NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of October 6, 1995 is made by and between Medco
Behavioral Care Corporation, a Delaware corporation hereinafter referred to as
the "Company," and Xxxxxx X. Xxxxxx, an employee of, or consultant to, the
Company or a Subsidiary (as defined below) of the Company, hereinafter referred
to as "Optionee."
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock ("Common Stock");
WHEREAS, pursuant to the Stockholder's Agreement, the Optionee is entitled
to receive a grant of Non-Qualified Stock Options;
WHEREAS, the Company wishes to carry out the Plan (as defined below), the
terms of which are hereby incorporated by reference and made a part of this
Agreement; and
WHEREAS, the Committee (as defined below) appointed to administer the Plan
has determined that it would be to the advantage and best interest of the
Company and its stockholders to grant the Non-Qualified Stock Option(s) provided
for herein to the Optionee as an incentive for increased efforts during his term
of employment with the Company or its Subsidiaries or Affiliates, and has
advised the Company thereof and instructed the undersigned officers to issue
said Options;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
Section 12. - Acceleration Event
"Acceleration Event" with respect to an Optionee shall mean that
each of the following has occurred:
(a) (i) a sale of all or substantially all of the assets of the
Company to a Person who is not an Affiliate of KKR or an entity in which
the shareholders of the Company
immediately prior to such transaction do not control more than 40% of
the voting power of such entity immediately following the transaction,
(ii) a sale by KKR or any of its Affiliates resulting in 50% or more of
the voting power of the Company being held by a Person or Group that
does not include KKR or any of its Affiliates or (iii) a merger or
consolidation of the Company into another Person which is not an
Affiliate of KKR or an entity in which the shareholders of the Company
immediately prior to such transaction do not control more than 40% of
the voting power immediately following the transaction. "Group" means
two or more Persons acting together as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring,
holding or disposing of securities of the Company,
(b) Employees and partners of KKR and its Affiliates or their
designees do not collectively constitute a majority of the Board of
Directors of (in case of the event described in subsection (a)(i)) the
acquiring Person, or (in case of the events described in subsection
(a)(ii) or (iii)) the Company, and
(c) if the Optionee is an employee of the Company or a
Subsidiary, such employment is terminated without "Cause" or with "Good
Reason" (as such terms are defined in the Stockholder's Agreement)
within one year following the later of the events described in
subsections (a) and (b).
Section 13. - Affiliate
"Affiliate" shall mean (a) with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with, such Person, and (b) with respect to the Company, also any entity
designated by the Board of Directors of the Company in which the Company or one
of its Affiliates has an interest, and (c) with respect to Kohlberg Kravis
Xxxxxxx & Co., L.P. ("KKR"), also any Affiliate of any partner of KKR. For
purposes of this Agreement, "Person" means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature, and "control" shall have the meaning given such term under Rule 405 of
the Securities Act of 1933.
Section 14. - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 15. - Committee
"Committee" shall mean the Compensation Committee of the Company.
Section 16. - Grant Date
"Grant Date" shall mean the date on which the Options provided
for in this Agreement were granted.
Section 17. - Options
"Options" shall mean the Non-Qualified Stock Options to purchase
Common Stock granted under this Agreement.
Section 18. - Permanent Disability
The Optionee shall be deemed to have a "Permanent Disability" if
the Optionee is unable to engage in the activities required by the job by reason
of any medically determined physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months, as reasonably determined by the
Board of Directors of the Company in good faith and in its discretion.
Section 19. - Plan
"Plan" shall mean the 1995 Stock Purchase and Option Plan for Employees of
Medco Behavioral Care Corporation and Subsidiaries.
Section 20. - Permitted Retirement
"Permitted Retirement" shall mean retirement at age 65 or over
(or such other age as may be approved by the Board of Directors of the Company)
after having been employed by the Company or one of its Subsidiaries or
Affiliates for at least three years after the Grant Date.
Section 21. - Pronouns
The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
Section 1.11 - Purchase Date
"Purchase Date" shall mean October __, 1995.
Section 1.12 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.13 - Stockholder's Agreement
"Stockholder's Agreement" shall mean that certain Stockholder's
Agreement dated as of January 1, 1996 between the Optionee and the Company.
Section 1.14 - Subsidiary
"Subsidiary" with respect to any entity shall mean any
corporation (or other entity) in an unbroken chain of corporations (or other
entities) beginning with such entity if each of the corporations (or entities),
or group of commonly controlled corporations (or entities), other than the last
corporation (or entity) in the unbroken chain, then owns stock (or other equity
interest) possessing 50% or more of the total combined voting power of all
classes of equity in one of the other entities in such chain.
Section 1.15 - Value
"Value" of a share of Common Stock for periods prior to a "Public
Offering" (as defined in the Stockholder's Agreement) shall mean the "Base Value
Per Share" (as defined in the Stockholder's Agreement) and for subsequent
periods shall mean the "Market Price Per Share" (as defined in the Stockholder's
Agreement).
ARTICLE II
GRANT OF OPTIONS
Section 22. - Grant of Options
For good and valuable consideration, on and as of the date hereof
the Company irrevocably grants to the Optionee an Option to purchase any part or
all of an aggregate of the number of shares set forth with respect to each such
Option on the signature page hereof of its $.01 par value Common Stock upon the
terms and conditions set forth in this Agreement.
Section 23. - Exercise Price
The exercise price of the shares of stock covered by the
Option(s) shall be $5.00 per share without commission or other charge.
Section 24. - Consideration to the Company
In consideration of the granting of these Option(s) by the
Company, the Optionee agrees to render faithful and efficient services to the
Company or one of its Subsidiaries or Affiliates, with such duties and
responsibilities as the Company shall from time to time prescribe. Nothing in
this Agreement or in the Plan shall confer upon the Optionee any right to
continue in the employ of the Company or any of its Subsidiaries or Affiliates
or shall interfere with or restrict in any way the rights of the Company and its
Subsidiaries and Affiliates, which are hereby expressly reserved, to terminate
the employment of the Optionee at any time for any reason whatsoever, with or
without Cause.
Section 25. - Adjustments in Options
Subject to Section 9 of the Plan, in the event that the
outstanding shares of the stock subject to an Option are, from time to time,
changed into or exchanged for cash or a different number or kind of shares of
the Company or other securities of the Company by reason of a merger,
consolidation, recapitalization, reclassification, stock split, stock dividend,
combination of shares, or otherwise, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares or other consideration and
the exercise price as to which such Option, or portions thereof then
unexercised, shall be exercisable in order to prevent dilution or enlargement of
the benefits intended to be made available with respect to any Option. Any such
adjustment made by the Committee shall be final and binding upon the Optionee,
the Company and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
(a) The Option shall become exercisable as follows:
Date Option Number of Option Shares
Becomes Exercisable As to Which Option
Is Exercisable
Grant Date through the first anniversary of the Grant 0%
Date
After the first anniversary of the Grant Date 20%
After the second anniversary of the Grant Date 40%
After the third anniversary of the Grant Date 60%
After the fourth anniversary of the Grant Date 80%
After the fifth anniversary of the Grant Date 100%
(b) Notwithstanding the foregoing, the Option shall become
exercisable for the period set forth in Section 3.2 as to 100% of the shares of
Common Stock subject to such Option upon the happening of an Acceleration Event
(but only to the extent such Option has not otherwise terminated).
(c) Notwithstanding the foregoing, no Option shall become
exercisable as to any additional shares of Common Stock following the
termination of employment of the Optionee for any reason. Any Option which is
non-exercisable as of the Optionee's termination of employment shall be
immediately cancelled.
Section 3.2 - Expiration of Options
Except as otherwise provided in Section 5 or 6 of the
Stockholder's Agreement, the Options may not be exercised to any extent by
Optionee after the first to occur of the following events:
(a) The tenth anniversary of the Grant Date; or
(b) The first anniversary of the date of the Optionee's
termination of employment by reason of death, Permanent Disability or
Permitted Retirement; or
(c) The first business day which is fifteen calendar days after
the earlier of (i) 75 days after termination of employment of the
Optionee for any reason not specified in subsection (b) or (ii) the
delivery of notice by the Company that it does not intend to exercise
its call right under Section 6 of the Stockholder's Agreement; provided,
however, that in any event the Options shall remain exercisable under
this subsection 3.2(c) until at least 45 days after termination of
employment of the Optionee for any reason other than for death,
Permanent Disability or Permitted Retirement; or
(d) The date the Option is terminated pursuant to Section 5, 6 or
10(b) of the Stockholder's Agreement;
(e) If the Committee so determines pursuant to Section 9 of the
Plan, the effective date of either the merger or consolidation of the
Company into another Person, or the exchange or acquisition by another
Person of all or substantially all of the Company's assets or 80% or
more of its then outstanding voting stock, or the recapitalization,
reclassification, liquidation or dissolution of the Company. At least
ten (10) days prior to the effective date of such merger, consolidation,
exchange, acquisition, recapitalization, reclassification, liquidation
or dissolution, the Committee shall give the Optionee notice of such
event if the Option has then neither been fully exercised nor become
unexercisable under this Section 3.2.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of an Option may, prior to the time when an Option becomes unexercisable
under Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of an Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.2; provided, however, that any partial exercise shall be for whole
shares of Common Stock only.
Section 4.3 - Manner of Exercise
An Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or his office all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.2:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion thereof, stating that
the Option or portion thereof is thereby exercised, such notice
complying with all applicable rules established by the Committee;
(b) Full payment for the shares with respect to which the Option,
or portion thereof, is exercised in one or more of the following forms:
(i) cash; (ii) surrender of shares of Common Stock then issuable upon
exercise of the Option (or owned by Optionee duly endorsed for transfer
to the Company) having a Value on the date of Option exercise equal to
the necessary aggregate exercise price of the Option or exercised
portion thereof;
(c) A bona fide written representation and agreement, in a form
reasonably satisfactory to the Committee, signed by the Optionee or
other person then entitled to exercise such Option or portion thereof,
stating that the shares of stock are being acquired for his own account,
for investment and without any present intention of distributing or
reselling said shares or any of them except as may be permitted under
the Securities Act of 1933, as amended (the "Act"), and then applicable
rules and regulations thereunder, and that the Optionee or other person
then entitled to exercise such Option or portion thereof will indemnify
the Company against and hold it free and harmless from any loss, damage,
expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the
representation and agreement referred to above; provided, however, that
the Committee may, in its absolute discretion, take whatever additional
actions it deems appropriate to ensure the observance and performance of
such representation and agreement and to effect compliance with the Act
and any other federal or state securities laws or regulations;
(d) Full payment to the Company of all amounts which, under
federal, state or local law, it is required to withhold upon exercise of
the Option, in one or more of the following forms: (i) cash; (ii)
surrender of shares of Common Stock then issuable upon exercise of the
Option (or owned by Optionee duly endorsed for transfer to the Company)
having a Value on the date of Option exercise equal to the required
amount; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the Option.
Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) above
shall, however, not be required if the shares to be issued pursuant to such
exercise have been registered under the Act, and such registration is then
effective in respect of such shares.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of an Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of an Option or portion thereof prior to fulfillment of all of
the following conditions:
(a) The obtaining of approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish
for reasons of administrative convenience.
Section 4.5 - Rights as Stockholder
The holder of an Option shall not be, nor have any of the rights
or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of the Option or any portion thereof unless and
until certificates representing such shares shall have been issued by the
Company to such holder.
ARTICLE V
MISCELLANEOUS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Options. In its absolute discretion, the Board of
Directors may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan and this Agreement.
Section 5.2 - Options Not Transferable
Except as provided in the Stockholder's Agreement, neither the
Options nor any interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that this Section 5.2 shall not
prevent transfers by will or by the applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the Options
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or Construction of this Agreement.
Section 5.6 - Applicability of Plan and Stockholder's Agreement
The Options and the shares of Common Stock issued to the Optionee
upon exercise of the Options shall be subject to all of the terms and provisions
of the Plan and the Stockholder's Agreement, to the extent applicable to the
Options and such shares. In the event of any conflict between this Agreement and
the Plan, the terms of the Plan shall control. In the event of any conflict
between this Agreement and the Stockholder's Agreement, the terms of the
Stockholder's Agreement shall control.
Section 5.7 - Amendment
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
Section 5.8 - Governing Law
The laws of the State of Delaware shall govern the
interpretation, validity and performance of the terms of this Agreement
regardless of the law that might be applied under principles of conflicts of
laws.
Section 5.9 - Jurisdiction
Any suit, action or proceeding against the Optionee with respect
to this Agreement, or any judgment entered by any court in respect of any
thereof, may be brought in any court of competent jurisdiction in the State of
Delaware or New York, as the Company may elect in its sole discretion, and the
Optionee hereby submits to the non-exclusive jurisdiction of such courts for the
purpose of any such suit, action, proceeding or judgment. The Optionee hereby
irrevocably waives any objections which he may now or hereafter have to the
laying of the venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in any court of competent jurisdiction in the State of
Delaware or New York, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum. No suit, action or proceeding against the Company with
respect to this Agreement may be brought in any court, domestic or foreign, or
before any similar domestic or foreign authority other than in a court of
competent jurisdiction in the State of Delaware or New York, and the Optionee
hereby irrevocably waives any right which he may otherwise have had to bring
such an action in any other court, domestic or foreign, or before any similar
domestic or foreign authority. The Company hereby submits to the jurisdiction of
such courts for the purpose of any such suit, action or proceeding.
[signature page follows]
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
MEDCO BEHAVIORAL CARE CORPORATION
By /s/ Xxxxxxx X. Xxxxxxx
Its EVP
/s/ Xxxxxx X. Xxxxxx Aggregate number of shares
Optionee of Common Stock for which the
Option is granted hereunder:
Address
Optionee's Taxpayer
Identification Number:
