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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.
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(Name of Registrant As Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement. If other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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[EXPRESS SCRIPTS LOGO]
EXPRESS SCRIPTS, INC.
13900 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2001
The 2001 Annual Meeting of Stockholders of EXPRESS SCRIPTS, INC., a
Delaware corporation (the "Company"), will be held at the principal executive
offices of the Company, 13900 Riverport Drive, Maryland Heights, Missouri 63043,
on Wednesday, May 23, 2001, at 9:30 a.m. Central Time (the "Meeting"), to
consider and act upon the following matters:
1. to elect eight (8) directors to serve until the next Annual
Meeting of Stockholders or until their respective successors
are elected and qualified;
2. to approve and ratify the adoption of the Express Scripts,
Inc. 2000 Long-Term Incentive Plan;
3. to ratify the adoption of the indemnification and insurance
amendment to the Company's Bylaws;
4. to approve and ratify the Company's proposed Amended and
Restated Certificate of Incorporation;
5. to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the Company's current
fiscal year; and
6. 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 30, 2001,
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 13900
Riverport Drive, Maryland Heights, Missouri 63043. As a stockholder of record,
you are cordially invited to attend the Meeting in person. Whether or not you
expect to be present at the Meeting, please either complete, sign and date the
enclosed Proxy and mail it promptly in the enclosed envelope, or vote
electronically via the Internet or telephone as described in greater detail in
the Proxy Statement. Returning the enclosed Proxy, or voting electronically or
telephonically, 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
13900 Riverport Drive
Maryland Heights, Missouri 63043
April 9, 2001
EVEN THOUGH YOU MAY PLAN TO ATTEND THE MEETING IN PERSON, PLEASE VOTE
BY TELEPHONE OR THE INTERNET, OR EXECUTE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY. A RETURN ENVELOPE (WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR YOUR CONVENIENCE. TELEPHONE AND INTERNET VOTING
INFORMATION IS PROVIDED ON YOUR PROXY CARD. SHOULD YOU ATTEND THE MEETING IN
PERSON, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
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Table of Contents
Page
Proxy Statement.................................................................... 2
Voting Securities.................................................................. 2
Security Ownership of Certain Beneficial Owners and Management..................... 4
Item I - Election of Directors..................................................... 5
Committees of the Board of Directors.......................................... 7
Report of the Audit Committee................................................. 7
Directors' Compensation....................................................... 8
Report of the Compensation Committee on Executive Compensation................ 9
Compensation Committee Interlocks and Insider Participation................... 13
Performance Graph............................................................. 13
Executive Compensation........................................................ 14
Certain Relationships and Related Transactions................................ 22
Item II - Express Scripts, Inc. 2000 Long-Term Incentive Plan, as Amended.......... 24
Item III - Indemnification and Insurance Amendment to Bylaws....................... 33
Item IV - Proposed Amended and Restated Certificate of Incorporation............... 37
Item V - Ratification of Appointment of Independent Accountants.................... 38
Stockholder Proposals.............................................................. 39
Other Matters...................................................................... 39
Voting Via the Internet or By Telephone............................................ 40
Solicitation of Proxies............................................................ 40
Exhibit A - Audit Committee Charter
Exhibit B - Express Scripts, Inc. 2000 Long-Term Incentive Plan, as Amended
Exhibit C - Indemnification and Insurance Amendment to Bylaws
Exhibit D - Proposed Amended and Restated Certificate of Incorporation
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[EXPRESS SCRIPTS LOGO]
EXPRESS SCRIPTS, INC.
13900 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
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2001 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
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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 2001 Annual Meeting of
Stockholders of the Company (the "Meeting") and any adjournment thereof. The
Meeting will be held at the principal executive offices of the Company, 13900
Riverport Drive, Maryland Heights, Missouri 63043, on Wednesday, May 23, 2001,
at 9:30 a.m. Central Time, 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 be first sent or given to stockholders
on or about April 9, 2001.
INSTEAD OF SUBMITTING YOUR PROXY WITH THE PAPER PROXY CARD, YOU MAY BE
ABLE TO VOTE ELECTRONICALLY BY TELEPHONE OR VIA THE INTERNET. See "Voting Via
the Internet or By Telephone" on page _____ of this Proxy Statement, or the
instructions on the proxy card, for further details. Please note that there are
separate Internet and telephone voting arrangements depending upon whether your
shares are registered in your name or in the name of a broker or bank.
IF YOU VOTE BY TELEPHONE OR INTERNET, IT IS NOT NECESSARY TO RETURN
YOUR PROXY CARD.
If you do not choose to vote by telephone or Internet, a Proxy, in the
accompanying form, which is properly executed and duly returned to the Company,
or a proxy which is submitted electronically via the Internet or by telephone,
and which proxy is not revoked, will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted as follows: (i) for the nominees for director named in this Proxy
Statement; (ii) for the adoption and ratification of the Express Scripts, Inc.
2000 Long-Term Incentive Plan; (iii) for the ratification of the adoption of the
indemnification and insurance amendment to the Company's Bylaws; (iv) for the
approval and ratification of the Company's Amended and Restated Certificate of
Incorporation; (v) for ratification of the appointment of PricewaterhouseCoopers
LLP as independent accountants for the Company for 2001; and (vi) in accordance
with the judgment of the person or persons voting the Proxies on any other
matter that may properly be brought before the Meeting and any adjournment
thereof. 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 will have been cast pursuant to the authority conferred by
such Proxy. Those voting via the Internet or by telephone may also revoke their
Proxy by attending the meeting or by voting again, at a later time, via the
Internet, by telephone, or by submitting the Proxy card in accordance with the
instructions thereon.
VOTING SECURITIES
Stockholders of record as of the close of business on March 30, 2001
(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 __________
outstanding shares of the Company's Class A Common Stock, $.01 par value per
share (the "Common Stock").
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Until November 7, 2000, the Company had two classes of Common Stock
outstanding: Class A Common Stock, $.01 par value per share (the "Class A Common
Stock"), and Class B Common Stock, $.01 par value per share (the "Class B Common
Stock"). All of the outstanding shares of the Class B Common Stock were owned by
NYLIFE HealthCare Management, Inc. ("NYLife HealthCare"), a Delaware corporation
and an indirect subsidiary of New York Life Insurance Company, a New York mutual
insurance company ("New York Life"). The Class B Common Stock was convertible
into shares of Class A Common Stock on a share-for-share basis at any time at
the option of the holder and would be converted automatically 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 was entitled to one vote for
each share held by such holder, and each holder of the Class B Common Stock was
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 were identical. The Class A Common Stock
and the Class B Common Stock voted together as a single class on all matters
except where Delaware law or the Company's Certificate of Incorporation required
otherwise.
On November 7, 2000, NYLife HealthCare exchanged each outstanding share
of Class B Common Stock for one share of Class A Common Stock and then
immediately distributed such shares to NYLIFE, LLC ("NYLife"), a Delaware
limited liability company and a subsidiary of New York Life. Consequently, as of
November 7, 2000, the Company reacquired all of its Class B Common Stock and
currently holds them as treasury shares. Immediately following the exchange and
distribution to NYLife, NYLife completed the sale of 6,900,000 shares of Class A
Common Stock to the public through a secondary offering (the "November
Offering"). Contemporaneous with the November Offering, the Express Scripts
Automatic Exchange Security Trust (the "Trust"), a closed-end investment company
that is not affiliated with the Company, sold 3,450,000 investment units to the
public. Upon maturity of the investment units, the Trust may deliver up to
3,450,000 shares of Class A Common Stock owned by NYLife to the holders of the
investment units. The Company did not and will not receive any proceeds from the
secondary offering or the offering by the Trust.
As a result of these transactions, as of November 7, 2000, the Company
no longer has any shares of Class B Common Stock outstanding. Prior to the
transactions, NYLife and the holders of Class A Common Stock had control over
approximately 86.5% and 13.5%, respectively, of the combined voting power of all
classes of Common Stock. However, as of November 7, 2000, due to the exchange of
Class B Common Stock for Class A Common Stock and the completion of the
secondary offering described above, NYLife had approximately 21.1% of the voting
power of the Class A Common Stock, which includes the right to vote the
3,450,000 Class A shares that the Trust may deliver upon exchange of the Trust
issued investment units.
However, New York Life and its subsidiaries have agreed that prior to
delivery of any shares of Class A Common Stock by the Trust to the holders of
the Trust investment units, they will vote the 3,450,000 shares in the same
proportion and to the same effect as the votes cast by other stockholders at any
meeting of stockholders, subject to the following exceptions: New York Life is
contractually obligated to vote its 8,120,000 shares (which includes the
above-described 3,450,000 Trust shares and 4,670,000 other shares) in favor of
the slate of nominees for directors which have been recommended by our Board of
Directors for election by stockholders at the Meeting and the approval and
ratification of the adoption of the Express Scripts, Inc. 2000 Long-Term
Incentive Plan. See "Certain Relationships and Related Transactions" beginning
on page __ for additional information regarding these transactions.
The Board of Directors has approved the reclassification of the Class A
Common Stock on a share-for-share basis as Common Stock. If the stockholders so
approve, the Common Stock will not have separate classes, and the Common Stock
will have the rights, privileges, and designations set forth in the proposed
Amended and Restated Certificate of Incorporation. See "Proposed Amended and
Restated Certificate of Incorporation" beginning on page __ for additional
information on the rights, privileges, and designations of the Common Stock.
Each holder of Common Stock is entitled to one vote for each share held
by such holder. 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 will 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 such abstention will have the same effect as a vote against
the particular matter under consideration. In the event a nominee holding shares
for beneficial owners votes on certain matters pursuant to discretionary
authority or instructions from beneficial owners,
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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 be disregarded. Thus, on the proposal to
elect directors, which requires a plurality of the votes of shares present in
person or represented by Proxy and entitled to vote on the election of
directors, abstentions and non-votes will have no effect. However, (i) the
approval and ratification of the Express Scripts, Inc. 2000 Long-Term Incentive
Plan, (ii) the ratification of the adoption of the indemnification and insurance
amendment to the Bylaws, and (iii) the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company for 2001,
each requires the affirmative vote of the holders of a majority of the stock
having voting power on such matters present, in person or by Proxy, and entitled
to vote at the Meeting, voting as a single class. Accordingly, abstentions will
have the same effect as votes against these matters, while non-votes will be
disregarded and have no effect on the outcome of these matters. The approval and
ratification of the Amended and Restated Certificate of Incorporation requires
the affirmative vote of a majority of the outstanding stock entitled to vote at
the Meeting. Therefore, abstentions and non-votes will have the same effect as
votes against this matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 1, 2001 (unless
otherwise noted) by (i) each person known by the Company to own beneficially
more than five percent of the outstanding shares of 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 March 1, 2001 or
within 60 days of March 1, 2001 pursuant to the exercise of stock options by
employees or outside directors. Unless otherwise indicated, each of the persons
or entities listed below exercises sole voting and investment power over the
shares that each of them beneficially owns.
Shares Beneficially Owned
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Name and Address Number Percent of Class
---------------- --------- ----------------
Stuart L. Bascomb (1) ....................... 75,540 *
Gary G. Benanav ............................. 1,000 *
Frank J. Borelli (2) ........................ 9,600 *
Thomas P. Mac Mahon ......................... -- --
Richard A. Norling .......................... 3,725 *
Seymour Sternberg(3) ........................ 5,360 *
Barrett A. Toan(4) .......................... 568,000 1.5%
Howard L. Waltman(5) ........................ 41,067 *
Norman Zachary(6) ........................... 29,667 *
Mark O. Johnson (7) ......................... 17,126 *
David A. Lowenberg(8) ....................... 68,640 *
George Paz (9) .............................. 24,440 *
Directors and Executive ..................... 1,004,845 2.6%
Officers as a Group (17 persons)(10)
FMR Corp.(11) ............................... 4,541,343 11.6%
82 Devonshire Street
Boston, Massachusetts 02109
NYLIFE LLC (12)(13) ......................... 8,120,000 20.8%
51 Madison Avenue
New York, NY 10010
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* Indicates less than 1%
(1) Consists of options for 59,560 shares granted under the Company's Amended
and Restated 1992 and 1994 Stock Option Plans, and its 2000 Long Term
Incentive Plan (collectively, the "Employee Stock Option Plans"), 6,680
restricted shares awarded under the 2000 Long Term Incentive Plan ("2000
LTIP"), and 9,300 shares owned by Mr. Bascomb, of which 3,300 shares are
held as co-trustee (with shared voting and dispositive power) of a trust
for the benefit of his mother. Excluded are 1,457 phantom shares invested
in the Company Stock Fund under the Company's Executive Deferred
Compensation Plan (the "EDCP"), calculated as of December 31, 2000.
(2) Consists of options for 9,600 shares granted under the Amended and Restated
1992 Stock Option Plan for Outside Directors (the "Outside Directors
Plan").
(3) Excludes 360 shares held by Mr. Sternberg's son, as to which shares Mr.
Sternberg disclaims beneficial ownership.
(4) Consists of options for 477,000 shares granted under the Employee Stock
Option Plans. (See "Executive Compensation -- Stock Options" for a
description of certain restrictions on Mr. Toan's ability to transfer
shares subject to options and "Executive Compensation
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-- Employment Agreement" for a description of the terms of his employment
agreement with the Company governing his options), 21,500 shares owned by
Mr. Toan, and 69,500 restricted shares awarded under the 2000 LTIP.
Excluded are 596 phantom shares invested in the Company Stock Fund under
the EDCP.
(5) Consists of options for 40,067 shares granted under the Outside Directors
Plan, and 1,000 shares owned by Mr. Waltman.
(6) Consists of options for 28,667 shares granted under the Outside Directors
Plan, and 1,000 shares owned by Mr. Zachary.
(7) Consists of options for 10,346 shares granted under the Employee Stock
Option Plans, 100 shares owned by Mr. Johnson, and 6,680 restricted shares
awarded under the 2000 LTIP.
(8) Consists of options for 59,540 shares granted under the Employee Stock
Option Plans, 300 shares owned by Mr. Lowenberg and 8,800 restricted shares
awarded under the 2000 LTIP. Excluded are 100 shares held by Mr.
Lowenberg's son, as to which Mr. Lowenberg disclaims beneficial ownership,
and 163 phantom shares invested in the Company Stock Fund under the EDCP,
calculated as of December 31, 2000.
(9) Consists of options for 17,520 shares granted under the Employee Stock
Option Plans, 200 shares owned by Mr. Paz, and 6,680 restricted shares
awarded under the 2000 LTIP. Excluded are 40 phantom shares invested in the
Company Stock Fund under the EDCP, calculated as of December 31, 2000.
(10) Consists of options for 823,200 shares granted under the Outside Directors
Plan and the Employee Stock Option Plans, 50,585 shares owned by directors
and officers as a group, and 131,060 restricted shares awarded under the
2000 LTIP. Excluded are 3002 phantom shares invested in the Company Stock
Fund under the EDCP, calculated as of December 31, 2000.
(11) The information with respect to the beneficial ownership of these shares as
of December 31, 2000 has been obtained from a copy of an Amendment No. 3
to Schedule 13G filed February 13, 2001. Such filing reports that the
beneficial owner is a registered investment advisor and it has sole voting
and 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, 2000 has been obtained from a copy of an Amendment No. 2 to
Schedule 13G filed February 9, 2001. Such filing reports that the
beneficial owner shares voting power with respect to all of the shares
reported but has sole dispositive power as to all of the shares reported.
NYLife is the beneficial owner of the shares, and New York Life owns the
entire limited liability company interest of NYLife and may, as a result,
be deemed to be the beneficial owner of the shares. As described under
"Voting Securities" above, NYLife has retained the right to vote 3,450,000
shares of Common Stock which the Trust may deliver upon exchange of the
Trust Securities offered in the Trust offering, unless such shares are
delivered pursuant to the terms of the Trust. New York Life and its
subsidiaries have agreed to vote any shares of Common Stock that may be
delivered by the Trust in the same proportion and to the same effect as the
votes cast by our other stockholders at any meeting of stockholders,
subject to two exceptions relating to elections of directors and approval
of our 2000 LTIP.
(13) Messrs. Benanav and Sternberg, directors of the Company, are also directors
and/or held various executive positions with New York Life and/or NYLife
HealthCare, as described herein. They disclaim beneficial ownership of the
Company's Common Stock owned by NYLife.
I. ELECTION OF DIRECTORS
In November, 2000, the number of directors was decreased from fifteen
to nine by the Board of Directors pursuant to the Company's Bylaws. At the
meeting, a total of eight (8) directors are to be elected to serve until the
next Annual Meeting of Stockholders or until their successors are duly elected
and qualified. Richard A. Norling is retiring from the Board of Directors upon
the expiration of his current term, resulting in a vacancy on the Board. The
full Board of Directors is in the process of evaluating candidates, and expects
to fill such vacancy after the meeting at such time as an appropriate candidate
has been identified. Proxies cannot be voted for a greater number of persons
than the number of nominees named below. Unless otherwise specified, all Proxies
will be voted in favor of the eight (8) nominees listed below for election 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. New
York Life and its subsidiaries are contractually obligated to vote their
8,120,000 shares (which includes the 3,450,000 Trust shares) for election of the
eight nominees.
In connection with the November Offering, the Company agreed that
NYLife would have the right to nominate up to two directors, subject to certain
conditions as described in "Certain Relationships and Related Transactions -
Stockholder and Registration Rights Agreement" beginning on page __. Messrs.
Benanav and Sternberg have been so nominated by NYLife.
The following information is furnished as of March 1, 2001, with
respect to each of the nominees for the Board of Directors:
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NAME, POSITION AND PRINCIPAL OCCUPATION
Stuart L. Bascomb, 59, was elected a director of the Company in January
2000. Mr. Bascomb has been an Executive Vice President of the Company since
March 1989, serving as the Executive Vice President of Sales and Provider
Relations from May 1996 to the present, and as the Executive Vice President and
Chief Financial Officer from March 1992 until May 1996.
Gary G. Benanav, 55, was elected a director of the Company in January
2000. Mr. Benanav has been Chairman and Chief Executive Officer of New York Life
International, Inc. since December 1997, and a Vice Chairman of New York Life
since November 1999. He was Executive Vice President of New York Life from
December 1997 until November 1999. Prior to joining New York Life, Mr. Benanav
served as the Chairman of Aeris Ventures, a venture capital firm, from January
1997 until November 1997 and as the Chief Operating Officer of ProHealth
Physicians, Inc., a physicians' management services organization, from October
1996 until November 1997. From July 1972 until May 1996, Mr. Benanav served in
various capacities with Aetna Life and Casualty Company, including Executive
Vice President from and after December 1993. He is also a director of New York
Life and Barnes Group, Inc.
Frank J. Borelli, 65, was elected a director of the Company in January
2000. Mr. Borelli has been Senior Advisor and Retired Chief Financial Officer of
Marsh & McLennan Companies ("MMC"), a global professional services firm, since
January 2001. Mr. Borelli was Senior Vice President and a director of MMC from
October 1994 until January 2001, and was also Chief Financial Officer of MMC
from October 1994 until January 2000. Mr. Borelli is also a director of The
Interpublic Group of Companies Inc.
Thomas P. Mac Mahon, 54, was elected a director of the Company in March
2001 to fill the vacancy created by the resignation of Ms. Barbara B. Hill. Mr.
Mac Mahon has served as President and Chief Executive Officer and a member of
the Executive and Management Committees of Laboratory Corporation of America
("LabCorp"), the second largest independent clinical laboratory company in the
U.S., since January 1997. Mr. Mac Mahon has been a director of LabCorp since
April 1995, serving as Chairman of the Board since April 1996, and as Vice
Chairman from April 1995 until April 1996. Mr. Mac Mahon was Senior Vice
President of Hoffmann-La Roche Inc. from 1993 to January 1997 and President of
Roche Diagnostics Group and a Director and member of the Executive Committee of
Hoffmann-La Roche from 1988 to January 1997.
Seymour Sternberg, 57, was elected a director of the Company in March
1992. Mr. Sternberg has been the Chairman, President and Chief Executive Officer
of New York Life since April 1997. He has been with New York Life since February
1989, serving as the President and Chief Operating Officer from October 1995 to
April 1997. Mr. Sternberg is also a director or an officer of a number of New
York Life subsidiaries.
Barrett A. Toan, 53, was elected Chairman of the Board of the Company
in November 2000, Chief Executive Officer in March 1992, and President and a
director in October 1990. Mr. Toan has been an executive employee of the Company
since May 1989. Pursuant to Mr. Toan's employment agreement, failure of the
stockholders to elect Mr. Toan to the Board of Directors would entitle Mr. Toan
to terminate his employment for "Good Reason" (as defined in the agreement). See
"Executive Compensation-- Employment Agreement" beginning on page __.
Howard L. Waltman, 68, has been a director of the Company since its
inception in September 1986, and served as Chairman of the Board of the Company
from March 1992 until November 2000. Mr. Waltman also serves as an advisor to
Galen Group, a venture capital fund, and is a director of Computer Outsourcing
Services Inc.
Norman Zachary, 74, 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.
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RETIRING DIRECTOR
Richard A. Norling, 55, is retiring from the Company's Board of
Directors at the end of his current term. Mr. Norling was elected a director in
March 1992. He has been the Chief Executive Officer of Premier, Inc., the
largest voluntary healthcare alliance in the U.S., since September 1998. From
September 1997 until September 1998, Mr. Norling was the Chief Operating Officer
of Premier. 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. Mr. Norling is also a director of Premier.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established a Corporate Governance Committee, an Audit
Committee, and a Compensation Committee of the Board of Directors. The Corporate
Governance Committee (comprised of Messrs. Bascomb (Non-Voting Member), Borelli,
Toan (Non-Voting Member), Sternberg and Waltman (Chairperson)) reviews and
recommends candidates to the full Board of Directors for nomination to serve on
the Board of Directors, and generally oversees the administration of the Board
and the corporate governance of the Company. The nominees for election as
directors of the Company are chosen by the full Board of Directors, as there is
no standing Nominating Committee entrusted with this function. The Audit
Committee (comprised of Messrs. Borelli (Chairperson), Norling and Zachary)
reviews the internal controls of the Company and the objectivity of its
financial reporting. The Compensation Committee (comprised of Messrs. Benanav
(Chairperson), Waltman and Zachary) administers the Company's compensation
plans. Prior to November, 2000, the Company also had an Executive Committee
which, during intervals between meetings of the Board of Directors, had 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
Executive Committee was disbanded in November, 2000.
During 2000, the Board of Directors held eleven meetings, the Executive
Committee held four meetings, the Audit Committee held five meetings, and the
Compensation Committee held twelve meetings. The Corporate Governance Committee
was formed in November 2000, but did not hold its first meeting until 2001. 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 2000.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of Express Scripts, Inc. (the "Committee") is
composed of three directors who meet the independence requirements of Rule
4200(a)(14) of the National Association of Securities Dealers ("NASD") listing
standards. Since 1992 the Committee has operated under a Charter adopted by the
Board of Directors. The Charter was comprehensively amended in 2000 and is
attached to this proxy statement as Exhibit A.
The Committee submits the following report under Regulation S-K of the
Securities and Exchange Commission:
o The Committee has reviewed and discussed with management and with
PricewaterhouseCoopers LLP ("PwC"), the Company's independent
auditors, the audited and consolidated financial statements of the
Company for the year ended December 31, 2000 (the "Financial
Statements").
o PwC has advised the management of the Company and the Committee that
it has discussed with them all the matters required to be discussed by
SAS 61, as modified, which include among other items, matters related
to the conduct of the audit of the Financial Statements.
o The Committee has received from PwC the written disclosures and the
letter required by Independent Standards Board Standard No. 1 (which
relates to the auditor's independence from the Company and its related
entities) and has discussed PwC's independence with them.
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o Based upon the aforementioned review, discussions and representations
of PwC, and the unqualified audit opinion presented by PwC on the
Financial Statements, the Committee recommended to the Board of
Directors that the Financial Statements be included in the Company's
Annual Report on Form 10-K.
Respectfully submitted,
Frank Borelli, Chairman
Richard A. Norling
Norman Zachary
DIRECTORS' COMPENSATION
Directors of the Company who are also employed by the Company or its
subsidiaries do not receive compensation for serving as directors. During 2000,
directors who were not employees of the Company, its subsidiaries, 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. Effective January 1, 2001,
compensation for directors who are not employees of the Company or its
subsidiaries was modified to provide that Committee chairpersons will receive an
annual retainer of $15,000 and other non-employee directors will receive an
annual retainer of $10,000. Meeting fees for non-employee directors were also
modified to provide that each such individual will receive a fee of $1,500 for
each meeting attended in person, and will receive a fee of $500 for each
telephonic meeting. Directors who are employees of New York Life or its
subsidiaries also began receiving such compensation effective January 1, 2001.
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, effective January 24, 1996, each
non-employee director who was first elected or appointed as a non-employee
director on or after such date received a ten-year option to purchase 48,000
shares of Common Stock as of the date of the first Board meeting he or she
attended as a non-employee director, at an exercise price equal to the fair
market value of the Common Stock at the date of grant. These options became
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 20,000 shares, in addition to the 28,000
previously granted, at an exercise price equal to the fair market value of the
Common Stock at the date of grant. These additional options vested in two
installments of 10,000 shares each on June 16, 1996 and June 16, 1997.
Effective January 27, 1999, each non-employee director who was first
elected or appointed as a non-employee director prior to said January 27, 1999,
and was still serving in such capacity on such date, received an option to
purchase 2,500 shares of Common Stock on such date, at an exercise price equal
to the fair market value of the Common Stock on such date, in addition to any
options previously granted. Two-thirds of these additional options have vested;
the balance will vest on January 27, 2002 or earlier upon a change in control
(as defined) or death or disability.
If the stockholders approve and ratify the adoption of the Express
Scripts, Inc. 2000 Long-Term Incentive Plan, as amended (the "2000 LTIP"), each
non-employee director who is first elected or appointed as a non-employee
director after the adoption of the 2000 LTIP will receive (i) an option to
purchase 3,000 shares of the Company's Common Stock on the date of the first
Board meeting he or she attends as a non-employee director, and a like grant on
each anniversary of such date, and (ii) an option to acquire 4,000 shares of the
Company's Common Stock on the date of the first Board meeting he or she attends
as a non-employee director, and a like grant each third year thereafter. Such
options will have a purchase price of 100% of the fair market value of the
shares and a seven-year term. They will vest at the rate of one-third each year
and will terminate immediately at such time as the individual ceases to be a
non-employee director for any reason other than death or disability or change in
control (as defined), provided that if the non-employee director is 65 at the
time of such cessation, any unexercisable portion will terminate immediately,
and any exercisable portion will terminate three months after such cessation. If
the optionee ceases to be a non-employee director because of death or
disability, all options will be immediately exercisable and will terminate three
months after such cessation. In the event of a change in control, the options
will fully vest. After the effective date of the 2000 LTIP, no additional awards
can be made under the Outside
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Directors Plan. See "Express Scripts, Inc. 2000 Long-Term Incentive Plan"
beginning on page __ for additional information about the 2000 LTIP.
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 Long Term
Incentive Plan and its Executive Deferred Compensation Plan. The Committee's
overall recommendations regarding compensation are subject to approval of the
Board of Directors.
COMPENSATION PLAN
The Company's general compensation policy for its executive officers,
including the Chief Executive Officer ("CEO"), is to provide short-term
compensation consisting of two components, a fixed base salary and a cash bonus
that is awarded based upon specific short-term financial and non-financial
objectives for the executive and the Company, and long-term compensation
consisting of a mix of equity-based programs, primarily options to purchase the
Company's stock and grants of restricted stock. The option and restricted stock
awards are based upon the Committee's judgment as to the relative contribution
of each executive to the long-term success of the Company. In addition, the
Company has adopted a deferred compensation plan for senior executives and has
entered into employment agreements with certain key executives.
The CEO consults with the Committee regarding the compensation of the
Company's executive and senior vice presidents. The Committee reviews executive
compensation at least on an annual basis. The Company's policy is to combine
short-term compensation, long-term incentive compensation and other components
of the compensation package for executives to create a total compensation
package that is competitive with compensation packages for executive officers of
similarly sized companies in comparable businesses.
During 2000, 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 technology
intensive businesses, together with other companies with high-growth
characteristics similar to those of the Company (the "Comparable Companies").
These companies included companies different from those in the peer group index
in the Company's performance graph. The consultant compared compensation for the
Company's executive officers, including its CEO, against the total compensation
received by executives in comparable positions at the Comparable Companies.
After reviewing the conclusions of the consultant's report, the Committee
approved certain adjustments to the base salary and bonus levels for the
executive officers to take effect July, 2000. The Committee also recommended a
substantial increase in long-term incentive compensation awards for certain
executive officers in the form of additional stock options, additional grants of
restricted stock, and deferred cash awards in the form of contributions to the
Company's Executive Deferred Compensation Plan.
In connection with these additional long-term incentive awards the
Company has offered long term employment agreements to these key executives,
which are described below.
The Committee continues to evaluate the impact of Section 162(m) of the
Internal Revenue Code on the deductibility of executive officer compensation.
The Committee endeavors to maximize the deductibility of compensation to the
extent practicable while maintaining competitive compensation.
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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 2000 compensation, the Committee obtained
information about the salary and total compensation of officers in comparable
companies through review of published reports and periodic surveys. Base salary
levels for 2001 will be adjusted based on generally available salary data and
data from the consultant's study described above, together with the CEO's
evaluation.
ANNUAL BONUS COMPENSATION: Each executive officer's bonus currently has
three components: (i) an amount based on the Company's profitability goal for
the year, (ii) an amount based on the Company's success in achieving
consolidation of certain of its information systems, and (iii) an amount based
on achieving specific work plan and related objectives. For each executive
officer, each component of the bonus is expressed as a specific dollar amount.
In general, the profitability component represents between 50% and 100% of the
total annual bonus amount, the IT integration component represents between 0%
and 25% of the total bonus amount, and the work plan objectives represent
between 0% and 25%. The potential bonus amount for 2000 for the executive
officers (other than the CEO) is between approximately 44% and 60% of their
respective base salaries, depending on the extent to which an executive
officer's department can help meet certain Company-wide goals. However, for
fiscal 2000, the Company instituted a program pursuant to which all
bonus-eligible employees, including each executive officer, can earn up to 200%
of their total potential bonus, depending upon the Company's achievement of
certain financial measures.
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
2000, the goals were principally based on the Company's budgeted net income. If
the Company meets these profitability goals, the executive will receive the
specified profitability portion of the bonus.
In determining the IT integration component of the bonus the Committee
determines the extent to which the Company meets its Year 2000 goals for IT
consolidation as a whole. To the extent that these goals were achieved, the
executives can receive this portion of the target bonus.
Finally, 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 IT
integration and work plan components of the bonus for 2000 are available only to
the extent that the Company's overall 2000 profitability goals are achieved.
For 2000, actual aggregate bonuses paid to current executive officers,
including the CEO, represented approximately 55% of the salaries and bonuses
paid to these officers, compared to 42% for 1999. Actual aggregate bonuses paid
to all current executive officers who received bonuses for 2000 represented
approximately 182% of the total amounts allocated for bonuses for these
executive officers and approximately 17% of the total bonus amounts paid to all
employees for 2000, compared to 102% and 18%, respectively, in 1999. As
described above, the Company instituted a program pursuant to which all
bonus-eligible employees could earn up to 200% of their total potential bonus
for 2000, which resulted in the payouts in excess of 100%.
LONG TERM INCENTIVE COMPENSATION: Long-term incentive compensation is
provided in the form either of the stock options or grants of restricted stock.
These equity awards are designed to align the executive's compensation more
directly with stockholder value by linking a substantial portion of the
executive's compensation to the performance of the Company's stock. Long-term
compensation also is designed to encourage executives to make career commitments
to the Company.
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Each executive officer receives an initial option grant upon employment
with the Company, and typically receives an annual grant of additional stock
options thereafter. In 2000 each executive officer also received a grant of
restricted stock. The restrictions prohibit sale or transfer of the restricted
stock for a period of five years. However, these restrictions can lapse sooner
based on the Company meeting certain financial targets for the years 2000, 2001
and 2002. The restricted stock grants made in 2000 were in amounts intended to
approximate the number of shares of restricted stock that would be awarded over
a period of three years under a hypothetical annual restricted stock grant
program that would be supplemental to the Company's annual option grant program.
The size of an executive's equity compensation awards are based upon
the CEO's and the Committee's 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 Comparable Companies.
In August, 2000, the Committee recommended, and the Board approved,
adoption of the Company's 2000 Long Term Incentive Plan (the "2000 LTIP"). The
2000 LTIP supersedes the Company's 1992 and 1994 Employee Stock Option Plans and
the Company's 1992 Stock Option Plan for Outside Directors (the "Prior Plans").
The Prior Plans provided only for the issuance of stock options. The Company's
compensation consultants recommended that the Company adopt a long-term
incentive plan permitting the issuance of other forms of equity-based
compensation in order to create a better overall mix of compensation elements.
See "Express Scripts, Inc. 2000 Long-Term Incentive Plan" for additional
information about the 2000 LTIP.
Stock options are granted with an exercise price equal to the market
value on the date of grant and provide value to recipients only if the Company's
stock price increases thereafter. The Committee has discretion to determine the
vesting schedule for each option grant and generally makes grants that become
exercisable in equal amounts over three years. Except in the cases of
retirement, disability or death, 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 employee stock option plans for detailed
information on the terms of these plans.
DEFERRED COMPENSATION PLAN: In December 1998, the Board of Directors
adopted the Express Scripts, Inc. Executive Deferred Compensation Plan (the
"EDCP"), which also serves as a supplemental retirement plan for executives. The
EDCP provides eligible senior and vice-president-level executive employees of
the Company and its subsidiaries the opportunity to (i) defer the receipt and
taxation of up to 50% of the individual's annual base salary and 100% of his or
her annual bonus, and (ii) receive certain annual and past-service contributions
from the Company that represent a percentage of the individual's salary and cash
bonus compensation. Annual credits vest three years after the end of the plan
year or earlier upon reaching age 57. Past service credits vest 50% upon award
and the balance over three years or earlier upon reaching age 57. Amounts
deferred by participants and Company contributions are assumed to have been
invested in any of a number of mutual funds and a Company Common Stock fund. The
Company's annual contribution for 2000 was equal to six percent (6%) of each
participating executive's cash compensation during the year. The purpose of the
EDCP is to provide key executives with more competitive retirement and capital
accumulation benefits, to retain and provide incentive to the Company's key
executives, and to increase the Company's ability to attract mid-career
executives to senior executive positions with the Company. Any compensation
deferred under the EDCP would not be included in the $1,000,000 limit provided
for under Section 162(m) of the Internal Revenue Code until the year in which
distributions from the EDCP are actually made to the participants. Ten of the
Company's executive officers, including the Company's chief executive officer
and the other four most highly compensated executive officers (the "Named
Officers"), participate in the EDCP.
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, from time to time. Nine executives, including all of the
Named Officers other than the Company's CEO, have entered into such agreements
with the Company (the CEO's employment agreement with the Company includes a
severance agreement). 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
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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. See "Executive
Compensation-Severance Agreements" beginning on page __ for additional
information regarding the severance agreements.
As noted below, certain key executives have recently entered into
long-term employment agreements with the Company, which supersede this Severance
Agreement for such individuals. See "Executive Compensation--Employment
Agreements" beginning on page __ for additional information.
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 award.
The Committee also determines his annual long-term incentive award. The factors
considered in evaluating the CEO's salary in 2000 related to the overall
performance of the Company, particularly the increase in revenues, membership,
net income and earnings per share, which were evaluated by the Committee.
Under his employment agreement with the Company, during 2000 the CEO
could earn an annual bonus of up to 100% of his base salary for 2000 based upon
achievement of performance objectives set by the Board upon recommendation of
the Committee. Mr. Toan, like all other bonus-eligible employees, was given the
opportunity to earn up to 200% of his total potential bonus for 2000, depending
upon the Company's achievement of certain financial goals. Mr. Toan's bonus
award for 2000 performance was recommended by the Committee based upon the
Company's attainment of its profitability and enrollment goals, and for his
performance of the 2000 non-financial work plan objectives. The factors used in
the non-financial work plan objectives related to such items as the integration
of the Company's IT Systems, the successful secondary offering of the Company's
common stock in November, 2000, and the significant improvement in the Company's
service levels in 2000.
In November, 2000, the Company entered into an amendment to Mr. Toan's
employment agreement. The principal terms of the amendment included the
following:
o The term of the agreement was extended from March 31, 2002
until March 31, 2005, with a provision permitting Mr. Toan to
resign from the offices of President and CEO after March 31,
2004, but permitting him to continue to serve as Chairman of
the Board until March 31, 2005.
o Mr. Toan received a grant of 50,000 shares of restricted
stock, vesting on March 31, 2005. In addition, he received an
option grant of 90,000 shares, vesting in three equal
increments on March 31 of 2003, 2004 and 2005, respectively.
All grants were made at fair market value on the date of
grant.
o Mr. Toan received a special $3,500,000 Company contribution to
his account in the Executive Deferred Compensation Plan,
vesting on March 31, 2005. Of this amount, 25% is required to
be invested in "phantom," or hypothetical, shares of the
Company's common stock.
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See "Executive Compensation - Employment Agreements" beginning on page __ for
additional information regarding the CEO's employment agreement.
February 6, 2001 COMPENSATION COMMITTEE
Gary Benanav, Chairman
Barbara Hill
Howard Waltman
Norman Zachary
The Report of the Audit Committee, the Compensation Committee Report on
Executive Compensation and the performance graph below will not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement or portions thereof 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 will
not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Benanav is the Chairman and Chief Executive Officer of New York
Life International, Inc. and a Vice Chairman of New York Life. Mr. Sternberg was
a member of our Compensation Committee until November 2000, and is the Chairman,
President and Chief Executive Officer of New York Life. Mr. Frederick J. Sievert
was a director and the Chairman of our Compensation Committee until November
2000, and he is a Vice Chairman of New York Life. The Company is a party to
agreements with New York Life pursuant to which the Company provides pharmacy
benefit management services to employees and retirees of New York Life and to
certain New York Life health insurance policyholders. In 2000, the Company
derived $9,683,000, or 0.1% of its revenues from services provided to New York
Life. 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. Ms. Barbara B. Hill was a director and member of
our Compensation Committee until March, 2001, and was the President and Chief
Executive Officer of Rush Prudential Health Plan until June 2000. The Company
provides pharmacy benefit management services to Rush Prudential and during 2000
derived revenues of $63,335,000, or 0.9% of its revenues, from services provided
to Rush Prudential.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total
stockholder return of the Company's Common Stock, commencing December 31, 1994,
with the cumulative total return on the Standard & Poor's Health Care 500 Index
and the Standard & Poor's 500 Index, to the end of 2000. These indices are
included only for comparative purposes as required by Securities and Exchange
Commission rules and do not necessarily reflect management's opinion that such
indices are an appropriate measure of the relative performance of the Common
Stock. They are not intended to forecast or be indicative of possible future
performance of the Common Stock.
[Performance Graph, in tabular format, follows.]
TOTAL RETURN TO SHAREHOLDERS
(DIVIDENDS REINVESTED MONTHLY)
INDEXED RETURNS
YEARS ENDING
Base Period
Company /Index Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 Dec 00
-------------- ----------- ------ ------ ------ ------ ------
EXPRESS SCRIPTS, INC. - CLA 100 70.35 117.65 263.24 250.98 400.98
S & P 500 INDEX 100 122.96 163.98 210.85 255.21 231.98
HEALTH CARE - 500 100 120.75 173.54 250.28 229.65 312.21
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for all services rendered in all capacities to the
Company for the fiscal years ended December 31, 2000, 1999 and 1998, by the
Named Officers; there were no long-term incentive plan payouts during 2000:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK AWARDS UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) COMPENSATION($) ($) OPTIONS(#) COMPENSATION($)
---- --------- ----------- ---------------- ------------ ----------- ---------------
BARRETT A. TOAN
President, Chief 2000 650,000(1) 1,170,000(1) -- 4,898,938(2) 129,000(3) 86,300(6)
Executive Officer and 1999 607,690(1) 675,000(1) -- -- 100,000(4) 56,942(7)
Director 1998 406,920(1) 308,000(1) -- -- 70,000(5) 304,083(8)
STUART L. BASCOMB
Executive Vice 2000 315,772 359,495(9) -- 450,065(10)(11) 9,000(12) 37,023(15)
President - Sales and 1999 300,383 187,988(9) -- -- 13,000(13) 28,063(16)
Provider Relations and 1998 258,269 134,000(9) -- -- 28,300(14) 222,282(17)
Director
MARK O. JOHNSON
Senior Vice President 2000 237,608 413,443(18) -- 450,065(10)(11) 9,000(12) 27,521(21)
-- Integration and 1999 157,801(19) 145,655(18) -- -- 13,000(20) 11,468(22)
Human Resources 1998 -- -- -- -- -- --
DAVID A. LOWENBERG
Chief Operating Officer 2000 370,000 588,513(18) -- 592,900(10)(23) 16,500(12) 40,000(26)
1999 303,648 442,203(18) -- -- 20,000(22) 25,995(27)
1998 215,961 281,776(18) -- -- 29,800(25) 84,517(28)
GEORGE PAZ
Senior Vice President 2000 305,532 348,076(9) -- 450,065(10)(11) 9,000(12) 36,368(32)
and Chief Financial 1999 290,375 187,269(9) -- -- 18,000(30) 26,473(33)
Officer 1998 240,385(29) 117,500(9) -- -- 124,800(31) 57,592(34)
- ----------
(1) Represents compensation awarded pursuant to the current and prior
employment agreement between Mr. Toan and the Company (see "Executive
Compensation -- Employment Agreement") and the Company's annual bonus plan
(see Note 6 below).
(2) Consists of 19,500 shares of restricted stock awarded on August 9, 2000,
and valued at $67.375 per share, the closing price on August 9, 2000, and
50,000 shares of restricted stock awarded on November 7, 2000, and valued
at $71.5625 per share, the closing price on November 7, 2000. As of
December 31, 2000, Mr. Toan held an aggregate amount of 69,500 shares of
restricted stock with a value of $7,106,375, based on a per share value of
$102.25, the closing price on December 31, 2000. The 19,500 shares awarded
on August 9, 2000 are scheduled to vest on August 9, 2005; provided, that
(a) if the Company meets certain financial performance targets for both
2000 and 2001, then one-third of the restricted shares shall vest at such
time as the Compensation Committee determines that such targets have been
met, and (b) if the Company also meets certain financial performance
targets for 2002, then the remaining two-thirds of the restricted shares
shall vest at such time as the Compensation Committee determines that such
targets have been met. The 50,000 shares awarded on November 7, 2000 are
scheduled to vest on March 31, 2005. The vesting of the restricted shares
held by Mr. Toan may be accelerated upon
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the occurrence of certain events, as described in detail in "Employment
Agreements - Employment Agreement with Mr. Toan" beginning on page __.
(3) Consists of 39,000 stock options awarded on April 5, 2000 and 90,000 stock
options awarded on November 7, 2000.
(4) Consists of 70,000 stock options awarded on May 26, 1999, and 30,000 stock
options awarded on November 23, 1999.
(5) Consists of 20,000 stock options awarded on May 27, 1998, and 50,000 stock
options awarded on December 16, 1998.
(6) Consists of basic company credit contribution of $79,500 by the Company
under the EDCP, and $6,800 matching contribution in connection with the
Company's 401(k) Plan.
(7) Consists of basic company credit contribution of $54,942 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(8) Consists of past service credit contribution of $302,083 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(9) Consists of amounts earned pursuant to the Company's annual bonus plan.
(10) All of these restricted shares are scheduled to vest on August 9, 2005;
provided, that (a) if the Company meets certain financial performance
targets for both 2000 and 2001, then one-third of the restricted shares
shall vest at such time as the Compensation Committee determines that such
targets have been met, and (b) if the Company also meets certain financial
performance targets for 2002, then the remaining two-thirds of the
restricted shares shall vest at such time as the Compensation Committee
determines that such targets have been met. These restricted shares may
also be subject to accelerated vesting upon a change in control (as defined
in the 2000 LTIP), depending on, among other things whether an offer of
"comparable employment" is made or accepted. Afterwards, if there is no
public market for the Company's stock, or the common stock for which the
shares are exchanged, then any restricted shares will be repurchased by the
Company based on the "change in control price" (as defined), with the
proceeds placed in escrow and paid out as the restrictions lapse. In the
event of the death, disability or retirement of the Named Officer, he will
receive a pro rata portion, based on the number of days of employment.
Dividends are paid on restricted stock awards at the same rate as paid to
all shareholders.
(11) Consists of 6,680 shares of restricted stock awarded on August 9, 2000 and
valued at $67.375 per share, the closing price on August 9, 2000. As of
December 31, 2000, Messrs. Bascomb, Johnson and Paz each held an aggregate
amount of 6,680 shares of restricted stock with a value of $683,030, based
on a per share value of $102.25, the closing price on December 31, 2000.
(12) Consists of stock options awarded on April 5, 2000.
(13) Consists of stock options awarded on November 23, 1999.
(14) Consists of 8,000 stock options awarded on April 1, 1998, and 20,300 stock
options awarded on December 16, 1998.
(15) Consists of basic company credit contribution of $30,223 by the Company
under the EDCP, and $6,800 matching contribution in connection with the
Company's 401(k) Plan.
(16) Consists of basic company credit contribution of $26,063 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(17) Consists of past service credit contribution of $220,282 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(18) Consists of amounts earned pursuant to the Company's annual bonus plan (see
Note 6 above) and amounts earned for integration bonuses awarded in
connection with the Company's acquisition of ValueRx for 1998 and, for
1999, both ValueRx and Diversified Pharmaceutical Services.
(19) Mr. Johnson joined the Company on April 1, 1999 in connection with the
acquisition of Diversified Pharmaceutical Services.
(20) Consists of 10,864 stock options awarded on April 7, 1999, and 15,000 stock
options awarded on November 23, 1999.
(21) Consists of basic company credit contribution of $20,721 by the Company
under the EDCP, and $6,800 matching contribution in connection with the
Company's 401(k) Plan.
(22) Consists of basic company credit contribution of $9,468 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(23) Consists of 8,800 shares of restricted stock awarded on August 9, 2000, and
valued at $67.375 per share, the closing price on August 9, 2000. As of
December 31, 2000, Mr. Lowenberg held an aggregate amount of 8,800 shares
of restricted stock with a value of $899,800, based on a per share value of
$102.25, the closing price on December 31, 2000.
(24) Consists of 5,000 stock options awarded on May 26, 1999, and 15,000 stock
options awarded on November 23, 1999.
(25) Consists of 10,000 stock options awarded on April 1, 1998, and 19,800 stock
options awarded on December 16, 1998.
(26) Consists of basic company credit contribution of $33,200 by the Company
under the EDCP, and $6,800 matching contribution in connection with the
Company's 401(k) Plan.
(27) Consists of basic company credit contribution of $23,995 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(28) Consists of past service credit contribution of $82,517 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(29) Mr. Paz joined the Company on January 5, 1998.
(30) Consists of 5,000 stock options awarded on May 26, 1999, and 13,000 stock
options awarded on November 23, 1999.
(31) Consists of 100,000 stock options awarded on January 7, 1998, 5,000 stock
options awarded on April 1, 1998, and 19,800 stock options awarded on
December 16, 1998.
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(32) Consists of basic company credit contribution of $29,568 by the Company
under the EDCP, and $6,800 matching contribution in connection with the
Company's 401(k) Plan.
(33) Consists of basic company credit contribution of $24,473 by the Company
under the EDCP, and $2,000 matching contribution in connection with the
Company's 401(k) Plan.
(34) Consists of past service credit contribution of $20,000 by the Company
under the EDCP, and reimbursement of relocation expenses of $37,592.
See "Report of the Compensation Committee on Executive Compensation - Components
of Executive Compensation - Deferred Compensation Plan" on page __ for a
description of the vesting provisions of that plan.
STOCK OPTIONS
The table below sets forth certain information on the grants of stock
options to the Named Officers pursuant to the Employee Stock Option Plans during
2000.
OPTION GRANTS IN FISCAL YEAR 2000
INDIVIDUAL GRANTS
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED GRANT DATE
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR(1) PRICE($/SH) DATE ($)(2)
- ---- ----------- -------------- ------------ ---------- -------------
Barrett A. Toan 39,000(3),(7) 4.68% $ 38.625(5) 04/05/07 $ 811,980
90,000(4),(7) 10.80% 71.56250(6) 11/07/07 $3,471,300
Stuart L. Bascomb 9,000(3),(7) 1.08% 38.625(5) 04/05/07 $ 187,380
Mark O. Johnson 9,000(3),(7) 1.08% 38.625(5) 04/05/07 $ 187,380
David A. Lowenberg 16,500(3),(7) 1.98% 38.625(5) 04/05/07 $ 343,530
George Paz 9,000(3),(7) 1.08% 38.625(5) 04/05/07 $ 187,380
- ----------
(1) Total options granted to employees in fiscal year 2000 includes all options
granted to employees in 2000.
(2) Such estimated value is derived using the Black-Scholes method taking into
account the following key assumptions: (a) volatility of 54.1% calculated
using daily stock prices for the 36-month period prior to each respective
grant date; (b) 0% dividend yield; (c) an interest rate of 6.0% which
represents the average interest rate on a U.S. Treasury security on the
applicable date of grant with a maturity date corresponding to that of the
option term; (d) 7-year expected option term; (e) an exercise price equal
to the fair market value on the date of grant, and (f) a vesting schedule
as set forth in these footnotes. The resulting Black-Scholes value was
discounted by approximately 13.2% 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.
(3) Consists of options awarded on April 5, 2000 and vesting in three equal
installments with 33 1/3% per year on each of the first three anniversaries
of the date of grant.
(4) Consists of options awarded on November 7, 2000 and vesting in three equal
installments on March 31, 2003, March 31, 2004, and March 31, 2005.
(5) Represents the closing price per share as reported on Nasdaq on the date
preceding the date of grant, which represent the fair market value on the
date of the grant as defined in the applicable stock option plan.
(6) Represents the closing price per share as reported on Nasdaq on the date of
grant, which represent the fair market value on the date of the grant as
defined in the applicable stock option plan.
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(7) In the event of a "change in control" of the Company (as defined in the
2000 LTIP), the options will become fully exercisable. Afterwards, if there
is no public market for the Company's stock, or the common stock for which
the Company's common stock is exchanged, then any unexercised options will
be repurchased by the Company based on the "change in control price" (as
defined) for the underlying shares. The options become fully exercisable
for one year upon termination of employment if the employee dies, become
disabled, or retires. The options expire if the employee is terminated for
cause, and if the employee is terminated for any other reason, the options
are exercisable, to the extent that they were exercisable before
termination, for one month. See "Express Scripts, Inc. 2000 Long-Term
Incentive Plan" for additional information regarding the options. The
foregoing terms are subject to the terms of the employment agreements of
the Named Officers. See "Employment Agreements" below.
The Company did not grant any stock appreciation rights in 2000.
The table set forth below provides certain information with respect to
the 2000 fiscal year-end value of options to purchase the Company's Common Stock
granted to the Named Officers and options exercised during such period.
AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END(#) AT FISCAL YEAR END($)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) VALUE REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ---- ------------------ --------------------- ---------------------- ----------------------
Barrett A. Toan 100,000 $5,660,375 477,000/0 $48,773,250/$0
Stuart L. Bascomb 30,000 $1,878,561 59,560/41,540 $6,090,010/$4,247,465
Mark O. Johnson -- -- 10,346/24,518 $1,057,878/$2,506,965
David A. Lowenberg 32,000 $1,815,094 59,540/50,960 $6,087,965/$5,210,660
George Paz 40,000 $1,386,370 17,520/74,280 $1,791,420/$7,595,130
- ----------
(1) Based on the difference between the sale price and the exercise price.
(2) Based on $102.25, the closing price of the Common Stock as reported on
Nasdaq on December 31, 2000. On March 30, 2001, the closing price of the
Common Stock was $______.
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EMPLOYMENT AGREEMENTS
Employment Agreement with Mr. Toan
Effective as of April 1, 1999, the Company entered into a new
employment agreement (the "Employment Agreement") with Mr. Toan for an initial
term extending through March 31, 2002, with optional one-year renewal periods
thereafter, pursuant to which Mr. Toan will serve as the Company's Chief
Executive Officer and President and a member of the Board of Directors. The
Employment Agreement replaced a previous employment agreement, which would have
expired no earlier than March 31, 2001. In November, 2000, the Company entered
into an amendment (the "2000 Amendment") to Mr. Toan's Employment Agreement,
which extended the term of the Employment Agreement from March 31, 2002 until
March 31, 2005, with a provision permitting Mr. Toan to resign the offices of
President and CEO after March 31, 2004, but permitting him to continue as
Chairman of the Board until March 31, 2005.
The Employment Agreement provides for an annual base salary of
$650,000, subject to increase in the discretion of the Board of Directors and
which may not be reduced after any increase. Pursuant to the Employment
Agreement, Mr. Toan is also eligible to participate in the Company's Annual
Bonus Plan for senior executives and will be eligible for target bonuses
thereunder of a minimum of 100% of his annual base salary, payment of which will
depend upon the Company meeting certain targeted financial and non-financial
objectives determined each year by the Board in its discretion.
Pursuant to the 2000 Amendment, Mr. Toan received a special $3,500,000
Company contribution to his account in the EDCP, vesting on March 31, 2005. This
contribution is subject to forfeiture in the event Mr. Toan's employment
terminates prior to March 31, 2005 for any reason other than (i) termination by
the Company without "Cause," (ii) termination on account of death, "Disability"
or "Retirement" or (iii) for "Good Reason" by Mr. Toan (as each such capitalized
term is defined in the Employment Agreement).
Pursuant to the Employment Agreement, on May 26, 1999, Mr. Toan
received a one-time grant of nonqualified options to purchase 70,000 shares of
Class A Common Stock at an exercise price equal to the fair market value of
Class A Common Stock on the date of grant, with said options vesting in five
equal annual installments on each of the first five anniversaries of the date of
grant. Pursuant to the 2000 Amendment, on November 7, 2001, Mr. Toan received an
additional grant of nonqualified stock options to purchase 90,000 shares of
Class A Common Stock at an exercise price equal to the fair market value of
Class A Common Stock on the date of grant, with the underlying stock relating to
said options vesting in three equal increments on March 31 of 2003, 2004 and
2005, respectively. In addition, pursuant to the 2000 Amendment, Mr. Toan
received a grant of 50,000 shares of restricted stock, vesting on March 31,
2005. Subject to the Board's sole discretion, Mr. Toan will continue to be
eligible to receive annual option grants under the Company's Employee Stock
Option Plans, as determined by the Compensation Committee.
Prior to the 2000 Amendment, the Employment Agreement provided that Mr.
Toan's stock options granted under the Employee Stock Option Plans (including
stock options expressly granted under the Employment Agreement and those granted
prior to the date of the Employment Agreement), and all of Mr. Toan's restricted
shares acquired upon exercise of such options, will become fully vested upon (i)
a "Change of Control," (ii) termination of Mr. Toan's employment by the Company
without "Cause," (iii) termination by Mr. Toan for "Good Reason" and (iv) Mr.
Toan's death or "Disability" (as each such capitalized term is defined in the
Employment Agreement). In addition to the foregoing, the 2000 Amendment provides
that any restricted stock granted pursuant to the Employment Agreement (plus any
restricted stock granted prior to or after the 2000 Amendment) will become fully
vested upon the occurrence of any one of the aforementioned events. In addition,
the 2000 Amendment provides that all of Mr. Toan's stock options and restricted
stock (including grants made pursuant to the express terms of the Employment
Agreement, as described in the preceding paragraph, and all grants prior to or
after the 2000 Amendment) will become fully vested if Mr. Toan is still employed
by the Company (including any service solely as Chairman of the Board) on March
31, 2005.
Pursuant to the 2000 Amendment, Mr. Toan's post-employment exercise
rights pertaining to his stock options were modified in certain respects. Prior
to the 2000 Amendment, the Employment Agreement provided that, upon the
occurrence of any of the events described in (i) through (iv) in the preceding
paragraph, Mr. Toan's
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options will remain exercisable for 18 months after such event (or until the
expiration date of the option, if the remaining term of the option is less than
18 months). In contrast, pursuant to the 2000 Amendment, upon the occurrence of
one of the events described in (i) through (iv) (or if Mr. Toan's employment
terminates for any reason other than for Cause on or after March 31, 2005), Mr.
Toan's options will remain exercisable until the expiration date of the option
and all restricted shares will fully vest. Otherwise, Mr. Toan may only exercise
his vested options within 30 days after termination of his employment if
termination is by the Company for Cause or by Mr. Toan without Good Reason.
Pursuant to Mr. Toan's previous employment agreement, effective upon
the Company's initial public offering in June 1992, Mr. Toan received options to
purchase 280,000 shares of Class A Common Stock under the 1992 Plan, at an
exercise price of $3.25 per share, and he has received additional options on an
annual basis.
The Employment Agreement also provides Mr. Toan the right to tender to
the Company, within 12 months after his termination without Cause, for Good
Reason or upon death or Disability, shares of Class A Common Stock equal to the
greater of (a) the number of shares subject to options granted to him during the
calendar year preceding such termination or (b) 70,000 shares (with (a) and (b)
adjusted for any stock splits occurring after the date of grant and the date of
the Employment Agreement, respectively). In such event, the Company must
repurchase such shares for the "Fair Market Value" (as defined in the Employment
Agreement) of such shares as of the date of tender. Under the Employment
Agreement, however, Mr. Toan's right to tender such shares will not become
effective until and unless the Financial Accounting Standards Board ("FASB")
formally adopts new accounting rules such that such right would not require the
Company to use "variable plan accounting" or similar "mark-to-market"
accounting, which could result in additional expense to the Company, to reflect
such right.
If the Company terminates Mr. Toan's employment without Cause or Mr.
Toan terminates his employment for Good Reason, the Employment Agreement
requires the Company to pay Mr. Toan the following amounts: (i) three times his
annual base salary then in effect; (ii) three times the greater of (A) his
annual bonus for the preceding calendar year or (B) his target bonus for the
year of termination; (iii) all amounts accrued but unpaid as of the date of
termination; and (iv) three times the amount or amounts the Company credited to
Mr. Toan's account under the EDCP for the calendar year preceding termination
(excluding past service credits for years prior to 1999). The Company must also
continue Mr. Toan's employee life and health benefits (except long-term
disability insurance coverage) until the earlier of (x) three years following
his termination, (y) the date he becomes covered under another employer's plans
or (z) the last day of the month in which he reaches age 65. Among other events,
the failure of the Company's stockholders to elect Mr. Toan to the Board of
Directors and his failure to be reelected as Chairman of the Board each
constitutes Good Reason under the Employment Agreement.
The Agreement generally provides for pro rata payment of benefits in
the event of termination due to death or Disability, provided that in the case
of Disability, the annual base salary will continue until expiration of the
term. The Company has also agreed to pay certain legal expenses of Mr. Toan in
negotiating and enforcing the Agreement.
In the event of any Change of Control that results in Mr. Toan's
liability for the payment of an excise tax under Section 4999 of the Code (or
any similar tax under any federal, state, local or other law), the Company will
make a "gross-up" payment which, in general, will effectively reimburse Mr. Toan
in full for any such excise taxes.
Mr. Toan is also subject to certain post-employment non-solicitation,
non-competition and non-disclosure provisions.
Employment Agreements with Other Executive Officers
In an effort to facilitate the retention of key management, effective
March 15, 2001, the Company entered into long-term employment agreements with
six key executives meeting certain tenure criteria, including three of the Named
Officers pursuant to the following terms and conditions.
o Term of Employment Agreements. Each employment agreement provides for
an initial employment period continuing through December 31, 2003.
Commencing on January 1,
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2003, and on each January 1 thereafter, the employment period is
automatically extended for successive one-year renewal periods unless
either party gives timely notice of non-renewal.
o Compensation and Benefits. Each employment agreement generally provides
for: (i) the payment of an annual base salary (which may not be reduced
after any increase); (ii) a guaranteed minimum annual bonus pursuant to
the terms of the Company's bonus plan, with a bonus opportunity for
each of the calendar years 2001, 2002 and 2003 of up to 200% of the
executive's guaranteed minimum annual bonus in the event the Company
achieves certain strategic plan goals; (iii) participation in the
Company's benefit and incentive plans and other arrangements in
accordance with their terms; (iv) the crediting of a deferred bonus to
the executive's account in the EDCP, subject to the terms and
conditions of the EDCP, which bonus generally vests on December 31,
2003 except as described below; (v) an option grant under the 2000
LTIP, vesting in three equal increments on December 31, 2001, December
31, 2002 and December 31, 2003, contingent upon shareholder approval of
the 2000 LTIP; (vi) a restricted stock award under the 2000 LTIP,
vesting no later than December 31, 2003, contingent upon shareholder
approval of the 2000 LTIP; and (vii) such perquisites and fringe
benefits to which similarly situated Company executives are entitled
and which are suitable for the executive's position. In addition, for
each one-year renewal period of the employment agreement, the Company,
in its discretion, may propose additional deferred bonus awards, option
grants or restricted stock awards. The specific compensatory amounts
and grants for each of the other Named Officers under the employment
agreements are as follows:
GUARANTEED NUMBER OF
MINIMUM ANNUAL NUMBER SHARES
BONUS (EXPRESSED OF SHARES SUBJECT TO
AS A PERCENTAGE SUBJECT RESTRICTED
ANNUAL BASE OF EXECUTIVE'S TO OPTION STOCK
EXECUTIVE SALARY ANNUAL BASE SALARY) GRANT AWARD DEFERRED BONUS AWARD
-------------------- ----------- ------------------- --------- --------- -------------------------
Stuart L. Bascomb $345,000 60% 14,400 7,500 $663,750
David A. Lowenberg $400,000 65% 15,750 9,000 $750,000
George Paz $340,000 60% 14,250 7,500 $649,500
o Benefits Upon Termination of Employment Prior to Expiration of
Employment Period. Each employment agreement provides for the provision
and forfeiture of certain benefits if the executive's employment is
terminated prior to the expiration of the employment period (including
any renewal period in effect). In general, if the executive's
employment is terminated prior to expiration of the employment period,
the executive is not entitled to receive any further payments or
benefits which have not already been paid or provided (including any
unvested portion of the option grant, deferred bonus, or restricted
stock award) except as follows:
- The executive will be entitled to all previously earned and
accrued, but unpaid, annual base salary.
- If the executive's employment is terminated by the Company
other than for Cause or Disability, or by the executive for
Good Reason (as those terms are defined in the agreement),
the executive is entitled to receive: (i) a pro rata portion
of the deferred bonus (based on the number of days worked
during the initial employment period) if termination of
employment occurs prior to December 31, 2003; (ii) a pro
rata portion of the restricted stock award (based on the
number of days worked during the initial employment period)
if termination of employment occurs prior to December 31,
2003; (iii) a severance benefit equal to 18 months of the
executive's base salary plus a specified portion of the
executive's bonus potential for the year based on the
average percentage of the potential earned for the three
prior years; and (iv) reimbursement for the cost of
continuing medical insurance for 18 months after termination
of employment. The employment agreement supersedes the
executive's severance agreement described below.
Consequently, the severance benefit received pursuant to the
employment agreement is in lieu of any benefit the executive
would have otherwise received under his or her vitiated
severance arrangement.
- If the executive's employment terminates on account of
death, disability or retirement (i.e., voluntary retirement
on or after age 59 1/2 but not within 90 days after a change
in control (as
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defined) of the Company) prior to December 31, 2003, the
executive generally is entitled to receive: (i) a pro rata
portion of the restricted stock award, and (ii) a pro rata
portion of the deferred bonus.
- The executive's rights with respect to the stock option
granted under the employment agreement are generally
governed by the terms and provisions of the 2000 LTIP.
However, the employment agreement provides that stock
options granted on or after the effective date of the
employment agreement (including stock options granted under
the employment agreement) which have vested as of the
effective date of termination of employment will be
exercisable until (i) expiration of the relevant option term
if termination is on account of retirement, or (ii) for 12
months after termination of employment if termination is
solely on account of the Company's decision not to renew the
employment agreement.
If a change in control (as defined) of the Company occurs prior to
December 31, 2003, the executive, in certain instances, is afforded
different rights with respect to the deferred bonus and restricted
stock award as follows:
- If the executive remains employed for 90 days following the
change in control, he or she obtains a vested right to
receive 50% of the deferred bonus and restricted stock
award, with the remaining 50% otherwise eligible for vesting
pursuant to the terms of the employment agreement.
- If, within 90 days before or any time after a change in
control, the executive's employment is terminated by the
Company other than for Cause or Disability, or by the
executive for Good Reason, or the agreement expires during
the change in control period (as defined) the executive
generally will obtain a vested right to receive the entire
deferred bonus and restricted stock award in lieu of any
prorated deferred bonus or restricted stock benefit
described above.
- If there is no public market for the Company's stock or the
common stock for which the shares are exchanged, then the
Company will repurchase the shares at a price equal to the
change in control price (as defined), with the proceeds
placed in escrow and paid out as the restrictions lapse.
o Restrictive Covenants. If an executive's employment is terminated prior
to expiration of the employment period (including any renewal period in
effect) for any reason, the executive is prohibited from competing
against the Company for 18 months after such termination. If
termination of employment occurs solely as a result of expiration of
the employment agreement, the executive is prohibited from competing
for one year after such termination. Each executive is also subject to
certain non-solicitation and non-disclosure limitations. Entitlement to
the severance benefit and the deferred bonus described above (including
any prorated portion) is contingent upon compliance with these
restrictive covenants.
o Tax Indemnification. In the event that any amount or benefit paid or
distributed to the executive pursuant to the employment agreement,
taken together with any amounts or benefits otherwise paid or
distributed to the executive by the Company pursuant to any other
arrangement or plan (collectively, the "Covered Payments"), would
result in the executive's liability for the payment of an excise tax
under Section 4999 of the Code (or any similar state or local tax)
(collectively, the "Excise Tax"), the Company will make a "gross-up"
payment to the executive to fully offset the Excise Tax provided the
aggregate present value of the Covered Payments exceeds by 125% or more
the maximum total payment which could be made to the executive without
triggering the Excise Tax. If the aggregate present value of the
Covered Payments, however, exceeds such maximum amount, but does not
exceed by 125% or more such maximum amount, then the Company may, in
its discretion, reduce the Covered Payments so that no portion of the
Covered Payments is subject to the Excise Tax, and no gross-up payment
would be made.
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.
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The severance agreements are operative only in the event the executive's
employment with the Company terminates for reasons discussed below. Nine
executives, including all of the Named Officers except Mr. Toan, the Company's
Chief Executive Officer, have previously entered into such agreements with the
Company (Mr. Toan's employment agreement with the Company includes a severance
provision - see "Employment Agreement" above.) As noted above, certain key
executives have recently entered into long-term employment agreements with the
Company, which supersede this severance agreement for such individuals,
including Messrs. Bascomb, Lowenberg and Paz.
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, 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 currently continue through December 31,
2002, and extend for an additional year on January 1 of each year 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 Health
Plans, Inc. ("NYLCare"), which was a subsidiary of New York Life (New York Life
sold NYLCare to Aetna U.S. HealthCare, Inc. In April 1992, both the Company and
NYLCare became direct subsidiaries of NYLife HealthCare, an indirect subsidiary
of New York Life. In November, 2000, pursuant to an asset acquisition agreement,
NYLife HealthCare exchanged its 15,020,000 shares Class B Common Stock for an
identical number of shares of Class A Common Stock and transferred its Class A
Common Stock to NYLife. As a result of this exchange and transfer as well as
other transactions, NYLife is currently the beneficial owner of 8,120,000 shares
(or approximately _______%) of the Common Stock. See "Voting Securities"
beginning on page __ for additional information regarding these transactions. As
described below, the Company currently provides pharmacy benefit management
services to (i) employees and retirees of New York Life, (ii) certain health
insurance policyholders of New York Life, and (iii) WellPath Community Health
Plan, Inc. ("WellPath"), a North Carolina health maintenance organization in
which New York Life held a 25% interest until September 30, 2000, at which time
it divested itself of that investment.
From time to time, the Company has obtained insurance brokerage
services from MMC. In December 1999, the Company entered into an agreement with
MMC pursuant to which MMC will provide such services for an annual fee of
$90,000. The Company has also obtained compensation related services from
William M. Mercer, Incorporated ("Mercer"), a subsidiary of MMC. The total cost
of the services obtained from Mercer during 2000 was approximately $386,000. Mr.
Borelli, who has served as a member of the Board of Directors of the Company
since January 2000, is a Senior Advisor and the Retired Chief Financial Officer
of MMC.
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RELATIONSHIP WITH NEW YORK LIFE
Pharmacy Benefit Management Services and Related Items
Pursuant to agreements with New York Life, the Company provides
pharmacy benefit management services to employees and retirees of New York Life
and certain New York Life health insurance policyholders. Pursuant to an
agreement with WellPath, the Company also provides pharmacy benefit management
services to WellPath and its members. During 2000, the total revenues that the
Company derived from all services provided to New York Life were approximately
$9,683,000, or 0.1% of the Company's total revenues for 2000.
Stockholder and Registration Rights Agreement
New York Life, a New York mutual insurance company of which NYLife is a
subsidiary, and the Company are parties to a Stockholder and Registration Rights
Agreement dated as of October 6, 2000 entered into in connection with the
November Offering. The principal terms of this agreement are described below.
Conversion of Class B Common Stock. New York Life agreed (for itself
and on behalf of its subsidiaries), unless the exchange contemplated by a
related asset acquisition agreement referred to above was effected, to convert
each issued and outstanding share of Class B Common Stock into one share of
Class A Common Stock contemporaneously with the completion of the November
Offering.
Rights Regarding the Board of Directors. As long as New York Life and
its non-investment subsidiaries, in the aggregate, beneficially hold 1,500,000
or more shares of the Class A Common Stock (as adjusted for stock splits and
similar events), and such shares constitute 5% or more of the Company's
outstanding voting stock, New York Life has the right to designate for
nomination a total of two directors to the Company's Board of Directors. The
Company is required to use the same efforts to cause the election of such
designees to the Board of Directors as it uses with its other nominees for
director. If at any time New York Life and its non- investment subsidiaries, in
the aggregate, beneficially hold 1,500,000 or more shares of the Class A Common
Stock (as adjusted for stock splits and similar events), and such shares
constitute less than 5% of the Company's outstanding voting stock, then the
number of directors New York Life shall be permitted to designate to the Board
of Directors shall be reduced to one. If at any time New York Life and its
non-investment subsidiaries, in the aggregate, beneficially hold less than
1,500,000 shares of our Class A Common Stock (as adjusted for stock splits and
similar events), the number of directors New York Life shall be permitted to
designate to the Board of Directors shall be reduced to zero. If a vacancy
occurs with respect to a director which New York Life had the right to
designate, and New York Life has the right at such time to designate a director
for nomination, New York Life is entitled to designate a director to fill the
vacancy. If the Company nominates for election those persons designated by New
York Life, New York Life and its non-investment subsidiaries that hold shares
are required to vote their shares of voting stock in favor of all directors
nominated for such election. In addition, New York Life and its non-investment
subsidiaries are required to vote their shares to approve the 2000 LTIP, as
approved by the Company's Board of Directors. Finally, so long as New York Life
is entitled to nominate two directors, the Company has agreed to appoint one of
the New York Life directors to each standing committee of its Board of
Directors, except the Audit Committee. Pursuant to the agreement, upon the
consummation of the November Offering, all but two of the directors on the Board
of Directors affiliated with New York Life resigned.
Registration Rights. So long as New York Life and its non-investment
subsidiaries, in the aggregate, beneficially hold in excess of 1,500,000 shares
of the Class A Common Stock (as adjusted for stock splits and similar events),
New York Life may request that the Company effect up to three registrations of
all or part of such shares under the Securities Act of 1933. One of these
registrations may be requested to be effected as a shelf registration pursuant
to Rule 415 under the Securities Act, and two of these registrations may be
requested to be effected as firm commitment underwritten offerings under the
Securities Act. The Company is not obligated to file a registration statement at
the request of New York Life: (1) within 180 days after the closing of the
November Offering ; (2) within a period of 90 days after the effective date of
any other registration statement of the Company (other than a registration
statement on Form S-8 or its equivalent) or (3) while a registration statement
relating to a shelf registration filed at the request of New York Life is
effective under the Securities Act In addition, so long as New York Life and its
non-investment subsidiaries, in the aggregate, beneficially hold in excess of
1,500,000 shares of our Class A Common Stock (as adjusted for stock splits and
similar events), if the Company proposes to register
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shares of Class A Common Stock for the Company's account under the Securities
Act (other than a registration on Form S-8 or their equivalent), New York Life
shall have piggy-back rights with respect to such registration. The underwriters
of any such offering have the right to limit the number of shares included by
New York Life in any such registration if the managing underwriter indicates
that, in its opinion, the number of shares to be included by New York Life would
adversely affect the offering. The Company will bear the expenses of any
registration described in this paragraph.
Voting of Class A Common Stock Underlying the Trust Securities. New
York Life and its subsidiaries have agreed to vote any shares of Class A Common
Stock that may be delivered by the Trust in the same proportion and to the same
effect as the votes cast by the Company's other stockholders at any meeting of
stockholders, subject to two exceptions described above relating to elections of
directors and approval of the 2000 LTIP.
Term. The Stockholder and Registration Rights Agreement shall terminate
on the earlier of: (1) eight years from the closing of the November Offering or
(2) at such time as New York Life and its non-investment subsidiaries, in the
aggregate, beneficially hold less than 1,500,000 shares of Class A Common Stock
(as adjusted for stock splits and similar events)
Other Agreements and Transactions
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 maintained Directors and Officers/Corporation Reimbursement ("D&O")
insurance covering directors and officers of New York Life and its subsidiaries,
including the Company, for certain expenses and liabilities of such directors
and officers while acting in their capacity as such while New York Life
maintained voting control of the Company, which it did until November 2000.
Since November 2000, the Company has maintained its own D&O coverage. The
Company did not incur any annualized premium expense for the D&O coverage
maintained by New York Life during 2000.
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 its tax allocation agreements with New York Life only for purposes
of adjustments to tax liabilities for the years in which it was included in
those consolidated groups.
New York Life Benefit Services, Inc., a subsidiary of New York Life,
administers the Company's 401(k) plan. The Company paid New York Life Benefit
Services approximately $61,000 for such services during 2000.
II. EXPRESS SCRIPTS, INC. 2000 LONG-TERM INCENTIVE PLAN, AS AMENDED
On August 9, 2000, the Board of Directors unanimously adopted the 2000
LTIP and subsequently amended it on February 6, 2001. The effectiveness of the
2000 LTIP is subject to stockholder approval. If not approved by August 9, 2001,
all prior awards under the 2000 LTIP will be voided. A copy of the 2000 LTIP is
attached hereto as Exhibit B. The change in the Company's ownership resulting
from the secondary offering of NYLife's shares in November caused the Company to
review certain provisions of the 2000 LTIP and to recommend appropriate
amendments in light of the newly changed circumstances. Also, a recently
completed compensation study recommended that the Company increase the number of
shares available under the 2000 LTIP. The Compensation Committee has reviewed
and approved the 2000 LTIP. New York Life and its subsidiaries are contractually
obligated to vote their 8,120,000 shares (which includes the 3,450,000 Trust
shares) in favor of the approval and ratification of the adoption of the Plan.
The purpose of the 2000 LTIP is to motivate key employees to produce a
greater return to the Company's stockholders by offering these employees an
opportunity to benefit from stock appreciation through stock ownership. The 2000
LTIP is intended to reward high levels of corporate performance and to
facilitate the recruiting and retention of talented employees.
All full-time and part-time employees (including officers and directors
who are employees) and non-employee directors (except with respect to grants of
incentive stock options) of the Company and its affiliates will
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be eligible to participate in the 2000 LTIP at the discretion of the
Compensation Committee. As defined in the 2000 LTIP, an affiliate is any
corporation that is a subsidiary of the Company and, for purposes other than the
grant of incentive stock options, any limited liability company, partnership,
corporation, joint venture, or any other entity in which the Company or any
subsidiary owns an equity interest. Approximately 5,000 individuals are
currently eligible to participate in the 2000 LTIP. The Committee will make
awards based on, among other factors, an individual's capacity for contributing
to the future growth and profitability of the Company. Each award will be
evidenced by an agreement or certificate setting forth the terms and conditions
of the award, including the term of the award, which will not be greater than
ten years. All awards are non-transferable unless the agreement or certificate
permits the transfer to the participant's successor upon the participant's
death.
The Compensation Committee will administer the 2000 LTIP and grant
awards under the 2000 LTIP, except with respect to awards for non-employee
directors, in which case the Board of Directors will administer the 2000 LTIP.
The Compensation Committee has the power to interpret the 2000 LTIP, to
determine the terms of the agreements or certificates, and to make all other
determinations necessary or advisable for the administration of the 2000 LTIP.
In addition, the Compensation Committee may delegate all or any part of its
authority under the 2000 LTIP to the Chief Executive Officer for purposes of
determining awards of options solely to participants who are not Vice Presidents
or Senior Executives (as those terms are defined) and who are not subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934,
subject to certain limitations.
Under the 2000 LTIP, 1,350,000 shares of Common Stock will be initially
available, with an additional 700,000 shares becoming available in three
installments on January 1 of 2002, 2003, and 2004. Any shares forfeited under
the Express Scripts, Inc. Amended and Restated 1992 and 1994 Stock Option Plans
and the Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan for
Outside Directors (collectively, the "1992 and 1994 Plans") will be added to the
balance available under the 2000 LTIP; no further awards will be made under the
1992 and 1994 Plans. As of March 15, 2001, options for 2,701,635 shares were
outstanding under the 1992 and 1994 Plans. Shares issued under the 2000 LTIP may
be authorized and unissued shares or treasury shares. Any shares subject to an
award under the 2000 LTIP which are not used because the award expires, the
conditions of the award are not met, or the award is forfeited may be used again
for an award under the 2000 LTIP. Any shares covered by a stock appreciation
right in excess of the number of shares issued, used to pay a purchase or
exercise price, or used to satisfy tax withholdings may also be used again under
the 2000 LTIP. Any unexercised or undistributed portion of any terminated,
expired, exchanged, or forfeited award or any award settled in cash in lieu of
shares will be available for further awards. The Nasdaq closing price of the
Common Stock on March 30, 2001 was $______ per share.
TYPES OF AWARDS
General. The Compensation Committee has the discretion to award
options, stock appreciation rights, restricted stock, performance shares, and
other stock-based awards.
Options. Options will be either incentive stock options or
non-qualified stock options. Only non-qualified stock options may be granted to
non-employee directors. The purchase price of the option will be set forth in
the agreement or certificate but may not be less than 100% of the fair market
value of the shares on the grant date. Fair market value, as defined, generally
means the closing sales price of the Common Stock. Options, once issued, may not
be repriced without first obtaining the approval of the shareholders. The
purchase price will be payable in full at the time of exercise, provided that,
to the extent permitted by law and in accordance with rules adopted by the
Compensation Committee, participants may simultaneously exercise options and
sell the shares thereby acquired pursuant to a brokerage or similar relationship
and use the proceeds from such sale to pay the purchase price of such shares.
The purchase price may be paid in cash or, if the Compensation Committee so
permits, through delivery or tender to the Company of shares held, either
actually or by attestation, by the participant for at least six months, or, if
the Compensation Committee so permits, a combination thereof, unless otherwise
provided in the agreement or certificate; provided that, no shares may be
tendered in exercise of an incentive stock option if such shares were acquired
by the optionee through the exercise of an incentive stock option unless (i)
such shares have been held by the optionee for at least one year and (ii) at
least two years have elapsed since the grant date. Further, the Compensation
Committee, in its discretion, may approve other methods or forms of payment of
the purchase price, and establish rules and procedures therefor.
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A participant may not hold incentive stock options with a fair market
value (determined as of the date of grant) in excess of $100,000 in the year in
which they are first exercisable if such limitation is necessary to qualify the
option as an incentive stock option. If, when an incentive stock option is
granted, the participant possesses more that 10% of the total voting power of
all of the stock of the Company and its subsidiaries, the option price for such
incentive stock option will be at least 110% of the fair market value of the
shares subject to the option on the grant date, and such option will expire five
years after the grant date.
Unless determined otherwise by the Board of Directors, a non-employee
director appointed after the adoption of the 2000 LTIP will receive as
compensation for his or her service an option to acquire 3,000 shares of the
Company's stock on the date of the first Board of Directors meeting he or she
attends and a like grant on each subsequent one-year anniversary of the grant
date as well as an option to acquire 4,000 shares of the Company's stock on the
date of the first Board of Directors meeting he or she attends and a like grant
on each subsequent three-year anniversary of such date. A "non-employee
director" is any director who is not an employee of the Company, a parent (as
defined) or a subsidiary. Such options will have a purchase price of 100% of the
fair market value of the shares on the grant date and a seven-year term. They
will vest at the rate of one-third each year and will terminate immediately upon
the termination of the non-employee director for any reason other than death or
disability, provided that if the non-employee director is 65 at the time of
termination, any unexercisable portion will terminate immediately, and any
exercisable portion will terminate three months after termination. If the
optionee is terminated because of death or disability, all options will be fully
exercisable and will terminate three months after termination. The Board of
Directors also has the discretion to make additional awards to non-employee
directors.
Stock Appreciation Rights. Stock appreciation rights entitle the
participant, subject to the terms and conditions determined by the Compensation
Committee, to all or a portion of the excess of the fair market value of a
specified number of shares on the exercise date over a specified price, which
will not be less than 100% of the fair market value of the shares on the grant
date. A stock appreciation right may be granted in connection with a previously
or contemporaneously granted option, or independent of any option. If issued in
connection with an option, the Compensation Committee may impose a condition
that its exercise cancels the connected option and that exercise of the
connected options cancels the stock appreciation right. Each stock appreciation
right may be exercisable in whole or in part according to the agreement or
certificate. Except as otherwise provided in the agreement or certificate, upon
exercise of a stock appreciation right, the participant will receive cash, stock
or a combination of cash and stock (as determined by the Compensation Committee
if not otherwise specified in the award) as promptly as practicable after such
exercise. The agreement or certificate may limit the amount or percentage of the
total appreciation on which payment may be made in the event of the exercise of
a stock appreciation right.
Performance Shares. Performance shares will entitle the participant to
future payments based upon the achievement of performance targets (as described
below) established in writing by the Compensation Committee. The agreement or
certificate may establish that a portion of the maximum amount of an award will
be paid for performance that exceeds the minimum target but falls below the
maximum target and will provide for the timing of such payment. The agreement or
certificate may permit an acceleration of the performance period and an
adjustment of performance targets and payments with respect to some or all of
the performance shares awarded to a participant, upon such terms and conditions
as will be set forth in the agreement or certificate, upon the occurrence of
certain events, which may include a fundamental change, the participant's death
or disability, a change in accounting practices of the Company or its
affiliates, or, with respect to payments in stock for performance share awards,
a reclassification, stock dividend, stock split or stock combination as provided
in the 2000 LTIP. A "fundamental change" generally means a dissolution or
liquidation of the Company, a sale of substantially all of the Company's assets,
a merger or consolidation of the Company, regardless of whether the Company is
the surviving entity, or a statutory share exchange. To the extent cash is
distributed, a performance share earned after the conclusion of the performance
period will have a value equal to the fair market value of a share of Common
Stock on the last day of the performance period. Following conclusion or
acceleration of each performance period, the Compensation Committee will
determine the extent to which performance targets have been attained, any other
terms and conditions have been satisfied and payment is due.
Restricted Stock. Restricted stock may be granted in the form of shares
registered in the name of the participant but held by the Company until the
restrictions have lapsed. Restricted stock may, in the discretion of the
Compensation Committee, provide dividends and voting rights prior to vesting.
The Compensation Committee in
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its discretion may establish any employment conditions, performance conditions
(as described below), or restrictions on transferability. The term of any award
or performance period may not exceed ten years.
Other Stock-Based Awards. The Compensation Committee may also grant
other stock-based awards in its sole discretion, including, without limitation,
those awards pursuant to which shares may be acquired in the future, such as
awards denominated in stock, stock units, securities convertible into stock and
phantom securities.
Performance Targets and Conditions. Any performance targets related to
performance share awards, and any performance conditions related to the lapse of
restrictions on restricted stock awards, will be determined by the Compensation
Committee and will be based on performance targets that consist of one or any
combination of two or more of earnings or earnings per share before income tax
(profit before taxes), net earnings or net earnings per share (profit after
tax), inventory, total or net operating asset turnover, operating income, total
stockholder return, return on equity, pre-tax and pre-interest expense return on
average invested capital, which may be expressed on a current value basis, sales
growth, successful transition of the Company's clients to new claim adjudication
platforms, or achievement of post-merger integration, marketing, operating or
workplan goals, and any such targets may relate to one or any combination of two
or more of corporate, group, unit, division, affiliate or individual
performance.
TERMINATION OF EMPLOYMENT
Except as otherwise determined by the Compensation Committee, or as
otherwise provided in the award agreement or certificate (which may, without
limitation, provide for an extension of the exercisability of options and stock
appreciation rights, but in no event after expiration of their stated terms),
the following will take place in the event of termination of employment by a
participant:
In the event that the participant's employment is terminated, any
options or stock appreciation rights become fully exercisable for one year upon
termination of employment if the employee dies, become disabled, or retires. The
options or stock appreciation rights expire if the employee is terminated for
cause (as defined in the 2000 LTIP), and if the employee is terminated for any
other reason (other than a change in control, as described below), the options
or stock appreciation rights are exercisable, to the extent that they were
exercisable before termination, for one month. However, in no event may any
option or stock appreciation right be exercised after the expiration of its
term. Any option or stock appreciation right that is not exercised within the
above periods, except as otherwise provided in the agreement or certificate,
will terminate as of the end of the periods described above.
With respect to performance shares, in the event that the participant's
employment is terminated because of death, disability, retirement, or another
reason approved by the Compensation Committee, unless otherwise specified in the
agreement or certificate, the participant will receive a payment of performance
shares at the end of the performance period to the extent that the performance
targets were achieved as of the termination of employment, calculated pro rata
based on the number of days of employment during the performance period. Except
as provided in this paragraph or in the agreement or certificate, if employment
terminates during a performance period, then the participant will not receive
any payment with respect to that performance period.
With respect to restricted stock, unless otherwise provided in the
agreement or certificate, in the event of the participant's death, disability,
or retirement, the participant will receive a pro rata portion of restricted
stock under outstanding awards, based on the number of days of employment. The
restrictions on such shares will lapse, and the remaining undistributed
restricted stock will be forfeited.
The 2000 LTIP defines "disability" as a physical or mental incapacity
of a nature that prevents the participant from engaging in or performing the
principal duties of his or her customary employment on a continuing or sustained
basis, provided that, if a participant has entered into an employment agreement
with the Company, the Compensation Committee may determine to substitute the
definition of "disability" set forth in that agreement. All determinations as to
the date and extent of disability of any participant will be made by the
Compensation Committee upon the basis of such evidence as it deems necessary or
desirable. Unless otherwise provided in an agreement or certificate, the 2000
LTIP defines "retirement" as the termination of employment after either (i)
attainment of age 65, or (ii) the normal retirement age specified in the
provisions of a retirement plan maintained by the Company for its employees
generally.
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CHANGE IN CONTROL
Certain provisions of the 2000 LTIP apply upon a change in control,
which the 2000 LTIP generally defines as (a) a change in the composition of a
majority of the Board of Directors without the approval of the incumbent
directors (as defined), (b) an acquisition of more than 25% of the Company's
Common Stock or voting power, except certain acquisitions by specified types of
affiliates, (c) a reorganization, merger, share exchange, or consolidation,
unless (i) the Company's stockholders possess more than 50% of the surviving
company's outstanding common stock and the combined voting power of the
outstanding voting stock entitled to vote in the election of directors, (ii) no
person or group who did not own 25% or more of the Company's Common Stock or the
outstanding voting stock entitled to vote in the election of directors before
the change in control owns 25% or more of the common stock or the outstanding
voting stock entitled to vote in the election of directors of the surviving
company, and (iii) at least a majority of the board of directors of the
surviving company were members of the incumbent directors of the Company before
the change in control, (d) the sale or disposition of all or substantially all
of the Company's assets, or (e) a stockholder-approved liquidation or
dissolution of the Company. The definition of change in control appears in
Section 2(g) of the 2000 LTIP, which should be reviewed for a complete statement
of its terms.
Public Market After Change in Control
The following provisions apply if there is a public market for the
Company's stock, or the common stock for which the Company's common stock is
exchanged, after the change in control transaction:
Stock Options and Stock Appreciation Rights.
o Any option or stock appreciation right that has not expired or
been terminated will, to the extent not yet exercisable, become
fully exercisable.
Restricted Stock, Performance Shares, and Other Stock-Based Awards
o If a participant who is a Vice President or Senior Executive
(as defined) is not offered comparable employment, any applicable
restrictions on any awards will lapse, provided that the
participant will receive performance shares (or payment therefor)
only to the extent that performance targets were met as of the
change in control. The 2000 LTIP defines "comparable employment"
as employment with the Company or any successor to the Company's
business following a change in control pursuant to which:
(i) the responsibilities and duties of the participant are
substantially the same as before the change in control (excluding
any changes resulting from the securities of the Company no longer
being publicly traded if the Company's securities cease to be
publicly traded because of the change in control), and the other
terms and conditions of employment following the change in control
do not impose on the participant obligations materially more
burdensome than those to which the participant was subject prior
to the change in control;
(ii) the aggregate compensation (including salary, bonus and
other benefit plans, including option plans) of such participant
is substantially economically equivalent to or greater than such
participant's aggregate compensation immediately prior to the
change in control. In making such determination (A) there will 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 (B) any compensation payable
by reason of the change in control will be disregarded; and
(iii) the participant remains employed in the metropolitan
area in which he was employed immediately preceding the change in
control.
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o If a participant who is a Vice President or Senior Executive
is offered and accepts comparable employment on or before the
change in control, any restrictions on one-half of any awards held
by the applicable participant will lapse.
o The awards of any person receiving but not accepting an offer
of comparable employment will be subject to the standard
employment termination provisions without regard to the change in
control.
o If a participant's employment is terminated involuntarily
without cause or a Vice President or Senior Executive
participant's employment is voluntarily terminated because he or
she no longer has comparable employment, then any applicable
restrictions on any awards will lapse, provided that the
participant will receive performance shares only to the extent
that performance targets were met as of the termination.
o Any restrictions on any awards held by a non-employee
director will lapse.
Lack of Public Market After Change in Control
If there is no public market for the Company's stock, or the common
stock for which the Company's common stock is exchanged, after the change in
control transaction, then on the closing of the transaction any unexercised
options and any remaining restricted stock, performance shares or other awards
will be repurchased by the Company based on the price received by the Company's
stockholders whose stock is acquired in the change in control. The purchase
price for any restricted stock, performance shares or other awards as to which
the restrictions have not lapsed will be placed in escrow, to be paid to the
employee when the restrictions lapse or to be returned to the Company if the
award is subsequently forfeited.
MISCELLANEOUS PROVISIONS
No participant may receive any combination of awards relating to more
than 250,000 shares in the aggregate in any fiscal year of the Company under the
2000 LTIP.
Appropriate adjustments in the aggregate number and type of securities
available for awards, in the limitations on the number and type of securities
that may be issued to an individual participant, in the number and type of
securities and amount of cash subject to awards then outstanding, in the option
purchase price as to any outstanding options, in the purchase price as to any
outstanding stock appreciation rights and, subject to the acceleration and
adjustment of performance targets, in outstanding performance shares and
payments with respect to outstanding performance shares, and comparable
adjustments, if applicable, to any outstanding other stock-based award, will be
made by the Compensation Committee to give effect to adjustments made in the
number or type of shares through a fundamental change (as defined),
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, stock combination, rights offering, spin-off or other
relevant change, provided that fractional shares will be rounded to the nearest
whole share, for which purpose one-half share will be rounded down to the
nearest whole share.
The 2000 LTIP is effective as of August 9, 2000, provided that the
stockholders approve and ratify the 2000 LTIP at the Meeting. The 2000 LTIP will
remain in effect until the termination of the 2000 LTIP or the later of the
distribution of all shares reserved under the 2000 LTIP or the expiration of all
awards. No award of an incentive stock option will be made more than ten years
after the effective date (or such other limit as may be required by the Internal
Revenue Code) if such limitation is necessary to qualify the option as an
incentive stock option. The Company may withhold from any payment under the 2000
LTIP any required withholding taxes. The Board of Directors may amend, modify,
terminate, or suspend the 2000 LTIP, and the Compensation Committee may amend
any agreement or certificate, provided, in each instance, that any necessary
approval of the stockholders is obtained and no participant's rights are
adversely affected unless otherwise permitted by an agreement or a certificate
or the law. The Compensation Committee may make appropriate adjustments to take
into account changes in capitalization. The 2000 LTIP will be unfunded and will
not require the segregation of any assets.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
2000 LTIP and with respect to the sale of Common Stock acquired under the 2000
LTIP. This summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations promulgated thereunder, as in
effect on the date of this proxy statement. Changes in the law may modify this
discussion, and in some cases the changes may be retroactive. Further, this
summary is not intended to be a complete discussion of all the federal income
tax consequences associated with the 2000 LTIP. Accordingly, for precise advice
as to any specific transaction or set of circumstances, participants should
consult with their own tax and legal advisors. Participants should also consult
with their own tax and legal advisors regarding the application of any state,
local, and foreign taxes and any federal gift, estate, and inheritance taxes.
Incentive Stock Options
Some options may constitute "incentive stock options" within the
meaning of Section 422 of the Code. If the Company grants an incentive stock
option, the participant will not be required to recognize income upon the grant
of the incentive stock option, and the Company will not be allowed to take a
deduction.
Similarly, when the participant exercises any incentive stock options,
provided the participant has not ceased to be an employee for more than three
months before the date of exercise, the participant will not be required to
recognize income, and the Company will not be allowed to take a deduction. For
purposes of the alternative minimum tax, however, the amount by which the
aggregate fair market value of Common Stock acquired on exercise of an incentive
stock option exceeds the exercise price of that option generally will be an
adjustment included in the participant's alternative minimum taxable income for
the year in which the incentive stock option is exercised. The Code imposes an
alternative minimum tax on a taxpayer whose alternative minimum taxable income,
as defined in Section 55(b)(2) of the Code, exceeds the taxpayer's adjusted
gross income.
Additional tax consequences will depend upon how long participants hold
the shares of Common Stock received after exercising the incentive stock
options. If a participant holds the shares for more than two years from the date
of grant and one year from the date of exercise of the option, upon disposition
of the shares, the participant will not recognize any ordinary income, and the
Company will not be allowed to take a deduction. However, the difference between
the amount the participant realizes upon disposition of the shares and the basis
(i.e., the amount the participant paid upon exercise of the incentive stock
option) in those shares will be taxed as a long-term capital gain or loss.
If the participant disposes of shares acquired upon exercise of an
incentive stock option which he or she has held for less than two years from the
date of grant or one year from the date of exercise ("Disqualifying
Disposition"), the participant generally will recognize ordinary income in the
year of the disposition. To calculate the amount of ordinary income that must be
recognized upon a Disqualifying Disposition, make the following determinations
and calculations:
o determine which is smaller: the amount realized on disposition
of the shares or the fair market value of the shares on the
date of exercise;
o next, subtract the basis in those shares from the smaller
amount. This is the amount of ordinary income that the
participant must recognize.
To the extent that the participant recognizes ordinary income, the
Company is allowed to take a deduction. In addition, the participant must
recognize as short-term or long-term capital gain, depending on whether the
holding period for the shares exceeds one year, any amount that the participant
realizes upon disposition of those shares which exceeds the fair market value of
those shares on the date the participant exercised the option. The participant
will recognize a short-term or long-term capital loss, depending on whether the
holding period for the shares exceeds one year, to the extent the basis in the
shares exceeds the amount realized upon disposition of those shares.
As noted above, the excess of the fair market value of the shares at
the time the participant exercises his or her incentive stock option over the
exercise price for the shares is an item of tax preference that may be subject
to the alternative minimum tax. However, for persons subject to the Section
16(b) restriction, the tax preference generally will not arise until six months
after the grant of the incentive stock option, and, if this date is after the
incentive stock option is exercised, the measure of the tax preference will be
the excess of the fair market value of the shares six
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months after the incentive stock option grant over the stock option price. It is
not clear at this time whether the participant may elect to recognize a tax
preference at the time of exercise in lieu of six months after the grant.
Non-Qualified Stock Options
If the participant receives a non-qualified stock option, the
participant will not recognize income at the time of the grant of the stock
option; however, the participant will recognize ordinary income upon the
exercise of the non-qualified stock option. The amount of ordinary income
recognized equals the difference between (a) the fair market value of the stock
on the date of exercise and (b) the amount of cash paid for the stock. The
Company will be entitled to a deduction in the same amount. The ordinary income
the participant recognizes will be subject to applicable tax withholding by the
Company. When the participant sells these shares, any difference between the
sales price and the exercise price, to the extent not already recognized as
ordinary income, will be treated as a capital gain or loss.
Restricted Stock
Unless a timely 83(b) election is made, as described in the following
paragraph, a participant generally will not recognize taxable income upon the
grant of restricted stock because the restricted stock generally will be
nontransferable and subject to a substantial risk of forfeiture. A participant
will recognize ordinary income when the restrictions that impose a substantial
risk of forfeiture of such shares of Common Stock or the transfer restrictions
(collectively, the "Restrictions") lapse. The amount recognized will be equal to
the difference between the fair market value of such shares at such time and the
original purchase price paid for the shares, if any. The ordinary income
recognized by a participant with respect to restricted stock awarded under the
2000 LTIP will be subject to applicable tax withholding by the Company. If a
timely 83(b) election has not been made, any dividends received with respect to
Common Stock subject to the Restrictions will be treated as additional
compensation income and not as dividend income.
A participant may elect, pursuant to Section 83(b) of the Code, to
recognize as ordinary income the fair market value of the restricted stock upon
grant, notwithstanding that the restricted stock would otherwise not be
includable in gross income at that time. If such election is made within 30 days
of the date of grant, then the participant would include in gross income an
amount equal to the difference between the fair market value of the restricted
stock on the date of grant and the purchase price paid for the restricted stock,
if any. Any change in the value of the shares after the date of grant will be
taxed as a capital gain or capital loss only if and when the shares are disposed
of by the Participant. If the Section 83(b) election is made, the participant's
capital gains holding period begins on the date of grant.
The Section 83(b) election is irrevocable. If a Section 83(b) election
is made and the participant then forfeits the restricted stock, the participant
may not deduct as a loss the amount previously included in gross income.
A participant's tax basis in shares of restricted stock received
pursuant to the 2000 LTIP will be equal to the sum of the amount (if any) the
participant paid for the Common Stock and the amount of ordinary income
recognized by such participant as a result of making an 83(b) election or upon
the lapse of the Restrictions. Unless a Section 83(b) election is made, the
participant's holding period for such shares for purposes of determining gain or
loss on a subsequent sale will begin on the date the Restrictions on such shares
lapse.
In general, the Company will be entitled to a deduction at the same
time, and in an amount equal to, the ordinary income recognized by a participant
with respect to shares of restricted stock awarded pursuant to the 2000 LTIP.
If, subsequent to the lapse of the Restrictions on the shares, the
participant sells such shares, the difference, if any, between the amount
realized from such sale and the tax basis of such shares to the participant will
be taxed as a capital gain or capital loss.
Stock Appreciation Rights/Performance Shares
A participant generally will not recognize taxable income upon the
grant of stock appreciation rights or performance shares. Instead, a participant
will recognize as ordinary income, and the Company will have as a
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corresponding deduction, any cash delivered and the fair market value of any
Common Stock delivered in payment of an amount due under the stock appreciation
right or performance share award. The ordinary income the participant recognizes
will be subject to applicable tax withholding by the Company.
Upon selling any Common Stock received by a participant in payment of
an amount due under a stock appreciation right or performance share award, the
participant generally will recognize a capital gain or loss in an amount equal
to the difference between the sale price of the Common Stock and the
participant's tax basis in the Common Stock.
Other Stock-Based Awards
The tax consequences associated with any other stock-based award
granted under the 2000 LTIP will vary depending on the specific terms of such
award, including whether the award has a readily ascertainable fair market
value, whether or not the award is subject to forfeiture provisions or
restrictions on transfer, the nature of the property to be received by the
participant under the award, the applicable holding period and the participant's
tax basis.
Income Tax Rates on Capital Gain and Ordinary Income
Under current tax law, short-term capital gain and ordinary income will
be taxable at a maximum federal rate of 39.6%. Phaseouts of personal exemptions
and reductions of allowable itemized deductions at higher levels of income may
result in slightly higher marginal tax rates. Ordinary compensation income
generally will also be subject to the Medicare tax and, under certain
circumstances, a social security tax. On the other hand, long-term capital gain
will be taxable at a maximum federal rate of 20%.
Non-United States Taxpayers
If the participant is subject to the tax laws of any country other than
the United States, the participant should consult his or her own tax and legal
advisors to determine the tax and legal consequences of any award received under
the 2000 LTIP.
2000 LTIP BENEFITS
The 2000 LTIP will provide the directors, officers, and employees of
the Company with certain benefits, as described above and in the chart below.
Therefore, the current directors of the Company have a direct personal interest
in the approval of the 2000 LTIP. If the 2000 LTIP is approved by the
stockholders, the following persons will receive the following benefits:
NEW PLAN BENEFITS
Express Scripts, Inc. 2000 Long-Term Incentive Plan
Number of Shares Underlying
Number of Shares of Restricted Options; Weighted Average
Name and Position Stock; Dollar Value($)(1) Exercise Price (2)
- ----------------- ------------------------------ ---------------------------
Barrett A. Toan 69,500/$4,891,962 90,000(3)/$71.56250
Stuart L. Bascomb 6,680/$450,065 0
Mark O. Johnson 6,680/$450,065 0
David A. Lowenberg 8,800/$592,900 0
George Paz 6,680/$450,065 0
Executive Group(5) 131,060/$9,179,349 140,000/$78.38725
Non-Executive Director Group(6) 0 14,000(4)/$96.68750
Non-Executive Officer Employee Group(7) 153,790/$10,569,842 98,313(4)/$77.03649
Each nominee for election as a director 0/$0 0/$0
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(1) The closing price per share of the Company's Class A Common Stock as
reported on Nasdaq on March 30, 2001, was $_____. Dollar value based on
fair market value on date of award. See Note 3 to the Summary Compensation
Table on page ___ for a description of certain terms and conditions of the
awards.
(2) The closing price per share of the Company's Class A Common Stock as
reported on Nasdaq on March 30, 2001, was $_____. 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.
(3) See Notes 4 and 7 to "Option Grants in Fiscal Year 2000" on page ____ for a
description of certain terms and conditions of the awards.
(4) See Notes 3 and 7 to "Option Grants in Fiscal Year 2000" on page ____. for
a description of certain terms and conditions of the awards
(5) Consists of 10 persons.
(6) Consists of 7 persons. These awards represent options to purchase 7,000
shares awarded to each of Messrs. Sternberg and Benanav who are those
directors who first became non-employee directors as defined in the 2000
LTIP. The 2000 provides for future annual awards to those directors who
first became non-employee directors following the adoption of the 2000
LTIP. Mr. Mac Mahon will be awarded an option to purchase 7,000 shares of
the Company's Class A Common Stock on the date of the first meeting of the
Board of Directors which Mr. Mac Mahon attends, which is currently
scheduled for May 23, 2001. Additional awards may also be made to directors
under the 2000 LTIP at the discretion of the Board of Directors. See " -
Types of Awards - Options" on page __ for additional information regarding
director stock options.
(7) Consists of 344 persons.
The foregoing discussion of the 2000 LTIP is qualified in its entirety
by reference to the 2000 LTIP attached to this Proxy Statement as Exhibit B,
which you are urged to read and consider carefully.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
AND RATIFICATION OF THE EXPRESS SCRIPTS, INC. 2000 LONG-TERM INCENTIVE PLAN, AS
AMENDED.
III. INDEMNIFICATION AND INSURANCE AMENDMENT TO BYLAWS
The Board of Directors has unanimously approved and adopted, and
proposes that stockholders ratify the adoption of, the indemnification and
insurance amendment to the Company's Bylaws (the "Amendment") to provide that
the directors and officers of the Company will be, and that employees and agents
may be, indemnified generally to the full extent provided by Delaware law,
including the advancement of expenses to the indemnified party and requiring the
affirmative vote of the holders of at least 66-2/3% of the voting power of all
stock, voting as a single class, to amend Section 6.10 of the Bylaws. New York
Life and its subsidiaries have indicated their intention to vote their 4,670,000
shares which are not subject to the Trust in favor of the ratification of the
adoption of the Amendment. The 3,450,000 Trust shares are to be voted in the
same proportion and to the same effect as the votes cast by the other
stockholders at the Meeting. The text of the Amendment is attached as Exhibit C.
BACKGROUND
In performing their duties, directors of a Delaware corporation are
generally obligated as fiduciaries to exercise their business judgment and act
in what they reasonably determine in good faith, after appropriate
consideration, to be in the best interests of the corporation and its
stockholders. Decisions made on this basis are generally protected by the
"business judgment rule," which is designed to protect directors from personal
liability if their business decisions are subsequently challenged. However, the
expense of defending lawsuits, including unwarranted litigation, and the
inevitable uncertainty with respect to the outcome of applying the business
judgment rule to particular facts and circumstances means that, as a practical
matter, directors and officers of corporations rely on indemnification from
corporations as a means of providing financial resources in the event of such
expenses or unforeseen liability. The Delaware legislature has recognized that
adequate indemnification provisions are often a condition of an individual's
willingness to serve as a director or an officer of a corporation and therefore
enacted Section 145 of the General Corporation Law of Delaware (the "DGCL") to
allow Delaware corporations to provide indemnification for their directors,
officers, employees and agents.
Section 145 of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that such person is or was a
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director, officer, employee or agent of the corporation or of another entity at
the request of the corporation. For a Proceeding other than an action by or in
the right of the corporation, Section 145 currently provides for indemnification
of expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such Proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to a criminal Proceeding, had no reasonable cause
to believe his or her conduct was unlawful. For a Proceeding by or in the right
of the corporation, Section 145 currently provides for indemnification of
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with such Proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no such indemnification may be made
on behalf of a person adjudged liable to the corporation unless a court
determines that, despite such adjudication but in view of all the circumstances,
such person is entitled to indemnification.
Notwithstanding whether a Delaware corporation chooses to adopt any
voluntary indemnification provisions, all Delaware corporations are required to
indemnify present or former directors and officers for expenses (including
attorneys' fees) actually and reasonably incurred by such persons in the
successful defense, on the merits or otherwise, of any such Proceeding.
Indemnification will be made if the person to be indemnified has met the
applicable standard of conduct, as determined by a majority of disinterested
directors, a majority of a committee of such directors, by independent counsel,
or by the stockholders. Section 145 provides that a corporation may include a
provision that allows for the payment by the corporation of expenses of the
indemnified party in advance of the final disposition of such Proceeding and
that a corporation may enter into one or more agreements with any person which
provide for indemnification different from that provided by Delaware law.
A corporation may also purchase and maintain insurance on behalf of the
persons whom it may indemnify against any liability asserted against and
incurred by such persons as a result of such persons' status with the
corporation, regardless of the corporation's power to indemnify the persons
pursuant to Section 145 of the DGCL
Currently, Article 7 of the Company's Certificate of Incorporation
provides that the Company will indemnify its directors and officers to the
fullest extent permitted by Section 145 of the DGCL, as amended from time to
time. The Board of Directors considers it to be in the best interests of the
Company and its stockholders to clarify and specify the terms of such
indemnification of directors and officers, including by making mandatory the
obligation of the Company to advance expenses, and to make express the ability
of the Board of Directors, in its discretion, to authorize the Company to
indemnify the other employees and agents of the Company, in each case, to the
fullest extent permitted by applicable law. The Board of Directors believes that
the Amendment is desirable so that the Company can continue to attract and
retain responsible individuals to serve as its directors and officers in light
of the present difficult environment in which such persons must serve. In recent
years, Proceedings seeking to impose liability on, or involving as witnesses,
directors and officers of publicly held corporations have become the subject of
much public discussion. Such Proceedings are typically extremely expensive
whatever their eventual outcome. Even in Proceedings in which a director or
officer is not named as a defendant, such individual may incur substantial
expenses or attorneys' fees if he or she is called as a witness or becomes
involved in the Proceeding in any other way. As a result, an individual may
conclude that potential exposure to the costs and risks of Proceedings in which
he or she may become involved exceeds any benefit to him or her from serving as
a director or officer of a publicly held corporation. Likewise, the Board of
Directors believes it to be in the best interests of the Company and its
stockholders to make express the ability of the Board, in its discretion, to
authorize indemnification of other employees and agents, when the Board
determines it to be appropriate.
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THE AMENDMENT
The Amendment adds a new Section 6.10 to the Bylaws which states that
each person who was or is a party or threatened to be made a party to any
Proceeding because such person is or was or has agreed to serve at the request
of the Company as a director or officer of the Company or as a director or
officer of another entity will be indemnified by the Company and that each
person who was or is a party or threatened to be made a party to any Proceeding
because such person is or was or has agreed to serve at the request of the
Company as an employee or agent of the Company or as an employee or agent of
another entity, may be indemnified by the Company. The Amendment provides for
indemnification of expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with the Proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to a criminal Proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the event of an
action or suit by or in the right of the Company, the indemnification will be
limited to expenses (including attorneys' fees) actually and reasonably incurred
in the defense or settlement of such action, but no indemnification will be made
regarding any claim as to which the indemnitee has been adjudged liable to the
Company unless a court determines that such indemnification is appropriate.
To the extent that a director, officer, employee or agent is successful
on the merits or otherwise in defense of a Proceeding, or any claim, issue or
matter therein, the Company will indemnify him or her against all actual and
reasonably incurred expenses. If a director or officer is not wholly successful,
on the merits or otherwise, in any Proceeding but is successful, on the merits
or otherwise, as to any claim, issue, or matter in such Proceeding, the Company
will indemnify such person against all expenses (including attorney's fees)
actually and reasonably incurred by such person relating to each successfully
resolved claim, issue, or matter. The termination of a claim, issue, or matter
in a Proceeding by dismissal, with or without prejudice, will be deemed to be a
successful result as to such claim, issue, or matter.
The Company will pay a director's or officer's expenses relating to a
Proceeding in advance, provided that the director or officer undertakes to repay
such amounts if it is ultimately determined that he or she is not entitled to
indemnification. Expenses incurred by other employees or agents may be so paid
upon such terms and conditions as the Board of Directors may approve.
A director or officer will be indemnified against all expenses
(including attorney's fees) actually and reasonably incurred if, because of his
or her status with the Company, he or she is a witness or otherwise participates
in a Proceeding in which he or she is not a party.
If the Company pays the expenses of a Proceeding, it will be entitled
to assume the defense of such Proceeding with counsel reasonably acceptable to
the indemnitee. Any subsequent legal fees incurred by the indemnitee will be the
indemnitee's responsibility, provided that the Company will be responsible for
such fees and expenses if counsel for the indemnitee reasonably concludes that
there may be a conflict of interest or position on any significant issue between
the Company and the indemnitee in the conduct of the defense or if the Company
does not actually employ counsel for the defense.
The disinterested directors, independent legal counsel, or the
stockholders will determine if indemnification or advancement of expenses is
appropriate in any given case within 60 days of an indemnitee's written request.
If the Company does not make a determination within 60 days of the indemnitee's
request, the Company will be deemed to have determined that indemnification or
advancement of expenses is appropriate. A person may enforce his or her
indemnification rights in a court if the Company denies the request. Such a
person's costs and expenses incurred in successfully establishing his or her
indemnification rights will be indemnified by the Company. The Company bears the
burden of proof with respect to establishing the indemnitee's failure to meet
the applicable standard of conduct for indemnification. A director or officer
will be presumed to be entitled to indemnification unless otherwise proven by
the Company.
The Amendment also provides that the indemnification hereunder will not
be deemed exclusive and that the Company may enter into one or more agreements
with a director, officer, employee, or agent of the Company, which provide for
indemnification up to the maximum permitted by law. The Amendment also provides
that the
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Company may purchase and maintain insurance on behalf of any person who is or
was or has agreed to serve as a director, officer, employee, or agent of the
Company or of another entity at the request of the Company against any liability
arising out of his or her status, regardless of whether the Amendment permits
indemnification.
The Amendment provides that a person will not be entitled to
indemnification: (a) to the extent that payment is made under an insurance
policy obtained by the Company; (b) to the extent that payment is made by the
Company under its Certificate of Incorporation, Bylaws, agreement, or otherwise;
(c) if the indemnitee brought proceedings not authorized by the Board of
Directors, except with respect to the enforcement of a right to indemnification
under the Amendment; (d) if the indemnitee brought suit to enforce or interpret
the Bylaws and the material assertions by the indemnitee have been determined by
a court to have been made in bad faith or to have been frivolous; or (e) for any
claim for recovery of profits arising from the purchase and sale by such person
in violation of Section 16(b) of the Securities Exchange Act of 1934, as
amended.
The Company will have no obligation to indemnify any director, officer,
employee or agent under the Bylaws for amounts paid in settlement of any action,
suit or proceeding without the Company's prior written consent, which will not
be unreasonably withheld. The Company will not settle any action, suit or
proceeding in any manner that would impose any fine or other obligation on any
director or officer without such person's prior written consent.
In order to provide for just and equitable contribution in
circumstances in which the indemnification is held by a court of competent
jurisdiction to be unavailable to a director or officer in whole or in part, the
Amendment provides that, in such event, the Company will contribute to the
payment of such director's or officer's costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any Proceeding, but not including an action by or in the right of the
Company, in an amount that is just and equitable in the circumstances, taking
into account, among other things, contributions by other directors and officers
of the Company or others pursuant to indemnification agreements or otherwise;
provided, that, without limiting the generality of the foregoing, such
contribution will not be required where such holding by the court is due to (i)
the failure of such director or officer to meet the standard of conduct required
by the Bylaws, or (ii) any limitation on indemnification set forth in the
Bylaws.
If the DGCL is amended after adoption of this Amendment to expand
further the indemnification permitted to directors or officers, the Amendment
provides that the Company will indemnify such persons to the fullest extent
permitted by the DGCL, as so amended.
Additionally, as part of the Amendment, Section 6.9 of the Bylaws has
been amended to require the affirmative vote of the holders of 66 2/3% of the
voting power of all stock then issued and outstanding and entitled to vote
thereon, voting as a single class, to amend or repeal, or adopt any provision of
the Bylaws inconsistent with, Section 6.10. The Amendment does not limit the
ability of a majority of the entire Board of Directors to amend the Bylaws.
The proposed Amendment, together with the limitations on the directors'
liability provided by the Company's Certificate of Incorporation and Bylaws,
reduce significantly the number of instances in which directors and officers
might be held liable to the Company for monetary damages for breach of their
fiduciary duties. Therefore, the current directors and officers of the Company
have a direct personal interest in the approval of the Amendment.
The foregoing discussion of the Amendment is qualified in its entirety
by reference to the Amendment attached to this Proxy Statement as Exhibit C,
which you are urged to read and consider carefully.
Stockholders should be aware that indemnification provisions in general
could result in significant expense to the Company if the Company were required
to indemnify one or more directors or officers in respect to claims against
them. At present there is no pending litigation or proceeding involving an
indemnitee where indemnification would be required or permitted under the
proposed Amendment. The Company is not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
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The Company has not experienced any difficulty in attracting or
retaining directors or officers, and the proposed Amendment is not proposed in
response to any specific resignation, threat of resignation or refusal to serve
by any current or potential director or officer. The Company presently maintains
liability insurance for its officers and directors.
The Board of Directors recognizes that the Amendment may reduce the
likelihood of stockholders or management bringing a lawsuit against indemnified
persons on behalf of the Company even though such action, if successful, might
otherwise have benefited the Company and its stockholders. Nevertheless, the
Board of Directors concluded that, in light of the current litigious atmosphere
and the numerous exceptions to the coverage of available directors and officers
insurance, the Company should adopt the Amendment in order to be able to
continue to attract and retain capable and responsible individuals to serve as
directors and officers.
The Company understands that the Securities and Exchange Commission has
expressed its opinion that indemnification of directors, officers and
controlling persons of the Company against liabilities arising under the
Securities Act of 1933, as amended, is against public policy as expressed in the
Act and is, therefore, unenforceable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE ADOPTION OF THE AMENDMENT TO COMPANY'S BYLAWS.
IV. PROPOSED AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously adopted, and proposes that the
stockholders approve and ratify, the proposed Amended and Restated Certificate
of Incorporation. The Amended and Restated Certificate of Incorporation reflects
the following amendments to the existing Certificate of Incorporation: (i) a
change in the registered agent and registered office of the Company, (ii) a
change in the Company's classes of Common Stock because of the conversion of the
Class B Common Stock and the reclassification of the Class A Common Stock as
Common Stock, (iii) a change in the limitation on voting rights of preferred
stockholders, (iv) a change in the rights, privileges, and designations of the
Common Stock, (v) an addition of language permitting the Company to treat a
registered stockholder as the owner of a share of stock, and (vi) certain
technical amendments. The Board of Directors has chosen to restate the
Certificate of Incorporation to make it more readable. New York Life and its
subsidiaries have indicated their intention to vote their 4,670,000 shares which
are not subject to the Trust in favor of the approval and ratification of the
adoption of the Amended and Restated Certificate of Incorporation. The 3,450,000
Trust shares are to be voted in the same proportion and to the same effect as
the votes cast by the other stockholders at the Meeting. The Amended and
Restated Certificate of Incorporation is attached as Exhibit D.
The first proposed amendment, set forth in Article 3 of the Amended and
Restated Certificate of Incorporation, updates the registered address of the
Company, which is appropriate due to a change in the name and address of the
Company's registered agent.
The second proposed amendment, set forth in Article 4 of the Amended
and Restated Certificate of Incorporation, reflects the changes in the Company's
stock resulting from the redemption of the Class B Common Stock and the
reclassification of the Class A Common Stock as Common Stock. Formerly, Article
4 authorized 186,000,000 shares, consisting of 5,000,000 shares of Preferred
Stock, 150,000,000 shares of Class A Common Stock, and 31,000,000 shares of
Class B Common Stock. Subsequent to NYLife HealthCare's exchange of its Class B
Common Stock for Class A Common Stock, as of November 7, 2000, the Company
reacquired all of its Class B Common Stock. The proposed amendment eliminates
and extinguishes all of the Class B Common Stock, which is currently held by the
Company as treasury shares. Upon the elimination of the Class B Common Stock,
the proposed amendment reclassifies the Class A Common Stock as Common Stock. As
a result, as amended, new Article 4 will authorize 5,000,000 shares of Preferred
Stock and 181,000,000 shares of new Common Stock. All options and warrants to
purchase shares of Class A Common Stock will become options or warrants to
purchase an equal number of shares of the reclassified Common Stock. All holders
of Class A Common Stock may receive, upon surrender of their Class A Common
Stock certificates, certificates representing an equal number of shares of
Common Stock and will have the rights of Common Stock holders as set forth in
the Amended and Restated Certificate of Incorporation. See "Voting Securities"
beginning on page __ for additional information regarding the transactions
resulting in the conversion of the Class B Common Stock and the reclassification
of the Class A
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Common Stock. In connection with this amendment, Article 4 was also amended to
define "Preferred Stock Designation" as used in describing the rights of the
holders of Preferred Stock.
In addition, the existing Certificate of Incorporation currently
requires stockholder approval, by each of the two classes of Common Stock, to
amend the section of the Bylaws regarding the composition of the audit
committee. Under that provision, a majority of the directors on the Audit
Committee may not be directors, officers or employees of New York Life Insurance
Company or its subsidiaries. As a result of the reduction in stock ownership by
New York Life last November, the Company believes that no such Bylaw restriction
is appropriate, and therefore proposes to eliminate the corresponding provision
of the Certificate of Incorporation. As of March 1, 2001, NYLife held only
approximately 21% of our Class A Common Stock. Because of the proposed
elimination of this provision, NYLife may be deemed to have an interest in this
proposal different from the other stockholders.
The third proposed amendment, set forth in Article 4 of the Amended and
Restated Certificate of Incorporation, eliminates the requirement that the
right, if any, of the holders of Preferred Stock to vote for the election of
directors be limited to voting as a single class with the holders of Common
Stock, with no more than one vote per share of Preferred Stock. As a result,
holders of Preferred Stock will have such voting rights as will be designated by
the Board of Directors. The Company believes that this limitation on voting
rights of preferred stockholders is no longer appropriate due to the elimination
of the Class B Common Stock.
The fourth amendment, set forth in Article 4 of the Amended and
Restated Certificate of Incorporation, sets forth the amended rights,
privileges, and designations of the Common Stock. Because of the elimination of
the 31,000,000 authorized shares of Class B Common Stock and the
reclassification of the 150,000,000 authorized shares of Class A Common Stock
(including ______ outstanding as of the Record Date) as Common Stock, the
provisions of the Certificate of Incorporation setting forth the comparative
rights, privileges, and designations of the Class A Common Stock and Class B
Common Stock are no longer necessary. The Common Stock has the same rights,
privileges, and designations as the Class A Common Stock without reference to or
qualification by the rights, privileges, and designations of any other class of
Common Stock. The Common Stock will not have separate classes and will be quoted
on Nasdaq in the same manner as the Class A Common Stock.
The fifth amendment, set forth in Article 4 of the Amended and Restated
Certificate of Incorporation, is a new provision that states that the Company
may treat the registered owner of a share of stock as the owner of such stock
without any requirement that it recognize any other claim or interest in such
share by any other person regardless of notice of such claim. This amendment
permits the Company to rely upon its records in determining who holds its stock.
In compliance with Section 245 of the DGCL, the Company also made the
following technical amendments in amending and restating the Certificate of
Incorporation: (i) an introductory paragraph was added to set forth the name
under which the Company was originally incorporated and the date of such
incorporation, (ii) former Article 11 setting forth the incorporator was deleted
because it is no longer necessary, and (iii) new Article 11 was added to recite
the Company's compliance with the DGCL.
The foregoing discussion of the Amended and Restated Certificate of
Incorporation is qualified in its entirety by reference to the Amended and
Restated Certificate of Incorporation attached to this Proxy Statement as
Exhibit D, which you are urged to read and consider carefully.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
AND RATIFICATION OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION.
V. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP served as the Company's
independent accountants for the year ended December 31, 2000. The Board of
Directors has appointed, subject to stockholder ratification,
PricewaterhouseCoopers LLP to act in that capacity for the year ending December
31, 2001. A representative of PricewaterhouseCoopers 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. New York Life and its subsidiaries have indicated their intention
to vote their 4,670,000 shares which are not subject to the Trust in
38
41
favor of the ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent accountants for the year ending December 31, 2001. The
3,450,000 Trust shares are to be voted in the same proportion and to the same
effect as the votes cast by the other stockholders at the Meeting.
AUDIT FEES
PricewaterhouseCoopers LLP billed the Company $310,000 in the aggregate
for professional services rendered for the audit of the Company's annual
financial statements for 2000 and the reviews of the financial statements
included in the Company's Forms 10-Q for 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
During 2000, PricewaterhouseCoopers LLP did not provide the Company
with any professional services relating to financial information systems design
or implementation.
ALL OTHER FEES
PricewaterhouseCoopers LLP billed the Company $1,308,000 in the
aggregate for services rendered by it, other than the services covered above,
for 2000.
The Audit Committee has considered whether the provision of the
services other than the audit and financial review services is compatible with
maintaining PricewaterhouseCoopers LLP's independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2001.
STOCKHOLDER PROPOSALS
In accordance with the amended 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 not less than 90 days nor more than 120
days in advance of the first anniversary of the preceding year's annual meeting,
provided that in the event that no annual meeting was held the previous year or
the date of the annual meeting has been changed by more than 30 days from the
date of the previous year's meeting, or in the event of a special meeting of
stockholders called to elect directors, not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first. For the Company's annual meeting to be held in 2002, any such
notice must be received by the Company at its principal executive offices
between January 24, 2002 and February 23, 2002 to be considered timely for
purposes of the 2002 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 time periods also apply in determining
whether notice is timely for purposes of rules adopted by the Securities and
Exchange Commission relating to the exercise of discretionary voting authority,
and 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 2002 Annual
Meeting must be received by the Company at its principal executive office no
later than December 9, 2002, 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
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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.
VOTING VIA THE INTERNET OR BY TELEPHONE
Please note that there are separate Internet and telephone voting
arrangements depending upon whether shares are registered in your name or in the
name of a bank or broker. Stockholders voting via the Internet should understand
that there may be costs associated with electronic access, such as usage charges
from Internet access providers and telephone companies, that must be borne by
the stockholder.
SHARES REGISTERED DIRECTLY IN THE NAME OF THE STOCKHOLDER
Stockholders with shares registered directly with the Company's
transfer agent, American Stock Transfer & Trust Company ("AmStock"), may vote
telephonically by calling 1-800-PROXIES (1-800-776-9437) on a touch-tone
telephone, or via the Internet at AmStock's voting site on the World Wide Web
(www.voteproxy.com). A Control Number located on the proxy card will be utilized
to verify your identity, allow you to vote your shares, and confirm that your
voting instructions have been properly recorded.
SHARES REGISTERED IN THE NAME OF A BROKERAGE FIRM OR BANK
A number of brokerage firms and banks are participating in a program
that also offers telephone and Internet voting options. This program is likely
different from the program provided by AmStock for shares registered in the name
of the stockholder. If your shares are held in an account at a brokerage firm or
bank which participates in an electronic voting program, you may vote those
shares telephonically or via the Internet by following the instructions included
on your proxy card.
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, facsimile
or other means by the Company's officers, directors and employees, without
special compensation for such activities. We have also hired MacKenzie Partners,
Inc. ("MacKenzie") to assist in the solicitation of proxies. MacKenzie will
receive a fee for such services of approximately $5,000, plus reasonable
out-of-pocket expenses, which will be paid by the Company.
By Order of the Board of Directors
/s/ Thomas M. Boudreau
Thomas M. Boudreau
April 9, 2001 Secretary
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[EXPRESS SCRIPTS LOGO]
April 9, 2001
Dear Shareholder:
The Annual Meeting of Stockholders of Express Scripts, Inc. will be
held at the offices of the Company, 13900 Riverport Drive, Maryland Heights,
Missouri 63043, at 9:30 a.m. on Wednesday, May 23, 2001.
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, vote by telephone or the Internet or execute the attached Proxy form
below, and return it promptly in the envelope provided.
-------------------------
PROXY VOTING INSTRUCTIONS
-------------------------
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
-------------------------
YOUR CONTROL NUMBER IS -->
-------------------------
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X Please mark your votes as in this example.
- --------------------------------------------------------------------------------
(1) Election of Directors
[ ] FOR ALL THE NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR
(except as marked to the contrary below) ALL NOMINEES LISTED BELOW
NOMINEES:
STUART L. BASCOMB SEYMOUR STERNBERG
GARY G. BENANAV BARRETT A. TOAN
FRANK J. BORELLI HOWARD L. WALTMAN
THOMAS P. Mac MAHON NORMAN ZACHARY
44
EXHIBIT A
AUDIT COMMITTEE CHARTER
45
AUDIT COMMITTEE CHARTER
EXPRESS SCRIPTS, INC.
ADOPTED MAY 24, 2000
AMENDED FEBRUARY 6, 2001
The Board of Directors of Express Scripts, Inc. (the "Company") hereby
adopts this Charter to govern the composition of its Audit Committee (the
"Committee") and the scope of the Committee's duties and responsibilities, and
to set forth specific actions the Board of Directors expects the Committee to
undertake to fulfill those duties and responsibilities.
I. STATEMENT OF PURPOSE
The Committee is a part of the Board. Its primary function is to assist
the Board in fulfilling its oversight responsibilities with respect to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established; and (iii) the internal and external audit process.
In addition, the Committee provides an avenue for communication between internal
audit, the independent accountants, financial management and the Board. The
Committee should have a clear understanding with the independent accountants
that they must maintain an open and transparent relationship with the Committee,
and that the ultimate accountability of the independent accountants is to the
Board and the Committee. The Committee will make regular reports to the Board
concerning its activities.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally
46
accepted accounting principles. This is the responsibility of management and the
independent auditor. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and the
independent auditor or to assure compliance with laws and regulations and the
Company's business conduct guidelines.
II. COMPOSITION OF THE AUDIT COMMITTEE
The Committee shall be comprised of not less than three nor more than
five members of the Board of Directors, with the number of members to be
determined from time to time by the Board. The members shall be designated by
the Board of Directors, and the composition of the Committee shall be such as to
comply with the applicable rule governing audit committees of the exchange on
which the Company's stock may be traded.
III. MEETINGS.
The Committee shall meet at least four (4) times annually, or more
frequently as the Committee may from time to time determine to be appropriate.
The content of the agenda shall be reviewed with the Chair of the Committee
prior to finalization and distribution to the Committee as a whole. One or more
of these meetings shall include separate executive sessions with the Company's
Chief Financial Officer, the independent auditors and the Director of Internal
Audit. Unless the Board has previously designated the Chair, the members of the
Committee may designate a Chair by majority vote.
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IV. DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE.
The duties and responsibilities of the Committee shall include the
following:
A. INDEPENDENT AUDITORS
1. Receive the written disclosures and letter from the
Company's independent auditors contemplated by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as may be
modified or supplemented, and discuss with the auditors any issues required to
be discussed regarding their objectivity and independence, including, without
limitation, the scope and fees for non-audit services rendered to the Company.
2. Review the scope and general extent of the independent
accountants' annual audit. The Committee's review should include an explanation
from the independent accountants of the factors considered by the accountants in
determining the audit scope, including the major risk factors. The independent
accountants should confirm to the Committee that no limitations have been placed
on the scope or nature of their audit procedures. The Committee will review
annually with management the fee arrangement with the independent accountants
and will recommend to the Board the selection, retention or replacement of the
Company's independent accountants.
3. At the completion of the annual audit, review with
management, internal audit and the independent accountants the following:
o The annual financial statements and related footnotes
and financial information to be included in the
Company's annual report to shareholders and on Form
10-K.
o Results of the audit of the financial statements and
the related report thereon and, if applicable, a
report on changes during the year in accounting
principles and their application.
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48
o Significant changes to the audit plan, if any, and any
serious disputes or difficulties with management
encountered during the audit. Inquire about the
cooperation received by the independent accountants
during their audit, including access to all requested
records, data and information. Inquire of the
independent accountants whether there have been any
disagreements with management which, if not
satisfactorily resolved, would have caused them to
issue a nonstandard report on the Company's financial
statements.
o Other communications as required to be communicated by
the independent accountants by Statement of Auditing
Standards (SAS) 61 as amended by SAS 90 relating to
the conduct of the audit. Further, receive a written
communication provided by the independent accountants
concerning their judgment about the quality of the
Company's accounting principles, as outlined in SAS 61
as amended by SAS 90, and that they concur with
management's representation concerning audit
adjustments.
If deemed appropriate after such review and discussion, recommend to the Board
that the financial statements be included in the Company's annual report on Form
10-K.
4. Have a predetermined arrangement with the independent
accountants that they will advise the Committee through its Chair and management
of the Company of any matters identified through procedures followed for interim
quarterly financial statements, and that such notification as required under
standards for communications with Audit Committees is to be made prior to the
related press release or, if not practicable, prior to filing Forms 10-Q. Also
receive a written confirmation provided by the independent accountants at the
end of each of the first three quarters of the year that they have nothing to
report to the Committee, if that is the case, or the written enumeration of
required reporting issues.
5. Discuss at least annually with the Company's independent
auditors the following: the adequacy and effectiveness of the Company's internal
financial controls; the management letter issued by the independent auditor and
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49
management's response thereto; actions management has taken or progress it has
made in addressing issues raised by the independent auditors; and major areas of
financial risk.
6. Review with management and the independent accountants any
comments or inquiries from the Securities and Exchange Commission (SEC) relating
to the Company's financial statements or other financial matters included in the
Company's periodic filings with the SEC.
B. INTERNAL AUDITORS
1. Review the appointment or reappointment of the Company's
senior internal auditing executive, and, not less frequently than annually,
review the responsibilities, budget and staffing of the Company's Internal Audit
Department.
2. Discuss at least annually with the internal auditor the
effectiveness of the Company's internal controls, as well as any significant
letters or reports to management issued by the internal auditors, and
management's responses thereto.
3. Review annually the Company's internal audit workplan and
receive periodic reports regarding the progress of such internal auditing
activities and any required remedial action.
C. MANAGEMENT
1. Discuss at least annually with the Company's General
Counsel the scope and effectiveness of the Company's legal compliance programs,
any legal matters that may have a material impact on the Company's financial
statements, and any material reports or inquiries received from regulators or
government agencies.
2. Review and approve, or if appropriate recommend that the
Board of Directors approve, all material related party transactions and
potential conflict of
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interest situations involving New York Life Insurance Company and its
subsidiaries and affiliates, or members of the Board of Directors or senior
management.
3. Authorize and oversee investigations deemed appropriate by
the Committee into any matters within the Committee's scope of responsibility as
described in this Charter or as may subsequently be delegated to the Committee
by the Board of Directors, with the power to retain independent counsel,
accountants and other advisors and experts to assist the Committee if deemed
appropriate.
4. Prepare the disclosure required of the Committee by the
Securities and Exchange Commission regulations for inclusion in the Company's
annual proxy statement.
5. Review this Charter on an annual basis and make
recommendations to the Board of Directors concerning any changes deemed
appropriate.
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EXHIBIT B
EXPRESS SCRIPTS, INC. 2000 LONG-TERM INCENTIVE PLAN, AS AMENDED
52
EXPRESS SCRIPTS, INC.
2000 LONG-TERM INCENTIVE PLAN
ADOPTED AUGUST 9, 2000
AMENDED FEBRUARY 6, 2001
1. PURPOSE. The purpose of this 2000 Long-Term Incentive Plan (the
"Plan") is to motivate key personnel to produce a superior return to the
stockholders of the Company and its Affiliates by offering such individuals an
opportunity to realize stock appreciation, by facilitating stock ownership, and
by rewarding them for achieving a high level of corporate performance. This Plan
is also intended to facilitate recruiting and retaining key personnel of
outstanding ability.
2. DEFINITIONS. The capitalized terms used in this Plan have the
meanings set forth below.
(a) "Affiliate" means any corporation that is a Subsidiary of
the Company and, for purposes other than the grant of Incentive Stock
Options, any limited liability company, partnership, corporation, joint
venture, or any other entity in which the Company or any such
Subsidiary owns an equity interest.
(b) "Agreement" means a written contract entered into between
the Company or an Affiliate and a Participant or, in the discretion of
the Committee, a written certificate issued by the Company or an
Affiliate to a Participant, in either case, containing or incorporating
the terms and conditions of an Award in such form (not inconsistent
with this Plan) as the Committee approves from time to time, together
with all amendments thereof, which amendments may be made unilaterally
by the Company (with the approval of the Committee) unless such
amendments are deemed by the Committee to be materially adverse to the
Participant and are not required as a matter of law.
(c) "Associate" means any full-time or part-time employee
(including an officer or director who is also an employee) of the
Company or an Affiliate. Except with respect to grants of Incentive
Stock Options, "Associate" shall also include any Non-Employee Director
serving on the Company's Board of Directors. References in this Plan to
"employment" and related terms (except for references to "employee" in
this definition of "Associate" or in Section 7(a)(i)) shall include the
providing of services as a Non-Employee Director.
(d) "Award" means a grant made under this Plan in the form of
Options, Stock Appreciation Rights, Restricted Stock, Performance
Shares or any Other Stock-Based Award, whether singly, in combination
or in tandem.
53
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" shall mean the willful failure by a Participant 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.
(g) "Change in Control" shall mean any of the following:
(i) Individuals who constitute the Incumbent Board
cease for any reason to constitute at least a majority of the
Board;
(ii) More than 25% of the (x) combined voting power
of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors
("Outstanding Company Voting Securities") or (y) the then
outstanding Shares of Stock ("Outstanding Company Common
Stock") is directly or indirectly acquired or beneficially
owned (as defined in Rule 13d-3 under the Exchange Act, or any
successor rule thereto) by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act), provided, however, that the following
acquisitions and beneficial ownership shall not constitute
Changes in Control pursuant to this paragraph 2(f)(ii);
(A) any acquisition or beneficial ownership
by the Company or a Subsidiary, or
(B) any acquisition or beneficial ownership
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or one of more
of its Subsidiaries.
(iii) Consummation of a reorganization, merger, share
exchange or consolidation (a "Business Combination"), unless
in each case following such Business Combination,
(A) all or substantially all of the
individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power
of the then outstanding voting securities entitled to
vote generally in the election of directors or other
governing body, as the case may be, of the entity
resulting from such Business Combination (including,
without limitation, an entity that as a result of
such transaction owns the Company through one or more
subsidiaries);
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54
(B) no individual, entity or group
(excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns,
directly or indirectly, more than 25% of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of
directors or other governing body of the entity
resulting from such Business Combination, except to
the extent that such individual, entity or group
owned more than 25% of the Outstanding Company Common
Stock or Outstanding Company Voting Securities prior
to the Business Combination; and
(C) at least a majority of the members of
the board of directors or other governing body of the
entity resulting from such Business Combination were
members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action
of the Board, approving such Business Combination.
(iv) The Company shall sell or otherwise dispose of
all or substantially all of the assets of the Company (in one
transaction or a series of transactions).
(v) The stockholders of the Company shall approve a
plan liquidate or dissolve the Company and the Company shall
commence such liquidation or dissolution.
(h) "Change in Control Date" shall mean, in the case of a
Change in Control defined in clauses (i) through (iv) of the definition
thereof, the date on which the event occurs, and in the case of a
Change in Control defined in clause (v) of the definition thereof, the
date on which the Company shall commence such liquidation or
dissolution.
(i) "Change in Control Price" shall mean the value, expressed
in dollars, as of the date of receipt of the per share consideration
received by the Company's stockholders whose stock is acquired in a
transaction constituting a Change in Control.
(j) "Code" means the Internal Revenue Code of 1986, as amended
and in effect from time to time, or any successor statute.
(k) "Committee" means the committee of directors appointed by
the Board to administer this Plan. In the absence of a specific
appointment, "Committee" shall mean the Compensation Committee of the
Board.
(l) "Company" means Express Scripts, Inc., a Delaware
corporation, or any successor to all or substantially all of its
businesses by merger, consolidation, purchase of assets or otherwise.
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55
(m) "Comparable Employment" shall mean employment with the
Company or any successor to the Company's business following a Change
in Control pursuant to which:
(i) the responsibilities and duties of the
Participant are substantially the same as before the Change in
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 in 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 Participant obligations
materially more burdensome than those to which the Participant
was subject prior to the Change in Control;
(ii) the aggregate compensation (including salary,
bonus and other benefit plans, including option plans) of such
Participant is substantially economically equivalent to or
greater than such Participant's aggregate compensation
immediately prior to the Change in Control Date. In making
such determination (A) 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 (B) any compensation payable by
reason of the Change in Control shall be disregarded; and
(iii) the Participant remains employed in the
metropolitan area in which he was employed immediately
preceding the Change in Control.
(n) "Disability" means that the Participant 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 a Participant 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
Participant shall be made by the Committee upon the basis of such
evidence as it deems necessary or desirable.
(o) "Exchange Act" means the Securities Exchange Act of 1934,
as amended; "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by
the Securities and Exchange Commission under the Exchange Act or any
successor regulation.
(p) "Fair Market Value" as of any date means, unless otherwise
expressly provided in this Plan:
(i) (A) the closing sales price of a Share on the
composite tape for New York Stock Exchange ("NYSE") listed
shares, or if Shares are not quoted on the composite tape for
NYSE listed shares, on the Nasdaq National Market or any
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56
similar system then in use or, (B) if clause (i)(A) is not
applicable, the mean between the closing "bid" and the closing
"asked" quotation of a Share on the Nasdaq National Market or
any similar system then in use, or (C) if the Shares are not
quoted on the NYSE composite tape or the Nasdaq National
Market or any similar system then in use, the closing sale
price of a Share on the principal United States securities
exchange registered under the Exchange Act on which the Shares
are listed, in any case on the specified date, or, if no sale
of Shares shall have occurred on that date, on the next
preceding day on which a sale of Shares occurred, or
(ii) if clause (i) is not applicable, what the
Committee determines in good faith to be 100% of the fair
market value of a Share on that date.
However, if the applicable securities exchange or system has closed for
the day at the time the event occurs that triggers a determination of
Fair Market Value, all references in this paragraph to the "date
immediately preceding that date" shall be deemed to be references to
"that date." In the case of an Incentive Stock Option, if such
determination of Fair Market Value is not consistent with the then
current regulations of the Secretary of the Treasury, Fair Market Value
shall be determined in accordance with said regulations. The
determination of Fair Market Value shall be subject to adjustment as
provided in Section 12(f) hereof.
(q) "Fundamental Change" means a dissolution or liquidation of
the Company, a sale of substantially all of the assets of the Company,
a merger or consolidation of the Company with or into any other
corporation, regardless of whether the Company is the surviving
corporation, or a statutory share exchange involving capital stock of
the Company.
(r) "Incentive Stock Option" means any Option designated as
such and granted in accordance with the requirements of Section 422 of
the Code or any successor to such section.
(s) "Incumbent Board" means the group of directors consisting
of (i) those individuals who, as of the effective date of the Plan,
constituted the Board; and (ii) any individuals who become directors
subsequent to such effective date whose appointment, election or
nomination for election by the stockholders of the Company was approved
by a vote of at least a majority of the directors then comprising the
Incumbent Board. The Incumbent Board shall exclude any individual whose
initial assumption of office occurred (i) as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (other than a solicitation of
proxies by the Incumbent Board) or (ii) with the approval of the
Incumbent Board but by reason of any agreement intended to avoid or
settle a proxy contest.
(t) "Non-Employee Director" means a director of the Company
who is not an employee of the Company, a Parent or a Subsidiary.
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57
(u) "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
(v) "Other Stock-Based Award" means an Award of Stock or an
Award based on Stock other than Options, Stock Appreciation Rights,
Restricted Stock or Performance Shares.
(w) "Option" means a right to purchase Stock (or, if the
Committee so provides in an applicable Agreement, Restricted Stock),
including both Non-Qualified Stock Options and Incentive Stock Options.
(x) "Parent" means a "parent corporation," as that term is
defined in Section 424(e) of the Code, or any successor provision.
(y) "Participant" means an Associate to whom an Award is made.
(z) "Performance Period" means the period of time as specified
in an Agreement over which Performance Shares are to be earned.
(aa) "Performance Shares" means a contingent award of a
specified number of Performance Shares, with each Performance Share
equivalent to one or more Shares or a fractional Share or a Unit
expressed in terms of one or more Shares or a fractional Share, as
specified in the applicable Agreement, a variable percentage of which
may vest depending upon the extent of achievement of specified
performance objectives during the applicable Performance Period.
(bb) "Plan" means this 2000 Long-Term Incentive Plan, as
amended and in effect from time to time.
(cc) "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.
(dd) "Restricted Stock" means Stock granted under Section 10
hereof so long as such Stock remains subject to one or more
restrictions.
(ee) "Retirement" shall mean, except as otherwise provided in
an Agreement, termination of employment after either (i) attainment of
age 65, or (ii) the normal retirement age specified in the provisions
of a retirement plan maintained by the Company for its employees
generally.
(ff) "Senior Executive" means any Associate who is an employee
of the Company and whose base salary is determined by reference to
Salary Grades M3 through and including M5 (as such salary grades are in
effect on the effective date of this Plan), or, if the Company modifies
its salary grades after such effective date, in the most nearly
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comparable salary grades for senior executives of the Company under
such modified system as determined by the Committee in its sole
discretion.
(gg) "Share" means a share of Stock.
(hh) "Stock" means the Company's Class A common stock, $0.01
par value per share (as such par value may be adjusted from time to
time) or any securities issued in respect thereof by the Company or any
successor to the Company as a result of an event described in Section
12(f).
(ii) "Stock Appreciation Right" means a right, the value of
which is determined relative to appreciation in value of Shares
pursuant to an Award granted under Section 8 hereof.
(jj) "Subsidiary" means a "subsidiary corporation," as that
term is defined in Section 424(f) of the Code, or any successor
provision.
(kk) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant and, if the Participant is
deceased, the legal representative of the estate of the Participant or
the person or persons who may, by bequest or inheritance, or under the
terms of an Award or of forms submitted by the Participant to the
Committee under Section 12(h) hereof, acquire the right to exercise an
Option or Stock Appreciation Right or receive cash and/or Shares
issuable in satisfaction of an Award in the event of a Participant's
death.
(ll) "Term" means the period during which an Option or Stock
Appreciation Right may be exercised or the period during which the
restrictions placed on Restricted Stock or any other Award are in
effect.
(mm) "Unit" means a bookkeeping entry that may be used by the
Company to record and account for the grant of Stock, Stock
Appreciation Rights and Performance Shares expressed in terms of Units
of Stock until such time as the Award is paid, canceled, forfeited or
terminated.
(nn) "Vice President" means any Associate who is an employee
of the Company and whose base salary is determined by reference to
Salary Grades M1 through and including M2 (as such salary grades are in
effect on the effective date of this Plan), or, if the Company modifies
its salary grades after such effective date, in the most nearly
comparable salary grades for vice presidents of the Company under such
modified system as determined by the Committee in its sole discretion.
Except when otherwise indicated by the context, reference to
the masculine gender shall include, when used, the feminine gender and
any term used in the singular shall also include the plural.
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3. ADMINISTRATION.
(a) AUTHORITY OF COMMITTEE. The Committee shall administer
this Plan or delegate its authority to do so as provided in Section
3(b) hereof. The Committee shall have exclusive power (acting alone or,
to the extent the Committee deems appropriate for purposes of Exchange
Act Rule 16b-3, in conjunction with the full Board), subject to the
limitations contained in this Plan, to make Awards and to determine
when and to whom Awards will be granted, and the form, amount and other
terms and conditions of each Award, subject to the provisions of this
Plan. The Committee, subject to the limitations contained in this Plan,
may determine whether, to what extent and under what circumstances
Awards may be settled, paid or exercised in cash, Shares or other
Awards or other property, or canceled, forfeited or suspended. The
Committee shall have the authority to interpret this Plan and any Award
or Agreement made under this Plan, to establish, amend, waive and
rescind any rules and regulations relating to the administration of
this Plan, to determine the terms and provisions of any Agreement
entered into hereunder (not inconsistent with this Plan), and to make
all other determinations necessary or advisable for the administration
of this Plan. The Committee may correct any defect, supply any omission
or reconcile any inconsistency in this Plan or in any Award in the
manner and to the extent it shall deem desirable. All determinations of
the Committee in the administration of this Plan, as described herein,
shall be final, binding and conclusive, including, without limitation,
as to any adjustments pursuant to Section 12(f). A majority of the
members of the Committee shall constitute a quorum for any meeting of
the Committee. Notwithstanding the foregoing, in administering this
Plan with respect to Awards for Non-Employee Directors, the Board shall
exercise the powers of the Committee.
(b) DELEGATION OF AUTHORITY. The Committee may delegate all or
any part of its authority under this Plan to the Chief Executive
Officer of the Company for purposes of determining Awards of Options
solely to Associates who are employees who are not Vice Presidents or
Senior Executives and who are not then subject to the reporting
requirements of Section 16 of the Exchange Act. In delegating such
authority the Committee shall specify the maximum number of shares that
may be awarded to any single employee. The authority so delegated to
the Chief Executive Officer may not be subdelegated.
4. SHARES AVAILABLE; MAXIMUM PAYOUTS.
(a) SHARES AVAILABLE. The number of Shares initially available
for distribution under this Plan shall be 1,350,000 Shares. Such number
of Shares shall increase annually, effective as of each January 1,
commencing January 1, 2002 and ending on January 1, 2004, by 700,000
Shares. Such number of Shares shall also be increased by the number of
Shares made available as a result of forfeitures under the Express
Scripts, Inc. Amended and Restated 1992 and 1994 Stock Option Plans and
the Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan
for Outside Directors (the "1992 and 1994 Plans") (all of which Shares
shall be subject to adjustment under Section 12(f) hereof). On and
after the effective date of this Plan, no further
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awards may be made under the 1992 and 1994 Plans. Shares issued under
this Plan may be authorized and unissued shares or issued shares held
as treasury shares.
(b) SHARES AGAIN AVAILABLE. Any Shares subject to an Award
under this Plan which are not used because the Award expires without
all Shares subject to such Award having been issued or because the
terms and conditions of the Award are not met may again be used for an
Award under this Plan. Any Shares that are the subject of Awards which
are subsequently forfeited to the Company pursuant to the restrictions
applicable to such Award may again be used for an Award under this
Plan. If a Participant exercises a Stock Appreciation Right, any Shares
covered by the Stock Appreciation Right in excess of the number of
Shares issued (or, in the case of a settlement in cash or any other
form of property, in excess of the number of Shares equal in value to
the amount of such settlement, based on the Fair Market Value of such
Shares on the date of such exercise) may again be used for an Award
under this Plan. If, in accordance with the Plan, a Participant uses
Shares to (i) pay a purchase or exercise price, including an Option
exercise price, or (ii) satisfy tax withholdings, such Shares may again
be used for an Award under this Plan.
(c) UNEXERCISED AWARDS. Any unexercised or undistributed
portion of any terminated, expired, exchanged, or forfeited Award or
any Award settled in cash in lieu of Shares (except as provided in
Section 4(b) hereof) shall be available for further Awards.
(d) NO FRACTIONAL SHARES. No fractional Shares may be issued
under this Plan; fractional Shares will be rounded down to the nearest
whole Share.
5. ELIGIBILITY. Awards may be granted under this Plan to any Associate
at the discretion of the Committee.
6. GENERAL TERMS OF AWARDS.
(a) AWARDS. Awards under this Plan may consist of Options
(either Incentive Stock Options or Non-Qualified Stock Options), Stock
Appreciation Rights, Performance Shares, Restricted Stock or Other
Stock-Based Awards. Awards of Restricted Stock may, in the discretion
of the Committee, provide the Participant with dividends or dividend
equivalents and voting rights prior to vesting (whether vesting is
based on a period of time, the attainment of specified performance
conditions or otherwise).
(b) AMOUNT OF AWARDS. Each Agreement shall set forth the
number of Shares of Restricted Stock, Stock or Performance Shares
subject to such Agreement, or the number of Shares to which the Option
applies or with respect to which payment upon the exercise of the Stock
Appreciation Right is to be determined, as the case may be, together
with such other terms and conditions applicable to the Award (not
inconsistent with this Plan) as determined by the Committee in its sole
discretion.
(c) TERM. Each Agreement, other than those relating solely to
Awards of Stock without restrictions, shall set forth the Term of the
Award and any applicable
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Performance Period for Performance Shares, as the case may be, but in
no event shall the Term of an Award or the Performance Period be longer
than ten years after the date of grant. An Agreement with a Participant
may permit acceleration of vesting requirements and of the expiration
of the applicable Term upon such terms and conditions as shall be set
forth in the Agreement, which may, but, unless otherwise specifically
provided in this Plan, need not, include, without limitation,
acceleration resulting from the occurrence of the Participant's death
or Disability. Acceleration of the Performance Period of Performance
Shares shall be subject to Section 9(b) hereof.
(d) AGREEMENTS. Each Award under this Plan shall be evidenced
by an Agreement setting forth the terms and conditions, as determined
by the Committee, that shall apply to such Award, in addition to the
terms and conditions specified in this Plan.
(e) TRANSFERABILITY. Except as otherwise permitted by the
Committee, during the lifetime of a Participant to whom an Award is
granted, only such Participant (or such Participant's legal
representative) may exercise an Option or Stock Appreciation Right or
receive payment with respect to Performance Shares or any other Award.
Except as otherwise permitted by the Committee, no Award of Restricted
Stock (prior to the expiration of the restrictions), Options, Stock
Appreciation Rights, Performance Shares or other Award (other than an
award of Stock without restrictions) may be sold, assigned,
transferred, exchanged, or otherwise encumbered, and any attempt to do
so (including pursuant to a decree of divorce or any judicial
declaration of property division) shall be of no effect.
Notwithstanding the immediately preceding sentence, an Agreement may
provide that an Award shall be transferable to a Successor in the event
of a Participant's death.
(f) TERMINATION OF EMPLOYMENT GENERALLY. Except as otherwise
determined by the Committee or provided by the Committee in an
applicable Agreement (which may, without limitation, in the sole
discretion of the Committee, provide for an extension of the
exercisability of Options and Stock Appreciation Rights beyond the
periods set forth in paragraphs (i)(A) through (E) below, subject in
all events to paragraph (i)(F) below), in the case of a Participant's
termination of employment, the following provisions shall apply:
(i) OPTIONS AND STOCK APPRECIATION RIGHTS.
(A) DEATH. If a Participant's employment
terminates because of his or her death, then any
Option or Stock Appreciation Right that has not
expired or been terminated shall become exercisable
in full, and may be exercised by the Participant's
Successor at any time, or from time to time, within
one year after the date of the Participant's death.
(B) DISABILITY. If a Participant's
employment terminates because of Disability, then any
Option or Stock Appreciation Right that has not
expired or been terminated shall become exercisable
in full, and the Participant or the Participant's
Successor may exercise such Option or
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Stock Appreciation Right at any time, or from time to
time, within one year after the date of the
Participant's Disability.
(C) RETIREMENT. Upon a Participant's
Retirement, any Option or Stock Appreciation Right
that has not expired or been terminated shall become
exercisable in full, and the Participant may exercise
such Option or Stock Appreciation Right at any time,
or from time to time, within one year after the date
of the Participant's retirement.
(D) TERMINATION FOR CAUSE. Upon termination
of a Participant's employment by the Company for
Cause, all Awards, to the extent not previously
exercised, shall immediately terminate.
(E) REASONS OTHER THAN TERMINATION FOR
CAUSE, DEATH, RETIREMENT OR DISABILITY. Except as
provided in Sections 6(g) or (h), if a Participant's
employment terminates for any reason other than
death, Disability, Retirement or by the Company for
Cause, then any Option or Stock Appreciation Right
that has not expired or been terminated shall remain
exercisable for one month after termination of the
Participant's employment, but only to the extent that
such Option or Stock Appreciation Right was
exercisable immediately prior to such Participant's
termination of employment.
(F) EXPIRATION OF TERM. Notwithstanding any
provision of this Plan to the contrary, in no event
shall an Option or a Stock Appreciation Right be
exercisable after expiration of the Term of such
Award. Any Option or Stock Appreciation Right that is
not exercised within the periods set forth in the
foregoing paragraphs (A)-(E), except as otherwise
provided by the Company in the applicable Agreement,
shall terminate as of the end of the periods
described in such paragraphs.
(ii) PERFORMANCE SHARES. If a Participant's
employment with the Company or any of its Affiliates
terminates during a Performance Period because of death,
Disability or Retirement, or under other circumstances
provided by the Committee in its discretion in the applicable
Agreement or otherwise, the Participant, unless the Committee
shall otherwise provide in the applicable Agreement, shall be
entitled to receive a number of Performance Shares (or payment
therefor) at the end of the Performance Period based upon the
extent to which achievement of performance targets was
satisfied at the end of such period (as determined at the end
of the Performance Period) and prorated for the portion of the
Performance Period during which the Participant was employed
by the Company or any Affiliate. Except as provided in this
Section 6(f)(ii) or in the applicable Agreement, if a
Participant's employment terminates with the Company or any of
its Affiliates during a Performance Period, then such
Participant shall not be entitled to any payment with respect
to that Performance Period.
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(iii) RESTRICTED STOCK. Unless otherwise provided in
the applicable Agreement, in case of a Participant's death,
Disability or Retirement, the Participant shall be entitled to
receive a number of shares of Restricted Stock under
outstanding Awards that has been pro-rated for the portion of
the Term of the Awards during which the Participant was
employed by the Company or any Affiliate, and with respect to
such Shares all restrictions shall lapse. Any shares of
Restricted Stock as to which restrictions do not lapse under
the preceding sentence shall terminate at the date of the
Participant's termination of employment for any other reason
and such shares of Restricted Stock shall be forfeited to the
Company.
(g) ACCELERATION OF VESTING UPON CHANGE IN CONTROL AFTER WHICH
NO PUBLIC MARKET FOR COMPANY OR EXCHANGE STOCK EXISTS
(i) ACCELERATION OF VESTING; LAPSE OF RESTRICTIONS.
Except as may be otherwise specified in the terms of any
Award, upon the occurrence of a Change in Control after which
there will be no generally recognized U.S. public market for
the Company's Class A Common Stock or any common stock for
which the Company's Class A Common Stock is exchanged,
(A) any Option or Stock Appreciation Right
that has not expired or been terminated shall, to the
extent not yet exercisable, become exercisable in
full; and
(B) the lapse of restrictions on, or the
forfeiture of, any Award of Restricted Stock,
Performance Shares, or Other Stock-Based Award shall
be determined in accordance with Section 6(h)(ii);
subject, however, to the provisions of Section
6(g)(ii) and (iii).
(ii) COMPANY REPURCHASE. Upon the occurrence of a
Change in Control Transaction described in clause (g)(i)
above, on the Change in Control Date the Company will
repurchase, and each Participant shall sell to the Company,
any Option, Stock Appreciation Right, Restricted Stock,
Performance Shares, or Other Stock-Based Award then held by
such Participant as follows:
(A) Any Option or Stock Appreciation Right
will be repurchased at a per share price equal to the
excess (if any) of the Change in Control Price over
the exercise price of the Option or the specified
price of the Stock Appreciation Right, as the case
may be;
(B) Any Restricted Stock or Performance
Shares will be repurchased at a per share price equal
to the Change in Control Price; and
(C) Any Other Stock-Based Award will be
repurchased at a price determined by the Committee in
its sole discretion to be consistent
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with the treatment of Options, Stock Appreciation
Rights, Restricted Stock or Performance Shares.
(iii) PURCHASE PRICE ESCROW. Any amount of the
purchase price that may become payable to Participants with
respect to Restricted Stock, Performance Shares or Other
Stock-Based Awards as to which restrictions have not lapsed on
the Change in Control Date shall be deposited on the Change in
Control Date in escrow with one of the ten largest U.S.
commercial banks (measured in terms of amount of assets), or
if no such bank will consent to serve as escrow agent, then
another U.S. commercial bank of recognized standing chosen by
the Company. Such funds shall be invested in securities issued
or fully guaranteed as to both principal and interest by the
U.S. Government, or in debt obligations of U.S. corporations
with a remaining term to maturity not exceeding one year and
rated AA or better by Standard & Poors Corporation. Interest
earned on such funds shall be allocated ratably among the
Participants receiving payment of such funds or, if any
amounts are forfeited by a Participant, to the Company, and
shall be disbursed when such payments are made. Disbursements
from the escrow shall be made as follows:
(A) DISBURSEMENT ON LAPSE OF RESTRICTIONS.
With the initial escrow deposit the Company shall
deliver to the escrow agent a schedule for making
disbursements to the Participants based on the dates
when the remaining restrictions on Restricted Stock
or Other Stock-Based Awards will lapse based solely
on the lapse of time. Unless the escrow agent
receives a notice described in the following clauses
(B) or (C) the escrow agent will disburse the funds
in accordance with such schedule. With respect to
Performance Shares, and where applicable with respect
to Restricted Stock or Other Stock-Based Awards, the
Company will from time to time deliver to the escrow
agent a notice when the restrictions on any such
Awards shall lapse (if sooner than the dates stated
in the initial schedule), and the escrow agent shall
disburse funds in accordance with such notice.
(B) FORFEITURE. If a Participant forfeits
his rights to any payments from the escrow, the
Company shall give written notice thereof
contemporaneously to the escrow agent and the
Participant by certified or registered mail (in the
case of the Participant, to the last known address of
the Participant 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 sixty (60) days
after receipt thereof unless prior to such time the
escrow agent receives written notice from the
Participant that the Participant has commenced
litigation against the Company with respect to the
validity of such forfeiture. If such a notice 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 Participant.
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(C) ACCELERATION OF PAYMENTS. If a
Participant or his successor in interest becomes
entitled to a payment from the escrow prior to the
time stated in the schedule, the Participant 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 sixty
(60) days after receipt thereof unless prior to such
time the escrow agent receives written notice from
the Company that the Company has commenced litigation
against the Participant or such successor challenging
the right to such acceleration of payment. If such a
notice 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 Participant.
(h) ACCELERATION OF VESTING UPON OTHER CHANGE IN CONTROL
TRANSACTIONS. Except as may be otherwise specified in the terms of any
Award, upon the occurrence of a Change in Control after which there
remains a generally recognized U.S. public market for the Company's
Class A Common Stock or for any common stock for which the Company's
Class A Common Stock is exchanged, outstanding Awards shall be treated
as follows:
(i) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Any
Option or Stock Appreciation Right that has not expired or
been terminated shall, to the extent not yet exercisable,
become exercisable in full and shall remain exercisable for
the remainder of the Term (except as otherwise provided in
Section 6(g)(iii)).
(ii) RESTRICTED STOCK, PERFORMANCE SHARES AND OTHER
STOCK-BASED AWARDS.
(A) COMPARABLE EMPLOYMENT NOT OFFERED. If a
Participant who is a Vice President or Senior
Executive is not offered Comparable Employment with
the Company or any successor to the Company's
business on or before the Change in Control Date,
then any restrictions still applicable to any Award
of Restricted Shares, Performance Shares, or Other
Stock-Based Award shall lapse; provided, however,
that in the case of Performance Shares the
Participant shall be entitled to receive a number of
Performance Shares (or payment therefor) on the
Change in Control Date based upon the extent to which
achievement of performance targets was satisfied as
of such date, as determined by the Committee in its
sole discretion.
(B) COMPARABLE EMPLOYMENT OFFERED AND
ACCEPTED. If a Participant who is a Vice President or
Senior Executive is offered and accepts Comparable
Employment with the Company or any successor to
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the Company's business on or before the Change in
Control Date, then to the extent that restrictions
remain in effect with respect to each Award of
Restricted Shares, Performance Shares, or Other
Stock-Based Award held by a Senior Executive or a
Vice President, such restrictions shall lapse with
respect to one-half of such shares. If an Award
provides for lapse of restrictions in two or more
increments, then the portion of such Award that will
vest on an accelerated basis due to the Change in
Control will be one-half of each such vesting
increment.
(C) COMPARABLE EMPLOYMENT NOT ACCEPTED. If a
Participant (other than a Non-Employee Director) is
offered Comparable Employment with the Company or any
successor to the Company's business on or before the
Change in Control Date and declines such employment,
then the provisions of subsection 6(f) shall apply to
any Restricted Stock, Performance Shares or Other
Stock-Based Awards held by the Participant at the
Change in Control Date.
(D) TERMINATION OF EMPLOYMENT AFTER CHANGE
IN CONTROL DATE. If the employment of any Participant
on the Change in Control Date is involuntarily
terminated without Cause after the Change in Control
Date, or is voluntarily terminated after the Change
in Control Date by a Participant who is a Senior
Executive or a Vice President due to a change in
employment conditions that results in such
Participant not continuing to have Comparable
Employment relative to such Participant's employment
immediately preceding the Change in Control Date,
then, notwithstanding the provisions of this
subsection (h), any restrictions still applicable to
any Award of Restricted Shares, Performance Shares,
or Other Stock-Based Award held by such Participant
that was granted prior to the Change in Control Date
shall lapse; provided, however, that in the case of
Performance Shares the Participant shall be entitled
to receive a number of Performance Shares (or payment
therefor) based upon the extent to which achievement
of performance targets was satisfied as of the date
of termination of employment, as determined by the
Committee in its sole discretion. If no public market
for the Company's Class A Common Stock (or any stock
for which the Company's Class A Common Stock has been
exchanged) exists at the time of termination of
employment, then the Company shall repurchase, and
the Participant shall sell, all or a ratable portion
(as the case may be) of any such Restricted Stock,
Performance Shares, or Other Stock-Based Award held
by such Participant at the price provided for in the
preceding subsection 6(g)(ii). This subsection
6(h)(ii)(D) shall not apply to Awards made after the
Change in Control Date unless otherwise provided in
such Award.
(iii) NON-EMPLOYEE DIRECTORS. Any restrictions still
applicable to any Award of Restricted Shares, Performance
Shares, or Other Stock-Based Award held by a Non-Employee
Director shall lapse.
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(i) RIGHTS AS STOCKHOLDER. A Participant shall have no right
as a stockholder with respect to any securities covered by an Award
until the date the Participant becomes the holder of record.
(j) MAXIMUM ANNUAL AWARDS PER PARTICIPANT. No Participant may
receive any combination of Awards relating to more than 250,000 Shares
in the aggregate in any fiscal year of the Company under this Plan
(subject to adjustment under Section 12(f) hereof).
7. STOCK OPTIONS.
(a) TERMS OF ALL OPTIONS.
(i) GRANTS. Each Option shall be granted pursuant to
an Agreement as either an Incentive Stock Option or a
Non-Qualified Stock Option. Only Non-Qualified Stock Options
may be granted to Associates who are not employees of the
Company or an Affiliate.
(ii) PURCHASE PRICE. The purchase price of each Share
subject to an Option shall be determined by the Committee and
set forth in the applicable Agreement, but shall not be less
than 100% of the Fair Market Value of a Share as of the date
the Option is granted. The purchase price of the Shares with
respect to which an Option is exercised shall be payable in
full at the time of exercise, provided that, to the extent
permitted by law and in accordance with rules adopted by the
Committee, Participants may simultaneously exercise Options
and sell the Shares thereby acquired pursuant to a brokerage
or similar relationship and use the proceeds from such sale to
pay the purchase price of such Shares. The purchase price may
be paid in cash or, if the Committee so permits, through
delivery or tender to the Company of Shares held, either
actually or by attestation, by such Participant for at least
six months (in each case, such Shares having a Fair Market
Value as of the date the Option is exercised equal to the
purchase price of the Shares being purchased pursuant to the
Option), or, if the Committee so permits, a combination
thereof, unless otherwise provided in the Agreement; provided
that, no Shares may be tendered in exercise of an Incentive
Stock Option if such shares were acquired by the optionee
through the exercise of an Incentive Stock Option unless (i)
such shares have been held by the optionee for at least one
year and (ii) at least two years have elapsed since such
Incentive Stock Option was granted. Further, the Committee, in
its discretion, may approve other methods or forms of payment
of the purchase price, and establish rules and procedures
therefor.
(iii) NO REPRICING OF OPTIONS WITHOUT SHAREHOLDER
APPROVAL. Options, once issued, may not be repriced without
first obtaining the approval of the shareholders of the
Company.
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(iv) EXERCISABILITY. Each Option shall be exercisable
in whole or in part on the terms provided in the Agreement. In
no event shall any Option be exercisable at any time after its
Term. When an Option is no longer exercisable, it shall be
deemed to have lapsed or terminated.
(b) INCENTIVE STOCK OPTIONS. In addition to the other terms
and conditions applicable to all Options:
(i) the aggregate Fair Market Value (determined as of
the date the Option is granted) of the Shares with respect to
which Incentive Stock Options held by an individual first
become exercisable in any calendar year (under this Plan and
all other incentive stock options plans of the Company and its
Affiliates) shall not exceed $100,000 (or such other limit as
may be required by the Code), if such limitation is necessary
to qualify the Option as an Incentive Stock Option, and to the
extent an Option or Options granted to a Participant exceed
such limit such Option or Options shall be treated as
Non-Qualified Stock Options;
(ii) an Incentive Stock Option shall not be
exercisable and the Term of the Award shall not be more than
ten years after the date of grant (or such other limit as may
be required by the Code) if such limitation is necessary to
qualify the Option as an Incentive Stock Option;
(iii) the Agreement covering an Incentive Stock
Option shall contain such other terms and provisions which the
Committee determines necessary to qualify such Option as an
Incentive Stock Option; and
(iv) notwithstanding any other provision of this Plan
if, at the time an Incentive Stock Option is granted, the
Participant owns (after application of the rules contained in
Section 424(d) of the Code, or its successor provision) Shares
possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or its
subsidiaries, (A) the option price for such Incentive Stock
Option shall be at least 110% of the Fair Market Value of the
Shares subject to such Incentive Stock Option on the date of
grant and (B) such Option shall not be exercisable after the
date five years from the date such Incentive Stock Option is
granted.
(c) OPTION GRANT FOR NON-EMPLOYEE DIRECTORS. The Board (which
may delegate the determination to a Committee of the Board) may from
time to time determine that each individual who is elected or appointed
to the office of director as a Non-Employee Director receive an Award
as compensation, in whole or in part, for such individual's services as
a director. In determining the level of Awards for Non-Employee
Directors, the Board may consider such factors as compensation
practices of comparable companies with respect to directors,
consultants' recommendations, and such other information as the Board
may deem appropriate. In the absence of action by the Board each
individual who is first elected or appointed to the office of director
as a Non-Employee Director after adoption of this Plan shall receive
(i) an Option to acquire three
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thousand (3,000) Shares on the date of the first meeting of the Board
after such director's election or appointment, and a like grant on each
anniversary of such date, and (ii) an Option to acquire four thousand
(4,000) Shares on the date of the first meeting of the Board after such
director's election or appointment, and a like grant each third year
thereafter. These Options shall have the following terms and
conditions:
(i) PRICE. The purchase price for the Shares subject
to such Option shall be one hundred percent (100%) of the Fair
Market Value of a Share as of the date the Option is granted.
(ii) TERM. The term of such Option shall be seven (7)
years from the date that it is granted.
(iii) VESTING. Subject to the provisions of
subsections 6(g), 6(h) and the following clause (iv), such
Option shall become exercisable in installments on a
cumulative basis at a rate of one-third (1/3) each year,
beginning on the first anniversary of the date of grant and on
each successive anniversary thereafter, until the date such
Option expires or is terminated.
(iv) TERMINATION OF SERVICE AS NON-EMPLOYEE DIRECTOR.
Except as provided in Sections 6(g), 6(h) or this subsection
(iv), all outstanding Options held by a Non-Employee Director
terminate immediately if such individual ceases to be a
Non-Employee Director for any reason other than death or
Disability, provided that, if the Optionee has attained age
sixty-five (65) at the time of such cessation, the portion of
his outstanding Options that have not become exercisable as of
such date shall terminate immediately, and the remaining
portion, if any, shall remain exercisable for a period of
three months following such cessation, and shall thereafter
terminate. If an Optionee ceases to be a Non-Employee Director
due to his death or Disability, 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 cessation, and shall
thereafter terminate. Notwithstanding the foregoing, no
provision in this subsection (iv) shall extend the exercise
period of an Option beyond its original term.
The Board, in its discretion, may make other Awards from time to time
to Non-Employee Directors, upon such terms and conditions, consistent
with the provisions of this Plan, as the Board may determine.
8. STOCK APPRECIATION RIGHTS. An Award of a Stock Appreciation Right
shall entitle the Participant, subject to terms and conditions determined by the
Committee, to receive upon exercise of the Stock Appreciation Right all or a
portion of the excess of (i) the Fair Market Value of a specified number of
Shares as of the date of exercise of the Stock Appreciation Right over (ii) a
specified price which shall not be less than 100% of the Fair Market Value of
such Shares as of the date of grant of the Stock Appreciation Right (referred to
in Section 12(f) as the "purchase price"). A Stock Appreciation Right may be
granted in connection with a previously
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or contemporaneously granted Option, or independent of any Option. If issued in
connection with an Option, the Committee may impose a condition that exercise of
a Stock Appreciation Right cancels the Option with which it is connected and
exercise of the connected Option cancels the Stock Appreciation Right. Each
Stock Appreciation Right may be exercisable in whole or in part on the terms
provided in the applicable Agreement. No Stock Appreciation Right shall be
exercisable at any time after its Term. When a Stock Appreciation Right is no
longer exercisable, it shall be deemed to have lapsed or terminated. Except as
otherwise provided in the applicable Agreement, upon exercise of a Stock
Appreciation Right, payment to the Participant (or to his or her Successor)
shall be made in the form of cash, Stock or a combination of cash and Stock (as
determined by the Committee if not otherwise specified in the Award) as promptly
as practicable after such exercise. The Agreement may provide for a limitation
upon the amount or percentage of the total appreciation on which payment
(whether in cash and/or Stock) may be made in the event of the exercise of a
Stock Appreciation Right.
9. PERFORMANCE SHARES.
(a) INITIAL AWARD. An Award of Performance Shares shall
entitle a Participant (or a Successor) to future payments based upon
the achievement of performance targets established in writing by the
Committee. Payment shall be made in Stock, or a combination of cash and
Stock, as determined by the Committee. Such performance targets shall
be determined by the Committee in its sole discretion and shall consist
of one or any combination of two or more of earnings or earnings per
share before income tax (profit before taxes), net earnings or net
earnings per share (profit after tax), inventory, total or net
operating asset turnover, operating income, total stockholder return,
return on equity, pre-tax and pre-interest expense return on average
invested capital, which may be expressed on a current value basis, or
sales growth, successful transition of the Company's clients to new
claim adjudication platforms, achievement of post-merger integration,
marketing, operating or workplan goals, and any such targets may relate
to one or any combination of two or more of corporate, group, unit,
division, Affiliate or individual performance. The Agreement may
establish that a portion of the maximum amount of a Participant's Award
will be paid for performance which exceeds the minimum target but falls
below the maximum target applicable to such Award. The Agreement shall
also provide for the timing of such payment. Following the conclusion
or acceleration of each Performance Period, the Committee shall
determine the extent to which (i) performance targets have been
attained, (ii) any other terms and conditions with respect to an Award
relating to such Performance Period have been satisfied, and (iii)
payment is due with respect to a Performance Share Award.
(b) ACCELERATION AND ADJUSTMENT. The applicable Agreement may
permit an acceleration of the Performance Period and an adjustment of
performance targets and payments with respect to some or all of the
Performance Shares awarded to a Participant, upon such terms and
conditions as shall be set forth in the Agreement, upon the occurrence
of certain events, which may, but need not, include without limitation
a Fundamental Change, the Participant's death or Disability, a change
in accounting practices of the Company or its Affiliates, or, with
respect to payments in Stock for
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Performance Share Awards, a reclassification, stock dividend, stock
split or stock combination as provided in Section 12(f) hereof.
(c) VALUATION. To the extent that payment of a Performance
Share is made in cash, a Performance Share earned after conclusion of a
Performance Period shall have a value equal to the Fair Market Value of
a Share on the last day of such Performance Period.
10. RESTRICTED STOCK. Restricted Stock may be granted in the form of
Shares registered in the name of the Participant but held by the Company until
the restrictions on the Restricted Stock Award lapse, subject to forfeiture, as
provided in the applicable Agreement. Any employment conditions, performance
conditions, restrictions on transferability and the Term of the Award shall be
established by the Committee in its discretion and included in the applicable
Agreement. The Committee may provide in the applicable Agreement for the lapse
or waiver of any such restriction or condition based on such factors or criteria
as the Committee, in its sole discretion, may determine, which may, but need
not, include without limitation the Participant's death or Disability. The
Committee, in the applicable Agreement, may, in its sole discretion, award all
or any of the rights of a stockholder with respect to the Shares of Restricted
Stock during the period that they remain subject to restrictions, including,
without limitation, the right to vote the Shares and receive dividends. Any
performance conditions to the lapse of restrictions on restricted stock shall be
determined by the Committee in its sole discretion and shall be based on
performance targets that consist of one or any combination of two or more of
earnings or earnings per share before income tax (profit before taxes), net
earnings or net earnings per share (profit after tax), inventory, total or net
operating asset turnover, operating income, total stockholder return, return on
equity, pre-tax and pre-interest expense return on average invested capital,
which may be expressed on a current value basis, sales growth, successful
transition of the Company's clients to new claim adjudication platforms, or
achievement of post-merger integration, marketing, operating or workplan goals,
and any such targets may relate to one or any combination of two or more of
corporate, group, unit, division, Affiliate or individual performance.
11. OTHER STOCK-BASED AWARDS. The Committee may from time to time grant
Awards of Stock, and other Awards under this Plan (collectively herein defined
as "Other Stock-Based Awards"), including without limitation those Awards
pursuant to which Shares may be acquired in the future, such as Awards
denominated in Stock, Stock Units, securities convertible into Stock and phantom
securities. The Committee, in its sole discretion, shall determine, and provide
in the applicable Agreement for, the terms and conditions of such Awards
provided that such Awards shall not be inconsistent with the terms and purposes
of this Plan. The Committee may, in its sole discretion, direct the Company to
issue Shares subject to restrictive legends and/or stop transfer instructions
which are consistent with the terms and conditions of the Award to which such
Shares relate.
12. GENERAL PROVISIONS.
(a) EFFECTIVE DATE OF THIS PLAN. This Plan shall become
effective as of August 9, 2000, provided that this Plan is approved and
ratified by the holders of the
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Company's common stock in accordance with the Company's Certificate of
Incorporation at a meeting of the stockholders of the Company held no
later than August 8, 2001. If this Plan is not so approved, any Award
granted under this Plan subject to such approval shall be cancelled and
be null and void.
(b) DURATION OF THIS PLAN; DATE OF GRANT. This Plan shall
remain in effect until all Stock subject to it shall be distributed or
all Awards have expired or lapsed, whichever is latest to occur, or
this Plan is terminated pursuant to Section 12(e) hereof. No Award of
an Incentive Stock Option shall be made more than ten years after the
effective date provided in Section 12(a) hereof (or such other limit as
may be required by the Code) if such limitation is necessary to qualify
the Option as an Incentive Stock Option. The date and time of approval
by the Committee of the granting of an Award shall be considered the
date and time at which such Award is made or granted, notwithstanding
the date of any Agreement with respect to such Award; provided,
however, that the Committee may grant Awards other than Incentive Stock
Options to Associates or to persons who are about to become Associates,
to be effective and deemed to be granted on the occurrence of certain
specified contingencies, provided that if the Award is granted to a
non-Associate who is about to become an Associate, such specified
contingencies shall include, without limitation, that such person
becomes an Associate.
(c) RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in
any Agreement shall confer upon any Participant who is an employee of
the Company the right to continue in the employment of the Company or
any Affiliate or affect any right which the Company or any Affiliate
may have to terminate or modify the employment of the Participant with
or without cause.
(d) TAX WITHHOLDING. The Company shall withhold from any
payment of cash or Stock to a Participant or other person under this
Plan an amount sufficient to cover any required withholding taxes,
including the Participant's social security and Medicare taxes (FICA)
and federal, state and local income tax with respect to income arising
from payment of the Award. The Company shall have the right to require
the payment of any such taxes before issuing any Stock pursuant to the
Award. In lieu of all or any part of a cash payment from a person
receiving Stock under this Plan, the Committee may, in the applicable
Agreement or otherwise, permit a person to cover all or any part of the
required withholdings, and to cover any additional withholdings up to
the amount needed to cover the person's full FICA and federal, state
and local income tax with respect to income arising from payment of the
Award, through a reduction of the numbers of Shares delivered to such
person or a delivery or tender to the Company of Shares held by such
person, in each case valued in the same manner as used in computing the
withholding taxes under applicable laws.
(e) AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN.
Except as provided in this Section 12(e), the Board may at any time
amend, modify, terminate or suspend this Plan. Except as provided in
this Section 12(e), the Committee may at any time alter or amend any or
all Agreements under this Plan to the extent permitted by law and
subject to the requirements of Section 2(b), in which event, as
provided in
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Section 2(b), the term "Agreement" shall mean the Agreement as so
amended. Amendments are subject to approval of the stockholders of the
Company only as required by applicable law or regulation, or if the
amendment increases the total number of shares available under this
Plan. No termination, suspension or modification of this Plan may
materially and adversely affect any right acquired by any Participant
(or a Participant's legal representative) or any Successor or permitted
transferee under an Award granted before the date of termination,
suspension or modification, unless otherwise provided in an Agreement
or otherwise or required as a matter of law. It is conclusively
presumed that any adjustment for changes in capitalization provided for
in Section 9(b) or 12(f) hereof does not adversely affect any right of
a Participant or other person under an Award.
(f) ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate
adjustments in the aggregate number and type of securities available
for Awards under this Plan, in the limitations on the number and type
of securities that may be issued to an individual Participant, in the
number and type of securities and amount of cash subject to Awards then
outstanding, in the Option purchase price as to any outstanding
Options, in the purchase price as to any outstanding Stock Appreciation
Rights, and, subject to Section 9(b) hereof, in outstanding Performance
Shares and payments with respect to outstanding Performance Shares, and
comparable adjustments, if applicable, to any outstanding Other
Stock-Based Award, shall be made by the Committee to give effect to
adjustments made in the number or type of Shares through a Fundamental
Change, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, stock combination, rights
offering, spin-off or other relevant change, provided that fractional
Shares shall be rounded to the nearest whole Share, for which purpose
one-half share shall be rounded down to the nearest whole Share.
(g) OTHER BENEFIT AND COMPENSATION PROGRAMS. Payments and
other benefits received by a participant under an Award shall not be
deemed a part of a Participant's regular, recurring compensation for
purposes of any termination, indemnity or severance pay laws and shall
not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or similar
arrangement provided by the Company or an Affiliate, unless expressly
so provided by such other plan, contract or arrangement or the
Committee determines that an Award or portion of an Award should be
included to reflect competitive compensation practices or to recognize
that an Award has been made in lieu of a portion of competitive cash
compensation.
(h) BENEFICIARY UPON PARTICIPANT'S DEATH. To the extent that
the transfer of a participant's Award at death is permitted by this
Plan or under an Agreement, (i) a Participant's Award shall be
transferable to the beneficiary, if any, designated on forms prescribed
by and filed with the Committee and (ii) upon the death of the
Participant, such beneficiary shall succeed to the rights of the
Participant to the extent permitted by law and this Plan. If no such
designation of a beneficiary has been made, the Participant's legal
representative shall succeed to the Awards, which shall be transferable
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by will or pursuant to laws of descent and distribution to the extent
permitted by this Plan or under an Agreement.
(i) UNFUNDED PLAN. This Plan shall be unfunded and the Company
shall not be required to segregate any assets that may at any time be
represented by Awards under this Plan. Neither the Company, its
Affiliates, the Committee, nor the Board shall be deemed to be a
trustee of any amounts to be paid under this Plan nor shall anything
contained in this Plan or any action taken pursuant to its provisions
create or be construed to create a fiduciary relationship between the
Company and/or its Affiliates, and a Participant or Successor. To the
extent any person acquires a right to receive an Award under this Plan,
such right shall be no greater than the right of an unsecured general
creditor of the Company.
(j) LIMITS OF LIABILITY.
(i) Any liability of the Company to any Participant
with respect to an Award shall be based solely upon
contractual obligations created by this Plan and the
Agreement.
(ii) Except as may be required by law, neither the
Company nor any member or former member of the Board or the
Committee, nor any other person participating (including
participation pursuant to a delegation of authority under
Section 3(b) hereof) in any determination of any question
under this Plan, or in the interpretation, administration or
application of this Plan, shall have any liability to any
party for any action taken, or not taken, in good faith under
this Plan.
(iii) To the full extent permitted by law, each
member and former member of the Committee and each person to
whom the Committee delegates or has delegated authority under
this Plan shall be entitled to indemnification by the Company
against any loss, liability, judgment, damage, cost and
reasonable expense incurred by such member, former member or
other person by reason of any action taken, failure to act or
determination made in good faith under or with respect to this
Plan.
(k) COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS. The Company
shall not be required to issue or deliver a certificate for Shares
distributable pursuant to this Plan unless the issuance of such
certificate complies with all applicable legal requirements including,
without limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended and in effect
from time to time or any successor statute, the Exchange Act and the
requirements of the exchanges, if any, on which the Company's Shares
may, at the time, be listed.
(l) DEFERRALS AND SETTLEMENTS. The Committee may require or
permit Participants to elect to defer the issuance of Shares or the
settlement of Awards in cash under such rules and procedures as it may
establish under this Plan. It may also provide
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that deferred settlements include the payment or crediting of interest
on the deferral amounts.
13. SUBSTITUTE AWARDS. Awards may be granted under this Plan from time
to time in substitution for Awards held by employees of other corporations who
are about to become Associates, or whose employer is about to become a
Subsidiary of the Company, as the result of a merger or consolidation of the
Company or a Subsidiary of the Company with another corporation, the acquisition
by the Company or a Subsidiary of the Company of all or substantially all the
assets of another corporation or the acquisition by the Company or a Subsidiary
of the Company of at least 50% of the issued and outstanding stock of another
corporation. The terms and conditions of the substitute Awards so granted may
vary from the terms and conditions set forth in this Plan to such extent as the
Board at the time of the grant may deem appropriate to conform, in whole or in
part, to the provisions of the Awards in substitution for which they are
granted, but with respect to Awards which are Incentive Stock Options, no such
variation shall be permitted which affects the status of any such substitute
option as an Incentive Stock Option.
14. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Delaware, without giving effect to
principles of conflicts of laws, and construed accordingly.
15. SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
16. PRIOR PLANS. Notwithstanding the adoption of this Plan by the Board
and approval of this Plan by the Company's stockholders as provided by Section
12(a) hereof, the Company's 1992 and 1994 Plans, as the same may have been
amended from time to time, shall remain in effect, but grants of stock options
pursuant to the 1992 and 1994 Plans shall not be made after the effective date
of this Plan. All grants and awards heretofore made under the 1992 and 1994
Plans shall be governed by the terms of the 1992 and 1994 Plans, respectively.
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EXHIBIT C
INDEMNIFICATION AND INSURANCE AMENDMENT TO BYLAWS
77
PROPOSED AMENDMENT TO BYLAWS
(Note: Bold, underlined text in Section 6.9 denotes added provision; Section
6.10 is being added in its entirety)
6.9 Amendments. Bylaws may be amended, repealed or adopted by a majority of
the entire Board, provided that written notice of any such proposed action shall
have been given to each director prior to such meeting, or that notice of such
addition, amendment, alteration or report shall have been given at the preceding
meeting of the Board. The Bylaws may also be amended, repealed or adopted by the
affirmative vote of the holders of a majority of the voting power of the stock
issued and outstanding and entitled to vote thereon; provided, however, that any
proposed alteration or repeal of, or the adoption of any Bylaw inconsistent
with, Section 1.2, 1.3, 1.4, 1.5, 1.11, 1.12, 1.13 or 1.17 of Article 1 of the
Bylaws or Section 2.1, 2.2, 2.9 or 2.10 of Article 2 of the Bylaws or SECTION
6.10 OF THE BYLAWS OR this sentence, by the stockholders shall require the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
stock then issued and outstanding and entitled to vote thereon, voting together
as a single class; and, provided, further, however, that in the case of any such
stockholder action at a special meeting of stockholders, notice of the proposed
alteration, repeal or adoption of the new Bylaw or Bylaws must be contained in
the notice of such special meeting. The fact that the power to amend these
Bylaws has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to amend, adopt or repeal
bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
6.10 Indemnification and Insurance.
(a) Generally.
(1) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was or has agreed to
serve at the request of the corporation as a director or officer of the
corporation, or is or was serving or has agreed to serve at the request of the
corporation as a DIRECTOR or officer (which, for purposes hereof, shall include
a trustee or similar capacity)of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity.
(2) The corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was or has agreed to
serve at the request of the corporation as an employee or agent of the
corporation, or is or was serving or has agreed to serve at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit
78
plan or other enterprise, or by reason of any action alleged to have been taken
or omitted in such capacity.
(3) The indemnification provided by this subsection (a) shall be
from and against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the indemnitee or
on his or her behalf in connection with such action, suit or proceeding and any
appeal therefrom, but shall only be provided if the indemnitee acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action,
suit or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
(4) Notwithstanding the foregoing provisions of this subsection
(a), in the case of an action or suit by or in the right of the corporation to
procure a judgment in its favor (i) the indemnification provided by this
subsection (a) shall be limited to expenses (including attorneys' fees) actually
and reasonably incurred by such person in the defense or settlement of such
action or suit, and (ii) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless, and only to the extent that, the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
(5) The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
(b) Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in subsection
(a) hereof or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. If a director or
officer is not wholly successful, on the merits or otherwise, in any action,
suit or proceeding but is successful, on the merits or otherwise, as to any
claim, issue or matter in such action, suit or proceeding, the corporation shall
indemnify such person against all expenses (including attorneys' fees) actually
and reasonably incurred by such person or on his or her behalf relating to each
successfully resolved claim, issue or matter. For purposes of this Section 6.10
and without limitation, the termination of a claim, issue or matter in an
action, suit or proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
(c) Determination That Indemnification Is Proper. Any indemnification
of a person entitled to indemnity under subsection (a)(1) hereof shall (unless
otherwise ordered by a court) be made by the corporation unless a determination
is made that indemnification of such
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person is not proper in the circumstances because he or she has not met the
applicable standard of conduct set forth in subsection (a)(3) hereof. Any
indemnification of a person entitled to indemnity under subsection (a)(2) hereof
may (unless otherwise ordered by a court) be made by the corporation upon a
determination that indemnification of such person is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
subsection (a)(3) hereof. Any such determination shall be made (i) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even if less than a quorum, or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iii)
by the stockholders.
(d) Advance Payment of Expenses; Notification and Defense of Claim.
(i) Expenses (including attorneys' fees) incurred by a director or
officer in defending a threatened or pending civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized in this Section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(ii) Promptly after receipt by a director, officer, employee or
agent of notice of the commencement of any action, suit or proceeding, such
person shall, if a claim thereof is to be made against the corporation
hereunder, notify the corporation of the commencement thereof. The failure to
promptly notify the corporation will not relieve the corporation from any
liability that it may have to such person hereunder, except to the extent the
corporation is prejudiced in its defense of such action, suit or proceeding as a
result of such failure.
(iii) The Board of Directors may authorize the corporation's
counsel to represent a director, officer, employee or agent in any action, suit
or proceeding, whether or not the corporation is a party to such action, suit or
proceeding. In the event the corporation shall be obligated to pay the expenses
of any person with respect to an action, suit or proceeding, as provided in this
Section 6.10, the corporation, if appropriate, shall be entitled to assume the
defense of such action, suit or proceeding, with counsel reasonably acceptable
to such person, upon the delivery to such person of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
such person and the retention of such counsel by the corporation, the
corporation will not be liable to such person under this Section 6.10 for any
fees of counsel subsequently incurred by such person with respect to the same
action, suit or proceeding, provided that (i) the director, officer, employee or
agent shall have the right to employ his or her counsel in such action, suit or
proceeding at such person's expense and (b) if (i) the employment of counsel by
such person has been previously authorized in writing by the corporation, (ii)
counsel to the director, officer, employee or agent shall have reasonably
concluded that there may be a conflict of interest or position on any
significant issue between the corporation and such person in the conduct of any
such defense or (iii) the corporation shall not,
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in fact, have employed counsel to assume the defense of such action, suit or
proceeding, then the fees and expenses of such person's counsel shall be at the
expense of the corporation.
(iv) Notwithstanding any other provision of this Section 6.10 to
the contrary, to the extent that any director or officer is, by reason of his or
her corporate status, a witness or otherwise participates in any action, suit or
proceeding at a time when such person is not a party in the action, suit or
proceeding, the corporation shall indemnify such person against all expenses
(including attorneys' fees) actually and reasonably incurred by such person or
on his or her behalf in connection therewith.
(e) Procedure for Indemnification of Required Indemnitees. Any
indemnification of a person the corporation is required to indemnify under
subsection (a) hereof, or advance of costs, charges and expenses of a person the
corporation is required to pay under subsection (d) hereof, shall be made
promptly, and in any event within 60 days, upon the written request of such
person. If the corporation fails to respond within 60 days, then the request for
indemnification shall be deemed to be approved. The right to indemnification or
advances as granted by this Section 6.10 shall be enforceable by the person the
corporation is required to indemnify under subsection (a) hereof in any court of
competent jurisdiction if the corporation denies such request, in whole or in
part. Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under subsection (d) hereof where the
required undertaking, if any, has been received by the corporation) that the
claimant has not met the standard of conduct set forth in subsection (a) hereof,
but the burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors, its independent
legal counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in subsection (a) hereof, nor the fact that there has been an actual
determination by the corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
A director or officer shall be presumed to be entitled to indemnification
under this Section 6.10 upon submission of a request for indemnification
pursuant to this subsection (e), and the corporation shall have the burden of
proof in overcoming that presumption in reaching a determination contrary to
that presumption. Such presumption shall be used as a basis for a determination
of entitlement to indemnification unless the corporation provides information
sufficient to overcome such presumption by clear and convincing evidence.
(f) Survival; Preservation of Other Rights. The provisions of this
Section 6.10 shall be deemed to be a contract between the corporation and each
director, officer, employee and agent who serves in such capacity at any time
while these provisions as well as the relevant provisions of the General
Corporation Law of the State of Delaware are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
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respect to any state of facts then or previously existing or any action, suit,
or proceeding previously or thereafter brought or threatened based in whole or
in part upon any such state of facts. Such a "contract right" may not be
modified retroactively without the consent of such director, officer, employee
or agent. The indemnification provided by this Section 6.10 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) Indemnification Agreements. Without limiting the provisions of this
Section 6.10, the corporation is authorized from time to time, without further
action by the stockholders of the corporation, to enter into agreements with any
director, officer, employee or agent of the corporation providing such rights of
indemnification as the corporation may deem appropriate, up to the maximum
extent permitted by law. Any agreement entered into by the corporation with a
director may be authorized by the other directors, and such authorization shall
not be invalid on the basis that similar agreements may have been or may
thereafter be entered into with other directors.
(h) Insurance and Subrogation
(i) The corporation may purchase and maintain insurance on behalf
of any person who is or was or has agreed to serve at the request of the
corporation as a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted
against, and incurred by, him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Section 6.10.
(ii) In the event of any payment by the corporation under this
Section 6.10, the corporation shall be subrogated to the extent of such payment
to all of the rights of recovery of such person, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the corporation to bring
suit to enforce such rights in accordance with the terms of such insurance
policy.
(iii) The corporation shall not be liable under this Section 6.10
to make any payment of amounts otherwise indemnifiable hereunder (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) if and to the extent that such person has otherwise actually
received such payment under the Certificate of Incorporation or these Bylaws or
any insurance policy, contract, agreement or otherwise.
(i) Certain Definitions. For purposes of this Section 6.10, references
to "the corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its
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separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents so that any person who is
or was a director, officer employee or agent of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Section 6.10 with respect to the resulting
or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Section 6.10, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this Section 6.10.
(j) Limitation on Indemnification. Notwithstanding any other provision
herein to the contrary, the corporation shall not be obligated pursuant to these
Bylaws:
(a) To indemnify or advance expenses to a director, officer,
employee or agent with respect to proceedings (or part thereof) initiated
by such person, except with respect to proceedings brought to establish or
enforce a right to indemnification (which shall be governed by the
provisions of this Section 6.10), unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the
corporation.
(b) To indemnify a director, officer, employee or agent for any
expenses incurred by such person with respect to any proceeding instituted
by such person to enforce or interpret these Bylaws, if a court of
competent jurisdiction determines that each of the material assertions made
by such person in such proceedings was not made in good faith or was
frivolous;
(c) To indemnify a director, officer, employee or agent for
expenses or the payment of profits arising from the purchase and sale by
such person of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
(k) Certain Settlement Provisions. The corporation shall have no
obligation to indemnify any director, officer, employee or agent under this
Section 6.10 for amounts paid in settlement of any action, suit or proceeding
without the corporation's prior written consent, which shall not be unreasonably
withheld. The corporation shall not settle any action, suit or proceeding in any
manner that would impose any fine or other obligation on any director or officer
or employee or agent without such person's prior written consent.
(l) Savings Clause. If this Section 6.10 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall
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nevertheless indemnify each director or officer and may indemnify each employee
or agent of the corporation as to costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the corporation, to the
full extent permitted by any applicable portion of this Section 6.10 that shall
not have been invalidated and to the full extent permitted by applicable law.
(m) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for herein
is held by a court of competent jurisdiction to be unavailable to a director or
officer in whole or in part, it is agreed that, in such event, the corporation
shall contribute to the payment of such director's or officer's costs, charges
and expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, but not including an action by or in
the right of the corporation, in an amount that is just and equitable in the
circumstances, taking into account, among other things, contributions by other
directors and officers of the corporation or others pursuant to indemnification
agreements or otherwise; provided, that, without limiting the generality of the
foregoing, such contribution shall not be required where such holding by the
court is due to (i) the failure of such director or officer to meet the standard
of conduct set forth in subsection (a) hereof, or (ii) any limitation on
indemnification set forth in subsection (h)(iii), (j) or (k) hereof.
(n) Form and Delivery of Communications. Any notice, request or other
communication required or permitted to be given to the corporation under this
Section 6.10 shall be in writing and either delivered in person or sent by
telecopy, telex, telegram, overnight mail or courier service, or certified or
registered mail, postage prepaid, return receipt requested, to the General
Counsel or Secretary of the corporation at its principal executive offices.
(o) Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Section 6.10 to expand further the
indemnification permitted to directors or officers, then the corporation shall
indemnify such persons to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended.
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EXHIBIT D
PROPOSED AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
85
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXPRESS SCRIPTS, INC.
The name under which the Corporation was originally incorporated is
Nyles, Inc., and the original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 27, 1992.
1. The current name of the Corporation is Express Scripts, Inc.
2. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
3. The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801 in the County of New Castle. The Corporation Trust Company is the
Corporation's registered agent at that address.
4. The total number of shares of stock which the Corporation has
authority to issue is 186,000,000 shares, of which (i) 5,000,000 shares are
preferred stock, par value $0.01 per share (the "Preferred Stock"), and (ii)
181,000,000 shares are common stock, par value $0.01 per share. Upon the
effectiveness of this Amended and Restated Certificate of Incorporation, without
further action by the Corporation or any stockholder, (A) each outstanding
share, and each treasury share, of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock") shall be automatically reclassified and
changed into one share of common stock, par value $0.01 per share (the "Common
Stock"), (B) the authorized Class B Common Stock, par value $0.01 per share, of
which no shares are issued and outstanding, shall be eliminated and
extinguished, (C) all stock option plans covering shares of Class A Common Stock
shall now automatically be deemed to cover an equal number of shares of Common
Stock, and (D) each outstanding warrant or option to purchase shares of Class A
Common Stock shall automatically be deemed to represent a warrant or option to
purchase the same number of shares of Common Stock. Holders of record of any
certificates that, immediately prior to the effectiveness of this Amended and
Restated Certificate of Incorporation, represented shares of Class A Common
Stock, but which now, by virtue hereof, represent shares of Common Stock, shall
be entitled to receive, upon surrender of such certificates, new certificates
that evidence the appropriate number of shares of Common Stock. Upon
consummation of the reclassification set forth herein, the holders of shares of
Common Stock of the Corporation shall have all the rights accorded to them by
law and this Amended and Restated Certificate of Incorporation.
86
4.1 Preferred Stock.
4.1.1 The Board of Directors is hereby authorized to
issue the Preferred Stock in one or more series, to fix the
number of shares of any such series of Preferred Stock, and to
fix, through a certificate of designations filed with the
Secretary of State of the State of Delaware (the "Preferred
Stock Designation"), the designation of any such series as
well as the powers, preferences, and rights and the
qualifications, limitations, or restrictions of the Preferred
Stock.
4.1.2 The authority of the Board of Directors shall
include, without limitation, the power to fix or alter the
dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund
provisions, if any), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of
Preferred Stock , and the number of shares constituting any
such unissued series and the designation thereof, or any of
them; and to increase or decrease the number of shares of any
series subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case
the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
4.2 Common Stock. The Common Stock shall be subject to the
express terms of the Preferred Stock and any series thereof. Except as
otherwise provided by applicable law or in this Certificate of
Incorporation or in a Preferred Stock Designation, the holders of
shares of Common Stock shall be entitled to one vote for each such
share upon all questions presented to the stockholders, the Common
Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders
at which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose name any share of
its stock is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
5. The Board of Directors shall have the power to make, alter or repeal
the by-laws of the Corporation.
6. The election of the Board of Directors need not be by written
ballot.
7. The Corporation shall indemnify to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware as amended
from time to time each person who is or was a director or officer of the
Corporation and the heirs, executors and administrators of such a person.
8. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director for
any act or omission occurring
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subsequent to the date when this provision becomes effective, except that he may
be liable (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of this Article Eight, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Article
Eight, shall eliminate or reduce the effect of this Article Eight in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article Eight, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
9. No action required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting, and
the power of stockholders of the Corporation to consent in writing, without a
meeting, to the taking of any action is specifically denied; provided, however,
that the holders of Preferred Stock may act by written consent to the extent
provided in a resolution or resolutions of the Board of Directors authorizing
the issuance of a particular series of Preferred Stock pursuant to Article Four
of this Certificate of Incorporation.
10. The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
11. This Amended and Restated Certificate of Incorporation is duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Express Scripts, Inc. has caused this Amended and
Restated Certificate of Incorporation to be executed by _________, its
____________ this _______ day of __________, 2001.
------------------------------
Name:
Title:
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INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME BELOW.
- ---------------------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
(2) Approval and ratification of the Express Scripts, Inc. 2000 Long- [ ] [ ] [ ]
Term Incentive Plan
(3) Ratification of the adoption of the indemnification and insurance [ ] [ ] [ ]
amendment to the Company's Bylaws
(4) Approval and ratification of the Company's Amended and Restated [ ] [ ] [ ]
Certificate of Incorporation
(5) Ratification of the appointment of PricewaterhouseCoopers LLP as [ ] [ ] [ ]
the Company's independent accountants for 2001
THIS PROXY WILL BE VOTED "FOR" ITEMS 1 THROUGH 5 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)
89
EXPRESS SCRIPTS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 23, 2001
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 attorneys-in-fact, agents and proxies for the
undersigned with full power of substitution, to vote all shares of the Class A
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 23, 2001 at 9:30
A.M., at the offices of the Company, 13900 Riverport Drive, Maryland Heights,
Missouri 63043, or at any adjournment thereof, upon the matters described in the
Notice of such Meeting and accompanying Proxy Statement, receipt of which is
acknowledged, and upon such other business as may properly come before the
Meeting or any adjournments thereof, hereby revoking any proxies heretofore
given. Please sign exactly as the name(s) appear on this proxy card. When shares
are held by joint tenants, both should sign. When signing as attorney-in-fact,
executor, administrator, personal representative, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
President or other authorized officers. If a partnership, please sign in
partnership name by authorized persons.
Dated:
---------------------- ----------------------------
(Signature)
-----------------------------
(Signature if held jointly)