Exhibit 10.25
REGENCY HEALTH SERVICES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made and entered into by and between REGENCY
HEALTH SERVICES, INC., a Delaware corporation (the "Company") and Xxxxx
Xxxxxxxxx ("Employee"), as of the 2nd day of January, 1996 (which date is
hereinafter referred to as the "Date of Grant"). If Employee is presently or
subsequently becomes employed by a subsidiary of the Company, the term "Company"
shall be deemed to refer collectively to Regency Health Services, Inc. and the
subsidiary or subsidiaries that employ the Employee.
R E C I T A L S
WHEREAS, the Company has adopted the Regency Health Services, Inc.
Long-Term Incentive Plan (the "Plan") as an employee incentive to encourage key
employees and the officers of the Company to remain in its employment and to
enhance the ability of the Company to attract new employees whose services are
considered unusually valuable by providing an opportunity to have a proprietary
interest in the success of the Company; and
WHEREAS, the Committee established pursuant to the Plan (the
"Committee") believes that the granting of the Option herein described to
Employee is consistent with the stated purposes for which the Plan was adopted;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and for other good and valuable consideration, the Company
and Employee agree as follows:
A G R E E M E N T
1. Grant of Option. The Company hereby grants to Employee the right and option
(hereinafter referred to as the "Option") to purchase an aggregate of Two
Hundred Fifty Thousand (250,000) shares (such number being subject to adjustment
as provided in paragraph 10 hereof and Article 14 of the Plan) of the common
stock of Regency Health Services, Inc. (the "Stock") on the terms and conditions
herein set forth. This Option may be exercised in whole or in part and from time
to time as hereinafter provided.
2. Purchase Price. The price at which Employee shall be entitled to
purchase the Stock covered by the Option shall be Ten Dollars and No Cents
($10.00) per share.
3. Term of Option. The Option hereby granted shall be and remain in force and
effect for a period of ten (10) years from the Date of Grant, through and
including the normal close of business of the Company on January 2, 2006
("Expiration Date"), subject to earlier termination as provided in paragraphs 7,
8 and 10 hereof.
4. Exercise of Option. The Option may be exercised by Employee in accordance
with the vesting schedule set forth in Exhibit "A" hereto as to all or any part
of the shares covered hereby by delivery to the Company of written notice of
exercise and payment of the purchase price as provided in paragraphs 5 and 6
hereof.
In the event of a public tender for all or any portion of the Stock of
the Company or in the event that a proposal to merge, consolidate, or otherwise
combine with another company is submitted for shareholder approval, the
Committee may in its sole discretion declare the Option to be immediately
exercisable even if the original date for the exercise of the Option, as set
forth in the first paragraph of this paragraph 4, has not yet passed.
5. Method of Exercising Option. Subject to the terms and conditions of this
Option Agreement, the Option may be exercised by timely delivery to the Company
of written notice, which notice shall be effective on the date received by the
Company (the "Effective Date"). The notice shall state Employee's election to
exercise the Option, the number of shares in respect of which an election to
exercise has been made, the method of payment elected (see paragraph 6 hereof),
the exact name or names in which the shares will be registered, and the Social
Security number of Employee. Such notice shall be signed by the Employee and
shall be accompanied by payment of the purchase price of such shares. In the
event the Option shall be exercised by a person or persons other than Employee
pursuant to paragraph 8 hereof, such notice shall be signed by such other person
or persons and shall be accompanied by proof acceptable to the Company of the
legal right of such person or persons to exercise the Option. All shares
delivered by the Company upon exercise of the Option as provided herein shall be
fully paid and nonassessable upon delivery.
6. Method of Payment for Options. Payment for shares purchased upon exercise of
the Option shall be made by the Participant by having the Company withhold Stock
(to the extent that Stock is issued pursuant to the Award) having a Fair Market
Value on the date of exercise equal to the total exercise price otherwise due to
the company.
7. Termination of Employment. In the event that Employee terminates employment
on account of retirement or for any other reason than for cause, then Employee
may at any time within three (3) months next succeeding the effective date of
termination of employment exercise the Option to the extent that Employee was
entitled to exercise the Option at the date of termination, provided that in no
event shall the Option, or any part thereof, be exercisable after the Expiration
Date.
If Employee is terminated for cause, the Option shall lapse at the time
of such termination of employment.
8. Death of Employee. In the event of the death of Employee within a period
during which the Option, or any part thereof, could have been exercised by
Employee, including three (3) months after Normal Termination (the "Option
Period"), the Option shall lapse unless it is exercised within the Option Period
and in no event later than fifteen (15) months after the date of Employee's
death by the Employee's legal representative or representatives or by the person
or persons entitled to do so under Employee's last will and testament or if the
Employee fails to make a testamentary disposition of such Option or shall die
intestate, by the person or persons entitled to receive such Option under the
applicable laws if of descent and distribution. An Option may be exercised
following the death of the Employee only if the Option was exercisable by the
Employee immediately prior to his death. In no event shall the Option, or any
part thereof, be exercisable after the Expiration Date. The Committee shall have
the right to require evidence satisfactory to it of the rights of any person or
persons seeking to exercise the Option under this paragraph 8 to exercise the
Option.
9. Nontransferability. The Option granted by this Option Agreement shall be
exercisable only during the term of the Option provided in paragraph 3 hereof
and, except as provided in paragraphs 7 and 8 above, only by Employee during his
lifetime and while an Employee of the Company. The Option granted by this Option
Agreement shall be subject to the restrictions on transfer as set forth in
Section 13.5 of the Plan.
10. Adjustments in Number of Shares and Option Price. In the event a stock
dividend is declared upon the Stock, the remaining shares of Stock then subject
to this Option shall be increased proportionately without any change in the
aggregate purchase price therefor. In the event the Stock shall be changed into
or exchanged for a different number or class of shares of stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to the Option.
Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
the Option granted hereunder shall pertain to and apply to the securities or
rights to which a holder of the number of shares of Stock subject to the Option
would have been entitled; but a dissolution or liquidation of the Company, or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, shall, in the sole discretion of the Committee:
(a) Cause the Option outstanding hereunder to terminate as of the date specified
by the Committee, except that the surviving or resulting corporation, in its
absolute and uncontrolled discretion, may tender an option or options to
purchase its shares or exercise such rights on terms and conditions, both as to
the number of shares and rights, and otherwise which shall substantially
preserve the rights and benefits of the Option then outstanding hereunder; or
(b) The Committee may give Employee the right to exercise this Option prior to
the occurrence of the event otherwise terminating the Option over such period as
the Committee, in its sole and absolute discretion, shall determine.
11. Delivery of Shares. No shares of Stock shall be delivered upon exercise of
the Option until (i) the purchase price shall have been paid in full in the
manner herein provided; (ii) applicable taxes required to be withheld have been
paid or withheld in full; (iii) approval of any governmental authority required
in connection with the Option, or the issuance of shares thereunder, has been
received by the Company; and (iv) if required by the Committee, Employee has
delivered to the Committee an Investment Letter in form and content satisfactory
to the Company as provided in paragraph 12 hereof.
12. Securities Act. The Company shall have the right, but not the
obligation, to cause the shares of Stock issuable upon exercise of the Option to
be registered under the appropriate rules and regulations of the Securities and
Exchange Commission.
The Company shall not be required to deliver any shares of Stock
pursuant to the exercise of all or any part of the Option if, in the opinion of
counsel for the Company, such issuance would violate the Securities Act of 1933
or any other applicable federal or state securities laws or regulations. The
Committee may require that Employee, prior to the issuance of any such shares
pursuant to exercise of the Option, sign and deliver to the Company a written
statement ("Investment Letter") stating (i) that Employee is purchasing the
shares for investment and not with a view to the sale or distribution thereof;
(ii) that Employee will not sell any shares received upon exercise of the Option
or any other shares of the Company that Employee may then own or thereafter
acquire except either (a) through a broker on a national securities exchange or
(b) with the prior written approval of the Company; and (iii) containing such
other terms and conditions as counsel for the Company may reasonable require to
assure compliance with the Securities Act of 1933 or other applicable federal or
state securities laws and regulations. Such Investment Letter shall be in form
and content acceptable to the Committee in its sole discretion.
If shares of Stock or other securities issuable pursuant to the
exercise of the Option have not been registered under the Securities Act of 1933
or other applicable federal or state securities laws or regulations, such shares
shall bear a legend restricting the transferability thereof, such legend to be
substantially in the following form:
"The shares represented by this certificate have not been registered or
qualified under federal or state securities laws. The shares may not be
offered for sale, sold, pledged or otherwise disposed of unless so
registered or qualified, unless an exemption exists or unless such
disposition is not subject to the federal or state securities laws, and the
availability of any exemption or the inapplicability of such securities laws
must be established by an opinion of counsel, which opinion and counsel
shall both be reasonably satisfactory to the Company."
13. Federal and State Taxes. Upon exercise of the Option, or any part thereof,
the Employee may incur certain liabilities for federal, state or local taxes and
the Company may be required by law to withhold such taxes for payment to taxing
authorities. Upon determination by the Company of the amount of taxes required
to be withheld, if any, with respect to the shares to be issued pursuant to the
exercise of the Option, Employee shall pay all Federal, state and local tax
withholding requirements by having the Company withhold Stock (to the extent
that Stock is issued pursuant to the Award) having a Fair Market Value on the
date that tax is to be determined equal to the tax otherwise required by the
withheld.
14. Definitions; Copy of Plan. To the extent not specifically provided
herein, all capitalized terms used in this Option Agreement shall have the same
meanings ascribed to them in the Plan. By the execution of this Agreement,
Employee acknowledges receipt of a copy of the Plan.
15. Administration. This Option Agreement shall at all times be subject to the
terms and conditions of the Plan and the Plan shall in all respects be
administered by the Committee in accordance with the terms of and as provided in
the Plan. The Committee shall have the sole and complete discretion with respect
to all matters reserved to it by the Plan and decisions of the majority of the
Committee with respect thereto and to this Option Agreement shall be final and
binding upon Employee and the Company. In the event of any conflict between the
terms and conditions of this Option Agreement and the Plan, the provisions of
the Plan shall control.
16. Continuation of Employment. This Option Agreement shall not be
construed to confer upon Employee any right to continue in the employ of the
Company and shall not limit the right of the Company, in its sole discretion, to
terminate the employment of Employee at any time.
17. Obligations to Exercise. Employee shall have no obligation to exercise
any option granted by this Agreement.
18. Governing Law. This Option Agreement shall be interpreted and
administered under the laws of the State of Delaware.
19. Amendments. This Option Agreement may be amended only by a written agreement
executed by the Company and Employee. The Company and Employee acknowledge that
changes in federal tax laws enacted subsequent to the Date of Grant, and
applicable to stock options, may provide for tax benefits to the Company or
Employee. In any such event, the Company and Employee agree that this Option
Agreement may be amended as necessary to secure for the Company and Employee any
benefits that may result from such legislation. Any such amendment shall be made
only upon the mutual consent of the parties, which consent (of either party) may
be withheld for any reason.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and Employee has
hereunto set his hand as of the day and year first above written.
"COMPANY" "EMPLOYEE"
REGENCY HEALTH SERVICES, INC.
By:___________________________ _________________________
Xxxxxxx X. Xxxxxx Chief Xxxxx Xxxxxxxxx
Executive Officer
By:___________________________
Xxxxx X. Xxxxx, Secretary
EXHIBIT "A"
Amount Vested and Exercisable Vesting Date
[Accretive, not cumulative]
1. 20,000............................................January 2, 1997
2. 20,000............................................January 2, 1998
3. 20,000............................................January 2, 1999
4. 20,000............................................January 2, 2000
5. 20,000............................................January 2, 2001
6. 30,000............................................January 2, 2002
7. 30,000............................................January 2, 2003
8. 30,000............................................January 2, 2004
9. 30,000............................................January 2, 2005
10. 30,000............................................July 2, 2005
Notwithstanding the foregoing, the amounts vested shall be subject to
acceleration in accordance with the attached Addendum.
Addendum to Exhibit A
Non-Qualified Stock Option
Dated January 2, 1996
Xxxxx Xxxxxxxxx
1. If actual "EVA" (as defined below) for calendar year 1996 equals or exceeds
$205,181,000, the Option shall vest and be exercisable as to 43,333 shares on
January 2, 1997, in lieu of the amount set forth on line 1 of Exhibit A.
2. If actual EVA for calendar year 1997 equals or exceeds $205,640,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
Options which otherwise theretofore vested.
3. If actual EVA for calendar year 1998 equals or exceeds $205,765,000, the
Option shall vest and be exercisable as to 43,333 shares on January 2, 1998 in
lieu of the amount set forth on line 2 of Exhibit A, but in addition to any
options which otherwise theretofore vested.
4. If the combined actual EVA for each of the three years 1996, 1997 and 1998,
equals or exceeds $616,586,000, the Option shall vest and be exercisable as to
200,000 shares (inclusive of all shares which periodically vested) on January 2,
1999.
5. If combined actual EVA for each of years 1996, 1997 and 1998, equals or
exceeds $616,745,000, the Option shall vest and be exercisable as to 225,000
shares (inclusive of all shares which previously vested) on January 2, 1999.
6. If combined actual EVA for each of the years 1996, 1997 and 1998 equals or
exceeds $616,903,000, the Option shall vest and be exercisable as to all shares
on January 2, 1999.
Any acceleration of vesting shall be deemed to be pro rata as to all
options which otherwise would vest from and after January 2, 2000. For example,
if accelerated vesting occurs under paragraph 1 of this Addendum, the additional
number of shares that will vest in each of installments 4 and 5 will be 16,667
in lieu of 20,000 [(20,000 - [43,333 - 20,000] (PI) 7)], and 26,667 in lieu of
30,000 for each of installments 6 through 10. If installments 1 and 2 were both
accelerated, the number of shares that will vest in each of installments 4 and 5
would be 13,333 in lieu of 20,000 [(20,000 - [86,666 - 40,000] (PI) 7)] and will
be 23,333 in lieu of 30,000 for installments 6 through 10.
As used herein the term "EVA" shall mean an amount of money calculated
in accordance with the following formula:
EVA = (NOPAT - Capital Charges) + (Base Market Value of Equity)
NOPAT = EBDITA - Cash Taxes - Routine Capital Expenditures - Interest Income
EBDITA = Earnings before depreciation, interest, taxes, amortization and
non-recurring charges
Routine Capital Expenditures = Annual Average Beds X $350 per bed
Capital Charges = After Tax Cost of Capital X Average Capital Employed
Cash Taxes = Income taxes per GAAP + Taxes saved on
Interest Expense - Taxes on Interest Income - Tax
Loss Carry Forward + Taxes on Nonrecurring losses -
Taxes on Non-recurring gains
After Tax Cost of Capital = (Outstanding Debt/Capitalization X After
tax debt costs) + (Market Value of
Equity/Capitalization X
Equity Cost of Capital)
Average Capital Employed = Average of Capitalization
Outstanding Debt = Long-Term Debt for borrowed money in accordance with GAAP -
Convertible debentures - Cash Balances
Capitalization = Market Value of Equity + Outstanding Debt
After tax debt costs = Weighted Average of (Outstanding Debt X Interest
Rate) X (1 - Marginal Tax Rate)
Market Value of Equity = (No. of Fully Diluted Shares X $11.50 as at 12/31/96;
$13.225 as at 12/31/97; and $15.21 at as 12/31/98))
Equity Cost of Capital = 15%
Taxes Saved on Interest Expense = Marginal tax rate X interest expense
Taxes on Interest Income = Marginal tax rate X interest income
Base Market Value of Equity = No. of Fully Diluted Shares at 3/31/96 X $10
Any ambiguity or dispute in connection with calculation of EVA shall be
determined in good faith by the Committee.
