SECTION 240.14a-101 SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
INDEPENDENCE HOLDING COMPANY
.................................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................................
(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:
2) Aggregate number of securities to which transaction applies:
...........................................................................
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):
...........................................................................
4) Proposed maximum aggregate value of transaction:
...........................................................................
5) Total fee paid:
...........................................................................
[ ] 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:
...........................................................................
2) Form, Schedule or Registration Statement No.:
...........................................................................
3) Filing Party:
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4) Date Filed:
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INDEPENDENCE HOLDING COMPANY
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 20, 2003
-------------------
To the Stockholders of
INDEPENDENCE HOLDING COMPANY:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
INDEPENDENCE HOLDING COMPANY (the 'Company') will be held on Friday, June 20,
2003 at 9:30 A.M., EDT, at the Hyatt Regency Greenwich, 1800 E. Putnam Avenue,
Old Greenwich, Connecticut for the following purposes:
1. To elect seven directors of the Company;
2. To vote upon a proposal to ratify the selection of independent
auditors;
3. To approve the 2003 Stock Incentive Plan; and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only stockholders of record at the close of business on April 30, 2003 are
entitled to notice of, and to vote at, the Annual Meeting of Stockholders.
Your attention is directed to the Proxy Statement submitted with this
notice. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE DATE AND
SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING, SUCH STOCKHOLDER MAY
REVOKE SUCH PROXY AND VOTE SUCH SHARES IN PERSON. No postage need be affixed to
the enclosed envelope if mailed in the United States.
By Order of the Board of Directors
/s/ David T. Kettig
----------------------------
David T. Kettig
Secretary
April 30, 2003
INDEPENDENCE HOLDING COMPANY
96 CUMMINGS POINT ROAD
STAMFORD, CT 06902
203-358-8000
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Independence Holding Company (the 'Company') of Proxies to
be used at the Annual Meeting of Stockholders to be held at the Hyatt Regency
Greenwich, 1800 E. Putnam Avenue, Old Greenwich, Connecticut on June 20, 2003 at
9:30 A.M., EDT. In addition to solicitation of Proxies by mail, the directors,
officers and employees of the Company may solicit Proxies personally, by
telephone, telefax or telegram. The expense of all such solicitation, including
the cost of preparing, printing and mailing this Proxy Statement, will be borne
by the Company. The Company will, upon request, reimburse brokers, banks or
other persons for their reasonable out-of-pocket expenses in forwarding proxy
material to beneficial owners of the Company's shares. This Proxy Statement and
the accompanying Proxy and the Company's Annual Report to Stockholders, which
contains financial statements for the year ended December 31, 2002, will first
be mailed to stockholders of the Company on or about May 16, 2003.
If the enclosed form of Proxy is executed and returned, it will be voted as
directed by the stockholder. If no directions are given, Proxies will be voted
(i) for election as directors of all of the nominees specified therein,
(ii) for the ratification of the selection of KPMG LLP ('KPMG') as independent
auditors for the calendar year 2003, and (iii) for the approval of the 2003
Stock Incentive Plan. A Proxy may be revoked at any time, insofar as the
authority granted thereby has not been exercised at the Annual Meeting of
Stockholders, by filing with the Secretary of the Company a written revocation
or a duly executed Proxy bearing a later date. Any stockholder present at the
meeting may vote personally on all matters brought before the meeting and, in
that event, such stockholder's Proxy will not be used at the meeting by holders
of the Proxy.
Only stockholders of record as of the close of business on April 30, 2003
will be entitled to vote at the meeting. On March 31, 2003, the Company had
outstanding and entitled to one vote per share, 7,787,155 shares of Common
Stock, par value $1.00 per share ('Common Stock'). An additional 1,997,501
shares of Common Stock are held in treasury by the Company and are not entitled
to vote. A majority of the outstanding shares will constitute a quorum at the
meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions are counted in tabulations of the votes cast on proposals presented
to stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
If no contrary instruction is indicated, shares represented by properly
executed Proxies in the accompanying form of proxy will be voted by the persons
designated in the printed portion thereof (i) FOR the election of the nominees
named below to serve as directors for a one-year term, (ii) FOR the ratification
of the selection of KPMG as independent auditors for the calendar year 2003, and
(iii) FOR the approval of the 2003 Stock Incentive Plan. Each director must be
elected by the affirmative vote of a plurality of the votes cast at the meeting
by the holders of shares of Common
Stock represented in person or by Proxy. Approval of KPMG as independent
auditors requires the affirmative vote of a majority of the shares of Common
Stock present or represented at the meeting. Approval of the 2003 Stock
Incentive Plan requires the affirmative vote of the holders of at least a
majority of the shares of Common Stock represented and voting, in person or by
proxy, at the meeting.
Management does not know of any other matters to be brought before the
meeting at this time; however, if any other matters are brought before the
meeting, the proxy holder shall vote in his discretion with respect to the
matter. In the event a stockholder specifies a different choice on the Proxy,
such stockholder's shares will be voted or withheld in accordance with the
specifications so made. Should any nominee for director named herein become
unable or unwilling to accept nomination or election, it is intended that the
persons acting under proxy will vote for the election of such other person as
the Board of Directors of the Company may recommend unless the number of
directors is reduced by the Board of Directors. The Company has no reason to
believe that any nominee will be unable or unwilling to serve if elected to
office.
PRINCIPAL STOCKHOLDERS
Listed below are the number of shares of Common Stock beneficially owned as
of March 31, 2003 by the holders of more than 5% of the Common Stock of the
Company.
COMMON STOCK
------------
Geneve Holdings, Inc.(1) ................................... 4,530,895
96 Cummings Point Road 58%
Stamford, Connecticut 06902
---------
(1) According to (i) information disclosed in Amendment No. 35
to Schedule 13D dated May 9, 2001 of Geneve Holdings, Inc.
(together with its affiliates also referred to herein as
'Geneve') supplemented by (ii) information provided to the
Company by Geneve in response to a Company questionnaire, a
group consisting of Geneve and certain of its affiliates are
the beneficial owners of 4,530,895 shares of Common Stock.
Mr. Edward Netter, Chairman and a director of the Company,
is an executive officer and a director of Geneve. Mr. Netter
and members of his family control Geneve by virtue of his
voting interest. Mr. Netter disclaims beneficial ownership
as to the shares of Common Stock owned by Geneve.
-------------------
To the best knowledge of the Company, Geneve has sole investment and voting
power with respect to the shares listed above, and no other person or persons
acting in concert own beneficially more than 5% of the Common Stock.
The following table sets forth for each director of the Company, the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company for the year ended
2
December 31, 2002 (the 'Named Officers'), and for all directors and executive
officers of the Company as a group, information regarding beneficial ownership
of Common Stock as of March 31, 2003.
NUMBER OF PERCENT OF CLASS
NAME SHARES ENTITLED TO VOTE
---- ------ ----------------
Alex Giordano................................. 39,133(1) *
Larry R. Graber............................... 43,452(2) *
David T. Kettig............................... 34,834(3) *
Allan C. Kirkman.............................. 7,150(4) *
Steven B. Lapin............................... 46,345 *
Edward Netter................................. (5) --
Robert P. Ross, Jr. .......................... 94,081(6) 1.2%
C. Winfield Swarr............................. 20,700(7) *
Roy L. Standfest.............................. 6,100 *
James G. Tatum................................ 6,550(8) *
Roy T.K. Thung................................ 335,577(9) 4.2%
All directors and executive officers as a
group (13 persons).......................... 687,306(1)(2)(3)(4)(5) 8.5%
(6)(7)(8)(9)(10)
---------
(1) Includes 38,583 shares of Common Stock subject to options
granted to Mr. Giordano, all of which are exercisable within
60 days after March 31, 2003.
(2) Includes 37,258 shares of Common Stock subject to options
granted to Mr. Graber, all of which are exercisable within
60 days after March 31, 2003.
(3) Includes 10,084 shares of Common Stock subject to options
granted to Mr. Kettig, all of which are exercisable within
60 days after March 31, 2003.
(4) Includes 5,500 shares of Common Stock subject to options
granted to Mr. Kirkman, all of which are exercisable within
60 days after March 31, 2003.
(5) As described in the table relating to Principal
Stockholders, Geneve and certain of its affiliates are the
beneficial owners of 4,530,895 shares of Common Stock, which
represents 58% of the outstanding Common Stock as of
March 31, 2003. Mr. Edward Netter, Chairman and a director
of the Company, is an executive officer and a director of
Geneve. Mr. Netter and members of his family control Geneve
by virtue of his voting interest. Mr. Netter disclaims
beneficial ownership as to the shares of Common Stock owned
by Geneve.
(6) Includes 993 shares of Common Stock owned by Mr. Ross' wife,
91,000 shares owned by Starboard Partners, L.P., a limited
partnership managed by an entity controlled by Mr. Ross
('Starboard L.P.'), and 1,650 shares of Common Stock subject
to options granted to Mr. Ross, all of which are exercisable
within 60 days after March 31, 2003. Mr. Ross disclaims
beneficial ownership of the shares owned by his wife and
Starboard L.P.
(7) Includes 11,700 shares of Common Stock subject to options
granted to Mr. Swarr, all of which are exercisable within 60
days after March 31, 2003.
(8) Includes 700 shares owned by Mr. Tatum's wife, as to which
shares Mr. Tatum disclaims beneficial ownership, and 550
shares of Common Stock subject to options granted to Mr.
Tatum, all of which are exercisable within 60 days after
March 31, 2003.
(footnotes continued on next page)
3
(footnotes continued from previous page)
(9) Includes 202,450 shares of Common Stock subject to options
granted to Mr. Thung, all of which are exercisable within 60
days after March 31, 2003.
(10) Includes 6,084 shares of Common Stock subject to options
granted to two executive officers, all of which are
exercisable within 60 days after March 31, 2003.
* Represents less than 1% of the outstanding Common Stock.
PROPOSAL 1
NOMINEES FOR ELECTION AS DIRECTORS
Seven directors will be elected at the meeting, each to hold office until
the next Annual Meeting of Stockholders and until such director's successor
shall be elected and shall qualify.
It is intended that shares represented by Proxies will be voted for the
election of the nominees named below. If, at the time of the meeting, any of the
nominees should be unwilling or unable to serve, the discretionary authority
provided in the Proxy will be exercised to vote for a substitute or substitutes,
as the Board of Directors recommends. The Board has no reason to believe that
any of the nominees will be unwilling or unable to serve as a director.
The persons named below have been nominated for election as directors. All
of such nominees presently serve as directors of the Company.
LARRY R. GRABER, age 53
Director
Since January 2000, director of the Company; since April 1996 a director and
President of Madison National Life Insurance Company, Inc., a wholly-owned
subsidiary of the Company with principal offices in Middleton, Wisconsin; since
April 1996, a director and President of Southern Life and Health Insurance
Company, a wholly-owned insurance company with principal offices in Homewood,
Alabama, which is a subsidiary of Geneve Corporation, a private diversified
holding company with principal offices in Stamford, Connecticut, which is an
affiliate of the Company ('Geneve').
ALLAN C. KIRKMAN, age 59
Director
Since December 1980, director of the Company; for more than the past five
years, Executive Vice President of Mellon Bank, N.A., a national bank with
principal offices in Pittsburgh, Pennsylvania.
STEVEN B. LAPIN, age 57
Vice Chairman
Director
Since July 1991, director of the Company; since July 1999, Vice Chairman of
the Company; for more than five years prior to July 1999, President and Chief
Operating Officer of the Company; for more than the past five years, President
and Chief Operating Officer and a director of Geneve; since January 1998, a
director of The Aristotle Corporation, a publicly held company with its
principal
4
executive offices in Stamford, Connecticut which is a leading manufacturer and
global distributor of educational, health and agricultural products and is
affiliated with the Company ('Aristotle').
EDWARD NETTER, age 70
Chairman
Director
Since December 1980, director of the Company; since August 1997, Chairman of
the Compensation Committee; for more than the past five years, Chairman of the
Company; for more than five years prior to January 2000, Chief Executive Officer
of the Company; from December 1990 to November 1993, President of the Company;
for more than the past five years, Chairman, Chief Executive Officer and
director of Geneve; since January 1998, a director of Aristotle; since July
2002, a director of American Independence Corp., a holding company with
principal offices in New York, New York which, through subsidiaries, is in the
insurance and reinsurance business and is affiliated with the Company ('AMIC').
ROBERT P. ROSS, JR., age 60
Director
Since April 2000, director of the Company; for more than the past five
years, President of The Starboard Capital Management Corporation, located in
Houston, Texas, an unregistered investment advisor and general partner of
Starboard Partners, L.P., a hedge fund for high net worth individuals and
corporate clients; for more than five years prior to August, 2002, Chairman of
GRO Corporation, a NASD registered broker/dealer located in Houston, Texas;
since October 2002, a director of Rushmore Financial Group, Inc., a direct
access technology development and online brokerage company.
JAMES G. TATUM, age 61
Director
Since April 2000, director of the Company; since June 2002, chairman of the
Audit Committee; since June 2002, a director of Aristotle; for more than the
past five years, registered investment advisor, located in Birmingham, Alabama,
managing funds for individual, corporate and trust clients.
ROY T.K. THUNG, age 59
Chief Executive Officer, President and
Director
Since December 1990, director of the Company; since January 2000, Chief
Executive Officer of the Company; since July 1999, President of the Company; for
more than five years prior to July 1999, Executive Vice President and Chief
Financial Officer of the Company; from May 1990 to November 1993, Senior Vice
President, Chief Financial Officer and Treasurer of the Company; from June 1983
to December 1986, director of the Company; for more than the past five years,
Executive Vice President of Geneve; since June 2002, a director of Aristotle;
since July 2002, a director of AMIC; since November 2002, Chief Executive
Officer and President of AMIC.
-------------------
Between January 1, 2002 and December 31, 2002, the Board of Directors of the
Company met five times. The Audit Committee of the Board, which exercises
responsibility in respect of the
5
recommendation of the Company's independent auditors, the review of such
auditor's audit and recommendations concerning internal controls, met five
times. All members of the Audit Committee meet the independence standards of the
rules promulgated by the National Association of Securities Dealers. The Audit
Committee currently consists of Messrs. Kirkman, Ross and Tatum. The
Compensation Committee of the Board, which exercises responsibility in respect
of recommendations concerning compensation matters, currently consists of
Messrs. Kirkman, Netter and Tatum. The Compensation Committee met three times in
2002. The Executive Committee, which currently consists of Messrs. Netter,
Kirkman and Thung, met once in 2002. Each director who has been nominated for
election as a director attended at least 75% of the Board meetings and meetings
of Committees on which such director served. Directors of the Company who are
not also officers of the Company receive a monthly fee of $1,250 plus $400 for
each Board or Committee meeting attended. Directors who are officers of the
Company do not receive compensation for serving as directors of the Company.
Pursuant to the Company's 1988 Stock Incentive Plan, directors of the
Company who are not also employees of the Company or a subsidiary ('Independent
Directors') are each entitled to receive non-qualified stock options with
respect to 550 shares of Common Stock at the first meeting of the Board of
Directors following each Annual Meeting of Stockholders of the Company, which
stock options vest six months after date of grant. Outstanding options granted
at such 2002 Board meeting fully vested on December 21, 2002, and have an
exercise price of $23.75 per share.
EXECUTIVE OFFICERS
In addition to Messrs. Lapin, Netter and Thung, listed above, who also serve
as directors of the Company, set forth below are each executive officer's name,
age, all positions and offices held with the Company, principal occupations and
business experience during the past five years. Officers are elected by the
Board of Directors, each to serve until his or her successor is elected and has
qualified, or until his or her earlier resignation, removal from office or
death.
ALEX GIORDANO, age 60
Vice President -- Marketing
Since February 2000, Vice President -- Marketing of the Company; for more
than the past five years, Executive Vice President, Chief Marketing Officer and
a director of Standard Security Life Insurance Company of New York, a
wholly-owned subsidiary of the Company located in New York, New York ('Standard
Security'); for more than the past five years, President and a director of
Independence American Insurance Company, a wholly-owned subsidiary of AMIC
located in New York, New York ('Independence American').
TERESA A. HERBERT, age 41
Vice President and Chief Financial Officer
Since July 1999, Chief Financial Officer of the Company; for more than five
years prior to July 1999, Vice President and Controller of the Company; since
March 1, 2001, Vice President of Geneve; since November 2002, Chief Financial
Officer of AMIC.
6
DAVID T. KETTIG, age 44
Vice President -- Legal and Secretary
For more than the past five years, Vice President -- Legal and Secretary of
the Company; since October 1998, Senior Vice President and Chief Administrative
Officer of Standard Security; for more than five years prior to July, 2002, Vice
President -- Legal and Secretary of Geneve; since November 2002, Chief Operating
Officer of AMIC.
BRIAN R. SCHLIER, age 48
Vice President -- Taxation
For more than the past five years, Vice President -- Taxation of the
Company; for more than the past five years, Director of Taxation of Geneve;
since November 2002, Vice President -- Taxation of AMIC.
ROY L. STANDFEST, age 39
Vice President -- Investments and Chief Investment Officer
Since April 1999, Vice President -- Investments and Chief Investment Officer
of the Company; since April 1999, Vice President -- Investments and Chief
Investment Officer of Geneve; since September 2000, Vice President --
Investments and Chief Investment Officer of Standard Security; since
November 2002, Vice President -- Investments and Chief Investment Officer
of AMIC; from September 1997 to March 1999, Vice President of Daiwa America
Strategic Advisors Corporation, a proprietary fixed-income trading group
affiliated with Daiwa Securities America with principal offices in New York,
New York.
C. WINFIELD SWARR, age 62
Vice President and Chief Underwriting Officer
Since August 2000, Vice President and Chief Underwriting Officer of the
Company; since August 2000, Senior Vice President and Chief Underwriting Officer
of Standard Security; for more than five years prior to August 2000, Vice
President and Accident and Health Underwriting Officer of General Reinsurance, a
reinsurance company with principal offices in Stamford, Connecticut.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid by the Company and its
subsidiaries to the Named Officers for services rendered for the last three
fiscal years.
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION(1)
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
-------- ---- --- --- --- --- --- --- ---
Roy T.K. Thung .... 2002 286,266 400,000 -- -- -- -- 61,976
Chief Executive 2001 286,225 285,025 -- -- 90,000 -- 57,318
Officer and 2000 286,199 285,025 -- -- -- -- 49,988
President
David T. Kettig ... 2002 188,250 250,000 -- -- 10,250 -- 6,015
Vice President -- 2001 188,250 192,000(2) -- -- 10,000 -- 5,538
Legal and 2000 175,750 67,500 -- -- -- -- 6,488
Secretary
Alex Giordano ..... 2002 172,200 247,760 -- -- 13,000 -- 7,596
Vice President -- 2001 172,200 187,760(3) -- -- 15,000 -- 7,888
Marketing 2000 165,000 40,000 -- -- 8,250 -- 8,463
C. Winfield 2002 177,800 114,240 -- -- 5,000 -- 1,764
Swarr ........... 2001 177,800 53,340 -- -- -- -- 1,348
Vice President -- 2000 61,880 42,500 -- -- 22,000 -- --
Underwriting
Roy L. 2002 151,437 123,770 -- -- -- -- 792
Standfest ....... 2001 161,535 137,585 -- -- -- -- 1,141
Vice President -- 2000 161,071 138,680 -- -- -- -- 1,016
Investments
---------
(1) Amounts shown for 2000, 2001, and 2002 for all of the Named
Officers include the dollar value of premiums paid for term
life insurance. In addition, amounts shown for Mr. Thung
include amounts accrued during 2000, 2001, and 2002 under a
Retirement Benefit Agreement with the Company (described
below under the heading 'Retirement Benefit Agreement'). The
amounts shown for Messrs. Kettig and Giordano include
profit-sharing contributions by Standard Security to their
401(k) accounts of (i) $3,596, $3,326, and $4,478,
respectively, in 2000, 2001, and 2002 for Mr. Kettig and
(ii) $4,800, $5,100, and $5,100 respectively, in 2000, 2001,
and 2002 for Mr. Giordano. Mr. Giordano also received $1,440
in 2000, 2001, and 2002 as a car allowance. Certain of the
Named Officers also received compensation and benefits
during 2000, 2001, and 2002 from Geneve and/or its
affiliates (other than the Company) for services rendered to
such companies, which amounts are not included in this
table. A portion of the salaries of certain of the Named
Officers in 2002 was allocated to AMIC pursuant to a Service
Agreement between the Company and AMIC.
(2) Includes $120,000 earned in 2001, but was not calculable
until 2002.
(3) Includes $137,760 earned in 2001, but was not calculable
until 2002.
8
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options to the Named Officers who received grants during 2002.
GRANT DATE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------------------------------------------- -----------
(a) (b) (c) (d) (e) (f)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (#) IN FISCAL YEAR ($/SH) DATE VALUE$(1)
---- ------------ -------------- ----------- ---------- -----------
Alex Giordano.......................... 13,000 11.9% 16.90 2/18/07 76,570
David T. Kettig........................ 10,250 9.4% 16.90 2/18/07 60,373
C. Winfield Swarr...................... 5,000 4.6% 16.90 2/18/07 29,450
---------
(1) Present value determinations were made using the
Black-Scholes model of theoretical options pricing, and were
based on the following assumptions: (A) expected volatility
is based on the one year period, calculated weekly,
preceding the date of grant; (B) the risk-free rate of
return is based on the 10 year U.S. Treasury Note yield to
maturity as at the date of grant; (C) dividend yield assumes
that the current dividend rate paid on the Common Stock
continues unchanged until the expiration date of the
options; and (D) a three-year phased-in vesting period that
averages two years. The actual value a Named Officer
receives is dependent on future stock market conditions, and
there can be no assurance that the amounts reflected in
column (f) of the Option/SAR Grants Table will actually be
realized. No gain would be realized by a Named Officer
without appreciation in the market value of the Common
Stock, which would benefit all stockholders commensurately.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth certain information concerning stock options
and SARs of the Named Officers who had options or SARs at December 31, 2002.
(a) (b) (c) (d) (e)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
Alex Giordano........................ -0- -0- 16,500/33,500 222,998/231,405
David T. Kettig...................... -0- -0- 28,084/16,916 364,976/102,037
Roy L. Standfest..................... -0- -0- -0-/24,750 -0-/246,510
C. Winfield Swarr.................... -0- -0- 22,000/5,000 191,180/22,850
Roy T.K. Thung....................... -0- -0- 276,400/60,000 3,408,651/496,800
9
The following table gives information about the Company's common stock that
may be issued upon exercise of options under the Company's only equity
compensation plan existing as of December 31, 2002.
(a) (b) (c)
NUMBER OF SECURITIES
NUMBER OF REMAINING AVAILABLE
SECURITIES TO WEIGHTED FOR FUTURE ISSUANCE
BE ISSUED UPON AVERAGE EXERCISE UNDER EQUITY
EXERCISE OF PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING EXCLUDING SECURITIES
PLAN CATEGORY OPTIONS OPTIONS($) REFLECTED IN COLUMN (a)
------------- ------- ---------- -----------------------
Equity compensation plans approved by
security holders........................... 741,550 10.78 40,250
RETIREMENT BENEFIT AGREEMENT
In 1991, the Company entered into a retirement benefit agreement with Mr.
Thung, which was amended in December 2002, pursuant to which he is entitled to
receive cash payments, based upon his salary, at such time as he retires or
otherwise terminates his employment with the Company. Such payments are fully
vested. Assuming that his employment with the Company had terminated on December
31, 2002, Mr. Thung would have been entitled to receive approximately $720,000
which amount increases each year he remains employed by the Company until he
attains age 62. Of such amount, approximately $59,500 was accrued in 2002.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors, which consists entirely of
directors who meet the independence and experience requirements of NASDAQ, has
furnished the following report:
The Audit Committee is responsible for providing independent, objective
oversight of the Company's internal controls and financial reporting process.
The Audit Committee operates under a written charter approved by the Board of
Directors. Messrs. Kirkman and Ross joined the Audit Committee in March 2003.
In connection with these responsibilities, the Audit Committee met with both
management and KPMG to discuss the December 31, 2002 financial statements. The
Audit Committee discussed with KPMG their independence from the Company and its
management, including the matters in the written disclosure and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). In addition, the Audit Committee discussed
with KPMG any matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
Based on these reviews and discussions, the Audit Committee recommended to
the Board of Directors that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
MEMBERS OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS:
ALLAN C. KIRKMAN JAMES G. TATUM, Chairman ROBERT P. ROSS, JR.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Management's recommendations as to the form and level of compensation of the
Company's executive officers are subject to the approval of the Compensation
Committee of the Board of Directors. The Committee has not retained a
compensation consultant. Mr. Tatum joined the Compensation Committee in March
2003.
10
The Company's compensation policies seek to attract and retain key
executives necessary to the long-term success of the Company, to align
compensation with both annual and long-term strategic plans and goals and to
reward performance in the continued growth and success of the Company and in the
enhancement of shareholder values. In furtherance of these goals, the Company
has employed a combination of annual base salaries, which are set at levels
which management believes to be competitive with industry and regional pay
practices and economic conditions, and annual and longer term incentive
compensation, including options to purchase Common Stock.
Management recommended to the Compensation Committee a bonus pool for the
Company's employees (including the executive officers) based on the Company's
performance in 2002 (including management's accomplishments in consummating the
American Independence Corp. transaction, enhancing the insurance group's
distribution network while improving its profitability, and strategically
planning the direction of the Company). The amount of the 2002 bonus pool was
approved by the disinterested members of the Committee. Specifically regarding
the chief executive officer, Roy Thung, base salary has been determined by
considering Company and individual performance. Mr. Thung's annual bonus
payments are subject to approval by the disinterested members of the
Compensation Committee.
MEMBERS OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:
JAMES G. TATUM EDWARD NETTER, Chairman ALLAN C. KIRKMAN
PERFORMANCE GRAPH
Set forth below is a line graph comparing the five year cumulative total
return of the Common Stock with that of the Nasdaq Stock Market (US) Index and
the Nasdaq Stock Market Insurance Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG INDEPENDENCE HOLDING COMPANY, NASDAQ STOCK MARKET (U.S.) INDEX
AND NASDAQ INSURANCE STOCKS INDEX
INDEPENDENCE NASDAQ STOCK MARKET NASDAQ INSURANCE
HOLDING COMPANY (U.S.) INDEX STOCKS INDEX
1997 100 100 100
1998 117 141 89
1999 98 261 69
2000 125 157 87
2001 167 125 93
2002 199 86 94
* Assumes that dividends were reinvested and is based on a $100 investment on
December 31, 1997; indices data obtained from Center for Research in Security
Price (CRSP)
11
RELATED PARTY TRANSACTIONS
The Company and Geneve operate under cost-sharing arrangements pursuant to
which certain items are allocated between the companies. During 2002, the
Company paid to Geneve or accrued for payment thereto approximately $255,000
under such arrangements, and paid or accrued approximately an additional $64,000
for the first quarter of 2003. Geneve also provides the Company the use of
office space as its corporate headquarters for annual consideration of $236,000.
In addition, certain directors, officers and/or employees of the Company or its
subsidiaries, who are also directors, officers and/or employees of Geneve,
received compensation and benefits from Geneve for services rendered thereto
since January 1, 2002. The foregoing is subject to the approval of the Audit
Committee of the Board of Directors at least annually, and management of the
Company believes that the terms thereof are no less favorable than could be
obtained by the Company from unrelated parties on an arm's length basis.
At various times since January 1, 2002, certain securities transfers were
made between the Company and/or certain of its subsidiaries, on the one hand,
and Geneve, on the other hand, at fair market value. The Company has invested as
a limited partner in Dolphin Limited Partnership-A, an investment partnership.
Mr. Donald Netter is the Chairman, Chief Executive Officer and President, and
the indirect principal owner, of the managing member of the general partner of
Dolphin Limited Partnership-A. Mr. Donald Netter is the son of Mr. Edward
Netter. Pursuant to the terms of the Partnership Agreement, all limited partners
are charged quarterly management fees, an annual performance-based incentive
allocation and other defined expenses, which the Company believes to be
comparable to other similar investment manangement vehicles with which it is
familiar.
The board of directors recommends a vote 'FOR' proposal 1.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected KPMG as the independent auditors of the
Company for the year 2003. It is anticipated that representatives of KPMG, who
also served as the Company's auditors for 2002, will be present at the Annual
Meeting of Stockholders and will have an opportunity to make a statement if they
so desire and to answer any appropriate questions.
The following table presents fees for professional audit services rendered
by KPMG for the audit of the Company's annual financial statements for 2002, and
fees billed for other services rendered by KPMG.
Audit fees, excluding audit related......................... $708,400
--------
--------
Financial information systems design and implementation..... 0
All other fees:
Audit related fees(1)................................... 28,700
Other non-audit services(2)............................. 91,500
--------
Total all other fees........................................ $120,200
--------
--------
---------
(1) Researching issues related to the American Independence
Corp. transaction.
(2) Other non-audit fees consisted of tax compliance and
actuarial services.
The Audit Committee has considered whether the provision of these services
is compatible with maintaining the independence of KPMG.
The board of directors recommends a vote 'FOR' proposal 2.
12
PROPOSAL 3
APPROVAL OF THE INDEPENDENCE HOLDING COMPANY
2003 STOCK INCENTIVE PLAN
The Company is submitting the Independence Holding Company 2003 Stock
Incentive Plan (the '2003 Plan') to its stockholders for approval at the Annual
Meeting. The purpose of the 2003 Plan is to enable the Company to continue to
provide certain key persons, on whose initiative and efforts the successful
conduct of the business of the Company depends, with incentives to enter into
and remain in the service of the Company (or a Company subsidiary or joint
venture), acquire a proprietary interest in the success of the Company, maximize
their performance, and thereby enhance the long-term performance of the Company.
The following discussion is qualified in its entirety by reference to the full
text of the 2003 Plan, a copy of which is attached hereto as Exhibit A.
GENERAL DESCRIPTION OF THE 2003 PLAN
Awards. The 2003 Plan authorizes the grants of non-qualified stock options
('NQOs'), incentive stock options ('ISOs'), stock appreciation rights ('SARs')
and shares of restricted stock (collectively, 'Awards'). Under the 2003 Plan,
the Company may deliver authorized but unissued shares of its Common Stock
('Stock'), treasury shares of Stock, or shares of Stock acquired by the Company
for the purposes of the 2003 Plan.
Maximum Number of Shares. A maximum of 350,000 shares of Stock will be
available for grants pursuant to Awards under the 2003 Plan. The following
shares of Stock shall again become available for Awards under the 2003 Plan: any
shares that are subject to an Award under the 2003 Plan and that remain
undelivered upon the cancellation or termination of such Award for any reason
and any forfeited shares of restricted stock, provided that any dividends paid
on such shares are also forfeited. The maximum number of shares of Stock with
respect to which any individual may be granted Awards during any one calendar
year is 100,000 shares.
Committee; Authority. The 2003 Plan will be administered by a Committee of
the Board of Directors. The Committee is to consist of at least two individuals.
It is intended that Committee members will be both an 'outside director' (within
the meaning of 'SS'162(m) of the Internal Revenue Code (the 'Code') and a
'non-employee director' (as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934) or, if not, will recuse themselves as
appropriate. If the Committee does not exist, or for any other reason determined
by the Board of Directors, the Board of Directors may act for the Committee. The
Committee or the Board of Directors may delegate to one or more officers of the
Company the authority to designate the individuals (from among those eligible to
receive Awards, other than such officer(s) themselves) who will receive Awards
under the Plan, to the fullest extent permitted by the Delaware General
Corporation Law (or any successor provision thereto), provided that the
Committee shall itself grant awards to those individuals who could reasonably be
considered to be subject to the insider trading provisions of 'SS'16 of the 1934
Act or whose awards could reasonably be expected to be subject to the deduction
limitations of 'SS'162(m) of the Code. The Committee will determine the key
persons who will receive Awards, the type of Awards granted, and the number of
shares subject to each Award. The Committee also will determine the prices,
expiration dates and other material features of Awards. The Committee has the
authority to interpret and construe any provision of the 2003 Plan and to adopt
such rules and regulations for administering the 2003 Plan as it deems necessary
or appropriate. All decisions and determinations of the Committee are final and
13
binding on all parties. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the 2003 Plan or any
Award.
Eligibility. Any employee or director of and consultant to, the Company and
its subsidiaries, as the Committee in its sole discretion shall select, are
eligible to receive Awards under the 2003 Plan. As of December 31, 2002, the
Company and its subsidiaries had 172 employees, all of whom would be eligible to
participate in the Plan. However the granting of Awards is discretionary and it
is not possible to determine how many individuals actually will receive Awards
under the Plan.
Suspension, Discontinuance, Amendment. The Board of Directors may, at any
time, suspend or discontinue the 2003 Plan or revise or amend it in any respect
whatsoever. However, no amendment shall be effective without the approval of the
stockholders of the Company if it would increase the number of shares of Stock
which may be issued under the 2003 Plan, change the class of employees eligible
to participate in the Plan, change the provisions relating to the exercise price
of options, or if shareholder approval is required by law. No amendment or
modification to the 2003 Plan or any Award may reduce the grantee's rights under
any previously granted and outstanding Award without the consent of the grantee.
SUMMARY OF AWARDS AVAILABLE UNDER THE 2003 PLAN
Non-Qualified Stock Options. The exercise price per share of each NQO
granted under the 2003 Plan will be determined by the Committee on the grant
date and will not be less than the fair market value of a share of Stock on the
date of grant. Each NQO will be exercisable for a term, not to exceed ten years,
established by the Committee on the grant date. The exercise price shall be paid
in cash or, subject to the approval of the Committee, in shares of Stock valued
at their fair market value on the date of exercise or by means of a brokered
cashless exercise. The 2003 Plan contains provisions applicable to the exercise
of NQOs subsequent to a 'termination of employment,' as the result of a
dismissal for 'cause,' a dismissal other than for 'cause,' 'disability' (as each
such term is defined in the 2003 Plan), or death. In general, these provisions
provide that options that are not exercisable at the time of such termination
shall expire upon the termination of employment and options that are exercisable
at the time of such termination shall remain exercisable until the earlier of
the expiration of their original term and (i) in the event of a grantee's
termination other than for cause, the expiration of three months after such
termination of employment and (ii) in the event of a grantee's disability or
death, the first anniversary of such termination. In the event of a dismissal
for cause, all options held by such grantee, whether or not then exercisable,
terminate immediately as of the commencement of business on the termination of
employment date. In addition, if a grantee dies subsequent to a termination of
employment but before the expiration of the exercise period with respect to an
option or an SAR, then the Award shall remain exercisable until the first
anniversary of the grantee's date of death (or the expiration of the original
exercise period, if earlier).
Incentive Stock Options. Generally, ISOs are options that may provide
certain federal income tax benefits to a grantee not available with NQOs. A
grantee must hold the shares acquired upon exercise of an ISO for at least two
years after the grant date and at least one year after the exercise date. The
exercise price per share of each ISO must be at least the fair market value of a
share of Stock on the grant date. An ISO will be exercisable for a maximum term,
not to exceed ten years, established by the Committee on the grant date. The
exercise price of an ISO will be paid in cash or, subject to the approval of the
Committee, in shares of Stock valued at their fair market value on the exercise
date or by means of a brokered cashless exercise. The aggregate fair market
value of shares of Stock with
14
respect to which ISOs are exercisable for the first time by a grantee during any
calendar year (determined on the grant date) under the 2003 Plan or any other
plan of the Company or its subsidiaries may not exceed $100,000. An ISO granted
to any individual who owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company is subject to the
following additional limitations: the exercise price per share of the ISO must
be at least 110% of the fair market value of a share of Stock at the time any
such ISO is granted, and the ISO cannot be exercisable more than five years from
the grant date.
In the event of a grantee's termination of employment, ISOs generally are
exercisable to the same extent as described above with respect to NQOs. However,
the definition of the term 'disability' in respect of ISOs may differ and no
option that remains exercisable for more than three months following a grantee's
termination of employment for any reason other than death or disability or the
grantee's death within the three-month exercise period following the termination
of employment, or for more than one year following a grantee's termination of
employment as the result of disability, may be treated as an ISO. ISOs are not
transferable other than by will or by the laws of descent and distribution.
Director Options. Each member of the Board of Directors who is not an
employee of the Company shall automatically be granted an NQO with respect to
550 shares of Stock as of the first Board meeting immediately following the
annual meeting of the shareholders. These options will vest six months after the
date of grant and will have an exercise price equal to the fair market value of
the Stock on the date of grant.
Stock Appreciation Rights. The Committee may grant SARs pursuant to the 2003
Plan. The exercise price of each SAR shall be such price as the Committee shall
determine on the grant date. Each SAR shall be exercisable for a term, not to
exceed ten years, established by the Committee on the grant date. The exercise
of an SAR with respect to a number of shares entitles the grantee to an amount
in cash, for each such share, equal to the excess of (i) the fair market value
of a share of Stock on the date of exercise over (ii) the exercise price of the
SAR. SARs may be granted as stand-alone awards or in connection with any NQO or
ISO with respect to a number of shares of Stock less than or equal to the number
of shares subject to the related option. The exercise of an SAR that relates to
a particular NQO or ISO causes the cancellation of its related option with
respect to the number of shares exercised. The exercise of an option to which an
SAR relates causes the cancellation of the SAR with respect to the number of
shares exercised. In the event of a grantee's termination of employment, SARs
granted to the grantee are generally exercisable to the same extent as described
above with respect to NQOs.
Restricted Stock. A grant of shares of restricted stock represents the
promise of the Company to deliver shares of Stock on a predetermined date to a
grantee, provided the grantee is continuously employed by the Company until that
date. Prior to the vesting of the shares, the shares are not transferable by the
grantee and are forfeitable. Vesting of the shares occurs on a later
predetermined date if the grantee remains continuously employed by the Company
until that later date. The Committee may, at the time shares of restricted stock
are granted, impose additional conditions, such as the achievement of specified
performance goals, to the vesting of the shares. Unvested shares of restricted
stock are automatically and immediately forfeited upon a grantee's termination
of employment for any reason.
15
TRANSFERABILITY
No Award is transferable other than by will or the laws of descent and
distribution except to the extent an award agreement permits otherwise.
CERTAIN CORPORATE CHANGES
The 2003 Plan provides for an adjustment in the number of shares of Stock
available to be delivered under the 2003 Plan, the number of shares subject to
Awards, and the exercise prices of certain Awards, in the event of a change in
the capitalization of the Company, a stock dividend or split, a merger or
combination of shares and certain other similar events. The 2003 Plan also
provides for the adjustment or termination of Awards upon the occurrence of
certain corporate events.
TAX WITHHOLDING
The 2003 Plan provides that a grantee may be required to meet certain tax
withholding requirements by remitting to the Company cash or through the
withholding of shares otherwise payable to the grantee. In addition, the grantee
may meet such withholding requirements, subject to certain conditions, by
remitting previously acquired shares of Stock.
PERFORMANCE-BASED COMPENSATION
A federal income tax deduction will generally be unavailable for annual
compensation in excess of $1 million paid to any of the five most highly
compensated Officers of a public corporation. However, amounts that constitute
'performance-based compensation' under 'SS'162(m) of the Code are not counted
toward the $1 million limit. If the 2003 Plan is approved by the Company
stockholders, grants of NQOs, ISOs, and SARs generally would be eligible for
this exception to the $1 million limit. The 2003 Plan authorizes the Committee
to defer payment of Awards that do not qualify as performance-based
compensation, generally until the grantee is no longer subject to the $1 million
limit.
NEW PLAN BENEFITS
Since no Awards have been made under the 2003 Plan and since Awards under
the 2003 Plan are wholly discretionary, amounts payable under the 2003 Plan are
not determinable at this time. For information regarding certain awards made in
respect of fiscal 2002 under the Independence Holding Company 1988 Stock
Incentive Plan, see 'Executive Compensation -- Summary Compensation Table' and
the Compensation Committee Report.
SUMMARY OF FEDERAL TAX CONSEQUENCES
The following is a brief description of the federal income tax treatment
that will generally apply to Awards under the 2003 Plan based on current federal
income tax rules.
Non-Qualified Options. The grant of an NQO will not result in taxable income
to the grantee. Except as described below, the grantee will realize ordinary
income at the time of exercise in an amount equal to the excess of the fair
market value of the Stock acquired over the exercise price for those shares and
the Company will be entitled to a corresponding deduction. Gains or losses
realized by the grantee upon disposition of such shares will be treated as
capital gains and losses, with the basis in such Stock equal to the fair market
value of the shares at the time of exercise.
16
Incentive Stock Options.
Income tax. The grant of an incentive stock option will not result in
taxable income to the grantee. The exercise of an incentive stock option will
not result in taxable income to the grantee provided that the grantee was,
without a break in service, an employee of the Company or a subsidiary during
the period beginning on the date of the grant of the option and ending on the
date three months prior to the date of exercise (one year prior to the date of
exercise if the grantee is disabled, as that term is defined in the Code). The
excess of the fair market value of the Stock at the time of the exercise of an
incentive stock option over the exercise price is an adjustment that is included
in the calculation of the grantee's alternative minimum taxable income for the
tax year in which the incentive stock option is exercised.
If the grantee does not sell or otherwise dispose of the Stock within two
years from the date of the grant of the incentive stock option or within one
year after the transfer of such Stock to the grantee, then, upon disposition of
such Stock, any amount realized in excess of the exercise price will be taxed to
the grantee as capital gain and the Company will not be entitled to a
corresponding deduction. A capital loss will be recognized to the extent that
the amount realized is less than the exercise price. If the foregoing holding
period requirements are not met, the grantee will generally realize ordinary
income at the time of the disposition of the shares, in an amount equal to the
lesser of (i) the excess of the fair market value of the Stock on the date of
exercise over the exercise price, or (ii) the excess, if any, of the amount
realized upon disposition of the shares over the exercise price and the Company
will be entitled to a corresponding deduction. If the amount realized exceeds
the value of the shares on the date of exercise, any additional amount will be
capital gain. If the amount realized is less than the exercise price, the
grantee will recognize no income, and a capital loss will be recognized equal to
the excess of the exercise price over the amount realized upon the disposition
of the shares. The Company will be entitled to a deduction to the extent that
the grantee recognizes ordinary income because of a disqualifying disposition.
Stock Appreciation Rights. The grant of an SAR will not result in taxable
income to the grantee. Upon exercise of an SAR, the amount of cash or the fair
market value of Stock received will be taxable to the grantee as ordinary income
and the Company will be entitled to a corresponding deduction. Gains and losses
realized by the grantee upon disposition of any such shares will be treated as
capital gains and losses, with the basis in such shares equal to the fair market
value of the shares at the time of exercise.
Restricted Stock. A grantee who has been granted a restricted stock award
will not realize taxable income at the time of grant and the Company will not be
entitled to a corresponding deduction, assuming that the restrictions constitute
a 'substantial risk of forfeiture' for federal income tax purposes. Upon the
vesting of Stock subject to an Award, the holder will realize ordinary income in
an amount equal to the then fair market value of those shares, and the Company
will be entitled to a corresponding deduction. Gains or losses realized by the
grantee upon disposition of such shares will be treated as capital gains and
losses, with the basis in such shares equal to the fair market value of the
shares at the time of vesting. Dividends paid to the holder during the
restriction period, if so provided, will also be compensation income to the
grantee and the Company will be entitled to a corresponding deduction. A grantee
may elect pursuant to 'SS'83(b) of the Code to have income recognized at the
date of grant of a restricted stock award and to have the applicable capital
gain holding period commence as of that date and the Company will be entitled to
a corresponding deduction.
17
Withholding of Taxes. The Company may withhold amounts from grantees to
satisfy withholding tax requirements. Subject to guidelines established by the
Committee, grantees may have Stock withheld from Awards or may tender Stock to
the Company to satisfy tax withholding requirements.
$1 Million Limit. 'SS'162(m) of the Code disallows a federal income tax
deduction for certain compensation in excess of $1 million per year paid to each
of the Company's chief executive officer and its four other most highly
compensated executive officers. Compensation that qualifies as
'performance-based compensation' is not subject to the $1 million limit. The
2003 Plan has been structured to permit Awards and payments that will satisfy
the requirements applicable to performance-based compensation.
Tax Advice. The preceding discussion is based on federal tax laws and
regulations presently in effect, which are subject to change, and the discussion
does not purport to be a complete description of the federal income tax aspects
of the 2003 Plan. A grantee may also be subject to state and local taxes in
connection with the grant of Awards under the 2003 Plan.
PRINCIPAL REASONS TO ADOPT THE 2003 PLAN
The Board of Directors views the issuance of stock options and other
equity-based awards to key individuals as necessary in order to attract and
retain the services of the individuals essential to the Company's long term
success. The purpose of the 2003 Plan is to encourage and enable the key
individuals associated with the Company, upon whose judgment, initiative and
efforts the Company will largely depend for the successful conduct of its
business, to acquire or increase their proprietary interest in the success of
the Company. It is anticipated that providing such persons with a direct stake
in the Company will assure a close identification of their interests with those
of the Company, thereby stimulating their efforts on the Company's behalf.
VOTING ON THE PROPOSAL
The affirmative vote of the holders of at least a majority of the shares of
Common Stock represented and voting, in person or by proxy, at the Annual
Meeting is required for the approval of the adoption of the 2003 Plan. Geneve
Corporation, which owns approximately 58% of the outstanding shares as of the
record date, has informed the Board of Directors that it intends to vote for the
proposal.
The board of directors recommends a vote 'FOR' proposal 3
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who beneficially own
more than ten percent (10%) of the Common Stock, to file with the Securities and
Exchange Commission ('SEC') and any national securities exchange on which these
securities are registered, initial reports of beneficial ownership and reports
of changes in beneficial ownership of the Common Stock or other equity
securities of the Company. Executive officers, directors, and greater than ten
percent (10%) beneficial owners are required by SEC regulations to furnish the
Company with copies of all 'SS'16(a) forms they file. To the Company's
knowledge, based solely on a review of the copies of such reports furnished to
the Company, all 'SS'16(a) filing requirements applicable to its executive
officers, directors, and greater than ten percent (10%) beneficial owners were
complied with for the fiscal year ended December 31, 2002.
18
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the Annual Meeting of
Stockholders to be held in 2004 must be received at the Company's principal
executive office not later than December 31, 2003 in order to be includable in
the proxy material for such meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other business to be presented for action at the meeting. As to any business
which would properly come before the meeting, the Proxies confer discretionary
authority in the persons named therein and those persons will vote or act in
accordance with their best judgment with respect thereto.
By Order of the Board of Directors
/s/ David T. Kettig
-----------------------------
DAVID T. KETTIG
Secretary
April 30, 2003
19
EXHIBIT A
INDEPENDENCE HOLDING COMPANY
2003 STOCK INCENTIVE PLAN
ARTICLE 1
ESTABLISHMENT, PURPOSE AND EFFECTIVE DATE OF PLAN
1.1 Establishment of the Plan. Independence Holding Company (the 'Company')
hereby establishes an incentive compensation plan to be known as the
'Independence Holding Company 2003 Stock Incentive Plan' (the 'Plan'), as set
forth in this document. The Plan permits the grant of incentive stock options,
nonqualified stock options and restricted stock to Key Persons. Subject to the
affirmative vote of a majority of the shares of Common Stock represented at the
Company's next annual meeting of its shareholders, the Plan is effective as of
April 1, 2003 (the 'Effective Date'), and shall remain in effect as provided in
Section 1.3. Awards may be granted hereunder on or after the Effective Date, but
in no event be exercisable or payable to a Participant prior to such stockholder
approval; and, if such approval is not obtained within twelve months after the
Effective Date, such awards shall be of no force and effect.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success
of the Company by providing incentives to Key Persons that will link their
personal interests to the long-term financial success of the Company and to the
growth in shareholder value. The Plan is intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the services of Key
Persons upon whose judgment, interest, and special effort the successful conduct
of its operations is largely dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1., and shall remain in effect, subject to the right of
the Board of Directors to terminate the Plan at any time pursuant to Article 10,
until all Stock subject to it shall have been purchased or acquired according to
the provisions herein. However, in no event may an Incentive Stock Option be
granted under the Plan on or after the tenth anniversary of the Plan's Effective
Date.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Whenever used in the Plan with the initial letter of the
word capitalized, the following terms shall have the meanings set forth below,
unless a different meaning is clearly intended by the context.
(a) 'Award' means, individually or collectively, a grant under this Plan
of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights or Restricted Stock.
(b) 'Beneficial Owner' shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the 'Exchange Act').
(c) 'Board' or 'Board of Directors' means the Board of Directors of the
Company.
A-1
(d) 'Change in Control' shall mean the occurrence of any one or more of
the events set forth in the following paragraphs:
(i) a change in the ownership of 50% or more of the Corporation's
outstanding common stock, within a twelve month period; or
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting stock of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting
power represented by the voting stock or the other voting securities of
such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change in Control transaction. The
Participant shall be deemed 'part of a purchasing group' for purposes of
the preceding sentence if the Participant is an equity participant or has
agreed to become an equity participant in the purchasing company or group
(except for (a) passive ownership of less than 5% of the stock of the
purchasing company or (b) ownership of equity participation in the
purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a majority
of the nonemployee directors). The Board has final authority to determine
the exact date on which a Change in Control has been deemed to have
occurred under subparagraphs (i), (ii), and (iii) above.
(e) 'Cause' has the meaning set forth in any employment, severance or
other agreement governing the relationship between the relevant Participant
and the Company in effect as of the date the event giving rise to Cause
occurred. In the absence of such a provision, 'Cause' means: (i) any
material violation by the Participant of the terms of any agreement between
the Participant and the Company, including, without limitation, any
employment or non-competition agreement, (ii) the Participant's conviction
of any crime (whether or not involving the Company) constituting a felony in
the jurisdiction involved; (iii) conduct of the Participant related to the
Participant's employment for which either criminal or civil penalties
against the Participant or the Company may be sought; (iv) material
violation of the Company's policies, including, without limitation, those
relating to sexual harassment, the disclosure or misuse of confidential
information, or those set forth in Company manuals or statements of policy;
(v) serious neglect or misconduct in the performance of the Participant's
duties for the Company or willful or repeated failure or refusal to perform
such duties.
Any rights the Company may have hereunder in respect of the events giving
rise to Cause shall be in addition to the rights the Company may have under any
other agreement with a Participant or at law or in equity. Any determination of
whether a Participant's employment is (or is deemed to have been) terminated for
Cause shall be made by the Committee in its sole discretion, which determination
shall be final and binding on all parties. If, subsequent to a Participant's
termination of employment (whether voluntary or involuntary) without Cause, it
is discovered that the Participant's employment could have been terminated for
Cause, such Participant's employment shall be deemed to have been terminated for
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Cause. A Participant's termination of employment for Cause shall be effective as
of the date of the occurrence of the event giving rise to Cause, regardless of
when the determination of Cause is made.
(f) 'Code' means the Internal Revenue Code of 1986, as amended from time
to time.
(g) 'Committee' means the committee appointed by the Board to administer
the Plan pursuant to Section 3.1.
(h) 'Company' means Independence Holding Company, a Delaware
corporation, or any successor thereto as provided in Article 13.
(i) 'Disability' means a permanent and total disability as determined by
the Committee in good faith, provided that with respect to an ISO, it shall
mean a disability described in Section 422 (c)(6) of the Code.
(j) 'Fair Market Value' on a specified date means the average of the bid
and asked closing prices at which one Share is traded on the
over-the-counter market on that date, as reported on the National
Association of Securities Dealers Automated Quotation system ('NASDAQ'), or
the closing price at which a Share is listed if listed as a national market
security on NASDAQ or on a national securities exchange on which Shares are
primarily traded; but if no Shares were traded on such date, then on the
last previous date on which a Share was so traded, or if none of the above
is applicable, the value of a Share as established by the Committee for such
date using any reasonable method of valuation.
(k) 'Incentive Stock Option' or 'ISO' means an Option granted under
Article 6 which is designated as an Incentive Stock Option and is intended
to meet the requirements of Section 422(b) of the Code.
(l) 'Key Person' means an employee or director of, or consultant to the
Company or one of its Subsidiaries, who, in the opinion of the Committee,
can contribute significantly to the growth and profitability of the Company.
'Key Person' also may include those employees, directors or consultants
identified by the Committee, in situations concerning extraordinary
performance, promotion, retention, or recruitment. The granting of an Award
under this Plan shall be deemed a determination by the Committee that such
individual is a Key Person.
(m) 'Nonqualified Stock Option' or 'NSO' means an Option granted under
Article 6 which is not an Incentive Stock Option.
(n) 'Option' means an Incentive Stock Option or a Nonqualified Stock
Option. Subject to the terms and conditions of the Plan and of the relevant
Option agreement, the grant of an Option entitles the Participant to
purchase a pre-established number of Shares at an exercise price established
by the Committee.
(o) 'Participant' means a Key Person who has been granted an Award under
the Plan.
(p) 'Period of Restriction' means the period during which the transfer
of Shares of Restricted Stock is restricted pursuant to Article 7.
(q) 'Person' shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a group as defined in Section 13(d).
(r) 'Plan' means the Independence Holding Company 2003 Stock Incentive
Plan, as herein described.
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(s) 'Restricted Stock' means an Award of restricted Shares granted to a
Participant pursuant to Article 7.
(t) 'Stock' or 'Shares' means the common stock of the Company.
(u) 'Stock Appreciation Right' or 'SAR' means the right, subject to the
terms of the Plan and the applicable Award agreement, to receive from the
Company, with respect to each Share subject to the SAR, an amount in cash or
Shares equal to the excess of the Fair Market Value of a Share on the date
of exercise of the SAR over the exercise price per Share of the SAR.
(v) 'Subsidiary' means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(w) References in this Plan to a 'termination of employment' mean the
Participant (i) ceasing to be employed by, or to provide consulting or other
services to, the Company or any corporation (or any of its subsidiaries)
which assumes the Participant's award in a transaction to which
section 424(a) of the Code applies or (ii) ceasing to be a member of the
Board of Directors. For purposes of the foregoing, if a Participant
continues in a relationship with the Company as either an employee, a
consultant or a member of the Board of Directors, the Participant shall not
be considered to have terminated employment until he severs all such
relationships with the Company, even if the nature of his relationship
changes. The Committee shall determine whether any leave of absence
constitutes a termination of employment for purposes of the Plan and the
impact, if any, of any such leave of absence on Options theretofore granted
under the Plan.
2.2 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3
ADMINISTRATION
3.1 The Committee. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the 'Committee')
consisting of not less than two directors who shall be appointed from time to
time by, and shall serve at the discretion of, the Board of Directors. It is
intended that each member of the Committee shall be a 'non-employee director'
for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 (the
'Exchange Act') and an 'outside director' for purposes of Code Section 162(m)
and the regulations thereunder or that the members of the Committee who do not
qualify as both outside directors and non-employee directors will recuse
themselves at the appropriate time to permit grants hereunder to satisfy the
requirements of Code Section 162(m) and Rule 16b-3. Notwithstanding the
foregoing, the fact that the Committee is not comprised solely of outside
directors and non-employee directors, and such members do not recuse themselves,
will not invalidate the grant of any Award or any other action that otherwise
satisfies the terms of the Plan. If the Committee does not exist, or for any
other reason determined by the Board,
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the Board may take any action under the Plan that otherwise would be the
responsibility of the Committee.
3.2 Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full power to construe and interpret the Plan and the terms
of any Award; to correct any defect, supply any omission and reconcile any
inconsistency in the Plan; to establish, amend or waive rules and regulations
for its administration; to make all other determinations that may be necessary
or advisable for the administration of the Plan; to accelerate the
exercisability of any Award or the end of a Period of Restriction or the
termination of any Award agreement, or any other instrument relating to an Award
under the Plan; and (subject to the provisions of Article 10 herein) to amend
the terms and conditions of any outstanding Option or Restricted Stock Award to
the extent such terms and conditions are within the discretion of the Committee
as provided in the Plan. Notwithstanding the foregoing, no action of the
Committee may, without the consent of the person or persons entitled to exercise
any outstanding Option or to receive payment of any other outstanding Award,
adversely affect the rights of such person or persons.
3.3 Selection of Participants. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Key Persons as it may
select in its discretion, to determine the time or times of receipt, the types
of Awards, and the number of Shares covered by each of the Awards, and to
establish the terms, conditions, performance criteria, restrictions and all
other terms, conditions and provisions of such Awards.
3.4 Decisions Binding. All interpretations, determinations and decisions
made by the Committee pursuant to the provisions of the Plan shall be final,
conclusive and binding on all persons, including the Company, its Subsidiaries,
stockholders, employees, Participants and their estates and beneficiaries.
3.5 Delegation of Certain Responsibilities. The Committee, in its sole
discretion, may delegate to appropriate officers of the Company the
administration of the Plan under this Article 3, provided that the Committee may
not delegate its authority to correct errors, omissions or inconsistencies in
the Plan and only may delegate its authority to grant Awards as set forth below.
All authority delegated by the Committee under this Section 3.5 shall be
exercised in accordance with the provisions of the Plan and any guidelines for
the exercise of such authority that may from time to time be established by the
Committee. Notwithstanding any other provision of the Plan, the Committee or,
pursuant to Section 3.1, the Board, may delegate to one or more officers of the
Company the authority to designate the Key Persons (other than such officer(s)),
who will receive Awards under the Plan and the size and other terms of each such
Award, to the fullest extent permitted by 'SS'157 of the Delaware General
Corporation Law (or any successor provision thereto), provided that the
Committee shall itself grant awards to those individuals who could reasonably be
considered to be subject to the insider trading provisions of section 16 of the
1934 Act or whose awards could reasonably be expected to be subject to the
deduction limitations of section 162(m) of the Code.
3.6 Procedures of the Committee. All determinations of the Committee shall
be made by a majority of its members present at the meeting (in person or
otherwise) at which a quorum is present. A majority of the entire Committee
shall constitute a quorum for the transaction of business. Any action required
or permitted to be taken at a meeting of the Committee may be taken without a
meeting if a unanimous written consent, which sets forth the action, is signed
by each member of the Committee and filed with the minutes for proceedings of
the Committee. No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his or her other services on the
Committee. Service on the Committee shall constitute service as a director of
the Company so that members of the
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Committee shall be entitled to indemnification (as provided in Article 12
herein), and limitation of liability and reimbursement with respect to their
services as members of the Committee to the same extent as for services as
directors of the Company.
3.7 Award Agreements. Each Award under the Plan shall be evidenced by an
award agreement which shall be signed by an officer of the Company and by the
Participant, and shall contain such terms and conditions as may be approved by
the Committee, which need not be the same in all cases. Any Award agreement may
be supplemented or amended in writing from time to time as approved by the
Committee, provided that the terms of such agreements as amended or
supplemented, as well as the terms of the original award agreement, are not
inconsistent with the provisions of the Plan. An Option agreement shall specify
whether the Option is intended to be an Incentive Stock Option or a Nonqualified
Stock Option. If an Option agreement does not expressly provide that the Option
is an ISO, the Option will be NSO.
3.8 Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
3.9 Information to be Furnished to the Committee. The Company shall furnish
the Committee with such data and information as it determines may be required
for it to discharge its duties. The records of the Company as to an employee's
or Participant's employment, termination of employment, leave of absence,
reemployment and compensation, and comparable information related to directors
and consultants shall be conclusive on all persons unless determined to be
incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Committee such evidence, data or information as the Committee
considers desirable to carry out the terms of the Plan.
ARTICLE 4
STOCK SUBJECT TO THE PLAN
4.1 Source of Shares. The Shares with respect to which Awards may be made
under the Plan shall be Shares either (a) currently authorized but unissued,
(b) authorized and issued and held in the Company's treasury or (c) acquired by
the Company for the purposes of the Plan.
4.2 Limits on Awards. The maximum number of Shares that may be granted to
Participants and their beneficiaries under the Plan shall be as follows:
(a) Aggregate Plan Limit. The total number of Shares with respect to
which Options, Restricted Stock and cash-settled SARs may be granted is
350,000 Shares. To the extent that a SAR does not provide for the issuance
of Shares, there is no limit on the number of shares with respect to which
such SARs may be granted.
(b) Individual Limit. The total number of Shares with respect to which
Awards may be granted to any Key Person during any one calendar year shall
not exceed 100,000 Shares. Such limit may be adjusted under paragraphs (e)
and (f) below, except that Options granted and subsequently canceled or
deemed to be canceled in a calendar year count against the limit for that
year even after their cancellation.
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(c) ISO Limit. To the extent that the aggregate Fair Market Value
(determined as of the time the Option is granted) of Shares with respect to
which ISOs are first exercisable by any employee during any calendar year
shall exceed $100,000, or such higher amount as may be permitted from time
to time under section 422 of the Code, such options shall be treated as
Nonqualified Stock Options regardless of the terms of the Award.
(d) Effect of Cash Settlement, Cashless Exercise or Withholding. To the
extent any Shares covered by an Award are not delivered to a Participant or
beneficiary because the Award is settled in cash or a portion of the Award
is used to satisfy the exercise price or the applicable tax withholding
obligation, such Shares shall nevertheless be deemed delivered for purposes
of determining the maximum number of Shares still available under the Plan.
(e) Shares Available Again. Except as provided in paragraph (b) above,
Shares that are subject to an Option under the Plan that remain unissued
upon the cancellation or termination of such Option for any reason, and
Shares of Restricted Stock that are forfeited and with respect to which the
dividends paid on such Shares are also forfeited, shall again become
available for Awards.
(f) Adjustments in Authorized Shares. In the event of any merger,
reorganization, split-up, spin-off, consolidation, recapitalization,
separation, liquidation, extraordinary cash dividend, stock dividend, stock
split, share combination, exchange of shares, or other change in the
corporate structure of the Company affecting the Stock, the Committee, in
its sole discretion, shall adjust the limits set forth in paragraphs (a) and
(b) above with respect to the number and class of Shares, as applicable,
which may be granted and delivered under the Plan.
4.3 General Restrictions. Delivery of Shares or other amounts under the Plan
shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of Shares, the issuance may be effected
in the discretion of the Committee on a non-certificated basis, to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange.
4.4 Grant and Use of Awards. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company (including a plan or
arrangement of a business or entity, all or a portion of which is acquired by
the Company). Subject to the overall limitation on the number of Shares that may
be delivered under the Plan, the Committee may use available Shares in the form
of payment for compensation, grants or rights earned or due under any other
compensation plans or arrangements of the Company, including the plans and
arrangements of the Company assumed in business combinations.
4.5 Settlement and Payments. Awards may be settled through cash payments,
the delivery of Shares, the granting of replacement Awards, or combination
thereof, as the Committee shall determine. Any Award settlement may be subject
to such conditions, restrictions and contingencies as the Committee shall
determine.
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ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Any person who, in the opinion of the Committee, is a Key
Person is eligible to participate in this Plan.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Persons to whom Awards shall be
granted and determine the nature and amount of each Award. No individual, even
if previously designated a Key Person, shall have any right to be granted an
Award under this Plan.
ARTICLE 6
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1 Grant of Options. Subject to the terms and provisions of the Plan, the
Committee may grant Options to Key Persons at any time and from time to time as
shall be determined by the Committee. Subject to Article 4, the Committee shall
have complete discretion in determining the number of Shares subject to Options
granted to each Participant. The Committee may grant any type of option to
purchase Stock that is permitted by law at the time of grant including, but not
limited to, ISOs and NSOs.
6.2 Grant of Stock Appreciation Rights; Types of Stock Appreciation Rights.
Subject to the terms and provisions of the Plan, the Committee may grant SARs to
such Key Persons, and in such amounts and subject to such vesting and forfeiture
provisions and other terms and conditions, as the Committee shall determine in
its sole discretion. A SAR may provide for payment by the Company upon exercise
to be in cash or Shares (valued at their Fair Market Value on the date of
exercise of the SAR), as the Committee may determine in its sole discretion. A
SAR may be granted in connection with all or any part of, or independently of,
any Option granted under the Plan. A SAR granted in connection with a
Nonqualified Stock Option may be granted at or after the time of grant of such
Option. A SAR granted in connection with an Incentive Stock Option may be
granted only at the time of grant of such Option. Upon the exercise of a SAR
granted in connection with an Option, the number of Shares subject to the Option
shall be reduced by the number of Shares with respect to which the SAR is
exercised. Upon the exercise of an Option in connection with which a SAR has
been granted, the number of Shares subject to the SAR shall be reduced by the
number of Shares with respect to which the Option is exercised, provided that if
the SAR is granted with respect to less that the full amount of Shares subject
to the Option, the number of Shares subject to the SAR only shall be reduced by
the number of Shares with respect to which the Option has been exercised that
exceeds the number of Option Shares not covered by the SAR.
6.3 Adjustment of Options and SARs. The Committee shall adjust the number of
Shares subject to an Option or SAR and the terms of such Option or SAR, as
follows:
(a) Increase or Decrease in Issued Shares Without Consideration. Subject
to any required action by the stockholders of the Company, in the event of
any increase or decrease in the number of issued Shares resulting from a
subdivision or consolidation of Shares or the payment of a stock dividend
(but only on the Shares), or any other increase or decrease in the number of
such shares effected without receipt of consideration by the Company, the
Committee shall proportionally adjust the number of Shares subject to each
outstanding Option and SAR and the exercise price-per-Share of each such
Option and SAR.
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(b) Certain Mergers. Subject to any required action by the stockholders
of the Company, in the event that the Company shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation
as a result of which the holders of Shares receive securities of another
corporation), each Option and SAR outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of
the number of Shares subject to such Option or SAR would have received in
such merger or consolidation.
(c) Certain Other Transactions. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation involving the Company in
which the Company is not the surviving corporation or (iv) a merger or
consolidation involving the Company in which the Company is the surviving
corporation but the holders of Shares receive securities of another
corporation and/or other property, including cash, the Committee, in its
absolute discretion, shall have the power to:
(A) cancel, effective immediately prior to the occurrence of such
event, each Option and SAR outstanding immediately prior to such event
(whether or not then exercisable) and, in full consideration of such
cancellation, pay to the Participant to whom such Option or SAR was
granted an amount in cash for each Share subject to such Option or SAR
equal to the excess of (I) the value, as determined by the Committee in
its absolute discretion, of the property (including cash) received by the
holder of a Share as a result of such event over (II) the exercise price
of such Option or SAR; or
(B) provide for the exchange of each Option and SAR outstanding
immediately prior to such event (whether or not then exercisable) for an
option or stock appreciation right, as appropriate, on some or all of the
property which a holder of the number of Shares subject to such Option or
SAR would have received in such transaction or on shares of the acquirer
or surviving corporation and, incident thereto, make an equitable
adjustment as determined by the Committee in its absolute discretion in
the exercise price of the option or stock appreciation right, or the
number of shares or amount of property subject to the option or stock
appreciation right or, if appropriate, provide for a cash payment to the
Participant to whom such Option or SAR was granted in partial
consideration for the exchange of the Option or SAR.
(d) Other Changes. In the event of any change in the capitalization of
the Company or a corporate change other than those specifically referred to
in this Section 6.3, the Committee may, in its absolute discretion, make
such adjustments in the number and class of Shares subject to Options and
SARs outstanding on the date on which such change occurs and in the
per-share exercise price of each such Option and SAR as the Committee may
consider appropriate to prevent dilution or enlargement of rights. In
addition, if and to the extent the Committee determines it is appropriate,
the Committee may elect to cancel each Option or SAR outstanding immediately
prior to such event (whether or not then exercisable), and, in full
consideration of such cancellation, pay to the Participant to whom such
Option or SAR was granted an amount in cash, for each Share subject to such
Option or SAR, equal to the excess of (i) the Fair Market Value of each
Share on the date of such cancellation over (ii) the exercise price of such
Option or SAR.
6.4 Exercise Price. The exercise price of each Option and SAR granted under
this Article 6 shall be established by the Committee or shall be determined by a
method established by the Committee at the time that the Option or SAR is
granted; except that the exercise price shall not be less than 100% of the
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Fair Market Value of a Share on the date of grant except as provided in Section
6.6 with respect to Options granted to 10% shareholders.
6.5 Duration of Options and SARs. Each Option and SAR shall expire at such
time as the Committee shall determine at the time of grant provided, however,
that no ISO shall be exercisable later than the tenth anniversary of the date of
its grant, except as provided in Section 6.6 with respect to 10% shareholders.
6.6 Special Rule for 10% Shareholders. An Incentive Stock Option granted to
an Employee who, at the time of grant, owns (within the meaning of Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, shall have an exercise price which
is at least 110% of the Fair Market Value of the Stock subject to the Option and
shall not be exercisable later than the fifth anniversary of the date of its
grant.
6.7 Exercise of Options and SARs. Options and SARs granted under the Plan
shall be exercisable, on such terms and conditions and during such periods as
the Committee shall in each instance establish, which need not be the same for
all Participants. In the event that the Committee, at the time of grant, does
not specify the period during which an Option or SAR will be exercisable, such
Option or SAR shall become exercisable with respect to 1/3 of the Shares subject
to such Option or SAR on each of the first three anniversaries of the date of
grant, provided that an SAR granted in connection with an Option only may be
exercised at such times and to the extent that the related Option may be
exercised. Unless the applicable Award agreement otherwise provides, once a
portion of an Option or SAR becomes exercisable, it shall remain exercisable
until the earlier of (i) the tenth anniversary of the date of grant or (ii) the
expiration, cancellation or termination of the award.
6.8 Payment of Option Exercise Price. Options shall be exercised by the
delivery of a written notice to the Company setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full payment
for the Shares, subject to the following:
(a) The full exercise price for Shares purchased upon the exercise of
any Option shall be paid at the time of such exercise (except that, in the
case of an exercise arrangement approved by the Committee and described in
paragraph (c), payment may be made as soon as practicable after the
exercise).
(b) The exercise price shall be payable in cash or, if permitted by the
Committee, by tendering, by either actual delivery of Shares or by
attestation, Shares acceptable to the Committee in its discretion, and
valued at Fair Market Value as of the date of exercise, or in any
combination of cash and shares thereof, as determined and permitted by the
Committee.
(c) To the extent permitted by law, the Committee may, in its
discretion, permit a Participant to elect to pay the exercise price upon the
exercise of an Option by irrevocably authorizing a third party to sell the
Shares (or a sufficient portion of the Shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire exercise price and any tax withholding resulting from such
exercise.
As soon as practicable after receipt of written notification and payment,
the Company shall deliver to the Participant Stock certificates issued in the
Participant's name with respect to the number of Shares purchased.
6.9 Restrictions on Stock Transferability. The Committee may impose such
restrictions on any Stock acquired pursuant to the exercise of an Option or SAR
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities law, under the
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requirements of any stock exchange upon which such Stock is then listed and
under any blue sky or state securities laws applicable to such Shares.
6.10 Termination of Employment. Unless the Committee determines otherwise,
if a Participant's employment with the Company or a Subsidiary terminates, any
outstanding Options and SARs that are not exercisable as of the date of
termination shall expire as of the termination of employment and shall be of no
further force or effect. The following provisions shall apply to Options and
SARs that were exercisable at the time the Participant's employment terminates:
(a) Death. If a Participant dies while employed by the Company or a
Subsidiary, any outstanding Options and SARs, to the extent exercisable at
the time of death, shall remain exercisable until the earlier of the
expiration date of the Option or SAR and the first anniversary of the
Participant's death. Any such Option or SAR may be exercised by the person
or persons who acquire the Participant's rights under the Option or SAR by
will or by the laws of descent and distribution.
(b) Disability. If a Participant's employment with the Company or a
Subsidiary terminates by reason of Disability or if an employee of the
Company or a Subsidiary is designated an inactive employee by reason of
Disability, any outstanding Options and SARs, to the extent exercisable at
the time of such termination or designation, shall remain exercisable until
the earlier of the expiration date of the Option or SAR and the first
anniversary of the Participant's termination or designation. If the
Participant dies during such one-year period, any such Options and SARs
shall remain exercisable until the earlier of the expiration date of the
Option or SAR and the first anniversary of the Participant's death.
(c) Other Reasons. If a Participant's employment with the Company or a
Subsidiary terminates for any reason other than death, Disability or for
Cause, all outstanding Options and SARs, to the extent exercisable at the
time of such termination or designation, shall remain exercisable until the
earlier of the expiration date of the Option or SAR and three (3) months
after such date of termination. If the Participant dies during such
three-month period, any such Options and SARs shall remain exercisable until
the earlier of the expiration date of the Option or SAR and the first
anniversary of the Participant's death.
(d) Cause. If the employment of a Participant shall terminate for Cause,
rights under all outstanding Options and SARs shall immediately expire as of
the commencement of business of the effective date of the termination of
employment and shall be of no further force or effect.
6.11 Nontransferability of Options and SARs. Except as otherwise provided by
the Committee in the applicable Award agreement, no Option or SAR granted under
the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and distribution.
Unless otherwise determined by the Committee in accordance with the provisions
of the immediately preceding sentence, an Award may be exercised during the
lifetime of a Participant only by the Participant or during the period that the
Participant is under a legal disability by the Participant's guardian or legal
representative.
6.12 Requirements of Law. Notwithstanding any other provision of the Plan,
the Committee may impose such conditions on exercise of an Option or SAR
(including without limitation the right of the Committee to limit the time of
exercise to specified periods) as may be necessary to satisfy the requirements
of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934. An
Option
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or SAR may not be exercised if, in the determination of the Board of Directors,
such exercise would violate the Sarbanes-Oxley Act of 2002 or other applicable
law.
6.13 Settlement in Cash. Upon the exercise of an Option by a Participant,
the Committee may in its discretion pay to the Participant in lieu of Shares, an
amount in cash equal to the excess of (a) the Fair Market Value at the time of
exercise of the number of Shares of Stock with respect to which the Participant
is exercising his Option; over (b) the total Exercise Price for such Shares
established by the Committee; reduced by (c) withholding for all applicable
taxes.
6.14 Director Option Grants. As of the meeting of the Board immediately
following an Annual Meeting of the Stockholders of the Company, each member of
the Board who is not an employee of the Company or a subsidiary shall
automatically be granted an NSO with respect to 550 Shares. Such Option shall be
exercisable in full on the date six months after the date such Option is granted
and shall remain exercisable until the tenth anniversary of the date of grant.
The exercise price per Share of such Option shall be the Fair Market Value of a
Share on the date of grant. All other terms of such Options shall be as set
forth in the Plan, provided, however, that except as set forth in Section 6.3(c)
hereof, the Board shall have no power to accelerate the exercisability of such
Options.
ARTICLE 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Restricted
Stock to such Participants and in such amounts as it shall determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period of
Restriction, or periods, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine. A Participant shall have
no rights to an Award of Restricted Stock until the Participant executes a
Restricted Stock agreement in the form determined by the Committee.
7.3 Transferability. Except as provided in this Article 7, the Shares of
Restricted Stock granted hereunder may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the termination of the
applicable Period of Restriction or for such period of time as shall be
established by the Committee and as shall be specified in the Restricted Stock
Agreement, or upon earlier satisfaction of other conditions as specified by the
Committee in its sole discretion and set forth in the Restricted Stock
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
7.4 Other Restrictions. The Committee shall impose such other restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable Federal
or state securities laws, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.
7.5 Issuance of Certificates; Shareholder Rights. Promptly after a
Participant executes a Restricted Stock agreement and, if the Committee
determines, delivers to the Committee a stock power duly endorsed in blank with
respect to such Shares, the Company or its exchange agent shall issue to the
Participant a stock certificate or stock certificates for the shares of
Restricted Stock covered by the Award or shall establish an account evidencing
ownership of the Shares in uncertificated form. The Participant shall not be
deemed for any purpose to be, or have rights as, a shareholder of the Company
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by virtue of the grant of Restricted Stock, except to the extent a stock
certificate is issued therefor pursuant to this Section 7.5, and then only from
the date such certificate is issued. Upon the issuance of such stock
certificate(s), or establishment of such account, the Participant shall have the
rights of a stockholder with respect to the Restricted Stock, including the
right to vote the shares, subject to: (i) the nontransferability restrictions
described in Section 7.3 and the forfeiture provision described in Section 7.11;
(ii) in the Committee's discretion, a requirement that any dividends paid on
such shares shall be held in escrow until all restrictions on such shares have
lapsed; and (iii) any other restrictions and conditions contained in the
applicable Restricted Stock Agreement.
7.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 7.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan may bear the following legend:
'The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer set forth in the
Independence Holding Company 2003 Stock Incentive Plan, in the rules and
administrative procedures adopted pursuant to such Plan, and in a
Restricted Stock Agreement dated . A copy of the Plan, such
rules and procedures, and such Restricted Stock Agreement may be
obtained from the Secretary of Independence Holding Company.'
7.7 Custody of Stock Certificate(s). Unless the Committee shall otherwise
determine, any stock certificates issued evidencing Restricted Stock shall
remain in the possession of the Company or such other custodian as the Company
may designate until the end of the Period of Restriction.
7.8 Removal of Restrictions. Except as otherwise provided in this Article 7,
Shares of Restricted Stock shall become freely transferable by the Participant
after the last day of the applicable Period of Restriction. Once the Shares are
released from the restrictions, the Participant shall be entitled to have the
legend set forth in Section 7.6 removed from his Stock certificate.
7.9 Dividends and Other Distributions. Unless the Committee specifies
deferred payment of cash dividends in the Restricted Stock Agreement, a
Participant holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares during the Period of Restriction. If any such dividends or
distributions are paid in Shares of Stock, the Shares shall be subject to the
same restrictions on transferability as the Shares of Restricted Stock with
respect to which they were paid.
7.10 Termination of Employment for Other Reasons. In the event that a
Participant terminates his employment with the Company for any reason other than
for death or Disability during the Period of Restriction, then any Shares of
Restricted Stock and, the related cash dividends to the extent deferred under
Section 7.9 hereof, still subject to restrictions as of the date of such
termination shall automatically be forfeited and returned to the Company;
provided, however, that the Committee, in its sole discretion, may waive the
automatic forfeiture of any or all such Shares and may add such new restrictions
to such Shares of Restricted Stock as it deems appropriate.
7.11 Adjustment of Awards. In the event of a stock dividend, stock split,
share combination, exchange of shares or any other change in the corporate
structure of the Company affecting Restricted Stock, including but not limited
to the events described in section 6.2, the Committee in its sole discretion may
adjust the number or class of Shares subject to a Restricted Stock Award which
have not
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yet been issued, as may be determined to be appropriate and equitable, to
prevent dilution or enlargement of rights.
ARTICLE 8
BENEFICIARY DESIGNATION
8.1 Beneficiary Designation. Each Participant may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his death before he
receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
ARTICLE 9
RIGHTS OF EMPLOYEES
9.1 No Right to Awards. Except as set forth in Section 6.14 hereof, no
employee or other person shall have a right to receive an Award or, having
received an Award, to receive any additional Awards. Neither a Participant nor
any other person shall, by reason of participation in the Plan, acquire any
right in or title to any assets, funds or property of the Company whatsoever,
including, without limitation, any specific funds, assets, or other property
which the Company or any subsidiary, in its sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Stock or amounts, if any, payable under the Plan,
unsecured by any assets of the Company, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company shall be sufficient to pay
any benefits to any person.
9.2 No Guarantee of Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment or services as a consultant at any time, nor confer upon any
Participant any right to continue in the employ of or to perform services for
the Company. Except as otherwise provided in the Plan, no Award under the Plan
shall confer upon the holder thereof any rights as a shareholder of the Company
prior to the date on which the individual fulfills all conditions for receipt of
such rights.
ARTICLE 10
AMENDMENT, MODIFICATION, AND TERMINATION
10.1 Amendment, Modification, and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend, or
modify the Plan or any Award. However, the approval of the stockholders of the
Company of such action is required if such termination, amendment or
modification may:
(a) increase the total number of Shares which may be issued under this
Plan, either in the aggregate or to an individual, except as provided in
Section 4.2(f) herein;
(b) change the class of employees eligible to participate in the Plan;
(c) change the provisions of the Plan regarding the exercise price of an
Option; or
(d) otherwise be required by law.
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10.2 Awards Previously Granted. No termination, amendment or modification of
the Plan or any Award shall in any manner adversely affect any Award theretofore
granted under the Plan, without the written consent of the Participant.
ARTICLE 11
WITHHOLDING AND DEFERRAL OF CERTAIN PAYMENTS
11.1 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any cash, Shares or other benefits under the Plan on satisfaction of
the applicable withholding obligations. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy Federal, State and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any grant, exercise, or payment made under or as a result of this Plan.
11.2 Limitations Imposed by Section 162(m). Notwithstanding any other
provision hereunder, if and to the extent that the Committee determines the
Company's federal tax deduction in respect of an Award may be limited as a
result of Section 162(m) of the Code, the Committee may delay the payment in
respect of such Award until a date that is within 30 days after the date that
compensation paid to the Participant no longer is subject to the deduction
limitation under Section 162(m) of the Code. In the event that a Participant
exercises an Option at a time when the Participant is a 'covered employee,' and
the Committee determines to delay the payment in respect of such Option, the
Committee shall credit cash or, in the case of an amount payable in Company
Stock, the Fair Market Value of the Company Stock, payable to the Participant to
a book account. The Participant shall have no rights in respect of such book
account and the amount credited thereto shall not be transferable by the
Participant other than by will or laws of descent and distribution. The
Committee may credit additional amounts to such book account as it may determine
in its sole discretion. Any book account created hereunder shall represent only
an unfunded unsecured promise by the Company to pay the amount credited thereto
to the Participant in the future.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit, or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
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ARTICLE 13
SUCCESSORS
13.1 Successors. All obligations of the Company under the Plan, with respect
to Awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 14
REQUIREMENTS OF LAW
14.1 Requirements of Law. The granting of Awards and the issuance of Shares
of Stock under this Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
14.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the internal laws of the State of
Delaware, without reference to principles of conflict of laws.
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Appendix 1
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE INDEPENDENCE HOLDING COMPANY
ANNUAL MEETING OF STOCKHOLDERS
JUNE 20,2003
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned stockholder of Independence Holding Company (the "Company")
hereby appoints Teresa A. Herbert and David T. Kettig, and each or either of
them, the true and lawful proxies, agents and attorneys of the undersigned,
each with full power to act without the other and with full power of
substitution to vote all shares of the Company which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held on Friday, June 20, 2003 at 9:30 A.M., E.D.T., at
the Hyatt Regency Greenwich, 1800 E. Putnam Avenue, Old Greenwich, Connecticut
and at any adjournment or postponement thereof.
-------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
-----------------------------------------------------------------------------
----Stockholder sign above-----------Co-holder (if any) sign above-----------
With- For all
For hold Except
1. To elect seven directors:
Nominees: [ ] [ ] [ ]
Larry R. Graber, Allan C. Kirkman,
Steven B. Lapin, Edward Netter,
Robert P. Ross, Jr., James G. Tatum and Roy T.K. Thung
INSTRUCTION:To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
---------------------------------------------------------------------------
For Against Abstain
2. To ratify the appointment of KPMG LLP
as independent auditors for the fiscal [ ] [ ] [ ]
year ending December 31, 2003.
3. To approve the 2003 Stock Incentive Plan. [ ] [ ] [ ]
4. To transact any other business that may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The Board of Directors recommends a vote "FOR" all proposals.
The shares represented by this proxy card will be voted as directed above.
If no direction is given and the proxy card is validly executed, the shares
will be voted FOR all listed proposals.
The undersigned hereby ratifies and confirms all that said proxies, agents,
and attorneys, or any of them or their substitutes, lawfully may do at the
meeting and hereby revokes all proxies heretofore given by the undersigned to
vote at said meeting or any adjournment or postponement thereof.
Please sign the Proxy exactly as your name(s) appears hereon. Joint owners
should each sign personally. Trustees and other fiduciaries should indicate
the capacity in which they sign, and where more than one name appears, a
majority must sign. If a corporation, the signature should be that of an
authorized officer who should state his or her title.
--------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
INDEPENDENCE HOLDING COMPANY
96 Cummings Point Road Stamford, Connecticut 06902
--------------------------------------------------------------------------------
PLEASE DATE,SIGN AND RETURN.
YOUR PROMPT ATTENTION WILL BE APPRECIATED.
--------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as................................ 'SS'