SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
[X] Filed by Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
ADVANCED HEALTH CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
JONATHAN EDELSON, M.D.
(NAME OF PERSON(S) FILING THE PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
N/A
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
N/A
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4) Proposed maximum aggregate value of transaction:
N/A
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(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] 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 date of its filing.
1) Amount Previously Paid:
N/A
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2) Form, Schedule or Registration Statement No.:
N/A
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3) Filing Party:
N/A
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4) Date Filed:
N/A
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<PAGE>
ADVANCED HEALTH CORPORATION
555 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
---------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 25, 1999
This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Board of Directors of Advanced Health
Corporation, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders (the "Meeting"), to be held on June 25, 1999, at 10:00
a.m. (local time), at the Tarrytown Hilton, 455 South Broadway, Tarrytown, New
York 10591, and any adjournments thereof.
SOLICITATION OF PROXIES
All shares represented by duly executed proxies in the form enclosed
herewith received by the Company prior to the Meeting will be voted as
instructed therein at the Meeting. There are boxes on the proxy card to vote for
or to withhold authority to vote for the director nominees; to approve an
amendment to the Company's 1995 Stock Option Plan authorizing the issuance of
options thereunder to purchase up to an additional 200,000 shares of Common
Stock of the Company; to ratify the selection of Arthur Andersen, LLP as the
Company's independent auditors; and to approve the proposal to change the name
of the Company. If no instructions are given, the persons named in the
accompanying proxy intend to vote FOR the nominees named herein as directors of
the Company, FOR the amendment to the Company's 1995 Stock Option Plan, FOR the
ratification of the selection of Arthur Andersen, LLP, and FOR the proposal to
amend the Certificate of Incorporation of the Company to change the name of the
Company to AHT Corporation.
Any stockholder may revoke a previously executed proxy at any time
prior to its exercise by (i) delivering a later-dated proxy, (ii) giving written
notice of revocation to the Secretary of the Company at the address set forth
above at any time before such proxy is voted, or (iii) voting in person at the
Meeting. No proxy will be voted if the stockholder who executed such proxy
attends the Meeting and elects to vote in person. If a stockholder does not
intend to attend the Meeting, any proxy or notice should be returned to the
Company for receipt by the Company not later than the close of business on June
23, 1999.
<PAGE>
A copy of the Annual Report of the Company containing audited financial
statements for the fiscal year ended December 31, 1998, is enclosed herewith.
This Proxy Statement and the form of proxy enclosed herewith were first mailed
to stockholders on or about June 7, 1999. The mailing address of the Company's
principal executive offices is 555 White Plains Road, Tarrytown, New York 10591.
The Board of Directors does not know of any matter other than as set
forth herein that is expected to be presented for consideration at the Meeting.
However, if other matters properly come before the Meeting, the persons named in
the accompanying proxy (each of whom is an officer and employee of the Company)
intend to vote thereon in accordance with their judgment.
RECORD DATE, OUTSTANDING VOTING SECURITIES AND VOTES REQUIRED
The Company's Common Stock, $.01 par value per share ("Common Stock"), is the
only outstanding class of voting securities of the Company. The record date for
determining the holders of Common Stock entitled to vote on the actions to be
taken at the Meeting is the close of business on June 2, 1999 (the "Record
Date"). As of the Record Date, 10,687,477 shares of Common Stock were
outstanding. Each holder of Common Stock on the Record Date is entitled to cast
one vote per share at the Meeting. The Common Stock does not have cumulative
voting rights.
Holders of a majority of the shares entitled to vote must be present at the
Meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. The affirmative vote of the holders of a majority of
the shares of Common Stock present at the Meeting, in person or by proxy, is
necessary for the election of a director of the Company, for amendment of the
Company's 1995 Stock Option Plan, for ratification of the selection of Arthur
Andersen LLP as auditors for the Company, and for approval of an amendment to
the Company's Certificate of Incorporation to change the name of the Company.
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
currently having terms expiring at the meeting of the Company's stockholders in
1999, 2000 and 2001, respectively. At the Meeting, two persons will be elected
to serve as directors in the class whose three-year term expires at the annual
meeting of the Company's stockholders in the year 2002 and until their
successors have been duly elected and qualified as provided in the Company's
Restated Certificate of Incorporation and Restated By-laws.
Two people have consented to be nominated and, if elected, to serve as
directors of the Company. The nominees are presently members of the Company's
Board of Directors. Information about the nominees for director is set forth
below.
2
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
JONATHAN EDELSON, M.D., 39, has been the Chairman of the Board and
Chief Executive Officer of the Company since its inception in 1993, and has been
President since April 1, 1999. Dr. Edelson is a board-certified internist. Prior
to co-founding the Company, Dr. Edelson served as the Chief Executive Officer of
Physicians' Online, from August 1993 to December 1994. Dr. Edelson was a Senior
Vice President with ValueRx, Inc., the prescription drug benefits management
unit of Value Health, Inc., from October 1990 to June 1993. As a practicing
physician prior to joining ValueRx, Inc., Dr. Edelson founded Medical Decision
Resources, Inc., a physician profiling and education business, in March 1989,
and served as its President through September 1990. Dr. Edelson attended Yale
University, University of Chicago School of Medicine and the Harvard School of
Public Health.
ROBERT J. ALGER, 43, has been Executive Vice President and Chief
Information Officer of the Company since March 1998, and has been Vice President
and Chief Information Officer of the Company since February 1995. Prior to
joining the Company, Mr. Alger was Chief Information Officer and Vice President
of Information Systems at Blue Shield of California, from December 1991 to
February 1995, and a partner at Scribner, Jackson & Associates, a technology
consulting group, from January 1986 to December 1991. Mr. Alger received his
B.S. from California State University _ Northridge.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE -TERM EXPIRING IN 2000
ARTHUR M. SOUTHAM, M.D., 41, was elected to the Board of the Company in
March 1999. Dr. Southam is a founding partner of 2C Solutions, a recently
created partnership focusing on collaborative technology initiatives in the
healthcare industry, and is a member of the Board of Directors of Health Systems
Design Corporation, a company that develops hospital-based information systems.
From 1996 to 1998, Dr. Southam served as President and CEO of California-based
Health Net, one of the nation's largest HMOs. Prior to that, at CareAmerica
Health Plans, a health benefits and workers compensation insurance company in
California, he held several top-level positions during an eleven-year period,
including that of President and CEO. He is the immediate past Chairman of the
California Association of Health Plans and has also served as Chairman of the
Integrated Health Care Association. Dr. Southam received his M.D. degree and a
Master's degree in Public Health from UCLA. He received his M.B.A. degree from
Pepperdine University and his B.A. from Amherst College.
3
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE -TERM EXPIRING IN 2001.
JAMES T. CARNEY, age 55, has been a director of the Company since
September 1996. Mr. Carney has served as General Manager of Benefits
Administration for USX Corporation and Vice President of Administration for
United States Steel and Carnegie Pension Fund since 1989. Mr. Carney was named
General Attorney-Employee Benefits of USX Corporation in 1988, Senior General
Attorney-Employee Benefits and Workers' Compensation in 1985 and Senior General
Attorney-Commercial and Employee Relations for the U.S. Diversified Group in
1986.
BARRY KUROKAWA, age 43, has been a director of the Company since March
1996. Since February 1996, Mr. Kurokawa has served as a Managing Director of
ProMed Management, L.L.C. ("ProMed"), a private healthcare investment management
and services company, and as the President of Blackriver Capital Management,
Ltd. From May 1992 to January 1996, he was employed by INVESCO Trust Company as
Senior Vice President and portfolio manager of four healthcare funds managed by
the firm. From July 1992 to January 1996, Mr. Kurokawa was also the Vice
President of Global Health Services, a closed-end mutual fund. Before he joined
INVESCO, Mr. Kurokawa served as Vice President Equity Research and healthcare
analyst at Trust Company of the West, an investment management company, from
July 1987 to April 1992.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS;
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1998, the Board of Directors
met five times. The Company's Compensation Committee, which met six times in
1998 and is comprised of Messrs. Carney and Kurokawa, makes recommendations to
the Board of Directors with respect to general compensation and benefit levels,
determines the compensation and benefits for the Company's executive officers
and administers the Company's 1995 Stock Option Plan and Employee Stock Purchase
Plan. The Audit Committee, which met once in 1998 and is comprised of Messrs.
Kurokawa and Carney, oversees the activities of the Company's independent
auditors and internal accounting controls. The Board of Directors does not have
a standing nominating committee or any committee performing a similar function.
Each director attended at least 75% of the aggregate of all Board meetings and
all meetings of committees of which he was a member held during 1998 while he
was in office.
Dr. Southam currently receives cash compensation of $2,500 per meeting
from the Company for his service as a member of the Board of Directors. All
directors are entitled to receive reimbursement for certain out-of-pocket
expenses in connection with attendance at Board and committee meetings.
Directors of the Company, including non-employee directors, are eligible to
receive options under the Company's 1995 Stock Option Plan.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
Common Stock as of May 1, 1999 with respect to (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) certain executive officers of
the Company and (iv) all directors and officers as a group. Unless otherwise
indicated, the address for each stockholder is c/o the Company, 555 White Plains
Road, Tarrytown, New York 10591.
<TABLE>
SHARES OF
COMMON
NAME AND ADDRESS STOCK(1) PERCENT(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
David M. Knott
485 Underhill Blvd., Suite 205, Syosset, NY 11791-3419 859,500 8.1
Nationsbank Corp.
Nationsbank Plaza, Charlotte, NC 28255 785,600 7.4
Dimensional Fund Advisors
1299 Ocean Avenue, 11 th Floor, Santa Monica, CA 90401 702,900 6.6
Tudor Investment Corporation
One Post Office Square, Boston, MA 02109 723,000 6.8
Jonathan Edelson, MD (2) 524,042 4.9
Robert J. Alger (3) 51,241 *
Jeffrey M. Sauerhoff (4) 26,178 *
Eddy W. Friedfeld (5) 8,750 *
James Carney (6) 15,000 *
Barry Kurokawa (7) 19,507 *
Alan B. Masarek (8) 150,136 1.4
Arthur M. Southam, MD * *
All directors and executive officers as a group (7 persons) (9) 794,854 7.5
</TABLE>
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally includes
voting or investment power with respect to securities and includes options
exercisable within 60 days of May 1, 1999. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in the
table above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 10,644,244 shares of Common Stock outstanding as of May 1,
1999.
(2) Includes currently exercisable options to purchase 128,816 shares of Common
Stock.
(3) Includes currently exercisable options to purchase 51,241 shares of Common
Stock.
(4) Includes currently exercisable options to purchase 26,178 shares of Common
Stock.
(5) Includes currently exercisable options to purchase 8,750 shares of Common
Stock.
(6) Includes currently exercisable options to purchase 15,000 shares of Common
Stock.
(7) Includes currently exercisable options to purchase 17,507 shares of Common
Stock.
(8) Includes currently exercisable options to purchase 150,136 shares of Common
Stock
(9) See notes (2), (3), (4), (5), (6), and (7).
5
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company.
See "Election of Directors" for a description of the business experience of Dr.
Edelson and Mr. Alger.
<TABLE>
NAME AGE POSITION
<S> <C> <C>
Jonathan Edelson, M.D. 39 Chairman, Chief Executive Officer, President, and
Director
Robert J. Alger 43 Executive Vice President, Chief Information
Officer, and Director
Jeffrey M. Sauerhoff 50 Chief Financial Officer
Eddy W. Friedfeld 37 Senior Vice President-Business & Legal Affairs,
General Counsel and Secretary
</TABLE>
JEFFREY M. SAUERHOFF has been Chief Financial Officer of the Company
since January 1999; Senior Vice President of Finance and Administration since
July 1998; Vice President of Finance and Administration since October 1996; and
Controller of the Company since March 1995. Prior to joining the Company, he
served as Chief Financial Officer at three companies: Preferred Solutions, a
pharmacy benefit management company, from 1993 to 1994; East Nassau-Suffolk
Region, an affiliate of HIP, a health insurance company, from 1991 to 1993; and
Erisco, Inc., a wholly-owned subsidiary of the Dun & Bradstreet Corporation,
that provides software-based business solutions for health benefits
administration and information needs, from 1979 to 1991. Mr. Sauerhoff holds a
B.S. degree from C.W. Post College.
EDDY W. FRIEDFELD has been Senior Vice President-Business & Legal
Affairs, General Counsel and Secretary of the Company since August 1997. From
1993 to August 1997, he was Vice President, Business Affairs, of Skysat
Communications Network Corporation. Since 1986, Mr. Friedfeld has been an
attorney specializing in the areas of corporate, securities, technology, and
healthcare law. Mr. Friedfeld holds a J.D. degree from New York University and a
B.A. degree from Columbia College.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table sets forth a summary of the compensation of the
Company's Chief Executive Officer and each other executive officer of the
Company who earned in excess of $100,000 in annual salary and bonus during the
Company's fiscal year ended December 31, 1998 (collectively, the "Named
Executive Officers"), for services rendered in all capacities to the Company
during the Company's fiscal years ended December 31, 1998, 1997, and 1996.
6
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
<TABLE>
Securities Underlying
Options/SARs
Name and Principal Position Year ($)Salary (#)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jonathan Edelson, M.D, Chairman, 1998 298,589
Chief Executive Officer, and President 1997 269,079 150,000
1996 220,224
Robert J. Alger, Executive Vice President 1998 178,431 25,000
and Chief Information Officer 1997 169,261 60,000
1996 154,854
Jeffrey M. Sauerhoff 1998 172,902 50,731
Chief Financial Officer 1997 130,319 22,255
1996 112,671
Eddy W. Friedfeld, Senior Vice President- 1998 152,566 55,000
Business & Legal Affairs, General Counsel 1997 52,333 22,500
and Secretary
Alan B. Masarek, President and COO (1) 1998 238,576
1997 224,693 112,500
1996 200,198
</TABLE>
(1) Resigned Effective 3/31/99
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<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
- -----------------------------------------------------------------------------------------------------
Individual Grants Potential Realizable
Value At Assumed
Annual Rates Of Stock
Price Appreciation for
Option Term
- -----------------------------------------------------------------------------------------------------
Number Of Percent of
Securities Total
Underlying Options/SARs Exercise
Options/ Granted To Or Base
SARs Employees In Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Alger 25,000 5.85% 1.563 10/5/2008 $24,452 $62,081
Jeffrey M. Sauerhoff 50,000 11.69% 1.563 10/5/2008 48,904 124,162
Jeffrey M. Sauerhoff 731 0.17% 2.500 1/1/2008 1,149 2,913
Eddy W. Friedfeld 55,000 12.86% 1.563 10/5/2008 53,794 136,578
</TABLE>
The following table sets forth certain information regarding options held at
December 31, 1998, by each of the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End Options at Fiscal Year-End (1)
- -------------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Jonathan Edelson, M.D. -- -- $0 $0
Alan B. Masarek -- -- 0 0
Robert J. Alger -- 25,000 0 4,750
Jeffrey M. Sauerhoff -- 50,000 0 9,500
Eddy W. Friedfeld -- 55,000 0 10,450
</TABLE>
(1) Value of unexercised in-the-money options is based on a value of $1.75 per
share of the Company's Common Stock, the fair market value of the Company's
Common Stock on December 31, 1998. Amounts reflected are based on the assumed
value minus the exercise price multiplied by the number of shares subject to the
option.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program requires that a substantial portion
of any executive's compensation (including that of the Chief Executive Officer)
be tied to the profitability and performance of the Company. In addition, the
Company believes that tying an employee's compensation to stock performance
enables the Company to align employees' interests more closely with those of its
stockholders.
To implement these policies, the Company's executive compensation
program consists of two main elements: (i) annual compensation, consisting of
base salary and incentive bonuses; and (ii) long-term incentives that provide a
financial opportunity through stock options. Each component of compensation has
an integral role in the total executive compensation program.
The base salary component of annual compensation is based on
competitive salaries earned by executives with similar experience in companies
similar in size to the Company. Increases in base salary are the direct result
of individual achievements within a fiscal year.
The incentive bonus component of annual compensation is a function of
an individual's contributions relative to performance objectives and overall
Company profitability. The incentive bonus portion of executive compensation
reflects the Compensation Committee's view that, for senior executives, a
meaningful portion of compensation should be "at risk," providing a direct link
between pay, achievements and Company results for any year.
Long-term incentive compensation, rather than reflecting a single
year's results, is intended to focus management's attention on the Company's
future. The Compensation Committee believes strongly that executive pay should
relate directly to Company performance. Long-term incentives are intended to
provide financial opportunities for executives based on the Company's
performance over a number of years.
Long-term incentive compensation is achieved through grants of stock
options, which may be either incentive stock options ("ISOs") or stock options
that are non-qualified for Federal income tax purposes ("NSOs") under the
Company's 1995 Stock Option Plan (the "Option Plan"). Options provide executives
with the opportunity to buy and maintain an equity interest in the Company and
to share in the appreciation of the value of the Company's stock. Under the
Option Plan, the exercise price of ISOs may not be less than 100% of the fair
market value of the Common Stock at the time of grant and the exercise price of
NSOs is determined by the Compensation Committee at the time such options are
granted. Options granted under the Option Plan typically vest in equal annual
installments over a three-year period. These features result in (i) enhancing
the Company's ability to retain, for an extended period of time, those
individuals who are key to the creation of stockholder value and (ii) ensuring
that executives gain only when stockholders gain through appreciation in the
market price of the Company's Common Stock.
9
<PAGE>
In December 1997, the Compensation Committee approved a repricing of
the Incentive Stock Option plan that reduced the strike price for options with
an exercise price of more than $14 to an exercise price of $12 and extended the
employee vesting period. Executive officers were excluded from this action. In
August 1998, the Compensation Committee approved a further repricing and reverse
split of the Incentive Stock Option plan that reduced the strike price for
options with an exercise price of more than $5.05 to an exercise price of $2.50
while simultaneously reducing those options granted by 25%. The vesting period
was not extended and executive officers were included in this action. Such
repricings were deemed necessary by the Company's Compensation Committee in
light of market conditions and the desire to give employees adequate incentive.
In 1998, the Compensation Committee granted bonuses to Dr. Edelson, and
Messrs. Masarek and Alger in the amounts of $300,000, $187,500, and $87,000,
respectively, for performance in 1997. Reference to such bonuses was omitted
from the Company's 1998 Proxy Statement. Subsequently, the Compensation
Committee and the foregoing executives agreed to rescind such bonuses.
James T. Carney
Barry Kurokawa
10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common
Stock for the period from January 1, 1998 through December 31, 1998 to that of
the NASDAQ Index and an index based on the common stock of a peer group of the
following eight companies: American Oncology Resources, Inc. (AORI); American
Physicians (APPM); Medpartners, Inc. (MDM); Phycor, Inc. (PHYC); Phymatrix
Corporation (PHMX); Physicians Resource Group (PYRG); Complete Management
(CPMI); and ProxyMed, Inc. (PILL). The graph assumes that the value of the
investment in Common Stock and each index was $100 at October 3, 1996, and that
all dividends were re-invested. Stock price performances shown in the graph are
not necessarily indicative of future price performances. FPA Medical Management
and Physicians Reliance Network, which were previously part of the Company's
peer group, are no longer NASDAQ National Market and traded companies were
therefore replaced by ProxyMed and American Physicians.
Comparison of Cumulative Total Return Among Advanced Health
Corporation, Peer Group Companies Within the Company's Industry and NASDAQ
National Market Index.
COMPARISON OF CUMULATIVE TOTAL RETURNS *
DOLLARS
- --------------------------------------------------------------------------------
$200.00
$180.00
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
10/96 1996 1997 1998
- --------------------------------------------------------------------------------
*TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
ADVANCED HEALTH PEER GROUP NASDAQ US
11
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with Jonathan Edelson, M.D., its Chairman, Chief Executive Officer,
and President; Robert J. Alger, its Executive Vice President and Chief
Information Officer; Jeffrey M. Sauerhoff, its Chief Financial Officer; and Eddy
W. Friedfeld, its Senior Vice President-Business & Legal Affairs, General
Counsel, and Secretary (each an "Executive"). The Employment Agreements provide
that the annual base salary of each of the Executives is at least: Dr. Edelson,
$300,000; Mr. Alger, $190,000; Mr. Sauerhoff $190,000; and Mr. Friedfeld,
$175,000. The Executives are also entitled to receive discretionary bonuses.
The Employment Agreements generally provide for a four-year term that
is automatically renewable for successive one-year terms unless either party
gives prior written notice of its intent not to renew. The Employment Agreements
set forth the compensation arrangements and the employee fringe benefits
provided by the Company to each Executive. In addition, the Employment
Agreements set forth the compensation payable to an Executive in the event of a
termination of the Executive's employment by the Company. Generally, upon the
termination of an Executive's employment by the Company for cause, the Executive
is entitled to receive earned but unpaid salary and reimbursement for business
expenses incurred during the performance of the Employee's duties. If an
Executive's employment with the Company is terminated without cause, or within a
specified period after a change of control (as defined in the Employment
Agreements), the Executive is entitled to receive the amounts payable in the
event of a termination for cause plus a cash severance payment not to exceed the
cash compensation received by the Executive in the prior 12-month period (in the
case of Mr. Alger, 24 months, and in the case of Dr. Edelson, 36 months) and the
vesting of certain shares of Common Stock and options to purchase Common Stock
of the Company then held by such Executive. Each Employment Agreement contains a
non-compete provision that restricts an Executive from competing against the
Company for a period of one year following such Executive's termination of
employment with the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In 1996, 1997 and 1998, in accordance with the Company's Senior
Executive Loan Policy, which is administered by the Compensation Committee of
the Board of Directors, the Company made loans in the aggregate amounts of
$800,000 and $145,000 to each of Dr. Edelson, and Mr. Alger, respectively. These
loans are due three years from the loan date with interest payable monthly at a
rate of 6% per annum.
The Company entered into a separation agreement in 1999 with Alan
Masarek, the Company's former President and Chief Operating Officer, whose
resignation was effective March 31, 1999, which provides for the following: (i)
a one-year continuation of salary at $250,000 and benefits from April 1, 1999 to
March 31, 2000, payable monthly; (ii) an additional $250,000 (less applicable
withholding) payment in exchange for consulting for
12
<PAGE>
up to 24 business days in a form and manner reasonably requested by the
Company's Board of Directors, which has already been paid; (iii) requirement of
repayment of current outstanding loans, principal ($467,475) and interest (at
the rate of 6% per annum), beginning May 1, 2000 at the rate of $15,000 per
month with the balance due of all outstanding loans, including principal and
interest on May 1, 2001; (iv) vesting of 150,136 options to acquire Company
stock that will remain fully exercisable for up to five years; and (v) a success
bonus for the sale of the management services division of the Company that
occurred on May 14, 1999 ("the Sale"), equal to $40,000 plus 2.5% of the net
proceeds of the Sale, which has already been paid.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All transactions, including loans, between the
Company and its officers, directors and principal stockholders and their
affiliates are approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors of the Board of
Directors.
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
The Company has adopted the Amended and Restated 1995 Stock Option Plan, which
provides for the grant to directors, officers and employees of, and consultants
to, the Company and its subsidiaries of stock options, including "incentive
stock options" ("ISOs") intended to qualify as such under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
stock options that are non-qualified for Federal income tax purposes ("NSOs").
As of April 1, 1999, options to purchase an aggregate of 2,077,447 shares of
Common Stock had been granted under the Option Plan. On June 16, 1997, the
stockholders of the Company, at the Annual Meeting, approved an amendment to the
Option Plan increasing the number of shares of Common Stock reserved for
issuance under the Option Plan by 600,000 shares to 2,100,000 shares of Common
Stock. In May 1999, the Compensation Committee of the Board of Directors of the
Company, subject to stockholder approval at the Meeting, approved an amendment
to the Option Plan increasing the number of shares of Common Stock reserved for
issuance under the Option Plan by 200,000 shares to 2,300,000 shares of Common
Stock. The purpose of the Option Plan is to further the growth and success of
the Company by enabling directors, officers and employees of the Company and
independent consultants retained by the Company who have been selected by the
Compensation Committee to acquire Common Stock, thereby increasing their
personal interest in such growth and success and to provide a means of rewarding
outstanding service by them on the Company's behalf. As of April 1, 1999, there
were approximately 151 persons eligible to receive options under the Option
Plan. The Option Plan is administered by the Compensation Committee comprised of
Messrs. Carney and Kurokawa. The Compensation Committee has full power and
authority to determine, with respect to the option grants, (i) the persons to
whom options are granted, (ii) the number of shares to be covered by each such
grant, (iii) the per share exercise price thereof, (iv) the status of the
granted option as either an ISO or an NSO, (v) the time or times at which each
granted option is to become purchasable, and (vi) the maximum term for which the
option
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<PAGE>
may remain outstanding, which term shall in no event exceed 10 years after the
date of the grant. Options granted under the Option Plan typically vest in equal
annual installments over a three-year period. The exercise price of ISOs granted
under the Option Plan may not be less than 100% of the fair market value of the
Common Stock on the date of the grant. With respect to any employee who owns
stock possessing more than 10% of the voting power of the outstanding capital
stock of the Company, the exercise price may not be less than 110% of the fair
market value of such shares on the date of grant, and the terms of such option
may not exceed five years. The exercise price of an NSO shall be an amount
determined by the Compensation Committee in its sole discretion. Upon exercise
of an option, payment in full of the purchase price either in cash, check, in
equivalently valued shares of Common Stock of the Company or by any other means
permitted by the Compensation Committee, is required before the option shares
are delivered. By allowing payment of the exercise price by delivering shares of
the Company's Common Stock, the Option Plan permits the "pyramiding" of shares.
Pyramiding occurs when the option holder in a series of successive transactions
uses the shares received upon the prior exercise of an option to purchase
additional shares under other outstanding options. An option holder can thereby
substantially increase his or her equity ownership in the Company without a
significant capital contribution. The Board of Directors of the Company may from
time to time adopt such amendments to the Option Plan as it may deem
appropriate, provided that stockholder approval of such amendments must be
obtained if required to comply with regulations promulgated by the Securities
and Exchange Commission under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or with Section 422 of the Code or the
regulations promulgated by the Treasury Department thereunder. The Option Plan
shall terminate on the tenth anniversary of the date on which the Option Plan
was adopted by the Board of Directors. Under the Option Plan, any optionee whose
employment with the Company is terminated for any reason, other than death or
disability or a termination for cause, may exercise his or her option, to the
extent exercisable on the effective date of such termination, at any time within
45 days after the date of termination, provided such option has not expired on
the date of such exercise. In the event of the death or disability of the
optionee, the option may be exercised, to the extent exercisable on the date of
death or disability, at any time within 12 months by the person to whom the
option shall have passed by will or the laws of descent and distribution or the
optionee, as the case may be. In the event of termination of an optionee's
employment for cause, the option terminates immediately. An NSO granted under
the Option Plan is taxed in accordance with Section 83 of the Code and the
regulations issued thereunder. The following general rules are applicable to
holders of such "non-statutory" options and to the Company for Federal income
tax purposes under existing law. 1) The optionee will not recognize any income
on the grant of the option pursuant to the Option Plan. 2) The optionee will
recognize ordinary compensation income at the time of exercise of the option in
an amount equal to the excess of the fair market value of the shares acquired on
the date of exercise, over the exercise price thereof. 3) When the optionee
sells the shares, he or she will recognize capital gain or loss (assuming the
shares are held as a capital asset) in an amount equal to the difference between
the fair market value of the shares on the date of exercise and his or her
selling price. 4) In general, the Company will be entitled to a tax deduction in
the year in which the ordinary compensation income based on exercise is
recognized by
14
<PAGE>
the optionee and in the same amount of such ordinary compensation income
recognized by the optionee, subject to applicable tax withholding requirements.
5) Upon the exercise of an NSO, the Company is entitled to require as a
condition of delivery of the shares of Common Stock that the optionee remit an
amount sufficient to satisfy all Federal, state and local withholding tax and
employment tax requirements relating thereto. The following Federal income tax
consequences are applicable to ISOs granted and exercised pursuant to the Option
Plan. 1) If the optionee does not own stock possessing more than 10% of the
total voting power of all classes of stock of the Company (or if the optionee
owns stock possessing more than 10% of the total voting power of all classes of
stock of the Company, the option price is at least 110% of the fair market value
of the shares on the date of grant and the option by its terms is not
exercisable more than five years from the date of grant), no regular taxable
income results to the optionee upon the grant of an ISO or upon the issuance of
shares to him or her upon exercise of the option. 2) No tax deduction is allowed
to the Company upon either the grant or exercise of an ISO pursuant to the
Option Plan. 3) If shares acquired upon exercise of an ISO are not disposed of
(i) within the two years following the date the option was granted or (ii)
within one year following the date the shares are transferred to the optionee
pursuant to the option exercise (the "Holding Periods"), the difference between
the amount realized on any disposition of the shares thereafter and the exercise
price will be treated as long-term capital gain or loss to the optionee. 4) If
shares acquired upon exercise of an ISO are disposed of before the expiration of
either of the Holding Periods (a "disqualifying disposition"), then the lesser
of (i) any excess of the fair market value of the shares at the time of exercise
of the option over the exercise price or (ii) the actual gain on disposition
will be treated as compensation to the optionee and will be taxed as ordinary
income in the taxable year in which the disposition occurs. 5) In any taxable
year that an optionee recognizes compensation income on a disqualifying
disposition of an ISO, the Company will generally be entitled to a corresponding
deduction, subject to applicable tax withholding requirements. 6) Any excess of
the amount realized by the optionee on disposition over the sum of (i) the
exercise price and (ii) the amount of ordinary income recognized under the above
rules may be either long-term or short-term capital gain, depending upon the
time elapsed between receipt and disposition of such shares. 7) An option will
not be treated as an ISO to the extent the aggregate fair market value for which
ISOs are exercisable by an optionee for the first time in a calendar year
exceeds $100,000. Under present accounting principles, neither the grant nor the
exercise of options granted with an exercise price equal to the fair market
value of the Common Stock will result in any charge to the Company's earnings.
However, the number of outstanding options, even if not granted at a discount,
may be a factor in determining the Company's reported earnings per share. As of
April 1, 1999, options to purchase an aggregate of 2,077,447 shares of Common
Stock had been granted under the Option Plan to an aggregate of 196 persons at a
weighted average exercise price of $2.65 per share, including 401,288 to Dr.
Edelson, 36,250 to Mr. Carney, 36,257 to Mr. Kurokawa, 10,000 to Dr. Southam,
91,335 to Mr. Sauerhoff, 158,195 to Mr. Alger, 77,500 to Mr. Friedfeld, and
150,136 to Mr. Masarek. The Board of Directors adopted, subject to stockholder
approval, the amendment to the Option Plan increasing the number of shares of
Common Stock reserved for issuance under the Option Plan by 200,000, from
2,100,000 to 2,300,000, in order to permit the Company to continue to grant
options, as determined
15
<PAGE>
by the Compensation Committee, to directors, officers and employees of, and
consultants to, the Company to incent such persons to further the growth and
success of the Company and to reward outstanding service. The market value of
the unexercised 1,557,401 shares reserved for issuance under the Option Plan is
$4,423,019, based on the closing price of the Common Stock on April 1, 1999
($2.84). If the proposed amendment to the Option Plan is not approved by the
stockholders, the Company's ability to utilize stock options as a form of
incentive compensation would be substantially limited. Because the Compensation
Committee has discretion under the Option Plan to grant options thereunder and
to determine the terms of such grants, it is not possible to determine the
dollar value or the number of shares that will be received by any of the
Company's directors, officers, employees or consultants under the Option Plan as
so amended. The vote of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting is required to approve the proposed amendment
to the Option Plan. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1995 STOCK OPTION PLAN.
APPROVAL OF CORPORATE NAME CHANGE
In January 1999, the Board of Directors approved a resolution to do business
under the name AHT Corporation. On February 1, 1999 the Company filed a
Registration of Trade Names in Delaware to do business under the name of AHT
Corporation. At the Meeting, stockholders will vote on a proposal to amend the
Certificate of Incorporation of the Company to change the Company's corporate
name to AHT Corporation. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE
THE COMPANY'S CORPORATE NAME TO AHT CORPORATION.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors of the Company has selected the firm of Arthur
Andersen LLP, independent certified public accountants, to serve as auditors for
the Company for the fiscal year ending December 31, 1999. Arthur Andersen LLP
has served as the Company's auditors since its inception. It is expected that a
representative of Arthur Andersen LLP will be present at the Meeting and will be
available to make a statement (if he or she desires to do so) and to respond to
appropriate questions at the Meeting. If the stockholders do not ratify the
selection of Arthur Andersen LLP, the Board of Directors may consider selection
of other independent certified public accountants to serve as independent
auditors, but no assurances can be made that the Board of Directors will do so
or that any other independent certified public accountants would be willing to
serve. The vote of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting is required to ratify the selection of
auditors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THIS SELECTION.
16
<PAGE>
DISCLOSURE PURSUANT TO SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who are beneficial owners of ten percent or more of the
Company's Common Stock, to file reports of ownership and changes in ownership of
the Company's securities with the Securities and Exchange Commission. Officers,
directors and greater than ten percent beneficial owners are required by
applicable regulations to furnish the Company with copies of all forms they file
pursuant to Section 16(a).
Based solely upon a review of the copies of the forms furnished to the
Company, and written representations from certain reporting persons that no
Forms 5 were required, the Company believes that during the fiscal year ended
December 31, 1998, all filing requirements applicable to its officers, directors
and ten percent beneficial owners were complied with. However, for the year
1998, filings of Forms 3, 4, and 5 were late for Messrs. Edelson, Masarek,
Alger, Sauerhoff, and Friedfeld.
It is presently contemplated that the 2000 Annual Meeting of
Stockholders will be held on or about June 28, 2000. Proposals by stockholders
intended for inclusion in the proxy statement to be furnished to all
stockholders entitled to vote at the next annual meeting of the Company must be
received at the Company's principal executive offices not later than December
31, 1999. In order to curtail controversy as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their proposals
by certified mail, return receipt requested. Any such proposal must also meet
the other requirements of the rules of the Commission relating to stockholder
proposals.
EXPENSES AND SOLICITATION
The Company will bear the cost of soliciting proxies, including
expenses in connection with the preparation and mailing of this Proxy Statement
and all papers which now accompany or may hereafter supplement it. Solicitation
of proxies will be primarily by mail. However, proxies may also be solicited by
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) by telephone or otherwise. Brokerage
houses and other custodians, nominees and fiduciaries will be requested to
forward proxies and proxy material to the beneficial owners of Common Stock, and
the Company will reimburse them for their expenses.
The Company will provide without charge to each person being solicited
by this Proxy Statement, upon written request, a copy of the Company's Form 10-K
for the fiscal year ended December 31, 1998, filed with the Securities and
Exchange Commission. All such requests should be directed to Advanced Health
Corporation, 555 White Plains Road, Tarrytown, New York 10591, Attention:
Secretary.
17
<PAGE>
By Order of the Board of Directors,
/s/ JONATHAN EDELSON
----------------------------------------------------------
Jonathan Edelson, M.D. Chairman of the Board,
Chief Executive Officer and President
Tarrytown, New York June 7, 1999
18
<PAGE>
ADVANCED HEALTH CORPORATION
555 White Plains Road
Tarrytown, New York 10591
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Advanced Health Corporation, a Delaware corporation (the
"Company"), will be held at the Tarrytown Hilton, 455 South Broadway, Tarrytown,
New York 10591, on June 25, 1999, at 10:00 a.m. (local time) for the following
purposes:
a. to elect two directors of the Company to serve for a three-year term and
until their successors are duly elected and qualified;
b. to approve an amendment to the Company's 1995 Stock Option Plan
authorizing the issuance of options thereunder to purchase up to an
additional 200,000 shares of Common Stock of the Company;
c. to ratify the selection of Arthur Andersen, LLP as the Company's
independent auditors;
d. to approve an amendment to the Company's Certificate of Incorporation to
change of the name of the Company to AHT Corporation; and
e. to transact such other business as may properly come before the Meeting
or any adjournments thereof.
Only stockholders of record at the close of business on June 2, 1999,
are entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors,
/s/ JONATHAN EDELSON
----------------------------------------------------------
Jonathan Edelson, M.D. Chairman of the Board,
Chief Executive Officer and President
Tarrytown, New York
June 7, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED FROM WITHIN THE UNITED
STATES.
<PAGE>
ADVANCED HEALTH CORPORATION
555 WHITE PLAINS ROAD
TARRYTOWN, N.Y. 10591
PROXY
This Proxy is Solicited by the Board of Directors
The undersigned hereby appoints Jonathan Edelson, M.D. and Robert J.
Alger as proxies, each with full powers of substitution, and hereby authorizes
them to represent and to vote, as designated on the reverse, all shares of
Common Stock of Advanced Health Corporation held of record by the undersigned on
June 2, 1999 at the Annual Meeting of Stockholders to be held on June 25, 1999
or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER WILL
BE VOTED AT THE ANNUAL MEETING AND ANY ADJOURNMENT THEREOF IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR THE
NOMINEES AND FOR PROPOSALS 2, 3 AND 4 IN ACCORDANCE WITH THE JUDGMENT OF THE
PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE.)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
ADVANCED HEALTH CORPORATION
JUNE 25, 1999
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
votes as in this
example.
1. ELECTION OF DIRECTORS Nominees: Jonathan Edelson, M.D.
Robert J. Alger
FOR WITHHOLD AUTHORITY
the nominee to vote for the
listed at right nominee listed at right
[ ] [ ]
To withold authority to vote for any individual nominee(s),
write name of nominee(s) below.
- -------------------------------
FOR AGAINST ABSTAIN
2. Approval of Amendment to 1995 Stock [ ] [ ] [ ]
Option Plan
3. Ratification of Independent Auditor [ ] [ ] [ ]
4. Approval of an Amendment to the [ ] [ ] [ ]
Company's Certificate of Incorporation to
change the name of the Company to AHT
Corporation
5. In accordance with their judgment, the proxies are authorized to vote upon
such other matters as may properly come before the Annual Meeting, or any
adjournment thereof.
Change of address and/or [ ]
comments mark here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
SIGNATURE _____________________ SIGNATURE_____________________DATED ______,1999.
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporation name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized persons.
