
holders of all unexpired options outstanding hereunder.
8. Administration of the Plan
This Plan shall be administered by the Board. An Option Administration
Committee ("Committee"), consisting of three (3) or more employees, shall be
elected from time to time by a majority of the entire Board of Directors and
shall make recommendations periodically to the Board with respect to criteria
for key employee participation in the Plan, the extent of employees'
participation, and the form and content of the options to be granted. Options
shall be granted only by the Board, which shall provide the form and content of
the options to be granted, including such provisions, conditions, and such
restrictions on exercise as are permitted under Section 422 of the Code, in
addition to those included in this Plan, as the Board shall determine to be
advisable; provided, however, that no such additional provisions or conditions
shall be inconsistent with the provisions of this Plan. The Board or the
Committee shall be authorized to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or appropriate for its administration.
A-3
9. Effective Date; Duration of the Plan; Amendments
The Plan shall become effective upon adoption by the Board. At the next
regular meeting of the shareholders of PAMCO, which shall be scheduled and will
occur within twelve (12) months following the date of adoption by PAMCO's Board,
this Plan will be presented for consideration and approval by the shareholders.
If this Plan is not approved by the shareholders, this Plan shall terminate, and
all options granted hereunder shall be immediately forfeited. Unless sooner
terminated, the Plan shall expire ten (10) years from the date the Plan is
adopted by the Board. The Plan may be altered, suspended, discontinued or
terminated at any time by the approval of either the Board or the shareholders
of PAMCO. Nothing contained herein shall be construed to permit a termination,
modification, or amendment adversely affecting the rights of any optionee under
an existing option theretofore granted without the consent of such optionee,
except due to non-approval of the Plan by the shareholders.
10. General
(a) The provisions of this Plan shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
(b) Wherever used herein, the singular shall be deemed to refer to and
include the plural, and vice versa, where appropriate. Wherever used herein, the
masculine shall be deemed to refer to and include the feminine and the neuter,
and vice versa, where appropriate.
(c) The rights of any participant under the Plan shall not be assignable by
the participant and shall not be subject to the rights of creditors, and any
attempt to cause such right to be so subjected shall not be recognized, except
to such extent as may be required by law.
(d) PAMCO, upon notice to participants, at any time or from time to time,
may amend, modify or terminate any or all of the provisions of the Plan without
the consent of any participant. No amendment shall have the effect of modifying
any benefit election of any participant in effect at the time of such amendment,
unless such amendment is made to comply with federal, state or local laws,
statutes or regulations.
(e) This Plan shall not be deemed to constitute a contract between the
Company and any participant or to be a consideration or an inducement for any
contract with any participant. Nothing contained in this Plan shall be deemed to
give any participant the right to be retained in the service of the Company or
to interfere with the right of the Company to terminate any participant's
employment at any time, regardless of the effect which such termination shall
have upon him as a participant of this Plan.
(f) This Plan constitutes the entire agreement between the Company and the
participant relative to the purchase of PAMCO stock. This Plan is governed by
the laws of the Commonwealth of Pennsylvania.
(g) If any provision of the Plan is held invalid or unenforceable, its
invalidity or unenforceability shall not affect any other provisions of the
Plan, and the Plan shall be construed and enforced as if such provision had not
been included herein.
A-4
IN WITNESS WHEREOF, in order to record the adoption of this Plan, Provident
American Corporation has caused its duly authorized officers to affix the
corporate name and seal hereto effective as of July 16, 1996.
ATTEST: PROVIDENT AMERICAN CORPORATION
/s/ Michael F. Beausang, Jr. By: /s/ Alvin H. Clemens
- - ----------------------------------- ---------------------------------
Alvin H. Clemens, President
Michael F. Beausang, Jr.
and Chief Executive Officer
Secretary
[CORPORATE SEAL]
A-5
Please mark /X/
your votes
as indicated
in this
example
The Board of Directors recommends a vote FOR WITHHELD
Items 1, 2 and 3. FOR BY ALL
Item 1. - ELECTION OF DIRECTORS: / / / /
Nominees:
Michael F. Beausang, Jr.
Alvin H. Clemens
Valerie C. Clemens
Harold M. Davis
John T. Gillin
Henry G. Hager
Frederick S. Hammer
George W. Karr, Jr.
P. Glenn Moyer
WITHHELD FOR: (Write that nominee's name in the space
provided below).
- - --------------------------------------------------
FOR AGAINST ABSTAIN
ITEM 2-APPOINTMENT OF INDEPENDENT / / / / / /
ACCOUNTANTS
ITEM 3-APPROVAL OF 1996 EMPLOYEE / / / / / /
INCENTIVE STOCK OPTION PLAN
ITEM 4-APPROVAL OF AMENDMENT TO / / / / / /
ARTICLES OF INCORPORATION
Signature Signature Date
---------------------- -------------------- --------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
o FOLD AND DETACH HERE o
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROVIDENT AMERICAN CORPORATION
The undersigned hereby appoints William C. Fay, III and Jimmy R. Potts as
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of Provident American Corporation standing in the name
of the undersigned with all powers which the undersigned would possess if
present at the Annual Meeting of Shareholders of the Company to be held June 17,
1997 or any adjournment thereof.
(Continued and to be marked, dated and signed, on the other side.)
o FOLD AND DETACH HERE o