Exhibit 10.4
HCIA INC.
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
As Amended Through August 7, 1996
1. Definitions
For purposes of the Plan:
(a) "Annual Award" means an award of Options
pursuant to Section 5(b) of the Plan.
(b) "Annual Meeting" means an annual meeting of
the Company's stockholders.
(c) "Board" means the Board of Directors of the
Company.
(d) Change in Control" means
(i) the acquisition by an individual,
entity or group (within the meaning of Section 13(d)(3) of the Exchange Act),
other than (A) an employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its affiliates or (B) AMBAC Inc., a Delaware
corporation ("AMBAC"), AMBAC Indemnity Corporation, a Wisconsin stock insurance
corporation ("AIC") or any of their respective affiliates, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 30% or more of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors or of equity securities
having a value equal to 30% or more of the total value of all equity securities
of the Company, provided, however, that any securities of the Company acquired
by any individual, entity or group directly from AMBAC, AIC or any of their
respective affiliates, or from an underwriter or placement agent (or other
person or entity performing similar services) who acquired such securities
directly from AMBAC, AIC or any of their respective affiliates, shall not be
included in the number of shares acquired by such individual, entity or grou
for purposes of determining whether a Change in Control has occurred; or
(ii) individuals who as of the Offering
Date constitute the Board, and subsequently elected members of the Board whose
election is approved or recommended by at least a majority of such current
members or their successors whose election was so approved or recommended,
cease for any reason to constitute at least a majority of such Board.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Committee" means the committee designated
by the Board pursuant to Section 3(c) of the Plan.
(g) "Common Stock" means the Common Stock of
the Company, par value $.01 per share, or such other class or kind of shares
or other securities as may be applicable under Section 12.
(h) "Company" means HCIA Inc., a Maryland
corporation, or any successor to substantially all its business.
(i) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(j) "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(k) "Fair Market Value" means the average of the
highest and the lowest quoted selling prices of the Common Stock as reported
on the National Association of Securities Dealers Automated Quotation System
National Market System or such other national securities exchange as may be
designated by the Committee or, in the event that the Common Stock is not
listed for trading on a national securities exchange, the average of the
highest and lowest quoted selling prices of the Common Stock as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), in any such case for the applicable valuation date or, if there
were no sales on such valuation date, for the most recent day for which there
was such a sale.
(l) "Initial Award" means an award of Options
pursuant to Section 5(a) of the Plan.
(m) "Non-Employee Director" means a member of
the Board who is not an employee of the Company or any of its subsidiaries and
is not an employee of AMBAC, AIC or any of their respective subsidiaries while
AMBAC and AIC maintain, in the aggregate, an equity interest in the Company
representing 25% or more of the voting power of the Company's outstanding voting
stock.
(n) "Offering Date" means the effective date
of the Company's registration statement no. 33-88226 relating to the initial
public offering of the Common Stock.
(o) "Option" means an option to purchase shares
of Common Stock awarded to a Non-Employee Director pursuant to the Plan.
(p) "Option Shares" means the shares of Common
stock issuable upon exercise of an Option.
-2-
(q) "Permanent Disability" means a physical or
mental impairment rendering a Non-Employee Director substantially unable to
function as a member of the Board for any period of six consecutive months.
Any dispute as to whether a Non-Employee Director is Permanently Disabled
shall be resolved by a physician mutually acceptable to the Non-Employee
Director and the Company, whose decision shall be final and binding upon the
Non-Employee Director and the Company.
(r) "Plan" means the HCIA Inc. 1995 Non-Employee
Directors Stock Option Plan as described herein.
(s) "Retirement" means a Non-Employee Director
ceasing to be a member of the Board as a result of retirement from the Board
in accordance with the retirement policy then applicable to Board members.
(t) "1933 Act" means the Securities Act of 1933,
as amended.
2. Purpose
The purpose of the Plan is to retain the services of qualified
persons who are not employees of the Company to serve as members of the Board
and to secure for the Company the benefits of the incentives inherent in
increased Common Stock ownership by Non-Employee Directors, by granting to such
person options to purchase shares of Common Stock.
3. Shares Available; Administration
(a) Subject to the provisions of Section 12 of the Plan, the
maximum number of shares of Common Stock which may be issued under the Plan
shall not exceed 200,000 shares. Either authorized and unissued shares of Common
Stock or treasury shares may be delivered upon exercise of Options awarded
pursuant to the Plan.
(b) If Options have been forfeited to the Company as described
in Section 6(d), the Options Shares underlying such Options shall again be
available for issuance in connection with future awards under the Plan.
(c) The Plan will be administered by a committee designated by
the Board and composed exclusively of members of the Board who are not
Non-Employee Directors (the "Committee"). The Committee may adopt rules and
regulations necessary to carry out the Plan's purposes. The Committee's
interpretation and construction of any Plan provision shall be final and
conclusive.
4. Eligibility
Options awarded pursuant to the Plan shall be granted only to
Non-Employee Directors.
-3-
5. Awards
(a) Initial Award. On the date of a Non-Employee Director's
initial election or appointment to the Board (or in the case of a Non-Employee
Director who is a member of the Board as of the Offering Date, on the Offering
Date), such Non-Employee Director (including any Non-Employee Director reelected
or reappointed after a period of at least 12 calendar months during which he did
not serve on the Board) shall be granted an Initial Award consisting of an
Option to purchase 5,000 shares of Common Stock. Such Option shall have a per
share exercise price equal to the Fair Market Value of the Common Stock on the
date of award and shall be subject to the vesting schedule provided for in
Section 6(a) and the other terms and conditions provided for herein.
(b) Annual Awards. At each Annual Meeting, commencing with the
Annual Meeting held in 1995 subsequent to the Offering Date, each person who has
served as a member of the Board during the period elapsed since the immediately
preceding Annual Meeting (or in the case of the Annual Meeting held in 1995,
each person who has served as a member of the Board since the Offering Date),
and who has, during all or a portion of such service, been a Non-Employee
Director for purposes of the Plan shall be granted as of the date of such Annual
Meeting an Annual Award consisting of an Option to purchase 5,000 shares of
Common Stock (or such lesser number determined by multiplying 5,000 by a
fraction, the numerator of which is the number of full or partial months since
the immediately preceding Annual Meeting (or Offering Date, if applicable)
during which such person served on the Board in the capacity of a Non-Employee
Director, and the denominator of which is the number of full or partial months
since the immediately preceding Annual Meeting (or Offering Date, if
applicable)). Such Option shall have a per share exercise price equal to the
Fair Market Value of the Common Stock on the date of award and shall be subject
to the vesting schedule provided for in Section 6(b) and the other terms and
conditions provided for herein.
6. Vesting
(a) Vesting of Initial Awards. Initial Awards shall
vest and become exercisable as follows:
(i) An Initial Award made other than in connection
with a Non-Employee Director's initial election to the Board at an Annual
Meeting shall vest and become exercisable in two equal installments as of the
first and second anniversaries of the date of grant, provided that the
Non-Employee Director remains in service as a member of the Board until the
relevant vesting date.
(ii) An Initial Award made in connection with a
Non-Employee Director's initial election to the Board at an Annual Meeting shall
vest and become exercisable as to 50% of the Options Shares subject to the
Option constituting such Initial Award as of the date of the first Annual
Meeting following the date of award, and as to the remaining 50% of the
Option Shares subject to such Option as of the date of the second Annual
Meeting following the date of award, provided the Non-Employee Director to whom
such Annual Award was made
-4-
continues in service as a member of the Board until the relevant vesting date
(whether or not the Non-Employee Director is nominated for reelection at the
Annual Meeting held on either vesting date, and whether or not, if nominated, he
is reelected).
(b) Vesting of Annual Awards. Each Annual Award shall vest and
become exercisable as of the date of the first Annual Meeting following the date
of award, provided the Non-Employee Director to whom such Annual Award was made
continues in service as a member of the Board until the vesting date (whether or
not the Non-Employee Director is nominated for reelection at the Annual Meeting
held on such vesting date, and whether or not, if nominated, he is reelected).
(c) Accelerated Vesting. Notwithstanding anything to the
contrary in Sections 6(a) and 6(b), an Option shall become fully vested and
exercisable upon the first to occur of (i) a Non-Employee ceasing to be a member
of the Board as a result of death, Permanent Disability or Retirement, or (ii) a
Change in Control of the Company.
(d) Forfeiture. In the event of a Non-Employee Director's
termination of service as a member of the Board for any reason other than death,
Permanent Disability or Retirement prior to the satisfaction of any vesting
period requirement hereof, the unvested portion of any Options awarded to the
Non-Employee Director shall be forfeited to the Company as of the date of
termination of service, and the Non-Employee Director shall have no further
right or interest therein.
7. Term of Options
(a) Ten-Year Term. Each Option shall expire ten years
from its date of award, subject to earlier termination as provided herein.
(b) Exercise Following Certain Terminations of Service. If a
Non-Employee Director's service as a member of the Board terminates for any
reason other than death, Permanent Disability or Retirement, the Non-Employee
Director shall have the right, subject to the terms and conditions hereof, to
exercise the Option, to the extent it has vested as of the date of such
termination of service, at any time within six months after the date of such
termination, subject to the earlier expiration of the Option as provided in
Section 7(a). At the end of such six-month period the Option shall expire.
(c) Exercise Following Termination of Service Due to Death,
Permanent Disability or Retirement. If a Non-Employee Director's service as a
member of the Board terminates by reason of death, Permanent Disability or
Retirement, all Options awarded to such Non-Employee Director may be exercised
by such Non-Employee Director, or by his or her estate, personal representative
or beneficiary, as the case may be, at any time within one year after the date
of termination of service, subject to the earlier expiration of the Option as
provided in Section 7(a). At the end of such one-year period the Option shall
expire.
-5-
(d) Exercise Following Termination of Service Subject to
Company Policies and Procedures on Insider Trading. Any exercise of an Option
pursuant to Section 7(b) or 7(c) following termination of a Non-Employee
Director's service as a member of the Board for any reason other than death
shall be subject to, and shall be permitted only to the extent such exercise
complies with, the policies and procedures of the Company concerning insider
trading that were applicable to the Non-Employee Director on the date of such
termination of service (as such policies and procedures may be amended by the
Company during the period provided in Section 7(b) or 7(c), as the case may be,
for exercise of the Option).
8. Time and Manner of Exercise
(a) Notice of Exercise. Subject to the other terms and
conditions hereof, a Non-Employee Director may exercise any Options (to the
extent vested) by giving written notice of exercise to the Company, provided,
however, that no less than 10 Option Shares may be purchased upon any exercise
of the Option unless the number of Option Shares purchased at such time is the
total number of Option Shares in respect of which an Option is then exercisable,
and provided, further, that in no event shall an Option be exercisable for a
fractional share. The date of exercise of an Option shall be the later of (i)
the date on which the Company receives such written notice or (ii) the date on
which the conditions provided in Section 8(b) are satisfied. Notwithstanding any
other provision of the Plan or of the notice of award relating to an Option
provided for in Section 9, no Option may be exercised, whether in whole or in
part, and no Option Shares will be issued by the Company in respect of any such
attempted exercise, at any time when such exercise is prohibited by Company
policy then in effect concerning transactions by a Non-Employee Director in the
Company's securities. In the event that a Non-Employee Director gives written
notice of exercise to the Company at a time when such exercise is prohibited by
such policy, the Company in its sole discretion may disregard such notice of
exercise or may consider such notice to be delivered as of the first date that
the Non-Employee Director is permitted to exercise such option in accordance
with such Company policy.
(b) Payment. Prior to the issuance of a certificate pursuant
to Section 8(e) hereof evidencing the Option Shares in respect of which all or a
portion of an Option shall have been exercised, a Non-Employee Director shall
have paid to the Company the Option Price for all Option Shares purchased
pursuant to the exercise of such Option. Payment may be made by personal check,
bank draft or postal or express money order (such modes of payment are
collectively referred to as "cash") payable to the order of the Company in U.S.
dollars or in shares of Common Stock already owned by the Non-Employee Director
valued at their Fair Market Value as of the last business day preceding the date
of exercise, or in any combination of cash or such shares as the compensation
committee of the Board in it sole discretion may approve. Payment of the
exercise price in shares of Common Stock shall be made by delivering to the
Company the share certificate(s) representing the required number of shares,
with the Non-Employee Director signing his or her name on the back, or by
attaching executed stock powers (the signature of the Non-Employee Director must
be guaranteed in either case).
-6-
(c) Stockholder Rights. A Non-Employee Director shall have no
rights as a stockholder with respect to any shares of Common Stock issuable upon
exercise of an Option until a certificate evidencing such shares shall have been
issued to the Non-Employee Director pursuant to Section 8(e), and no adjustment
shall be made for dividends or distributions or other rights in respect of any
share for which the record date is prior to the date upon which the Non-Employee
Director shall become the holder of record thereof.
(d) Limitation on Exercise. No Option shall be exercisable
unless the Common Stock subject thereto has been registered under the Securities
Act and qualified under applicable state "blue sky" laws in connection with the
offer and sale thereof, or the Company has determined that an exemption from
registration under the Securities Act and from qualification under such state
"blue sky" laws is available.
(e) Issuance of Shares. Subject to the foregoing conditions,
as soon as is reasonably practicable after its receipt of a proper notice of
exercise and payment of the Option Price for the number of shares with respect
to which the Option is exercised, the Company shall deliver to the Non-Employee
Director (or following the Non-Employee Director's death, such other person
entitled to exercise the Option), at the principal office of the Company or at
such other location as may be acceptable to the Company and the Non-Employee
Director (or such other person), one or more stock certificates for the
appropriate number of shares of Common Stock issued in connection with such
exercise. Such shares shall be fully paid and nonassessable and shall be issued
in the name of the Non-Employee Director (or such other person).
(f) Tax Withholding. The Company shall have the right, prior
to the delivery of any certificates evidencing shares of Common Stock to be
issued upon full or partial exercise of an Option, to require a Non-Employee
Director to remit to the Company any amount sufficient to satisfy any Federal,
state or local tax withholding requirements. The Company may permit the
Non-Employee Director to satisfy, in whole or in part, such obligation to remit
taxes, by directing the Company to withhold shares of Common Stock that would
otherwise be received by the Non-Employee Director, pursuant to such rules as
the Committee may establish from time to time. The Company shall also have the
right to deduct from all cash payments made pursuant to or in connection with
the Option any Federal, state or local taxes required to be withheld with
respect to such payments.
(g) Restrictions on Transfer. An Option may not be
transferred, pledged, assigned, or otherwise disposed of, except by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Code or Title I of ERISA ("QDRO"). The Option
shall be exercisable, during the Participant's lifetime, only by the Participant
or by the person to whom the Option has been transferred pursuant to a QDRO. No
assignment or transfer of the Option, or of the rights represented thereby,
whether voluntary or involuntary, by operation of law or otherwise, except by
will or the laws of descent and distribution or pursuant to a QDRO, shall vest
in the assignee or transferee any interest or right in the Option, but
immediately upon any attempt to assign or transfer the Option the same shall
terminate and be of no force or effect.
-7-
(h) Non-qualified Status of Options. Options awarded
under the Plan are not intended to qualify, and shall not be treated, as an
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
9. Notice of Award
The terms and conditions of each award of Options shall be
embodied in a notice of award which shall contain terms and conditions not
inconsistent with the Plan and which shall incorporate the Plan by reference.
Each notice of award shall state the date on which the Options were granted, the
number of shares subject to such Option and the per share exercise price
therefor.
10. Effective Date; Term of the Plan
The effective date of the Plan shall be the Offering Date.
Unless earlier terminated in accordance with Section 11 below, the term of the
Plan shall expire on the tenth anniversary of the Offering Date. After such
date, no further awards of Options may be made hereunder, but previously granted
awards shall remain outstanding subject to the terms hereof.
11. Amendments
The Board may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part, provided, however, that in no
event may the provisions of the Plan respecting eligibility to participate or
the timing or amount of awards be amended more frequently than once every six
months, other than to comport with changes in the Code, ERISA or any rules or
regulations thereunder, provided, further, that any amendment which under the
requirements of applicable law must be approved by the stockholders of the
Company shall not be effective unless and until such stockholder approval has
been obtained in compliance with such law, and provided, further, that any
amendment that must be approved by the stockholders of the Company in order to
maintain the continued qualification of the Plan under Rule 16b-3 under the
Exchange Act, or any successor provision, shall not be effective unless and
until such stockholder approval has been obtained in compliance with such rule.
No termination or amendment of the Plan may, without the consent of the
Non-Employee Director, affect any such person's rights under the provisions of
the Plan with respect to awards of Options which were made prior to such action.
12. Adjustment of and Changes in Common Stock
In the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, distribution of property, special cash
dividend, or other change in corporate structure affecting the Common Stock, the
Committee shall make such adjustments, if any, as it considers necessary or
appropriate in the number and class of shares subject to Options or authorized
to be awarded hereunder, in order to prevent dilution or enlargement of rights.
Any new or additional
-8-
Options awarded pursuant to such adjustments shall be subject to all of the
terms and conditions of the Plan.
13. No Right to Reelection
Nothing in the Plan shall be deemed to create any obligation
on the part of the Board to nominate any of its members for reelection by the
Company's stockholders, nor confer upon any Non-Employee Director the right to
remain a member of the Board for any period of time, or at any particular rate
of compensation.
14. Governing Law
The Plan and all notices issued or agreements entered into
under the Plan shall be construed in accordance with and governed by the laws of
the State of Maryland.
15. No Restriction on Right of Company to Effect Corporate Changes
The Plan shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.