<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 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:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CHOICECARE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(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)(4) 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: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
CHOICECARE CORPORATION
655 EDEN PARK DRIVE
CINCINNATI, OHIO 45202-6056
(513)784-5200
APRIL 18, 1997
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The annual meeting of shareholders of ChoiceCare Corporation (the
"Company") will be held at the Grand Baldwin Conference Center, Level B, 655
Eden Park Drive, Cincinnati, Ohio, at 6:00 P.M., Wednesday, May 14, 1997, for
the following purposes:
1. To elect three Group II directors to the Company's Board of Directors
to serve until the annual meeting of shareholders in 2000, and until
such time as their respective successors are elected and qualify.
2. To confirm the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the year 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on March 31, 1997 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
The Annual Report of the Company for the year ended December 31, 1996 is
enclosed herewith.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE
AT YOUR EARLIEST CONVENIENCE.
By Order of the Board of Directors,
Thomas D. Anthony, Esq.
Secretary
IMPORTANT
YOUR PROMPT DATING, SIGNING AND RETURNING OF THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE WOULD BE APPRECIATED. IF YOU ATTEND THE MEETING, YOU MAY
NEVERTHELESS VOTE IN PERSON SHOULD YOU DESIRE. THE RETURN OF PROXIES IS
IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OWNED.
<PAGE> 3
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of ChoiceCare
Corporation (the "Company"), 655 Eden Park Drive, Cincinnati, Ohio 45202-6056,
for use at the annual meeting of shareholders of the Company to be held on May
14, 1997 (the "Meeting") and at any adjournment thereof. This Proxy Statement
and accompanying proxy is first being mailed to shareholders on or about April
30, 1997.
The Board of Directors of the Company (the "Board") is soliciting your
proxy for use at the Meeting and any adjournment thereof. The Board recommends a
vote FOR (i) the election of the nominees for directors described below; and
(ii) the confirmation of the appointment of Arthur Andersen LLP as independent
public accountants of the Company. The ChoiceCare Foundation (formerly known as
Tristate Foundation for Health and, prior to that, Midwest Foundation
Independent Physicians Association, the "Foundation") is the record owner of
13,500,000 Common Shares, as hereinafter defined, or 90.89% of the total
outstanding Common Shares. The Foundation has indicated that it will vote FOR
each of the items to be presented at the Meeting.
PROXY VOTING PROCEDURES
To be effective, properly executed and signed proxies must be returned to
Star Bank, N.A., the Company's transfer agent and the proxy tabulator, prior to
the Meeting. The shares represented by a properly executed and signed proxy will
be voted in accordance with the instructions thereon. However, if no
instructions are given, the shares represented thereby will be voted in
accordance with the recommendations of the Board. See "Other Matters" below for
information concerning the voting of proxies if other matters are properly
brought before the Meeting. The Company is soliciting proxies by mail and the
costs of solicitation will be borne by the Company.
VOTING
A majority of the votes attributable to all voting shares must be
represented in person or by proxy at the Meeting to establish a quorum for
action at the Meeting. In the election of directors, the nominees receiving the
greatest number of votes will be elected. Approval of any other matter properly
coming before the Meeting requires the affirmative vote of a majority of the
votes cast at the Meeting. An abstention from voting will be tabulated as a vote
withheld and counted for purposes of determining a quorum but will have no
effect on the outcome of the vote.
At the close of business on March 31, 1997, the record date for the
determination of shareholders entitled to vote at the Meeting, there were
14,852,844 of the Company's common shares, without par value ("Common Shares"),
outstanding. Each Common Share is entitled to one vote on each matter coming
before the Meeting.
Pursuant to the Company's Code of Regulations, as amended (the
"Regulations"), shareholders do not have cumulative voting rights.
You are encouraged to exercise your right to vote by returning a properly
executed and signed proxy in the enclosed envelope, whether or not you plan to
attend the Meeting. This will ensure that your votes are cast.
The members of the proxy committee, whose names are set forth on the
accompanying proxy, were named by the Board. A shareholder giving a proxy may
revoke or change it at any time by (i) submitting a later-dated proxy; (ii)
giving written notice of revocation to Star Bank, N.A., 425 Walnut Street, 6th
Floor, Corporate Trust Operations, Cincinnati, Ohio 45202; or (iii) attending
the Meeting and giving notice of such revocation at the Meeting. A revocation
made during the Meeting will not affect any vote previously taken.
1
<PAGE> 4
BENEFICIAL OWNERSHIP OF STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information, as of March 31, 1997, with
respect to (a) each person known by the Company to be the beneficial owner of
more than 5% of the Common Shares; (b) each current director of the Company; (c)
each of the individuals named in the Summary Compensation Table on page 6; and
(d) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
------------------------ ------------------------ -----
<S> <C> <C>
The ChoiceCare Foundation 13,500,000 90.89%
One West Fourth Street
Suite 502
Cincinnati, Ohio 45202
Thomas D. Anthony, Esq. 4,000 *
Michael J. Barber, M.D. 4,000 *
Daniel W. Geeding, Ph.D. -- *
Daniel A. Gregorie, M.D. 4,000 *
Donald E. Hoffman -- *
James P. Long, Ph.D. -- *
Janet B. Reid, Ph.D. 2,000(2) *
Jane E. Rollinson 4,000 *
Donald A. Saelinger, M.D. 10,000 *
Richard G. Santangelo, M.D. 4,000 *
Michael Schmerler, M.D. 2,000 *
Byron J. Smith 4,000 *
Chad P. Wick -- *
*
All directors and executive officers as a 34,600(2) *
group (13 persons)
<FN>
- ---------------
* Percent of class is less than 1%.
(1) The Securities and Exchange Commission (the "Commission") has defined
"beneficial owner" of a security to include any person who has or shares
voting power or investment power with respect to any such security or who
has the right to acquire beneficial ownership of any such security within
60 days. Unless otherwise indicated, (i) the amounts owned reflect direct
beneficial ownership; and (ii) the person indicated has sole voting and
investment power. Options to purchase Common Shares were first granted
under the Company's 1996 Long Term Stock Incentive Plan (the "Stock
Incentive Plan") on June 5, 1996. As of March 31, 1997, no such options
were exercisable within 60 days. Accordingly, no such option shares are
included in the totals shown above. On June 5, 1997, the following number
of options held by individuals listed herein will become exercisable: Mr.
Anthony - 10,000; Dr. Barber - 31,250; Dr. Gregorie - 125,000; Ms.
Rollinson - 56,250; and Mr. Smith - 7,500.
(2) Includes 2,000 shares to which Dr. Reid disclaims ownership; such shares are
owned by Dr. Reid's spouse.
</TABLE>
2
<PAGE> 5
ELECTION OF DIRECTORS
The Company's Regulations provide for a Board which shall not be less than
nine nor more than fifteen members. The Board currently has ten members and that
number may be increased or decreased only by the affirmative vote of at least a
majority of the entire Board. The Regulations also provide for two classes of
directors. One class consists of physicians or other health care professionals
who have (or whose employer has) an individual participating provider contract
to provide health services to members in one or more of the health plans offered
by the Company or a subsidiary of the Company (the "Class A Directors"). One
Class A Director is required to be a physician or other health care professional
who primarily practices within the Company's (or a subsidiary of the Company)
service area in Kentucky. The Board shall include at all times at least three
Class A Directors. The other class of directors consists of individuals with
relevant expertise, who may include, but are not limited to, HMO experts,
bankers or executive officers of other businesses or organizations and other
individuals representing the community (the "Class B Directors").
The Board is divided into three groups (Group I - term expiring 1999; Group
II - term expiring 1997; and Group III - term expiring 1998). At each annual
meeting of shareholders, directors constituting one group are elected for a
three-year term. There are three directors in each of Group I and II, each
including one Class A Director and two Class B Directors. There are four
directors in Group III, including one Class A Director and three Class B
Directors.
The following persons are the Board's nominees for election as Group II
directors to serve a three-year term until the annual meeting of shareholders in
2000 and until their successors are duly elected and qualify:
Class A Nominee
---------------
Michael Schmerler, M.D.
Class B Nominees
----------------
Donald E. Hoffman
Janet B. Reid, Ph.D.
Unless you withhold authority to vote, the shares represented by the
enclosed proxy will be voted for the election of the Group II nominees. If any
nominee is unable or unwilling to serve as a director on the date of the Meeting
(a situation which is not contemplated by the Board at the present time),
proxies will be voted by the proxy holders for the election of such substitute
as the Board may recommend and for the remaining nominees.
The following table sets forth information with respect to the age and
experience of nominees for election as Group II directors.
<TABLE>
<CAPTION>
GROUP II DIRECTORS
(TO BE ELECTED)
(TERM EXPIRES IN 2000)
YEAR FIRST
ELECTED A
NOMINEE/COMMITTEES AGE PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
------------------ --- ---------------------------------- --------
<S> <C> <C> <C>
DONALD E. HOFFMAN 58 Retired; Senior Vice President - Administration, Cincinnati 1995
Human Resources and Bell Telephone Company (1990 - May 1995). Trustee of the
Compensation ** Foundation (1989 - Present); Chairman of the Foundation (1995 -
Medical Present).
JANET B. REID, PH.D. * 43 President, J.B. Reid and Associates, Inc., a consulting firm, 1995
Human Resources and Cincinnati, Ohio. Trustee of the Foundation (1993 - Present).
Compensation
MICHAEL SCHMERLER, M.D. * 47 Neurologist and Partner, Riverhills Healthcare, Inc. (formerly 1995
Audit Cincinnati Neurologic Associates), Cincinnati, Ohio. Trustee of
Medical the Foundation (1993 - Present).
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
GROUP III DIRECTORS
(TERM EXPIRES IN 1998)
YEAR FIRST
ELECTED A
DIRECTOR/COMMITTEES AGE PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
------------------- --- ---------------------------------- --------
<S> <C> <C> <C>
DANIEL W. GEEDING, PH.D. * 54 Dean, College of Business Administration, Xavier University, 1995
Audit ** Cincinnati, Ohio. Trustee of the Foundation (1989 - March
Finance 1997). Director of Frisch's Restaurants, Inc., Zaring Homes,
Human Resources and Inc. and Glenway Financial Corp.
Compensation
JANE E. ROLLINSON *** 37 Executive Vice President, Chief Operating Officer and Treasurer 1997
of the Company, and President of the Company's Health Plans
Division (October 1995 - Present); President of ChoiceCare
Health Plans, Inc. (March 26, 1997 - Present); Executive Vice
President, Operating and Corporate Support Systems of the
Foundation (May 1993 - September 1995); Senior Vice President,
Finance of the Foundation (August 1991 - May 1993). Chief
Financial Officer, Treasurer and Secretary of the Foundation
(1989 - November 1995).
DONALD A. SAELINGER, M.D. * 50 Internist, Gastroenterologist and Chief Executive Officer, 1995
Human Resources and Patient First Physicians Group (formerly Cincinnati Health
Compensation Partners and, prior to that, Timmerman & Saelinger, P.S.C.),
Medical ** Southgate, Kentucky. Trustee of the Foundation (1992 - March
1997). Director of Citizens Bank of Campbell County.
CHAD P. WICK 54 President, Resources and Instruction For Staff Excellence, Inc. 1995
Finance ** (RISESM) (October 1995 - Present); President, The Mayerson
Company, Cincinnati, Ohio (1990 - October 1995). Trustee of the
Foundation (1989 - March 1997).
<CAPTION>
GROUP I DIRECTORS
(TERM EXPIRES IN 1999)
YEAR FIRST
ELECTED A
DIRECTOR/COMMITTEES AGE PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
------------------- --- ---------------------------------- --------
<S> <C> <C> <C>
DANIEL A. GREGORIE, M.D. *** 47 President and Chief Executive Officer of the Company (October 1995
1995 - Present); Chairman of the Board of the Company (March 5,
1997 - Present); President and Chief Executive Officer of the
Foundation (1989 - September 1995). Trustee of the Foundation
(1989 - Present). Director of Curative Healthcare Inc. and
Cross Medical Products, Inc.
JAMES P. LONG, PH.D. * 60 Former President, Cincinnati State Technical and Community 1995
Audit College, Cincinnati, Ohio (1990 - January
Medical 1997). Trustee of the Foundation (May 1995 - Present).
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
RICHARD G. SANTANGELO, M.D. 53 Pediatrician and Partner, Queen City Physicians, Ltd. (February 1995
Finance 1996 - Present); President, Pediatric Offices, Inc.,
Medical Cincinnati, Ohio (1989 - February 1996). Trustee of the
Foundation (1993 - Present).
<FN>
- --------------------
* Unless otherwise indicated, each such person has been employed in the
principal occupation or employment indicated for at least the past five
years.
** Denotes committee chair.
*** On March 5, 1997, the Board elected Dr. Gregorie as Chairman of the Board
and named Ms. Rollinson a director, to fill the vacancies resulting from
Mr. Robert Westheimer's death on February 23, 1997.
</TABLE>
INFORMATION ABOUT THE BOARD OF DIRECTORS AND BOARD COMMITTEES
During 1996, the Board held eleven meetings. Each director attended 75% or
more of those meetings and the meetings held during the year by all Board
committees on which he or she served.
Set forth below for each standing committee established by the Board is a
description of the committee's responsibilities and the number of meetings held
during 1996:
AUDIT COMMITTEE - The Audit Committee acts as a liaison between the
Company's independent public accountants and the Board; reviews the scope of the
annual audit and the management letter associated with such audit; reviews the
Company's annual and quarterly financial statements; recommends to the Board the
employment of the Company's independent public accountants; has a direct
reporting relationship with the Company's internal auditor; and reviews the
sufficiency of the Company's internal accounting controls. The Audit Committee
met four times during 1996.
FINANCE COMMITTEE - The Finance Committee makes recommendations to the
Board on financial matters; reviews the Company's operating budget; reviews the
investment policy of the Company's available investment funds and the investment
funds of the Company's Savings Plan and Money Purchase Pension Plan; and reviews
the appointment and performance of investment advisors retained by the Company.
The Finance Committee met seven times during 1996.
HUMAN RESOURCES AND COMPENSATION COMMITTEE - The Human Resources and
Compensation Committee reviews and establishes the Company's compensation
policies and programs, including such policies and programs related to the
Company's executive and senior officers; reviews and establishes the Company's
overall human resource strategy and employee benefit plans; and administers the
Company's stock option plans. Effective March 5, 1997, the Human Resources and
Compensation Committee assumed the responsibilities of a nominating committee. A
separate nominating committee did not exist during 1996. For a discussion of
executive compensation administration, see the "Report of the Human Resources
and Compensation Committee of the Board of Directors" beginning on page 9. The
Human Resources and Compensation Committee met eleven times during 1996.
MEDICAL COMMITTEE - The Medical Committee reviews the Company's policies
relating to (i) participating physicians and other health care professionals
delivering medical care; and (ii) the quality and appropriateness of care
provided to members. The Medical Committee met seven times during 1996.
DIRECTOR COMPENSATION
No director may receive compensation for her or his service as a director
if he or she also is an employee of the Company. During 1996, members of the
Board, except the Chairman of the Board, received $7,500 for service as a
director. The non-employee Chairman of the Board received $15,000 for service as
Chairman. Directors received $700 for each single-day Board or committee meeting
attended, $950 for each single-day off-site retreat attended and $1,200 for each
two-day off-site retreat attended. Directors of the Company receive no
compensation for serving as Trustees of the Foundation. Total payments to such
directors for the 1996 year amounted to approximately $275,000.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes compensation earned for services rendered in
all capacities to the Company during the years ended December 31, 1996, 1995 and
1994 by its Chief Executive Officer and the four most highly compensated
individuals employed by the Company (together with the Chief Executive Officer,
the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
---------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) (#)(3) ($)(4)
-------------------------------------------------- ------- ------------- --------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Daniel A. Gregorie, M.D. . . . . . . . . . . . . 1996 $370,000 $433,835 400,000 $136,965
President, Chief Executive Officer and 1995 305,000 503,250 -- 127,515
Chairman of the Board 1994 275,000 379,225 -- 110,969
Jane E. Rollinson. . . . . . . . . . . . . . . . 1996 252,000 252,153 225,000 16,965
Executive Vice President, Chief Operating 1995 216,000 292,097 -- 16,941
Officer and Treasurer 1994 190,000 206,340 -- 16,867
Michael J. Barber, M.D. . . . . . . . . . . . . 1996 209,000 173,663 125,000 17,079
Executive Vice President and Chief Medical 1995 186,400 181,733 -- 16,885
Officer 1994 160,000 110,880 -- 16,813
Thomas D. Anthony, Esq. . . . . . . . . . . . . 1996 185,000 100,640 60,000 14,829
Executive Vice President, Chief Legal 1995 -- -- -- --
Officer and Secretary (5) 1994 -- -- -- --
Byron J. Smith . . . . . . . . . . . . . . . . 1996 150,000 89,235 30,000 16,906
Senior Vice President and Chief Information 1995 130,000 98,719 -- 16,762
Officer, ChoiceCare Health Plans, Inc. 1994 109,967 76,208 -- 16,563
<FN>
- --------------------
(1) Does not include perquisites and other personal benefits, the aggregate
amount of which does not exceed the lesser of $50,000 or 10% of the total
salary and bonus reported with respect to each Named Officer.
(2) For all years presented, amounts listed include earnings under the Company's
1994 Executive Annual Incentive Plan (the "Annual Incentive Plan") and the
Company's 1994 Executive Long-Term Incentive Plan (the "Long-Term Incentive
Plan"). Amount earned for 1996 was comprised of the following:
ANNUAL LONG-TERM
INCENTIVE PLAN INCENTIVE PLAN
-------------- --------------
<S> <C> <C>
Dr. Gregorie . . . . . . . . $265,475 $168,360
Ms. Rollinson . . . . . . . 162,729 89,424
Dr. Barber . . . . . . . . . 115,786 57,877
Mr. Anthony . . . . . . . . 100,640 --
Mr. Smith . . . . . . . . . 62,325 26,910
(3) Reflects the number of Common Shares underlying stock options granted under
the Company's Stock Incentive Plan, which provides for acceleration of
exercisability of options granted thereunder upon the occurrence of certain
events constituting a change in control, as described in the Stock
Incentive Plan.
(4) Amounts for 1996 include contributions and allocations by the Company made
to the Company's Savings Plan, Money Purchase Pension Plan (the "MPP") and
Supplemental Executive Retirement Agreement (the "SERP"), and the dollar
value of insurance premiums paid by the Company, for the benefit of the
Named Officers, as follows:
SAVINGS INSURANCE
PLAN MPP SERP PREMIUMS
---- --- ---- --------
<S> <C> <C> <C> <C>
Dr. Gregorie . . . . . . . . $4,500 $11,865 $120,000 $600
Ms. Rollinson . . . . . . . 4,500 11,865 -- 600
Dr. Barber . . . . . . . . . 4,500 11,865 -- 714
Mr. Anthony . . . . . . . . 2,397 11,865 -- 567
Mr. Smith . . . . . . . . . 4,500 11,865 -- 541
(5) Mr. Anthony was first employed by the Company in January 1996.
</TABLE>
6
<PAGE> 9
OPTION/SAR GRANTS TABLE
The following table summarizes grants of options awarded to the Named
Officers during 1996 under the Stock Incentive Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(2) FISCAL YEAR ($/SHARE) DATE ($)(3)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Gregorie . . . . . . . . . . . . . . . . . 375,000 31.85% $10.00 6/5/06 $1,886,250
25,000 2.12% 10.00 10/2/06 122,750
Ms. Rollinson . . . . . . . . . . . . . . . . . 225,000 19.11% 10.00 6/5/06 1,131,750
Dr. Barber . . . . . . . . . . . . . . . . . . . 125,000 10.62% 10.00 6/5/06 628,750
Mr. Anthony . . . . . . . . . . . . . . . . . . 40,000 3.40% 10.00 6/5/06 201,200
20,000 1.70% 10.00 12/4/06 93,200
Mr. Smith . . . . . . . . . . . . . . . . . . . 30,000 2.55% 10.00 6/5/06 150,900
<FN>
- --------------------
(1) No SARs were issued in 1996.
(2) With the exception of options granted to Dr. Gregorie, options granted to
the Named Officers become exercisable ratably over the four annual grant
date anniversaries following the grant date, or upon a change in control,
as defined in the Stock Incentive Plan. Dr. Gregorie's options become
exercisable ratably over the three annual grant date anniversaries
following the grant date, or upon a change in control, as defined in the
Stock Incentive Plan.
(3) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: (i)
option exercise price equal to the fair market value of the underlying
Common Share on the grant dates; (ii) option term of ten years; (iii) zero
dividend yield; (iv) risk free interest rates ranging from 6.278% to
7.001%, depending upon the grant date; and (v) near-zero volatility rate
due to various restrictions on ownership which limit the transferability of
the Common Shares.
The ultimate value of the options will depend on the future market price of
the Common Shares, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option
will depend on the excess of the market value of the Common Shares over the
exercise price on the exercise date. See "Option/SAR Exercises and Year-End
Value Table" on page 8 for the value of the options at December 31, 1996.
</TABLE>
7
<PAGE> 10
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table provides information on the value of each Named
Officer's unexercised options at December 31, 1996. There were no options
exercises in 1996 by the Named Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
NAME (#)(1) ($)(2)
----------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Gregorie . . . . . . . . . . . . 0 / 400,000 $0 / $0
Ms. Rollinson . . . . . . . . . . . . 0 / 225,000 $0 / $0
Dr. Barber . . . . . . . . . . . . . . 0 / 125,000 $0 / $0
Mr. Anthony . . . . . . . . . . . . . 0 / 60,000 $0 / $0
Mr. Smith . . . . . . . . . . . . . . 0 / 30,000 $0 / $0
<FN>
- ---------------
(1) Options under the Stock Incentive Plan were first granted in 1996 and, with
the exception of options granted to Dr. Gregorie, become exercisable
ratably over the four annual grant date anniversaries following the grant
date, or upon a change in control, as defined in the Stock Incentive Plan.
Dr. Gregorie's options become exercisable ratably over the three annual
grant date anniversaries following the grant date, or upon a change in
control, as defined in the Stock Incentive Plan. No options were
exercisable in 1996.
(2) The $10.00 exercise price was equal to the "fair market value" of the
Common Shares at December 31, 1996, based on the Company's knowledge, which
is not complete. Accordingly, for purposes of this table, unexercisable
options had no value.
</TABLE>
8
<PAGE> 11
REPORT OF THE HUMAN RESOURCES AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
OVERVIEW AND PHILOSOPHY
The Board believes that it has a responsibility to the Company's customer
groups, members, physicians, health care providers and shareholders to attract,
retain and motivate executive officers who have the vision and experience to
provide the leadership that will enable the Company to exceed the needs and
expectations of its constituents. The Human Resources and Compensation Committee
(the "Committee") has the responsibility of recommending to the Board the
compensation plans for the Company's executive officers. It is the Committee's
responsibility to develop compensation plans that are consistent and competitive
with the managed health care industry and other related industries that may
attempt to recruit the Company's executive officers.
The compensation philosophy for the Company's associates, including the
executive officers, is to position base salary and incentive compensation at the
50th percentile of the market for organizations of similar type and size. The
Committee then uses incentive compensation to increase total potential
compensation to the 75th percentile of the market or higher when Company,
business unit and individual performance justifies total compensation that is
comparable to market leaders. The Committee measures performance based on
clinical outcomes, individual performance, operating income, sales and expense
levels, service excellence and strategy implementation.
EXECUTIVE COMPENSATION ADMINISTRATION
Officer compensation recommendations are developed by the Committee, which
is comprised of non-employee directors, and approved by the Board. The Committee
works directly with a nationally recognized independent consultant specializing
in executive compensation for the managed health care industry. The consultant
performs a detailed analysis of each position, conducts a comprehensive market
analysis of similar positions and presents the results and recommendations
directly to the Committee. In addition, the Committee, independent from the
consultant, gathers data from various sources such as national managed health
care surveys, other consultants and professional publications, and compares data
and recommendations received from all sources. Using the data and considering
the needs of the Company, the Committee then recommends appropriate compensation
and related benefit packages to the Board.
CHANGE IN CONTROL AND RETENTION INCENTIVE PAYMENTS
The Committee's recommendations as to the payments which would be made to
executive officers in the event of a change in control of the Company or a
strategic investor purchase (as such terms are described in "Employment
Contracts and Termination of Employment and Change in Control Arrangements"
below) are intended to maintain stability within the Company, and preserve the
executive management team of the Company, in case events occur which constitute
a change in control or a strategic investor purchase. Such payments are designed
to enable the executive officers to continue working for the Company without
undue concern for the effect on their positions of such events and to allow such
executive officers to continue to recommend and take actions that are in the
best interests of all of the shareholders of the Company, without regard to the
personal impact of the executive officers' decisions.
BASE SALARY
The Committee recommends a base salary for each of the executives that
falls within a salary range of 70% to 110% of the market average. For 1996, no
executive's base salary exceeded the market average. The Committee primarily
considers individual performance, experience and market changes in developing
its salary increase recommendations each year. The Committee recommended
increases for each of the officers set forth in the Summary Compensation Table
in 1996 as a result of overall performance, experience levels and market
changes.
INCENTIVE COMPENSATION
The Committee utilizes incentive compensation plans to make total
compensation packages competitive with the market and to place a significant
portion of the executive's total compensation "at risk." The incentive plans are
designed to reward executive behavior that provides a balance between the
short-term and long-term needs of the Company. The Committee considers clinical
outcomes, individual performance, operating income, sales and expense levels,
service excellence and strategy implementation. The Committee identifies key
goals and measurements for all executive incentive plans by reviewing the
Company's business plan and the performance of other similar managed
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health care companies. At the end of the incentive period, the Committee reviews
the Company, business unit and individual performances, and recommends to the
Board payments under the incentive plans based on attainment of the
pre-determined performance goals.
Based on achieving certain clinical outcomes, individual performance, sales
and expense, service excellence and strategy implementation goals, the Committee
recommended that the Board award cash bonuses under the Annual Incentive Plan
that were above target levels, but significantly less than maximum levels, to
each of the officers named in the Summary Compensation Table. Similarly, based
on the achievement of the goals set forth above, the Committee recommended that
the Board award incentive payments above target levels, but significantly less
than maximum levels, to each of the officers under the long term plans.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Gregorie's compensation is recommended by the Committee to the Board.
In 1996, Dr. Gregorie's base salary was equal to the average base salary of
individuals with similar positions with companies of similar size and type to
the Company. Payment was made to Dr. Gregorie under the incentive plans at 144%
of target levels; the maximum potential payment was 200% of the target
incentive. This payment was based on the accomplishment of certain goals such as
developing Medicare and Workers' Compensation products, preparing to expand the
Company's service area, Dr. Gregorie's executive leadership and the overall
performance of the executive team; the achievement of certain service levels and
clinical outcomes; and the Company's financial performance, as measured by
operating results and sales and expense levels.
THE HUMAN RESOURCES AND COMPENSATION COMMITTEE:
Donald E. Hoffman, Chairman
Daniel W. Geeding, Ph.D.
Janet B. Reid, Ph.D.
Donald A. Saelinger, M.D.
* * * * *
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
SUMMARY OF EMPLOYMENT AGREEMENTS
The Company has employment agreements with Dr. Gregorie, Ms. Rollinson, Dr.
Barber and Mr. Anthony (the "Executive Officers"). The material provisions of
such agreements are summarized below. In addition, the philosophy behind certain
provisions of the employment agreements are explained in the "Report of the
Human Resources and Compensation Committee of the Board of Directors" above.
TERM OF AGREEMENTS
Each current employment agreement with an Executive Officer has a term of
three years which commences on January 1, 1997 and terminates on December 31,
1999. Each such agreement is automatically renewed for additional three-year
terms (or, in Dr. Gregorie's case, additional one-year terms), unless the
applicable Executive Officer gives notice of termination to the Company, or the
Company gives notice of termination to the applicable Executive Officer, within
a certain specified number of days prior to the end of the then-current term of
the agreement.
BASE SALARY, REGULAR INCENTIVES AND FRINGE BENEFITS
Each employment agreement with an Executive Officer provides a specific
annual amount of base salary, which is reviewable on an annual basis. The base
salary for an Executive Officer for any year cannot be less than her or his base
salary for the immediately preceding year. Under the current employment
agreements, the initial annual base salary is: $395,000 for Dr. Gregorie,
$280,000 for Ms. Rollinson, $234,000 for Dr. Barber and $214,500 for Mr.
Anthony.
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In addition, each employment agreement provides that annual and long-term
incentives can be provided under and in accordance with the Company's Annual
Incentive Plan and Long-Term Incentive Plan and that stock options can be
granted under the Company's Stock Incentive Plan. Dr. Gregorie's agreement
requires him to be granted stock options during 1997 (under the Stock Incentive
Plan) which give him the right to purchase under certain conditions no less than
200,000 Common Shares and to be granted stock options during 1997 and 1998
considered in the aggregate (under such plan) for no less than 342,697 Common
Shares. Any stock option granted under the Stock Incentive Plan will, under the
terms of such plan, have a purchase price per Common Share which is not less
than 100% of the fair market value of a Common Share on the date such option is
granted (as is determined under methods and procedures established by the
Committee). Any such stock option to be granted Dr. Gregorie will also provide
that all of the Common Shares which are subject to such option will be vested
and will be able to be purchased through the exercise of such option, for up to
ten years from the date the option is granted, if either (1) Dr. Gregorie's
employment with the Company does not end before December 31, 1999 or (2) Dr.
Gregorie's employment with the Company ends before such date for any reason
other than cause or his voluntary resignation (other than a voluntary
resignation which, under the provisions of his agreement described below, allows
Dr. Gregorie to receive 90% of the then-current value of the compensation and
benefits (other than disability, medical, life insurance and other similar
welfare insurance benefits) that would otherwise have been provided to him both
as an employee if his employment had continued to the end of the then-current
term of his agreement and as an independent consultant for the two-year period
after the end of such term).
Further, each employment agreement indicates that, if a change in control
of the Company occurs (as defined hereinafter), the overall value of the annual
incentives provided the Executive Officer under the Annual Incentive Plan for
each year which ends after the change in control generally cannot be reduced
below the value of the incentive targeted for her or him under such plan for the
year in which the change in control occurs (and, if a change in control occurs
in 1997, any previously established incentive for her or him with respect to
1997 under the Long-Term Incentive Plan cannot be reduced).
Each employment agreement also provides for each Executive Officer to
receive certain fringe benefits. Dr. Gregorie's agreement generally provides
medical coverage for himself and his family after his termination of employment
with the Company until he (or, in the event of his death, until his spouse)
becomes eligible to receive benefits under Medicare or obtains employment with
another employer and is eligible to receive comparable medical benefits. In
addition, in the event of a change in control of the Company (as defined
hereinafter), the value of certain of the fringe benefits provided to each
Executive Officer during her or his employment with the Company after the change
in control may not be reduced.
TERMINATION BENEFITS
In the event an employment agreement terminates for cause, the applicable
Executive Officer is generally only entitled to earned but unpaid salary and any
vested fringe benefits to which he or she is entitled upon such termination.
Each current employment agreement also provides that, if the Executive Officer's
employment terminates because of her or his voluntary resignation, then, except
as otherwise provided in this summary, the Executive Officer is generally only
entitled to earned but unpaid salary and any vested fringe benefits to which he
or she is entitled upon such termination. Further, if an Executive Officer's
employment with the Company terminates by reason of her or his death or
permanent disability, he or she (or, in the event of her or his death, her or
his estate) will generally be entitled to earned but unpaid salary, a pro rata
amount of any annual or long-term incentives which have been targeted for her or
his benefit for the year of her or his termination (and any long-term incentives
which have been earned by her or him in prior years but have not yet been paid)
and any vested fringe benefits to which he or she is entitled upon such
termination. In addition, in the event his employment terminates by reason of
his permanent disability, Dr. Gregorie's agreement also provides him with a lump
sum payment equal to 200% of his then-current annual base salary.
In the event the employment of an Executive Officer (other than Dr.
Gregorie) is terminated other than for cause or the Executive Officer's death,
permanent disability or voluntary resignation, then, except as is otherwise
provided in this summary, the Executive Officer is generally entitled to earned
but unpaid salary, a pro rata amount of any annual or long-term incentives which
have been targeted for her or his benefit for the year of her or his termination
(and any long-term incentives which have been earned by her or him in prior
years but have not yet been paid), any vested fringe benefits to which he or she
is entitled upon such termination and payments for executive outplacement
services. In addition, such Executive Officer is generally entitled to bi-weekly
severance payments, equal to her or his base rate of salary in effect at her or
his termination, for twelve months after such termination.
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Dr. Gregorie's employment agreement does not specifically permit the
Company to terminate his employment for a reason other than cause unless a
change in control of the Company occurs. However, the Company may remove Dr.
Gregorie from his current President and Chief Executive Officer positions for a
reason other than cause. If Dr. Gregorie is removed from such positions during
the term of his agreement for a reason other than cause or permanent disability
(and other than after a change in control), then Dr. Gregorie will still be
employed by the Company as an employee working in a special advisor capacity,
with the same salary, incentives and fringe benefits in effect immediately prior
to such removal, until at least the end of the then-current term of his
agreement. In such situation, Dr. Gregorie may elect at any time after his
removal from such President and Chief Executive Officer positions to receive, in
a lump sum, 90% of the then-current value of the compensation and benefits
(other than disability, medical, life insurance and other similar welfare
insurance benefits) that would otherwise have been provided to him during the
remaining term of his agreement (and during the two year consulting period
discussed immediately below).
Further, under Dr. Gregorie's agreement, in the event that Dr. Gregorie's
employment with the Company terminates at the end of any then-current term for
any reason other than cause or his death or permanent disability, and provided
that Dr. Gregorie agrees not to file any administrative charge or lawsuit
relating to his prior employment and to release the Company and certain related
parties from any and all claims and has not made the election described in the
immediately preceding paragraph, Dr. Gregorie's agreement calls for him to be
employed as an independent consultant for two years following the last day of
such then-current term, for compensation generally equal to his annual rate of
base salary for the last year in which he was an employee of the Company.
CHANGE IN CONTROL PAYMENTS
Each current employment agreement provides for a special "change in
control" payment if the Executive Officer's employment terminates, other than
for cause or because of her or his death or permanent disability or her or his
voluntary resignation, within a period which begins six months before, and ends
one year after, a change in control of the Company.
Any such change in control payment is equal to a percentage (the "change in
control percentage") of the sum of the applicable Executive Officer's
then-current annual rate of base salary, the amount established by the Company
for her or his annual incentive for the year in which her or his termination
occurs, and, if the change in control occurs in 1997, the amount established by
the Company for her or his long-term incentive for 1997. The change in control
percentage is: 500% for Dr. Gregorie, 400% for Ms. Rollinson, and 300% for Dr.
Barber and Mr. Anthony. In addition, each Executive Officer is also generally
entitled in such situation to a pro rata amount of any annual or long-term
incentives which have been targeted for her or his benefit for the year of her
or his termination (and any long-term incentives which have been earned by her
or him in prior years but have not yet been paid).
For purposes of each current employment agreement with an Executive
Officer, a "change in control" generally refers to (1) the election of persons
constituting more than 33-1/3% of the number of directors of the Company if such
persons were not nominated by the nominating committee of the Company (or, if so
nominated, were not recommended by a majority of the directors in office prior
to being nominated by such nominating committee), (2) any consolidation or
merger of the Company if, within two years after such consolidation or merger,
individuals who were directors of the Company immediately prior to the
consolidation or merger cease to constitute at least 66-2/3% of the directors of
the Company or its successor by consolidation or merger, (3) any sale, lease,
exchange or other transfer, in one transaction or a series of related
transactions (and other than to a directly or indirectly majority-owned
subsidiary of the Company) of all, or substantially all, of the assets of the
Company, (4) the sale, or the execution of a definitive agreement for the sale,
of at least 33-1/3% of the ownership and/or voting interests in any direct or
indirect subsidiary or subsidiaries of the Company if such subsidiary or
subsidiaries before the sale held assets that constituted all or substantially
all of the assets of the Company and its subsidiaries on a consolidated basis,
(5) the sale, or the execution of a definitive agreement for the sale, of at
least 33-1/3% of the ownership and/or voting interests in the Company to one
purchaser, related purchasers or several purchasers acting directly or
indirectly in concert or (6) the approval by the shareholders of the Company of
any plan or proposal for the liquidation or dissolution of the Company.
RETENTION INCENTIVE PAYMENTS
Each current employment agreement also provides the opportunity for a
special "retention incentive" payment in order to provide the Executive Officer
with an incentive to remain employed with the Company after a change in control
or strategic investor purchase. Such retention incentive payment is not provided
to an Executive Officer, however, in any situation in which an above-described
change in control payment is payable to the Executive Officer.
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For purposes of each current employment agreement with an Executive
Officer, a "strategic investor purchase" refers to the purchase or obtaining by
any person, corporation or other organization of stock possessing less than
33-1/3% of the total combined voting power of all classes of stock of the
Company together with the optional right to purchase in the future additional
stock of the Company which would permit that person, corporation or other
organization to own stock possessing 33-1/3% or more of the total combined
voting power of all classes of stock of the Company.
If a change in control or a strategic investor purchase occurs, a retention
incentive payment will be made to an Executive Officer if he or she is
continuously employed by the Company to the end of her or his retention
incentive period. "Retention incentive period" means the period which begins on
the date immediately following the earlier of a change in control or a strategic
investor purchase (such date referred to herein as the "beginning date") and
which ends on the date which is three years after the beginning date. However,
in Dr. Gregorie's case, his retention incentive period ends on the earlier of
(1) the date which is three years after the beginning date or (2) the later of
the date which is two years after the beginning date or the end of the term of
his employment agreement which is in effect on the beginning date. The amount of
such retention incentive payment is generally equal to: (1) for Dr. Gregorie,
400% of his annual rate of base salary in effect on the beginning date, up to a
maximum of $1.6 million; (2) for Ms. Rollinson, 350% of her annual rate of base
salary in effect on the beginning date, up to a maximum of $1 million; or (3)
for Dr. Barber or Mr. Anthony, 250% of his annual rate of base salary in effect
on the beginning date, up to a maximum of $750,000. In addition, if an Executive
Officer's employment with the Company is terminated because of her or his death
or permanent disability after the earlier of a strategic investor purchase or a
change in control but prior to the end of her or his retention incentive period,
or if her or his employment is terminated for any reason other than cause, her
or his death or permanent disability or her or his voluntary resignation after a
strategic investor purchase but prior to both a change in control or the end of
her or his retention incentive period, then the Executive Officer will also be
entitled to a percent of the full retention incentive payment that he or she
would have received had he or she been employed to the end of her or his
retention incentive period.
Further, if, after one year has expired after a change in control but prior
to the end of an Executive Officer's retention incentive period, the Executive
Officer's employment with the Company is terminated for any reason other than
cause, her or his death or permanent disability or her or his voluntary
resignation, then the Executive Officer will be entitled to a retention
incentive payment which is equal to the same retention incentive payment that
would have applied had he or she been employed by the Company to the end of her
or his retention incentive period.
Also, if Dr. Gregorie's employment with the Company terminates for any
reason other than cause or his death or permanent disability after one year has
expired after a change in control but prior to the end of his retention
incentive period, then, provided that Dr. Gregorie agrees not to file any
administrative charge or lawsuit relating to his prior employment and to release
the Company and certain related parties from any and all claims, he will
generally be entitled, in addition to any retention incentive payment to which
he may be entitled under the provisions described in the immediately preceding
paragraph, to 90% of the then-current value of the compensation and benefits
(other than disability, medical, life insurance and other similar welfare
insurance benefits) he would otherwise have been provided under the normal
provisions of his agreement both as an employee if his employment had continued
to the end of the then-current term of his agreement and as an independent
consultant for the two-year period after the end of such term; except that this
payment will not apply if he is otherwise entitled to the same amounts under
other portions of his agreement.
Finally, in the case of each Executive Officer other than Dr. Gregorie, if
her or his employment with the Company terminates by reason of her or his
voluntary resignation more than one year after a change in control but prior to
the end of her or his retention incentive period, then, provided that the
Executive Officer agrees not to file any administrative charge or lawsuit
relating to her or his prior employment and to release the Company and certain
related parties from any and all claims, the Executive Officer will be entitled
to bi-weekly payments, equal to her or his base rate of salary in effect at her
or his termination, for twelve months after such termination.
If any retention incentive payment is made to an Executive Officer under
the above-described retention incentive provisions, then, except as is otherwise
noted above, no further retention incentive will be payable even if a later
event occurs which would otherwise require a retention incentive payment to such
Executive Officer.
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MISCELLANEOUS PROVISIONS
Each Executive Officer's employment agreement has certain non-compete
covenants under which he or she agrees that he or she will generally not compete
in certain material ways with the Company for at least one year after her or his
termination of employment with the Company (or, if he or she becomes entitled to
a retention incentive payment under the provisions described above, for a period
of at least two years after her or his termination of employment).
Further, each employment agreement with an Executive Officer provides that,
for purposes of any of the above-described provisions of the agreement, the
Executive Officer will generally not be deemed to have voluntarily resigned from
her or his employment with the Company, and to have been terminated by the
Company, if he or she resigns at least 120 days after, and no more than 180 days
after, the Company either changes the principal party to whom he or she reports
to a person or persons who have lower positions in the Company than the person
or persons to whom he or she currently reports or significantly reduces her or
his duties. In such case, for purposes of determining the Executive Officer's
rights to any change in control or retention incentive payment under the
above-described provisions of the agreement, the Executive Officer is deemed to
have had her or his employment terminated by the Company on the date that the
Company took the action described in the immediately preceding sentence which is
applicable to her or his resignation. In addition, any resignation of an
Executive Officer will not be deemed to be voluntary if such resignation occurs
after the Company requires the Executive Officer to change her or his principal
work location by at least 50 miles and the Executive Officer refuses to make
such move.
In addition, if an Executive Officer's employment terminates at the end of
a then-current term of her or his employment agreement (either its initial term
or a renewal term) by reason of the Company giving timely notice to the
Executive Officer that such agreement will not be renewed, then, for purposes of
any of the above-described provisions of the agreement, the Company will be
deemed to have terminated the Executive Officer's employment. On the other hand,
if the Executive Officer's employment terminates at the end of a then-current
term of her or his employment agreement by reason of the Executive Officer
giving timely notice to the Company that such agreement will not be renewed,
then, except as is otherwise provided in the immediately preceding paragraph,
the Executive Officer will be deemed to have voluntarily resigned her or his
employment for purposes of the above-described provisions of the agreement.
Finally, each employment agreement with an Executive Officer provides that,
if any change in control payment, retention incentive payment or any other
payment by the Company to the Executive Officer under her or his agreement is
subject to a penalty tax as a so-called "excess parachute payment" under the
Internal Revenue Code (the "Code"), the Company will "gross up" the payment so
that the net amount of such payment, after taking into consideration such
penalty tax, will leave the Executive Officer with the same amount as if no such
penalty tax applied.
POTENTIAL PAYOUTS
The Company's maximum contingent liability under the employment agreements
described above is currently estimated to approximate: (i) $3.7 million in the
event that only retention incentive payments are made; or (ii) $10.5 million in
the event that only change in control payments are made. As set forth in Note
11(a) of the Company's Notes to Consolidated Financial Statements for the year
ended December 31, 1996, the maximum contingent liability of the
previously-existing employment agreements then in effect was estimated at
approximately $3.9 million. Such previously-existing employment agreements
provided for change in control payments in the event that an Executive Officer
had her or his employment terminated during a then-current contract term within
six months of the change in control, regardless of whether such termination
occurred because of the resignation of the Executive Officer or the termination
of her or his employment by the Company, or in the event that her or his
employment was terminated by the Company without cause within six months prior
to the change in control.
PROPOSED AGREEMENTS WITH CERTAIN OFFICERS
While the Company has not previously entered into written employment
agreements with officers of its subsidiary, including Mr. Smith, it intends to
do so in the near future with certain of the officers. Such agreements will
likely give the Chief Executive Officer the discretion to provide retention
incentive payments to certain of the officers which are similar to the retention
incentive payments provided the Executive Officers but at lower amounts in the
event of a change in control of the Company or a strategic investor purchase.
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EXECUTIVE ANNUAL INCENTIVE PLAN. The Company maintains the Annual Incentive
Plan to provide its executives a substantial portion of total compensation at
risk, with the opportunity for increased compensation if individual and/or
corporate performance exceeds objectives. Participation in the plan is
restricted to the Chief Executive Officer, Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents and other executive associates as designated by
the Chief Executive Officer. Awards under the plan are based upon certain
Company and individual performance levels.
LONG TERM STOCK INCENTIVE PLAN. In 1996, the Board, with shareholder
approval, developed and implemented the Stock Incentive Plan for substantially
all of the Company's associates. The purpose of the Stock Incentive Plan is to
align the long-term interest of the Company's executives and associates with
those of the Company's shareholders. Additionally, option grants which are made
under such plan provide a favorable mechanism through which the Company's
executives and associates can achieve equity ownership in the Company.
The number of options or other awards granted to an executive is generally
determined by the Committee based on the executive's level of responsibility and
the practice of comparable managed health care companies as reported by the
independent outside consultant. Under the Stock Incentive Plan, any options are
granted with an exercise price which is no less than the fair market value of
the Company's Common Shares on the grant date (as determined by methods and
procedures established by the Committee).
On March 5, 1997, the Board committed to the 1997 annual grant of options
under the terms of the Stock Incentive Plan, including the following commitments
for the Named Officers: Dr. Gregorie - 200,000; Ms. Rollinson - 90,000; Dr.
Barber - 60,000; Mr. Anthony - 60,000; and Mr. Smith - 12,000. Such options will
be granted at fair market value, as determined by the Board, during the second
quarter of 1997.
MONEY PURCHASE PENSION PLAN. The Company maintains the Money Purchase
Pension Plan. This plan is designed to be a qualified defined contribution money
purchase pension plan under the Code. All employees, including the Named
Officers but excluding employees covered by a collective bargaining agreement,
if any, participate after being credited with six months of service and
attaining age 21. Pursuant to the terms of the plan, the Company contributes 5%
of a participant's annual salary (generally based on her or his IRS Form W-2
reported income) to the plan, up to the "taxable wage base" in effect under
Section 230 of the Social Security Act, plus 10% of the participant's salary
above such taxable wage base, except that the maximum annual salary considered
under the plan is subject to a maximum legal limit. The maximum annual salary
considered under the plan for 1997 is $160,000. To be eligible for
contributions, participants must be employed on the last day of the year or be
credited with more than 500 hours of service during the year. Participants
become vested in the amounts in their accounts under a graduated vesting
schedule which provides for 100% vesting after six years of vesting service.
Participants' accounts are invested in accordance with investment directions
provided by the participants for allocating their accounts among the options
available under the plan. Distributions of vested amounts are paid as a single
lump sum or in certain annuity or installment methods after retirement, death,
disability or other termination of employment.
SAVINGS PLAN. The Company also maintains the Savings Plan. This plan is
designed to be a qualified defined contribution profit sharing plan with a cash
or deferred arrangement under Section 401(k) of the Code. All employees,
including the Named Officers but excluding employees covered by a collective
bargaining agreement, if any, participate after being credited with six months
of service and attaining age 21. Participants may contribute from 1% to 15% of
their annual salary on a pre-tax basis, up to the maximum dollar amount allowed
under the Code (currently $9,500). Participants may also make voluntary
after-tax contributions, subject to certain restrictions. The Company may make
discretionary matching contributions of a percent to be determined annually
based on a percentage of participants' pre-tax contributions. The Company also
may make annual discretionary profit sharing contributions in an amount to be
determined by the Board, which are allocated in proportion to participants'
compensation. Participants' contributions are 100% vested at all times.
Participants become vested in the Company's matching and discretionary profit
sharing contributions under a graduated vesting schedule which provides for 100%
vesting after six years of vesting service, except that the Company may make
certain qualified nonelective contributions which are 100% vested immediately.
Participants' accounts are invested in accordance with investment directions
provided by the participants for allocating their accounts among the options
available under the plan. Distributions of vested amounts are paid as a single
lump sum or in certain annuity methods after retirement, death, disability or
other termination of employment.
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DEFERRED COMPENSATION PLAN. The Company also maintains the ChoiceCare
Voluntary Deferred Compensation Plan, adopted effective January 1, 1996, which
allows certain of the Company's employees to elect to defer a percentage of
their following year's pay. Participation for any calendar year is limited to
employees who had an annualized base salary of $100,000 or more in the
immediately preceding calendar year and who are expected to have a base salary
of $100,000 or more in the plan year for which the election of deferred pay is
made. An eligible employee generally is permitted to defer for a calendar year
up to 75% of her or his base salary and up to 100% of her or his annual bonus.
The deferred pay is deemed to be invested in certain investment funds, and the
employee's account is credited with investment gains and losses as if the
deferred funds had actually been invested in those funds. The employee can
receive payment of the deferred pay and investment credits only upon retirement,
total disability or termination of employment, and is not permitted to be paid
such amounts at any earlier time. In the event of death, the employee's
beneficiary receives payment of such amounts. Until an employee's account is
paid out, the deferral amount remains as an asset of the Company that is
potentially subject to the Company's other creditors in the event of the
Company's insolvency or bankruptcy.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS. The Company maintains a
Supplemental Executive Retirement Agreement for Dr. Gregorie, which was first
effective as of January 1, 1994, and was amended and restated to be effective as
of January 1, 1997. That agreement provides unfunded deferred compensation
credits to Dr. Gregorie for fiscal year 1994, and for each subsequent year in
which Dr. Gregorie remains an employee of the Company. The Company shall credit
to a book account for fiscal year 1994 and each subsequent fiscal year through
and including fiscal year 1999 an amount equal to 19% of the total of Dr.
Gregorie's actual base salary for each year and his actual award under the
Annual Incentive Plan. Each year subsequent to 1999 in which Dr. Gregorie
remains an employee of the Company, the credit to the book account shall be an
amount equal to 16% of the total of such base salary and incentive award. If the
total amount of the credits to be made to the book account does not equal
certain minimums as of the termination of employment of Dr. Gregorie for any
reason other than cause, the Company is obligated to contribute additional
amounts to the book account in accordance with the terms of the agreement. The
credits to the book account are assumed to be invested in investments designated
by Dr. Gregorie from among choices designated by the Company.
Amounts credited to the book account shall be 100% vested as of December
31, 1999, but not generally vested prior to that date. Early vesting to the
extent of 100% shall occur upon termination or non-renewal of Dr. Gregorie's
employment agreement without cause by the Company prior to December 31, 1999,
Dr. Gregorie's death or permanent disability while he remains employed by the
Company or a change in control as defined in Dr. Gregorie's employment
agreement. The Company shall pay to Dr. Gregorie the vested percentage of the
balance in his account determined as of the date he terminates employment with
the Company for any reason other than his death, in one lump sum or in up to ten
annual installment payments, as he elects at least one year prior to his
termination of employment. If Dr. Gregorie ceases to be employed by the Company
by reason of his death, the balance will be paid to his beneficiary. If Dr.
Gregorie's employment is terminated for cause, he will forfeit all amounts in
the book account.
The Company also maintains a Supplemental Executive Retirement Plan for
Executive Officers, which was effective January 1, 1997. That plan provides
unfunded deferred compensation credits for Ms. Rollinson, Dr. Barber and Mr.
Anthony. The Company shall credit to book accounts for each year beginning with
1997 during which they remain employed by the Company an amount equal to 8% of
the total of their actual base salary for each year and their actual awards
under the Annual Incentive Plan. The credits to the book accounts are assumed to
be invested in investments designated by the executives from among choices
designated by the Company.
Amounts credited to the book accounts shall be 100% vested as of each
executive's 60th birthday provided they remain employed by the Company on that
date. Early vesting to the extent of 100% shall occur upon termination of their
employment by the Company without cause, their death or permanent disability
while they remain employed by the Company or the occurrence of a change in
control as defined in their employment agreements. The Company shall pay to them
the vested percentage of the balance in their accounts determined as of the date
they terminate employment with the Company for any reason other than death, in
one lump sum or in up to ten annual installment payments, as they elect at least
one year prior to their termination of employment. If they cease to be employed
by the Company by reason of death, the balance will be paid to their
beneficiaries. If their employment is terminated for cause, they will forfeit
all amounts in the book accounts.
16
<PAGE> 19
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company was not subject to the Section 16(a) reporting requirements
during fiscal year 1996. The Company filed a Form 8-A on March 25, 1997.
Accordingly, the Company will file such reports in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Committee set forth above are all independent directors of
the Company, and, except for the relationships described below in "Certain
Transactions," have no other relationships with the Company and its subsidiary.
SHAREHOLDER RETURN PERFORMANCE INFORMATION
There is no established public trading market for the Common Shares nor
published quotations related to the Common Shares. Any trades of Common Shares
are on an individually negotiated basis between Eligible Investors, as such term
is defined in the Company's Regulations. To the Company's knowledge, which is
not complete, there have been a limited number of trades in the Common Shares
during 1996, negotiated among Eligible Investors, at approximately $10.00 per
share. The Company sold its Common Shares to Eligible Investors in an initial
public offering at $10.00 per share. Accordingly, the Shareholder Return
Performance Graph typically presented by publicly-traded companies is not
presented herein because it is not applicable to the Company's Common Shares.
CERTAIN TRANSACTIONS
Each of Drs. Saelinger, Santangelo and Schmerler, and Dr. Reid's
husband, is either an individual participating provider or an employee of a
group practice which currently has a provider contract with the Company. Drs.
Saelinger, Santangelo, Schmerler and Reid are directors of the Company. In each
case, the terms of the provider contract are no more favorable than the terms
provided to other participating providers or participating provider groups of
the Company, and such contracts are not material, either individually or in the
aggregate. The following amounts include payments made in 1996 to the
individuals and/or the group practices with which they are associated, for
medical services provided to members and payments made in connection with the
1988 settlement of a lawsuit filed by a group of participating and formerly
participating physicians against the Company and certain former officers (the
"THOMPSON litigation"): Dr. Saelinger - $81,972; Dr. Santangelo - $151,775; Dr.
Schmerler - $81,105; and Dr. Reid's husband, Dr. Leon A. Reid III - $84,869.
The Company maintains a medical group assistance program to provide technical,
general management and financial support to physician group practices. At March
31, 1997, the Company had entered into agreements with twelve group practices
under the program, including groups with which Drs. Santangelo and Saelinger
are associated. Pursuant to such an agreement, the Company provided
approximately $589,000 in financial support to Dr. Santangelo's group in 1996
and has committed to provide additional financial support of approximately
$446,000. The agreement with Dr. Saelinger's group contained no financial
commitments and no payments were made thereunder in 1996.
* * * * *
17
<PAGE> 20
CONFIRMATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has appointed Arthur Andersen LLP as independent public
accountants of the Company and its subsidiary for the year ending December 31,
1997. Arthur Andersen LLP has served the Company and its predecessor in that
capacity since 1979. It is anticipated that a representative of Arthur Andersen
LLP will attend the Meeting, will have an opportunity to make a statement if he
or she desires to do so and will be available to respond to appropriate
questions that may be asked by shareholders.
Confirmation of the appointment of Arthur Andersen LLP will require the
affirmative vote of a majority of the votes cast at the Meeting. THE BOARD
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR CONFIRMATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP.
* * * * *
OTHER MATTERS
As of the date of this Proxy Statement, the Board is not aware of any other
business or matters to be presented for consideration at the Meeting other than
as set forth in the Notice of Annual Meeting of Shareholders attached to this
Proxy Statement. If, however, any other business shall come before the Meeting
or any adjournment or postponement thereof and be voted upon, the enclosed proxy
shall be deemed to confer discretionary authority on the individuals named to
vote the shares represented by such proxy as to any such matters.
* * * * *
FUTURE SHAREHOLDER PROPOSALS
Proposals of shareholders which are intended to be presented at the
Company's next annual meeting of shareholders must be received by the Company no
later than December 31, 1997, for inclusion in the proxy statement and proxy
relating to that meeting. Proposals should be sent to Thomas D. Anthony, Esq.,
Secretary, ChoiceCare Corporation, 655 Eden Park Drive, Cincinnati, Ohio
45202-6056.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's 1996 Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, may be obtained, without charge, by writing
or calling:
Investor Relations
ChoiceCare Corporation
655 Eden Park Drive
Cincinnati, Ohio 45202-6056
(513) 684-7440
Thomas D. Anthony, Esq.
Secretary
April 18, 1997
18
<PAGE> 21
CHOICECARE CORPORATION
Annual Meeting of Shareholders, May 14, 1997-- THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder appoints Daniel A. Gregorie, M.D., Donald A.
Saelinger, M.D. and Thomas D. Anthony, Esq, and each of them, as attorneys,
with full power of substitution, to vote all shares in CHOICECARE CORPORATION
(the "Company") that the undersigned is entitled to vote at the annual meeting
of the Company's shareholders to be held at the Grand Baldwin Conference
Center, Level B, 655 Eden Park Drive, Cincinnati, Ohio on Wednesday, May 14,
1997 at 6:00 P.M., and at any adjournment thereof, upon the matters indicated
on the reverse side hereof and fully described in the Company's proxy
statement dated April 18, 1997, as well as upon any other matters properly
coming before the meeting.
Shares
<TABLE>
<CAPTION>
1. Election of Group II Directors:
<S> <C> <C> <C>
Class A nominee: Michael Schmerler, M.D. FOR [ ] WITHHOLD [ ]
Class B nominees: Donald E. Hoffman FOR [ ] WITHHOLD [ ]
Janet B. Reid, Ph.D. FOR [ ] WITHHOLD [ ]
2. To confirm the appointment of Arthur Anderson LLP as independent public accountants of the Company for fiscal year 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, to act upon such other matters as may properly come before the meeting.
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS SPECIFIED, WILL BE VOTED FOR ITEMS 1 AND 2 IN ACCORDANCE WITH
MANAGEMENT'S RECOMMENDATIONS.
Please sign name(s) exactly as printed hereon. If your shares are held jointly,
both holders must sign. In signing as attorney, administrator, executor,
guardian or trustee, please give title as such. If you are an authorized
individual signing on behalf of a corporation or partnership, please state the
full corporate or partnership name.
- ----------------------------- -----------------------------
Signature Date Signature Date
