STOCK OPTION AGREEMENT
THIS AGREEMENT, dated December 7, 1998 between Xxxx X. Xxxxxxx, with
an office address at 00 Xxxxxx Xxxx Xxxxx, Xxxx Xxxxxxxxxx, Xxx Xxxx, 00000
("Xxxxxxx") and Xxxx Xxxxx, residing at 000 Xxxx Xxxx, Xxxx Xxxxxxxxx, XX
11731("the Optionee").
WHEREAS, the Optionee is a key employee of National Medical Health
Card Systems, Inc. (the "Company"); and
WHEREAS, Xxxxxxx, a major shareholder in the Company, desires to
afford the Optionee the ability to acquire a proprietary interest in the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements hereinafter set forth, the parties hereto hereby mutually agree as
follows:
1. GRANT OF OPTION Subject to the terms and conditions hereinafter set
forth, Xxxxxxx hereby grants to the Optionee, the option to purchase during the
period specified in Paragraph 2, all of or any part of 200,000 shares (the
"Shares") of the Common Stock of the Company par value $.001 per Share (the
"Common Stock"), which Shares when issued upon the exercise of such option and
paid for in accordance with the terms hereof shall be fully paid and
nonassessable (the "Option").
2. PERIOD AND EXERCISE
A. The Option granted hereunder shall become exercisable as follows:
i. 1/3 shall be exercisable on a date one year from the date hereof;
ii. 1/3 shall be exercisable on a date two years from the date
hereof;
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iii. 1/3 shall be exercisable on a date three years from the date
hereof; and shall terminate on a date five years from the date hereof (the
"Termination Date").
The Option must be exercised in whole (or in part, if not fully
vested), on a date one year after termination of Optionee's employment with the
Company or five (5) years from the date hereof, whichever is earlier.
During the term of the Option, Xxxxxxx may in his sole discretion at
any time accelerate the Optionee's right to exercise the Option with respect to
all or any portion of the Common Stock covered by the Option and, with the
consent of the Optionee, impose in connection with such acceleration such other
conditions or restrictions on the Option, or any Common Stock acquired upon the
exercise of the Option, as Xxxxxxx in his sole discretion deems appropriate.
B. For the purposes of this Agreement, employment may be considered
continuous although interrupted by a leave of absence authorized by the Company;
provided, however, that the Optionee shall return to service on or prior to the
expiration of such leave of absence.
Should the Company authorize such leave of absence, Xxxxxxx may, in
his discretion, give credit for the time of such leave in computing whether
sufficient time, pursuant to Paragraph 2, has elapsed for the Option or any part
thereof to be exercised. In no event, however, may the Option be exercised
beyond the Termination Date.
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C. This Option may be exercised pursuant to its terms by the
Optionee's giving written notice thereof to Xxxxxxx at his address above, which
exercise shall be effective upon receipt of such notice. Such notice shall
specify the number of Shares of Common Stock with respect to which the Option is
being exercised. The notice shall be accompanied by payment in full of the
Purchase Price specified in Paragraph 3 for such Shares in cash or certified or
bank cashier's check payable to the order of Xxxxxxx.
D. If a registration statement under the Securities Act of 1933, as
amended (the "Act"), is not then in effect with respect to the Shares issuable
upon exercise of this Option, then it shall be a condition precedent to the
exercise of this Option that the Optionee provide Xxxxxxx with a written
undertaking, satisfactory to Xxxxxxx, that she is acquiring the Shares for her
own account for investment and not with a view to the distribution thereof and
all certificates representing the Shares issued upon exercise of the Option
shall bear an appropriate restrictive legend.
In the event that this Option is exercised pursuant to Paragraph 11,
by any person other than the Optionee, the aforesaid undertaking shall also be
accompanied by appropriate proof of the right of such person to exercise the
same.
3. PURCHASE PRICE
Subject to the provisions of Paragraph 7, the Purchase Price per Share
of Common Stock subject to this Option shall be $.75 (the "Purchase Price").
Such price has been found by the Company to be not less than 100% of the fair
market value per Share as of the date hereof.
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4. CANCELLATION OF OPTION
Subject to the consent of the Optionee, Xxxxxxx may, from time to
time, cancel all or any portion of the Option then subject to exercise, and
Xxxxxxx'x obligation in respect of such Option may be discharged by (i) payment
to the Optionee of an amount in cash equal to the excess, if any, of the
aggregate fair market value of the Shares at the date of such cancellation
subject to the portion of the Option so cancelled over the aggregate Purchase
Price of such shares, (ii) the issuance or transfer to the Optionee of shares of
stock with a fair market value, at the date of such transfer, equal to any such
excess, or (iii) a combination of cash and shares with a combined value equal to
any such excess.
5. TERMINATION OF EMPLOYMENT
A. GENERAL RULE Except as provided in Paragraph 5(B), if the
Optionee's employment with the Company is terminated for any reason, then the
Option granted hereunder shall expire one year after such termination (without
regard to any severance pay, vacation pay or other payments upon termination),
and all rights to purchase Shares of Common Stock which the Optionee would have
been able to purchase under Paragraph 2, shall terminate on such day.
B. DEATH, DISABILITY OR RETIREMENT If the Optionee's employment with
the Company is terminated for any reason described in this Paragraph 5(B), then
the Optionee, or her beneficiaries or legal representatives, as the case may be,
shall have the right, within the following period of time subsequent to such
termination, to exercise the Option to purchase the number of Shares which the
Optionee would have been able to purchase under Paragraph 2 on the date before
her termination:
i. one year when termination of employment is without cause;
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ii. 6 months when termination of employment is caused by death or the
Optionee dies within 30 days after termination of employment for any reason
described in Paragraph 5 (B) (iii); and
iii. one year when termination is caused by Permanent or Total
Disability.
As used herein, "Permanent and Total Disability" means permanent and
total disability as defined in Section 105 (d) (4) of the Code, as evidenced by
a certificate from a qualified physician to the effect that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or 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.
6. COMPLIANCE WITH SECURITIES LAWS The granting and exercise of this
Option and Xxxxxxx'x obligation to deliver stock pursuant to an exercise of this
Option shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by a regulatory or governmental agency as may
be required. Accordingly, if in the opinion of the Company, Shares subject to
Options are required to be registered under the Act and such registration has
not been effected or a Prospectus complying with the requirements of Section 10
of the Act is not available for delivery upon exercise of this Option, then
Xxxxxxx shall not be required to deliver the Shares subject to the Option to the
extent being exercised until the registration has been effected and the
Prospectus made available. Pending satisfaction of the foregoing, such exercise
shall be deemed suspended and there shall be returned to the person exercising
this Option the proceeds representing the Purchase Price. In such event, Xxxxxxx
shall
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provide notice to the Optionee or her representative of the satisfaction of the
foregoing registration condition, whereupon the right to exercise this Option
shall be reinstated.
7. CAPITAL ADJUSTMENT
A. If the Company is separated or reorganized, or merged or
consolidated with another corporation, there shall be substituted for the Shares
issuable upon exercise of the outstanding Options an appropriate number of
shares of each class of stock, other securities or other assets of the separated
or reorganized, or merged or consolidated corporation which were distributed to
the shareholders of the Company in respect of such Shares; provided, however,
that the Option may be exercised in full by the Optionee as of the effective
date of any such separation, reorganization, merger, or consolidation of the
Company without regard to the installment exercise provisions of Paragraph 2, by
the Optionee giving notice in writing to Xxxxxxx of her intention to so
exercise.
B. If the Company is liquidated or dissolved then all outstanding
portions of the Option may be exercised in full by the Optionee as of the
effective date of any such liquidation or dissolution of the Company without
regard to the installment exercise provisions of Paragraph 2, by the Optionee
giving notice in writing to Xxxxxxx of her intention to so exercise.
C. If the outstanding Shares of Common Stock shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Company, or otherwise in cash,
or any other like event by or of the Company, and as often as the same shall
occur, then the number, class and kind of Shares subject to this Option and the
Purchase Price for such Shares shall be appropriately and equitably adjusted so
as to maintain the
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proportionate number of Shares without changing the aggregate Purchase Price;
provided, however, no adjustment shall be made by reason of the distribution or
subscription rights on outstanding stock.
8. NO OTHER ADJUSTMENT
Except as provided in Paragraph 7, no adjustments shall be made for
dividends or other rights for which the record date shall be prior to the
issuance of a stock certificate to the Optionee by reason of her exercise of
this Option.
9. RIGHTS IN OPTION STOCK
The Optionee shall not be or have any rights or privileges of a
shareholder of the Company in respect of any Shares purchasable upon the
exercise of any part of this Option unless and until certificates representing
such Shares shall have been issued by the Company to such holder.
10. STOCK RESERVED
Xxxxxxx shall at all times during the term of this Agreement reserve
and keep available such number of Shares of Common Stock as will be sufficient
to satisfy the requirements of this Agreement and shall pay all original issue
taxes, if any, on the exercise of this Option, and all other fees and expenses
necessarily incurred by Xxxxxxx in connection therewith.
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11. RESTRICTIONS ON TRANSFERS
A. Notwithstanding anything to the contrary herein contained, neither
this Option nor any rights represented hereby shall be transferable or
assignable by the Optionee otherwise than by will or under the laws of descent
and distribution, nor shall this Option be sold, pledged, hypothecated or
encumbered. This Option shall be exercisable during the Optionee's lifetime only
by the Optionee, and any attempt to transfer or assign this Option in violation
of the foregoing shall be void and of no force or effect.
B. Shares of Common Stock acquired upon the exercise of this Option
may not be transferred except in accordance with all applicable federal and
state securities laws, rules and regulations. The Company may require investment
or residency representations from the Optionee or impose other restrictions
prior to issuance of Shares to the Optionee or transfer of such Shares by the
Optionee.
12. NOTICES
All notices which are provided for under any of the provisions of this
Agreement shall be in writing and shall be given by registered or certified
mail, return receipt requested. Any such notice shall be effective upon actual
receipt by the person to whom such notice is to be given; provided, however,
that in the case of notices to the Optionee or to her legal representative or
beneficiary, such notice shall be effective upon delivery if delivered
personally or three business days after mailing, registered first class postage
prepaid, to the last known address of the person to whom notice is to be given.
All notices required to be given to Xxxxxxx or to his legal representative or
beneficiary, shall be addressed to him at the address of Xxxxxxx set forth
above, or at such other address as he may designate by notice hereunder.
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13. FRACTIONAL SHARE
The Company shall not be required to issue any fractional Share upon
exercise of this Option, but it shall pay to the Optionee, or to her legal
representatives or beneficiaries who acquire the right to exercise this Option
by bequest or inheritance on the death of the Optionee, the cash equivalent of
any fractional Share interests, as determined in the sole discretion of Xxxxxxx.
14. OPTIONS
Xxxxxxx may modify, extend or renew this Option or accept the
surrender of this Option (to the extent not theretofore exercised) and authorize
the granting of new options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no modification
of this Option shall, without the consent of the Optionee, impair any rights or
obligations under the Option.
15. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York. If any provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
Xxxxxxx shall have the right to require the Optionee or, if
applicable, the Optionee's legal representatives or beneficiaries to pay to
Xxxxxxx the amount of any taxes which Xxxxxxx is required to withhold or pay
with respect to the exercise of any Option granted hereunder or any subsequent
disposition of Common Stock issued upon exercise of an Option.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first written above.
/s/ XXXX X. XXXXXXX
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XXXX X. XXXXXXX
/s/ XXXX XXXXX
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XXXX XXXXX
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