<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
CERULEAN COMPANIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580
December 4, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting in lieu of an Annual
Meeting of Shareholders of shares of Class A Convertible Common Stock ("Class A
Stock") of Cerulean Companies, Inc. ("Cerulean") to be held at the principal
offices of Blue Cross and Blue Shield of Georgia, 3350 Peachtree Road, N.E.,
Atlanta, Georgia, at 11:00 a.m., Eastern time, on Wednesday, December 30, 1998
(the "Meeting").
At this meeting, you will be asked to elect three Class A Designated
Directors: two to serve from the time of the Meeting until the annual meeting in
2001, and one to serve until the annual meeting in 1999 or, in either case,
until their successors are elected and qualified. A majority of the outstanding
shares of Class A Stock must be present in person or by proxy to establish a
quorum for the election, and a plurality of shares voting is necessary for
election.
You may have heard about the proposed merger between Cerulean and WellPoint
Health Networks Inc., one of the nation's largest publicly traded managed health
care companies. That transaction will require the approval of a majority of
Cerulean shareholders of each class of stock. The consideration and approval of
that transaction will occur at a separate Special Meeting of Shareholders that
is not yet scheduled, but will likely be held during the first quarter of 1999.
You will receive a separate Proxy Statement/Prospectus and proxy prior to that
meeting. The only agenda item for action at the December 30, 1998 Meeting is the
election of directors.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES FOR
CLASS A DESIGNATED DIRECTOR DESCRIBED IN THE ATTACHED PROXY STATEMENT.
Enclosed are the (i) Notice of Meeting, (ii) Proxy Statement, (iii) Proxy,
(iv) Cerulean's Annual Report on Form 10-K for the year ended December 31, 1997,
and (v) Cerulean's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998. Even if you plan to attend the Meeting, please fill in, date and sign
the enclosed proxy card with your vote and promptly return it in the enclosed
return envelope, which requires no postage if mailed in the United States, to
ensure that your shares will be represented at the Meeting. If you attend the
Meeting, the proxy can be disregarded, if you wish, and you may vote your shares
in person.
Sincerely,
/s/ Richard D. Shirk
Richard D. Shirk
President and Chief Executive Officer
<PAGE> 3
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580
NOTICE OF MEETING OF SHAREHOLDERS
To be held at 11:00 a.m., Eastern time on Wednesday, December 30, 1998
TO THE SHAREHOLDERS OF CLASS A CONVERTIBLE COMMON STOCK OF CERULEAN COMPANIES,
INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
Shareholders (the "Meeting") of holders of outstanding shares of Class A
Convertible Common Stock ("Class A Stock") of Cerulean Companies, Inc.
("Cerulean") will be held at the principal offices of Blue Cross and Blue Shield
of Georgia, 3350 Peachtree Road, N.E., Atlanta, Georgia, at 11:00 a.m., Eastern
time, on Wednesday, December 30, 1998, for the following purposes:
1. Election of Three Class A Designated Directors. To elect three Class A
Designated Directors to serve from the time of the Meeting until the Annual
Meetings in 2001 (in the case of two such Directors) and in 1999 (in the case of
the third such Director) or, in either case, until their successors are elected
and qualified.
2. Other Business. To transact such other business as may properly come
before the Meeting or any adjournments or postponements thereof.
Information relating to the above matters is set forth in the accompanying
Proxy Statement. Only holders of Class A Stock of record at the close of
business on December 3, 1998, are entitled to receive notice of and to vote at
the Meeting or any adjournments or postponements thereof. Election of Class A
Designated Directors requires the affirmative vote of a plurality of the shares
of Class A Stock represented at the Meeting, assuming a quorum is present.
THE BOARD OF DIRECTORS OF CERULEAN RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE BOARD'S NOMINEES FOR CLASS A DESIGNATED DIRECTORS.
Even if you plan to attend the Meeting, please fill in, date and sign the
enclosed proxy card with your vote and promptly return it in the enclosed return
envelope, which requires no postage if mailed in the United States, to ensure
that your shares will be represented at the Meeting. If you attend in person,
the proxy can be disregarded, if you wish, and you may vote your shares in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard D. Shirk
Richard D. Shirk
President and Chief Executive Officer
Atlanta, Georgia
December 4, 1998
<PAGE> 4
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
(800) 314-2580
PROXY STATEMENT
FOR THE SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF SHAREHOLDERS
---------------------
This Proxy Statement is being furnished to holders of Class A Convertible
Common Stock ("Class A Stock") of Cerulean Companies, Inc. ("Cerulean") in
connection with the solicitation of proxies by the Board of Directors of
Cerulean for use at a Special Meeting in lieu of Annual Meeting of Shareholders
of Class A Stock of Cerulean to be held at 11:00 a.m., Eastern time, on
Wednesday, December 30, 1998, at the principal offices of Blue Cross and Blue
Shield of Georgia, 3350 Peachtree Road, N.E., Atlanta, Georgia (the "Meeting")
and at any adjournments of the Meeting.
This Proxy Statement and the accompanying proxy card are first being mailed
to shareholders of Cerulean on or about December 4, 1998.
VOTING
GENERAL
The securities that can be voted at the Meeting consist of Class A Stock of
Cerulean. The Bylaws of Cerulean (the "Cerulean Bylaws") have fixed the close of
business on December 3, 1998, as the record date (the "Record Date") for
determining the holders of Class A Stock entitled to receive notice of and to
vote at the Meeting. Only holders of record of Class A Stock as of the Record
Date are entitled to notice of and to vote at the Meeting. As of the Record
Date, there were 409,392 shares of Class A Stock issued and outstanding and held
by 70,337 record holders. Holders of Class A Stock are entitled to one vote on
each matter considered and voted on at the Meeting for each share of Class A
Stock held of record at the close of business on the Record Date.
THE MEETING
The Meeting is scheduled to be held in Atlanta, Georgia on December 30,
1998, beginning at 11:00 a.m., Eastern time. The purpose of the Meeting is to
elect two Class A Designated Directors of Cerulean to serve until the Annual
Meeting of Cerulean in 2001 or until their successors are elected and qualified
and one Class A Designated Director to serve until the 1999 Annual Meeting or
until his successor is elected and qualified, and to transact such other
business as may properly come before the Meeting or any adjournments or
postponements thereof. The Board of Directors of Cerulean knows of no business
that will be presented for consideration at the Meeting other than the election
of Directors described in this Proxy Statement.
QUORUM
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of the Class A Stock entitled to vote at the
Meeting is necessary to constitute a quorum at the Meeting. Because Healthcare
Georgia, Inc., Endowed by Blue Cross & Blue Shield of Georgia (the "Foundation")
is only entitled to vote 20,469 of the shares of Class A Stock it holds, only
this number of shares may be counted for the purposes of establishing a quorum
at the meeting. Cerulean is seeking a waiver of this restriction from the Blue
Cross Blue Shield Association. If such a waiver is obtained, all 53,150 shares
of Class A Stock held by the Foundation may be counted for the purpose of
establishing a quorum. Abstentions will be counted as shares present for
purposes of determining the presence of a quorum. Pursuant to the Cerulean
Bylaws, in the event of an absence of a quorum at the Meeting, the Chairman of
the Board of Directors of Cerulean or the President of Cerulean may adjourn the
Meeting to solicit additional votes. Once a share of Class A Stock is
<PAGE> 5
represented at the Meeting, either in person or by proxy, other than solely to
object to holding the Meeting or transacting business at the Meeting, it is
deemed present for the purpose of constituting a quorum for any adjournment of
the Meeting unless a new record date is set for the adjourned Meeting. Because
the election of Class A Designated Directors requires the affirmative vote of a
plurality of shares of Class A Stock voting at the Meeting, abstentions will
have no effect (other than to establish a quorum) on the election of Class A
Designated Directors.
VOTE REQUIRED
In voting for the proposal to elect directors, shareholders may vote in
favor of all nominees, withhold their votes as to all nominees or withhold their
votes as to specific nominees. The election of the Class A Designated Directors
requires the affirmative vote of a plurality of shares of Class A Stock voting
at the Meeting. As a result, in accordance with Georgia law, votes that are
withheld will not be counted and will have no effect.
SOLICITATION AND REVOCABILITY OF PROXIES
Shares of Class A Stock represented by properly executed proxies, if such
proxies are received in time and are not revoked, will be voted at the Meeting
in accordance with the instructions indicated on the proxies. ANY HOLDER OF
CLASS A STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS AS TO
THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE
VOTED "FOR" THE NOMINEES FOR DIRECTOR LISTED ON THE PROXY CARD. If any other
matters properly come before the Meeting, the persons named as proxies will vote
upon such matters according to their judgment.
All proxy cards delivered pursuant to this solicitation are revocable at
any time prior to the vote at the Meeting at the option of the persons executing
them by giving written notice to the secretary of Cerulean, by delivering a
later dated proxy card or by voting in person at the Meeting. All written
notices of revocation and other communications with respect to revocations of
proxies should be addressed to: Cerulean Companies, Inc., 3350 Peachtree Road,
N.E., Atlanta, Georgia 30326, Attention: Hugh J. Stedman, Corporate Secretary.
Attendance at the Meeting will not in and of itself constitute a revocation of a
proxy.
HOLDERS OF CLASS A STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CERULEAN IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE.
The expense of soliciting proxies for the Meeting will be paid by Cerulean.
Proxies initially will be solicited by Cerulean by mail, but directors, officers
and selected employees of Cerulean may solicit proxies from shareholders
personally or by telephone, telecopy or other forms of communication. Such
directors, officers and employees will not receive any additional compensation
for such solicitation. Cerulean also will request nominees, fiduciaries and
other custodians to forward soliciting materials to beneficial owners, and
Cerulean will reimburse such persons for their reasonable expenses incurred in
doing so. In addition, Cerulean may utilize the services of Georgeson & Company
Inc. to solicit proxies from Cerulean shareholders personally or by telephone,
telecopy or other forms of communication at a cost of approximately $75,000,
plus the reimbursement of reasonable out-of-pocket costs and expenses.
PROPOSED MERGER
On July 9, 1998, Cerulean entered into an agreement and plan of merger (the
"Merger Agreement") with WellPoint Health Networks Inc. ("WellPoint") and a
subsidiary of WellPoint. Pursuant to the Merger Agreement, Cerulean will merge
with and into a subsidiary of WellPoint (the "Merger") and will become a wholly
owned subsidiary of WellPoint. Finalization of the Merger is subject to, among
other things, the approval of the shareholders of Cerulean, the approval of the
Commissioner of Insurance of the State of Georgia and the approval of the Blue
Cross and Blue Shield Association. Upon closing the transaction, shareholders of
Cerulean will exchange their shares for shares of WellPoint common stock or cash
in a transaction valued at $500 million. A registration statement containing the
Proxy Statement/Prospectus to be sent to the Cerulean shareholders in connection
with the approval of the Merger has been filed with the
2
<PAGE> 6
Securities and Exchange Commission (the "Commission") and is currently being
reviewed by the Commission. The Proxy Statement/Prospectus will be mailed to
holders of Class A Stock when the registration statement is deemed effective by
the Commission. Cerulean anticipates that the Special Meeting of holders of
Class A Stock for the consideration and approval of the Merger will be held in
the first quarter of 1999.
SECURITY OWNERSHIP OF CERULEAN MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of November 30, 1998, a total of 70,337 holders held 409,392 shares of
Class A Stock, all of which were outstanding.
The Foundation owns 53,150 shares (or approximately 13%) of the Class A
Stock. Pursuant to a Shareholders' Agreement between Cerulean and the
Foundation, dated September 22, 1998 (the "Shareholders' Agreement") the
Foundation is not entitled to vote any shares in excess of 5% of the Class A
Stock, or 20,469 shares of Class A Stock as of December 3, 1998. Cerulean is
seeking a waiver of this restriction from the Blue Cross Blue Shield
Association. If such a waiver is obtained, the Foundation will be entitled to
vote all 53,150 shares of Class A Stock it holds. The address of the Foundation
is: c/o Long Aldridge & Norman LLP, 303 Peachtree Street, Suite 5300, Atlanta,
Georgia 30308.
No directors, nominees for director or officers of Cerulean or of Blue
Cross and Blue Shield of Georgia, Inc. ("Georgia Blue") beneficially own any
shares of capital stock of Cerulean except John W. Robinson, Jr., a nominee for
director who owns five shares (less than 1%) of the Class A Stock outstanding,
and Frank J. Hanna, III. Georgia Strategic Healthcare, LLC ("GSH") owns 40,000
shares (approximately 80%) of the Class B Convertible Preferred Stock of
Cerulean (the "Class B Stock") outstanding. Frank J. Hanna, III, Frank J. Hanna,
Jr. and David Hanna share voting and dispositive power with regard to all of the
shares of Class B Stock owned by GSH. Frank J. Hanna, III, is, therefore, deemed
to be the indirect beneficial owner of the 40,000 shares held by GSH. The
address of GSH is: Suite 1750, Two Ravinia Drive, Atlanta, Georgia 30346.
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<PAGE> 7
MANAGEMENT OF CERULEAN
The following table sets forth certain information as of October 31, 1998
regarding each of the executive officers of Cerulean or Georgia Blue who is not
also a Director of Cerulean.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
John A. Harris............ 48 Treasurer of Cerulean, Executive Vice President of
Finance & Strategic Planning of Georgia Blue
Hugh J. Stedman........... 50 Secretary of Cerulean, Senior Vice President and General
Counsel of Georgia Blue
Ray J. Colleran........... 56 Executive Vice President, Market Operations of Georgia
Blue
Mark Kishel, M.D. ........ 52 Executive Vice President, Chief Medical Officer of
Georgia Blue
Richard F. Rivers......... 45 Executive Vice President, Chief Operating Officer of
Georgia Blue
Richard A. Steinhausen.... 55 Executive Vice President, Service Operations and
Information Systems of Georgia Blue
R. Neil Vannoy............ 52 Executive Vice President, Community Operations of Georgia
Blue
</TABLE>
John A. Harris has served as Georgia Blue's Executive Vice President,
Finance and Strategic Planning since January 1993. He has served as Treasurer of
Cerulean since its organization in February 1996. Prior to joining Georgia Blue,
he worked in the health care industry for 10 years, primarily in managed care
companies, but also with multi-line carriers. His positions included Chief
Financial Officer, Western Market Group, for the Employee Benefits Division of
Lincoln National; Assistant Corporate Controller for Financial Planning,
Reporting and Analysis for Equicor; President, VIP Health Plan (an IPA model HMO
in California); and Vice President, Finance for CIGNA Health Plans for Southern
California.
Hugh J. Stedman currently serves as Secretary of Cerulean and Senior Vice
President and General Counsel to Georgia Blue. Mr. Stedman has been Counsel to
Georgia Blue since 1985. Mr. Stedman obtained his J.D. from Rutgers University
and is admitted to practice law in Georgia and Pennsylvania. Prior to joining
Georgia Blue, Mr. Stedman was Associate Counsel for Healthdyne, Inc., a
manufacturer of medical devices and supplier of home-health services. His legal
career has been specialized within the health care service, equipment and
financing industry. Mr. Stedman is a member of the American, Georgia and Cobb
County Bar Associations, the Cobb County Chamber of Commerce and the American
Health Lawyers' Association.
Ray J. Colleran joined Georgia Blue in February 1993 as Georgia Blue's
Executive Vice President, Market Operations. Prior to February 1993, Mr.
Colleran held a number of key management positions with Equitable Life, Equicor
and CIGNA. These positions included Regional Financial Officer and Regional
Account Vice President with Equitable Life, Vice President in Charge of Sales
and Accounts for Equicor, President of the East Central Region for Equicor, and
most recently, Senior Vice President in Charge of Sales for the East Central
Region for CIGNA. Mr. Colleran has served as Corporate Secretary and Treasurer
for Greater Georgia Life Insurance Company, Inc., a subsidiary of Georgia Blue
("GGL"), since November 1994. Mr. Colleran is a past member of the Blue Cross
and Blue Shield Association National Labor Office Board and the Buckhead Chamber
of Commerce Executive Committee.
Mark Kishel, M.D., has been Executive Vice President and Chief Medical
Officer of Georgia Blue since October 1993. Prior to joining Georgia Blue, he
developed staff, group and IPA model HMOs, as well as PPOs, for major carriers
and other managed care organizations including Travelers, Lincoln National and
Health America. His management experience includes capitated Medicaid, managed
workers' compensation, POS and HMO networks. Dr. Kishel has developed quality
management and utilization management programs for various start-up companies
and consulted in physician health organizations and university-sponsored health
plan development. As a practicing pediatrician and family physician for 11
years, Dr. Kishel assisted in the development of a model primary care system
that addressed the needs of the indigent and uninsured in Arizona. He is a
Director of the Atlanta Boys and Girls Clubs, Inc.
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<PAGE> 8
Richard F. Rivers joined Georgia Blue as Executive Vice President and Chief
Operating Officer in September 1997. Prior to joining Georgia Blue, Mr. Rivers
worked for Prudential Insurance Company for 22 years. Most recently, he was
Senior Vice President of Health Plan Operations with Prudential Healthcare and
was responsible for the operations of 32 local health plans nationwide. Prior to
this, he was President of South Central Operations and had full responsibility
for operations in ten states.
Richard A. Steinhausen joined Georgia Blue in August 1995 as Executive Vice
President, Service Operations and Information Systems. Mr. Steinhausen has more
than 30 years of health care industry experience. Most recently, he served as
Vice President, Employee Benefits Division of Washington National. Previously,
he was a Senior Vice President of Equicor and President of its National Benefits
Sector. He also served as Regional Vice President, Claims for Equitable Life
Assurance Society.
R. Neil Vannoy joined Georgia Blue as Senior Vice President of Public
Affairs and Product Development in July 1992. In 1994, he was appointed
Executive Vice President of Community Operations of Georgia Blue and is
responsible for community healthcare partnership developments, government
programs and corporate marketing communications. Prior to joining Georgia Blue,
Mr. Vannoy served in management positions with Prudential Insurance Company for
16 years, including Vice President, Group Corporate at Prudential's New Jersey
headquarters, Vice President in charge of the company's Southern Group
Operations, Vice President of Florida Group Operations and Vice President of
Group Marketing and Sales at the New York City group office. Mr. Vannoy is a
member of the Boards of Directors of the Georgia Business Forum, the Georgia
Caring Program for Children Foundation and Cerulean's Community Health
Partnership Network joint ventures in Atlanta, Athens, Augusta, Macon and
Savannah. He serves on the Professional Advisory Council of Mission New Hope in
Atlanta, supported the development of the Georgia Coalition for Health as a
member of the formation steering committee and serves on the technical advisory
committees of the Georgia Health Policy Center. Mr. Vannoy holds a Chartered
Life Underwriter designation.
ELECTION OF CLASS A DESIGNATED DIRECTORS
Under the Articles of Incorporation of Cerulean, as amended (the "Cerulean
Articles"), the holders of outstanding shares of Class A Stock, voting
separately as a single class (with each share being entitled to one vote) and to
the exclusion of all other classes and series of capital stock of Cerulean, are
entitled to elect the Class A Designated Directors, for a total of six of the
total members of the Board of Directors following the third election of Class A
Designated Directors. Pursuant to the Shareholders' Agreement, the Foundation is
not entitled to vote any shares in excess of 5% of the Class A Stock, or 20,469
shares of Class A Stock as of December 3, 1998. Cerulean is seeking a waiver of
this restriction from the Blue Cross Blue Shield Association. If such a waiver
is obtained, the Foundation will be entitled to vote all 53,150 shares of Class
A Stock it holds.
Prior to the Special Meeting of holders of Class A Stock held on December
18, 1996 (the "Special Meeting"), a special nominating committee composed of two
Continuing Directors (as defined below) and two Preferred Designated Directors
(as defined below) nominated the two Class A Designated Directors to be voted on
by all of the holders of the Class A Stock at the Special Meeting. At the
Special Meeting, Joseph D. Greene was elected as a Class A Designated Director
to serve as a Class Two Director until the 1997 Annual Meeting, and Elizabeth W.
Camp was elected as a Class A Designated Director to serve as a Class One
Director until the 1999 Annual Meeting.
Prior to the Annual Meeting of holders of Class A Stock held on April 25,
1997 (the "1997 Annual Meeting"), a special nominating committee composed of two
Continuing Directors and Mr. Greene and Ms. Camp, the Class A Designated
Directors, nominated Mr. Greene and James R. Lientz, Jr. as Class A Designated
Directors to serve as Class Two Directors until the 2000 Annual Meeting and
Arnold Tenenbaum as a Class A Designated Director to serve as a Class Three
Director until the 1998 Annual Meeting to be voted on by all of the holders of
the Class A Stock at the 1997 Annual Meeting. The three nominees were elected as
Class A Designated Directors at the 1997 Annual Meeting.
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<PAGE> 9
A special committee composed of two Continuing Directors and the Class A
Designated Directors has nominated Arnold Tenenbaum and Warren Y. Jobe as Class
A Designated Directors to serve as Class Three Directors until the 2001 Annual
Meeting and John W. Robinson, Jr. as a Class A Designated Director to serve as a
Class One Director until the 1999 Annual Meeting, to be voted on by all of the
holders of the Class A Stock at the Meeting.
At each annual meeting hereafter until the Class A Stock is converted to
Common Stock as provided in the Cerulean Articles, a special nominating
committee composed of the six Class A Designated Directors will nominate, and
the holders of the Class A Stock will be entitled to elect, two Class A
Designated Directors each year to replace the Class A Designated Directors whose
terms expire at that annual meeting.
Notwithstanding any nomination by the special nominating committee, the
holders of the Class A Stock are entitled to nominate and elect any eligible
individual to fill the Class A Designated Director positions subject to election
each year.
DIRECTORS
The Cerulean Articles provide that the Board of Directors shall consist of
up to 21 members with the actual number of Directors to be fixed from time to
time by the Board of Directors. The Cerulean Articles further provide for the
classification of Cerulean's Directors into three classes, with each class
containing approximately the same number of Directors, and the term of one class
expiring each year. At each annual meeting of shareholders, the Directors of one
class are elected by the shareholders entitled to vote thereon to hold office
for a term expiring at the third annual meeting following their election, or
until their successors are elected and qualified, except as may be provided with
respect to the terms of Class A Designated Directors elected prior to the 1999
annual meeting. The Board of Directors currently consists of 17 members. Each
Director of Cerulean also serves as a Director of Georgia Blue.
At a meeting of holders of Class B Stock held on September 15, 1998, the
holders of Class B Stock re-elected Frank J. Hanna, III to serve as a Preferred
Designated Director and William A. Alias, Jr., R. Pierce Head, Jr., Richard D.
Shirk and Fred L. Tolbert, Jr. to serve as Directors for new terms expiring at
the 2001 annual shareholders' meeting, or upon the election and qualification of
their successors.
NOMINEES FOR CLASS A DESIGNATED DIRECTOR
The special nominating committee of Cerulean, consisting of James L.
LaBoon, Jr. and W. Jerry Vereen (who are Continuing Directors) and Elizabeth W.
Camp, Joseph D. Greene, James R. Lientz, and Arnold Tenenbaum (who are Class A
Designated Directors), has nominated Arnold Tenenbaum and Warren Y. Jobe to
serve as Class A Designated Directors in Class Three to serve until the 2001
Annual Meeting or until their successors are duly elected and qualified and John
W. Robinson, Jr. to serve as a Class A Designated Director in Class One to serve
until the 1999 Annual Meeting or until his successor is duly elected and
qualified. Mr. Tenenbaum is presently a member of the Board of Directors whose
term is scheduled to expire at the Meeting.
Each of the nominees has consented to serve if elected. If any of the
nominees should become unavailable to serve for any reason (which is not
anticipated), the Board of Directors (or the special nominating committee), in
its discretion, may designate a substitute nominee or nominees (in which case
the persons named as proxies on the enclosed card will vote all valid proxy
cards for the election of such substitute nominee or nominees) or allow the
vacancy or vacancies to remain open until a suitable candidate or candidates are
located.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO (A) ELECT ARNOLD TENENBAUM AND WARREN Y. JOBE AS CLASS A
DESIGNATED DIRECTORS TO SERVE AS CLASS THREE DIRECTORS UNTIL THE 2001 ANNUAL
MEETING AND (B) ELECT JOHN W. ROBINSON, JR. AS A CLASS A DESIGNATED DIRECTOR TO
SERVE AS A CLASS ONE DIRECTOR UNTIL THE 1999 ANNUAL MEETING.
6
<PAGE> 10
INFORMATION REGARDING NOMINEES AND DIRECTORS
PERSONS NOMINATED TO SERVE AS CLASS A DESIGNATED
DIRECTORS UNTIL THE 2001 ANNUAL MEETING
ARNOLD TENENBAUM(1)
Mr. Tenenbaum is President of Chatham Steel Corporation. He is a member of
the Boards of Directors of the Georgia Lottery Commission, First Union National
Bank of Savannah, First Union Bank of Georgia and Savannah Electric & Power
Company. Mr. Tenenbaum is a past President of the Telfair Academy of Arts &
Sciences and the Chair of Steel Service Center Institute. He is a past Chairman
of the Georgia Chamber of Commerce. He is also a director of HMO Georgia, Inc.
("HMO-Ga.") Mr. Tenenbaum is 62.
WARREN Y. JOBE(1)
Mr. Jobe is Senior Vice President of Southern Company responsible for
corporate development including customer relations and civic affairs. Mr. Jobe
is also Executive Vice President and a member of the Board of Directors of
Georgia Power Company. He is president of the Georgia Power Foundation. Mr. Jobe
is a member of the Board of Regents of the University System of Georgia. He
currently serves on the Boards of the Visiting Nurse Health System of Atlanta,
the Georgia Chamber of Commerce, the YMCA of Metro Atlanta, the Atlanta Symphony
Orchestra and several other civic organizations. He is Vice Chairman of the
Board of Trustees of Oglethorpe University. Mr. Jobe is 58.
PERSON NOMINATED TO SERVE AS CLASS A DESIGNATED
DIRECTOR UNTIL THE 1999 ANNUAL MEETING
JOHN W. ROBINSON, JR.(1)
Mr. Robinson is President of Southern Waistbands Incorporated, a
manufacturer of textile interlinings. Until June 1996, he was also a
manufacturer's representative for Threads USA. He has served as a member of the
Board of Directors of the Bank of Barrow and Bank South Corporation, and is
currently an Advisory Director to NationsBank Northeast Georgia. He is a Trustee
of The Georgia Baptist Foundation, serves on the Executive Committee and is a
past Chairman. Mr. Robinson has served on the Georgia Board of Natural Resources
and the Board of Regents of the University System of Georgia, and has been a
Trustee of Athens Academy and a Director of the Barrow County Chamber of
Commerce. Mr. Robinson is 59.
DIRECTORS TO SERVE UNTIL THE 1999 ANNUAL MEETING OF SHAREHOLDERS
JAMES R. ALBRIGHT
Mr. Albright is a Partner with Albright & Fortenberry, Certified Public
Accountants, an accounting firm he founded in Columbus, Georgia in 1971. Prior
to beginning his own firm, Mr. Albright was a Partner in the firm of Henry &
Albright, Certified Public Accountants. Mr. Albright is currently an officer and
Director of Darbyshire, Inc., Albrights, Inc., Presidential Management, Inc. and
Pine Mountain Trail Association, Inc. Mr. Albright has been a Director of
Georgia Blue since 1980 and a Director of Cerulean since its organization in
February 1996. Mr. Albright is 61.
ELIZABETH W. CAMP(2)
Ms. Camp is President of Camp Oil Company in Rome, Georgia. Prior to
joining Camp Oil, Ms. Camp held positions as an attorney at Silver, Freedman &
Taff, attorneys in Washington, D.C., and as an accountant at Arthur Andersen,
LLP in Atlanta, Georgia. Ms. Camp is a member of the Boards of Directors of
Citizens
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(1) Messrs. Tenenbaum, Jobe and Robinson are Class A Designated Director
nominees.
(2) Ms. Camp is a Class A Designated Director in Class One.
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<PAGE> 11
First Bank in Rome, Camp Oil Company, Inc. and Sav-A-Ton Oil. She is a member
and past Chairman of the Board of Alumni Advisors for the Terry School of
Business at the University of Georgia. She is also a member of the Board of
Trustees of Darlington School in Rome. She has been a Director of Georgia Blue
since 1993 and a Director of Cerulean since its organization in February 1996.
Ms. Camp is 46.
MEL H. GREGORY, JR.
Mr. Gregory is retired, following a 35-year career in executive insurance
positions with The Equitable Companies. He held positions as Executive Vice
President, Agency Operations; President and Chief Operating Officer, Equitable
Variable Life Insurance Company; Chief Executive Officer, Equico Securities; and
as a member of The Equitable's Executive Committee. He is a member of the Board
of Directors of Stetson University School of Business. Mr. Gregory has been a
Director of Cerulean since its organization in February 1996 and a Director of
Georgia Blue since 1996. Mr. Gregory is also a director of GGL. Mr. Gregory is
62.
JAMES L. LABOON, JR.
Mr. LaBoon is the Chairman and President of Athens First Bank and Trust
Company, an affiliate of Synovus Financial Corporation, in Athens, Georgia.
Prior to joining Athens Bank and Trust, Mr. LaBoon as Vice President of Finance
and Chief Financial Officer of Wilkins Industries, Inc. He presently serves as a
Director of Athens First Bank & Trust Company, Synovus Mortgage Corp., Athens
Y.M.C.A. and Athens Symphony, Inc. Mr. LaBoon has been Chairman of the Board of
Directors of Georgia Blue since 1994 and a Director since 1984. He has also
served as a Director of Cerulean since its organization in February 1996, and as
its Chairman since March 22, 1996. He is also a member of the Board of Directors
of Group Benefits of Georgia, Inc., a subsidiary of Georgia Blue ("GBG"). Mr.
LaBoon is 62.
JAMES H. LEIGH, JR., M.D.
Dr. Leigh is a surgeon in Gainesville, Georgia, where he has a private
practice. He is a member of the Northeast Georgia Medical Center staff and the
Lanier Park Hospital staff. Dr. Leigh is also past Chief of Surgery and Chief of
Staff at Northeast Georgia Medical Center. Dr. Leigh served as an Assistant
Professor of Surgery at the University of Tennessee College of Medicine. Dr.
Leigh is a member of the Board of Directors of the Northeast Georgia Health
Associates and was previously an Alternate Director of the Medical Association
of Georgia. He has been a Director of Georgia Blue since 1975 and a Director of
Cerulean since its organization in February 1996. He is also a director of
HMO-Ga. Dr. Leigh is 56.
JULIA L. MITCHELL-IVEY
Ms. Mitchell-Ivey is a consultant and former Vice President and Assistant
Corporate Secretary at First Union National Bank of Georgia. Previously, she
held various positions at Decatur Federal Savings and Loan Association including
Corporate Treasurer, Corporate Secretary and Division Vice President. Ms.
Mitchell-Ivey is a past Chairperson of the Board of Directors of Metropolitan
Atlanta Rapid Transit Authority (MARTA) and Chairman of the Board of Directors
of Private Colleges and Universities Authority, and a member of the Board of
Directors of the Y.W.C.A. and the DeKalb Chamber of Commerce. She has been a
Director of Georgia Blue since 1980 and a Director of Cerulean since its
organization in February 1996. She is Chairman of the Board of Directors of
HMO-Ga. Ms. Mitchell-Ivey is 65.
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<PAGE> 12
DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING OF SHAREHOLDERS
JOSEPH D. GREENE(3)
Mr. Greene is a professor of Business Administration for the College of
Business at Augusta State University in Augusta, Georgia. Before joining Augusta
College, Mr. Greene was employed by Pilgrim Health and Life Insurance Company,
where he retired as Executive Vice President after 32 years of employment with
the company. Mr. Greene is past Chairman of the Georgia Board of Regents. He
currently serves on the Board of Directors of McDuffie Bank & Trust of Thomson,
the Greater Augusta Community Foundation, Southeastern Technology Center, the
National Science Center Discovery and the University of Georgia Terry College of
Business. Mr. Greene has been a Director of Georgia Blue since 1993 and a
Director of Cerulean since its organization in February 1996. He is also Vice
Chairman of the Board of Directors of HMO-Ga. Mr. Greene is 58.
JAMES R. LIENTZ, JR.(3)
Mr. Lientz is President of NationsBank Mid-South Banking Group. Prior to
joining NationsBank, he was President and CEO of C&S National Bank of South
Carolina, a predecessor of NationsBank. Mr. Lientz is a member of the Board of
Directors of Georgia Power Company. He is a trustee of Rhodes College, The
Lovett School, the Georgia Research Alliance, and Georgia State University
Foundation and is serving as Chairman of the Georgia Chamber of Commerce and the
Georgia Council on Economic Education. He is a member of the Executive Committee
of the Metropolitan Atlanta Chamber of Commerce. Mr. Lientz has been a director
of Cerulean and Georgia Blue since 1997. Mr. Lientz is 55.
EDWARD M. GILLESPIE
Mr. Gillespie is retired from University Hospital in Augusta, Georgia,
where he served as President and Executive Director until 1991. Prior to joining
University Hospital, Mr. Gillespie held various hospital administrative
positions including Hospital Administrator of Rochester Methodist Hospital in
Rochester, Minnesota. Mr. Gillespie serves on the advisory board of South Trust
and Brandon Wilde retirement community. He is also President of Health Advance,
a health care consulting organization. Mr. Gillespie has been a Director of
Georgia Blue since 1980 and a Director of Cerulean since its organization in
February 1996. Mr. Gillespie is 63.
W. JERRY VEREEN
Mr. Vereen is President and Chief Executive Officer of Riverside
Manufacturing Company in Moultrie, Georgia and is acting Chairman of the Board
of Directors of Riverside Manufacturing Company and all of its subsidiary
corporations. Mr. Vereen serves on the Boards of Directors of Georgia Power
Company, Georgia Chamber of Commerce, Gerber Scientific, Inc., American Apparel
Manufacturers Association, the Textile Clothing Technology Corporation, the
International Apparel Federation, the Georgia Research Alliance and the Georgia
Board of Industry, Trade and Tourism. He has been a Director of Georgia Blue
since 1993 and a Director of Cerulean since its organization in February 1996.
Mr. Vereen is 58.
JOE M. YOUNG(4)
Mr. Young is the General Manager of LOR, Inc. and Rollins Investment Fund,
two entities which manage the holdings of the family of the late O. Wayne
Rollins. His service with LOR, Inc. commenced in 1979 and with Rollins
Investment Fund at its inception in 1988. He also serves as an officer and
director of several other related entities and as a Trustee of several Rollins
Family Foundations and Trusts. Since 1992 he
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(3) Messrs. Greene and Lientz are Class A Designated Directors in Class Two.
(4) Mr. Young is one of two Preferred Designated Directors.
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<PAGE> 13
has been a director of Valley Systems, Inc., a public company traded on the
NASDAQ Stock Market. Mr. Young became a Director of Cerulean and Georgia Blue in
February 1996. Mr. Young is 69.
CLASS THREE -- TERM EXPIRES AT 2001 ANNUAL MEETING OF SHAREHOLDERS
WILLIAM A. ALIAS, JR.
Mr. Alias is an entrepreneur holding various private investments. Formerly,
Mr. Alias was President of Rollins Protective Services, a residential security
company. Prior to joining Rollins, he was Executive Vice President and Chief
Operating Officer of Across the Street Restaurants of America, Inc. He also held
positions at Royal Crown Cola Company and the National Icee Corporation. Mr.
Alias is a former member of the Board of Trustees of the Lovett School and is a
Board Member of Security Check. He has been a member of the Boards of Directors
of Cerulean and Georgia Blue since December 1996. He is a member of the Board of
HMO-Ga. Mr. Alias is 56.
FRANK J. HANNA, III(5)
Mr. Hanna is, and has been since 1993, the Chief Executive Officer of HBR
Capital, Ltd., an investment firm based in Atlanta, Georgia. Mr. Hanna began his
career in Atlanta as a corporate attorney with Troutman Sanders. Mr. Hanna is
also extensively involved in education, including serving as a founding member
of the Board of Directors of the Archbishop Donnellan School in Atlanta and as a
director of Pinecrest Academy. Mr. Hanna is a graduate of the University of
Georgia and the University of Georgia School of Law. Mr. Hanna became a Director
of Cerulean and Georgia Blue in February 1996. Mr. Hanna is 36.
R. PIERCE HEAD, JR.(6)
Mr. Head is a retired Senior Vice President of Georgia Power Company, where
he worked for 40 years in various capacities in the risk management, employee
benefits, information systems, general services and labor relations areas. While
at Georgia Power, Mr. Head chaired several task forces and received a number of
awards, including a Presidential Citation for hiring the physically challenged.
Mr. Head has been a Director of Georgia Blue since 1981 and a Director of
Cerulean since its organization in February 1996. Mr. Head is 71.
RICHARD D. SHIRK
Mr. Shirk joined Georgia Blue as President and Chief Executive Officer on
April 1, 1992 and has been a Director of Georgia Blue since that date. He has
been President, Chief Executive Officer and a Director of Cerulean since its
organization in February 1996, and has been Chairman of GGL and GBG since 1992.
Mr. Shirk has more than 25 years of experience in employee benefits and managed
care. He was a key senior officer of Equicor in its formation in 1986 serving as
President of the Southern Region. When Equicor combined business operations with
CIGNA in 1990, Mr. Shirk was named Senior Vice President of the Central Region
and coordinated the integration of managed care operations of the companies. Mr.
Shirk is a board member of the Georgia Coalition for Health, the National
Institute of Health Care Management and the Georgia Caring Program for Children
Foundation. He is a board member of Central Atlanta Progress, and serves as
Chairman of the Georgia U.S.O.C. Steering Committee, as well as on the board of
directors of the Georgia Chamber of Commerce and the board of trustees of the
SSgA Mutual Funds. He is director of the Buckhead Coalition and Metropolitan
Atlanta Chapter of the American Red Cross. Mr. Shirk has also been a member of
the Board of Directors of HMO-Ga since 1992. Mr. Shirk is 53.
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(5) Mr. Hanna is one of two Preferred Designated Directors.
(6) Pursuant to Cerulean's Bylaws, Mr. Head's term will cease at the conclusion
of the Meeting.
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FRED L. TOLBERT, JR.
Mr. Tolbert is retired as President of Albany First Federal Savings and
Loan in Albany, Georgia. He currently operates his own real estate investment
company in Albany, Georgia. Mr. Tolbert is a Trustee of the Darton College
Foundation. He has been a Director of Georgia Blue since 1983 and Vice Chairman
of the Board since 1994. He has been Vice Chairman of the Board and a Director
of Cerulean since its organization in February 1996, and its Vice Chairman since
March 22, 1996. He also serves as Chairman of the Board of GBG. Mr. Tolbert is
69.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the full
Board of Directors and through committees consisting of a Governance Committee,
a Compensation Committee, a Finance Committee, and an Audit Committee. During
the fiscal year ended December 31, 1997, the Board of Directors held five
meetings. Each director attended 75% or more of the aggregate of all meetings of
the Board of Directors and all committees of the Board of Directors of which he
or she was a member held during the period in Cerulean's 1997 fiscal year during
which he or she served.
The Governance Committee, composed of Messrs. LaBoon (Chairman), Gillespie,
Greene, Gregory and Vereen, recommends policies to be followed by the Board of
Directors, including criteria for Board of Director membership, nominations for
election to the Board of Directors, Board of Directors officers and committees
and ongoing credentialing of the Directors. In addition, it monitors compliance
with and recommends changes to the Cerulean Bylaws and the Cerulean Articles and
monitors compliance with the laws and regulations to which Cerulean is subject.
During the fiscal year ended December 31, 1997, the Governance Committee held
four meetings.
The Compensation Committee, composed of Messrs. Vereen (Chairman),
Gillespie, Gregory, Hanna and Tolbert, ensures the integrity of Cerulean's
compensation and benefit programs, including Directors' compensation and benefit
levels, executive compensation, retirement plans and group health care benefits.
It periodically reviews Cerulean's compensation programs to ensure that
compensation is tied to performance and that an appropriate structure is in
place to attract and retain key management talent. During the fiscal year ended
December 31, 1997, the Compensation Committee held five meetings.
The Finance Committee, composed of Directors Tolbert (Chairman), Albright,
Camp, Hanna, Lientz, Mitchell-Ivey and Young, oversees the handling of monies
and investments of Cerulean and monitors the financial performance of Cerulean
and its subsidiaries. This includes a review and recommendation to the Board of
Directors regarding capital requirements, payment of annual dividends and
periodic reviews and monitoring of progress against the business plans of
Cerulean and its subsidiaries. During the fiscal year ended December 31, 1997,
the Finance Committee held four meetings.
The Audit Committee, composed of Ms. Camp (Chair), and Messrs. Albright,
Alias, Head, Leigh and Young, recommends Cerulean's independent auditors to the
Board of Directors, reviews and approves the scope and approach of the
independent auditors and reviews the opinion and recommendations from Cerulean's
independent auditors and reports the results to the Board of Directors. It also
makes periodic reports to the Board of Directors pertaining to the internal
controls of Cerulean. During the fiscal year ended December 31, 1997, the Audit
Committee held three meetings.
DIRECTORS COMPENSATION
Non-employee Directors each receive aggregate annual retainers of $20,000
for service on the Board of Directors of Cerulean and Georgia Blue plus meeting
fees for attendance at Board of Directors and Committee meetings of Cerulean and
of Georgia Blue. The Chairman, the Vice Chairman and each Committee Chairman
receive additional aggregate retainers of $10,000, $5,000 and $3,000,
respectively. Each non-employee Director receives $500 for attendance at Board
of Directors meetings, $500 for attendance at Committee meetings and $250 for
participation in telephone meetings for each of the two companies. Each
non-employee Director may defer his or her Director fees pursuant to certain of
Cerulean's non-qualified,
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deferred compensation plans. Directors also are reimbursed for reasonable
expenses incurred in connection with the performance of their duties.
COMPENSATION COMMITTEE; INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Directors Vereen (Chair),
Gillespie, Gregory, Hanna and Tolbert (Messrs. Gillespie and Gregory were new
members of the Committee in 1997.). Mr. LaBoon sits with the Compensation
Committee ex officio. The Compensation Committee meets quarterly. The
Compensation Committee sets the compensation for the Chief Executive Officer and
the other named executive officers at a meeting early in each fiscal year after
reviewing, in each case, the performance targets established for the prior year
in comparison to the prior year's actual performance. At this meeting the
Compensation Committee also sets performance targets for the new fiscal year as
well as any targets for additional compensation plans pursuant to which the
Chief Executive Officer and the other named executive officers may earn
compensation with respect to that fiscal year and sets annual salaries in
accordance with the same considerations. None of the members of the Compensation
Committee is or has ever been an officer or employee of Cerulean. There were no
interlocking relationships between any executive officers of Cerulean and any
entity whose Directors or executive officers served on Cerulean's Compensation
Committee. None of the members of the Compensation Committee engaged in
transactions or had relationships requiring disclosure under Item 404 of
Regulation S-K in the fiscal year ended December 31, 1997.
EXECUTIVE COMPENSATION
Table 1 summarizes by various categories, for the fiscal years ended
December 31, 1997, 1996 and 1995, the total compensation earned by (i) the Chief
Executive Officer of Cerulean, and (ii) each of the four most highly compensated
executive officers of Cerulean who were serving as executive officers at
December 31, 1997 and whose salary and bonus for the fiscal year ended December
31, 1997 exceeded $100,000 (collectively referred to as the "named executive
officers"). For information regarding the various factors considered by the
Compensation Committee in recommending the compensation of the Chief Executive
Officer of Cerulean and, generally, the other executive officers of Cerulean,
see "Compensation Committee Report" below.
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TABLE 1: SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- OTHER ANNUAL --------------- ALL OTHER
SALARY($) BONUS($) COMPENSATION($) LTIP PAYOUTS($) COMPENSATION($)
NAME AND PRINCIPAL POSITION YEAR (1) (2) (3) (4) (5)
--------------------------- ---- --------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Shirk......................... 1997 $481,250 $ -- $ -- $281,437 $ 4,030
Chief Executive 1996 425,000 278,000 -- 432,225 5,878
Officer, President and 1995 425,000 -- 54,002 -- 5,087
Director of Cerulean and Georgia Blue
John A. Harris........................... 1997 225,750 -- -- 89,967 3,202
Treasurer of Cerulean; Executive 1996 195,000 88,081 -- 67,392 3,285
Vice President, Finance and Strategic 1995 187,500 -- -- 53,625 2,803
Planning of Georgia Blue
Raymond J. Colleran...................... 1997 207,750 -- -- 82,883 3,202
Executive Vice 1996 195,000 81,011 -- 67,392 3,836
President, Market 1995 194,250 -- -- 87,360 4,909
Operations of Georgia Blue
Mark Kishel, M.D......................... 1997 208,750 -- -- 89,967 3,238
Executive Vice 1996 205,000 88,100 -- 70,848 3,507
President and Chief 1995 203,750 -- -- 91,000 3,130
Medical Officer of Georgia Blue
R. Neil Vannoy........................... 1997 204,750 -- -- 82,883 1,612
Executive Vice 1996 195,000 81,081 -- 67,392 1,181
President, Community 1995 192,750 -- -- 84,630 801
Operations of Georgia
Blue
</TABLE>
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(1) Includes amounts deferred at the election of the officers pursuant to the
Tax-Favored Savings Program and other deferred compensation plans.
(2) Threshold financial performance criteria pursuant to the Annual Incentive
Program was not achieved for 1997 and 1995; no bonuses were earned for those
periods.
(3) Perquisites for named executive officers were less than 10% of their total
salary for all periods presented. Perquisites paid to Mr. Shirk in 1995
include $26,054 paid for vacation earned in prior years as part of a 1995
change in vacation policy for all employees.
(4) Includes payments in 1997 to the named executive officers for long-term
incentive payments for the 1994-1996 performance period, in 1996 for
long-term incentive payments for the 1993-1995 performance period and in
1995 for long-term incentive payments for the 1992-1994 performance period,
except for Mr. Shirk whose payment for the 1992-1994 performance period was
deferred by the Compensation Committee until 1996.
(5) Reflects Georgia Blue's contributions to the Tax-Favored Savings Program in
1997 and 1996, respectively, of $2,500 and $2,375 for Mr. Shirk, Mr. Harris,
Mr. Colleran and Dr. Kishel, and $910 in 1997 for Mr. Vannoy, as well as
premium payments on group term life insurance in 1997 and 1996,
respectively: Mr. Shirk, $1,530 and $3,503; Mr. Harris, $702 and $810; Mr.
Colleran, $702 and $1,461; Dr. Kishel, $738 and $810 and Mr. Vannoy, $701
and $1,181.
LONG-TERM INCENTIVE COMPENSATION
Prior to fiscal year 1998, Georgia Blue maintained a Long-Term Incentive
Plan ("LTIP"). The LTIP was designed to reward participants for their
contributions to the successful achievement of specific financial (60%), market
share (20%) and customer service (20%) goals based on Cerulean's long-term
business strategy. Goals were established for three-year performance periods.
The LTIP had minimum threshold, target and maximum performance levels.
Participants were required to be employed by one of Cerulean's subsidiaries on
the last day of the performance period. Prior to 1998, long-term incentive award
opportunities had been established for six performance cycles, the 1992-1994
performance period, the 1993-1995 performance period, the 1994-1996 performance
period, the 1995-1997 performance period, the 1996-1998 performance period and
the 1997-1999 performance period. The Compensation Committee makes the final
award determination related to the achievement of the defined goals for each
performance period. Named executive
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<PAGE> 17
officers received payout for the 1994-1996 performance cycle which are reflected
in the Summary Compensation Table. Minimum threshold levels for financial
performance were not exceeded for the 1995-1997 cycle. No payouts to named
executive officers were due for this performance period. The LTIP was terminated
as of December 31, 1997, and there are no payments due under the LTIP with
respect to any period for which it was in effect.
Additionally, the named executive officers also participated in a
supplemental salary make-up plan for the 1996-1997 performance period. Under
this plan adopted in 1996, the named executive officers did not receive salary
increases for 1996 (three years for the Chief Executive Officer beginning in
1995) to recover from the financial performance criteria not achieved in 1995
and to accelerate pay progress of non-executive associates. No cash awards were
due to the named executive officers under this plan since target financial
performance was not achieved for the 1997 period.
In July 1997, Cerulean adopted the Performance Unit Plan (the "PUP") to
replace the LTIP and to reward key executives for creating and increasing the
value of Cerulean. The Compensation Committee of the Board of Directors of
Cerulean is responsible for the administration of the PUP including designation
of participants and granting of units. The PUP provides that the Compensation
Committee will award up to an aggregate of one million (1,000,000) units to
designated key employees. The terms of the PUP established a beginning value of
Cerulean of $221,100,000, as determined as of February 2, 1996, and, under the
PUP, a beginning unit value of $22.11. Under the PUP, participants become vested
in their units upon the occurrence of the earliest of a "Change in Control" of
Cerulean, the participant's death, disability or retirement under the Cerulean
tax-qualified retirement plan, the end of a Measurement Period (as defined in
the PUP) or December 31, 1999. The term "Measurement Period" is defined in the
PUP as the period beginning on February 2, 1996 and ending on the date when
Cerulean's value is first determinable, i.e., upon a market event that creates a
definite value and results in liquidity. The Cerulean Board is granted authority
to determine when such a market event has occurred, until such time as
Cerulean's common stock is listed or traded on a recognized United States
exchange. Payments are to be made at the end of the Measurement Period;
provided, that if a Change in Control of Cerulean (as defined in the PUP) occurs
first, payment is to be made as soon as practicable thereafter. A "Change in
Control" is defined in the PUP to include (i) an acquisition of 50% or more of
Cerulean's voting stock; (ii) the termination of a majority of the members of
the Cerulean Board of Directors within a two-year period without certain
approvals; (iii) the approval by the Cerulean shareholders of any merger,
consolidation or share exchange of the voting stock, a liquidation of Cerulean
or any sale of 50% of Cerulean's assets or earning power; or (iv) the approval
by the Cerulean shareholders of any merger, consolidation or share exchange
which would result in the persons who were shareholders immediately before such
transaction having beneficial ownership of less than 50% of the voting
securities.
In order for any amount to be payable under the PUP, the value of Cerulean
must have increased sufficiently from the beginning unit value to meet the
performance hurdle established under the PUP, which is the average yield of
One-Year Treasury Bills (as specified in The Wall Street Journal on the
published date nearest to the end of each quarter for the preceding year),
compounded over the Measurement Period. Assuming that the value exceeds the
performance hurdle, payment is to be made in the amount of the difference
between the beginning unit value and the unit value at the end of the
Measurement Period multiplied by the number of units awarded. Payment is to be
made in cash, Cerulean stock or any combination of the two, subject to
withholding for taxes. Payment is to be made as soon as practicable after the
end of the later of (i) when vesting occurs or (ii) the end of a Measurement
Period.
In 1997 and 1998, all 1,000,000 units have been granted to 285 key
employees of Cerulean. Awards to the named executive officers of Cerulean are as
follows: Richard D. Shirk -- 138,000 units; Raymond J. Colleran -- 58,000 units;
John A. Harris -- 67,000 units; Mark Kishel -- 55,000 units; and R. Neil
Vannoy -- 58,000 units.
RETIREMENT PLAN
The Non-Contributory Retirement Program for Certain Employees of Georgia
Blue (the "Retirement Plan") is a tax-qualified defined benefit pension plan
that covers all employees of Georgia Blue and its
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<PAGE> 18
participating affiliated companies, who have attained age 21 and have completed
1,000 hours of service in a 12-month period after their date of hire or who
complete 1,000 hours of service in any calendar year thereafter. Benefits under
the Retirement Plan are based upon length of service with any BCBS employer,
with varying provisions for employees who are terminated or take early, normal
or deferred retirement. The annual retirement benefit is calculated according to
a specific formula. The benefit is 60% of the participant's Final Average
Earnings (i.e., the average of the highest five consecutive years of annual
salaries and annual incentive payments out of the last ten years of credited
service) reduced by 50% of the participant's anticipated Social Security
benefit. If the participant has less than 30 years of service, the result is
multiplied by a service fraction. The fraction is the number of the
participant's years of credited service up to 30 divided by 30. For purposes of
the Retirement Plan, a participant's earnings that may be considered may be
limited by provisions of Section 401(a)(17) of the Internal Revenue Code of
1986, as amended (the "Code"), and the annual additions to his benefit may be
limited by Code Section 415. A participant becomes fully vested after five years
of service. Generally, upon retirement, participants may elect to receive their
benefits in the form of a lump sum payment, lifetime annuity, lifetime annuity
with a guaranteed payout period (ten or 20 years), or a joint and survivor
annuity with 50%, 66 2/3% or 100% survivor benefits. The Retirement Plan also
provides, subject to certain conditions, for the payment of vested benefits of a
deceased employee to his or her spouse during such spouse's lifetime.
The amount of contributions required by Georgia Blue to fund benefits for
its employees is determined each year by actuaries. Participant contributions
are not permitted. Benefits under the Retirement Plan are insured by the Pension
Benefit Guaranty Corporation. The Retirement Plan is administered by the Blue
Cross and Blue Shield Association. All contributions are held in a tax-qualified
trust, and Bankers Trust Company serves as Trustee to the Retirement Plan.
Georgia Blue made a contribution of $3.4 million to the Retirement Plan for the
plan year ended December 31, 1997. The amounts shown in the Summary Compensation
Table above do not include Georgia Blue's contributions in connection with the
Retirement Plan for the named executive officers. Such amounts are not and
cannot be readily separated or individually calculated.
In order to provide benefits to certain of its highly compensated or
management employees whose benefits under the Retirement Plan will be limited
due to requirements of the Code, Georgia Blue maintains the Blue Cross and Blue
Shield of Georgia, Inc. Executive Benefit Restoration Plan (the "Restoration
Plan"), in which all of the named executive officers participate. Generally,
participants are recommended by the Chief Executive Officer and approved by the
Compensation Committee. The Restoration Plan provides benefits to participants
whose benefits under the Retirement Plan are restricted by the compensation and
annual addition limitations described in Code Sections 401(a)(17) and 415. A
participant becomes vested in his benefit under the Restoration Plan upon
retirement or disability after attainment of age 55 and completion of five years
of service (as defined in the Retirement Plan). A participant whose employment
is terminated within one year following a change in control (as defined in the
Restoration Plan) for reasons other than death or disability will have a fully
vested right to receive all benefits accrued under the Restoration Plan as of
the date of termination if his employment is terminated without just cause (as
defined in the Restoration Plan) or if the participant terminates with good
reason (as defined in the Restoration Plan). The benefit payable under the
Restoration Plan is equal to the difference between (i) the benefit the
participant would be entitled to under the Retirement Plan, calculated without
regard to the compensation and annual addition limits in effect under the Code,
and (ii) the sum of the benefit payable under the Retirement Plan and any
nonqualified defined benefit plan sponsored by another Blue Cross/Blue Shield
employer that relates to a period of service for which credit is given under the
Restoration Plan. The benefits provided by the Restoration Plan are generally an
unfunded obligation of Georgia Blue.
GEORGIA BLUE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of July 1, 1996, Georgia Blue adopted the Supplemental
Executive Retirement Plan (the "SERP") to provide additional, nonqualified
retirement benefits to a designated group of management employees. The SERP is
administered by Georgia Blue's Compensation Committee and is designed as a
supplement to the Retirement Plan. Participants are recommended by the Chief
Executive Officer of Georgia Blue and designated by the Compensation Committee.
In general, each participant in the SERP becomes
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entitled to receive a retirement benefit equal to the difference between (A) and
(B) where (A) equals the benefit that the participant would be entitled to under
the Retirement Plan calculated as if the participant were credited with two
years of service for each year of actual service (up to a maximum of 30 years)
and without application of the compensation or annual additions limitations
imposed under Sections 401(a)(17) and 415 of the Code, and (B) equals the sum of
the participant's vested accrued benefit under the Retirement Plan and his
vested accrued benefit under the Blue Cross and Blue Shield of Georgia, Inc.
Executive Restoration Plan and any other nonqualified defined benefit plan
sponsored by Georgia Blue or any affiliate which pertains to the same periods of
service.
Benefits under the SERP generally become payable upon the participant's
termination of employment due to disability or retirement after reaching age 55
and completing five years of service. Payments may be made in a lump sum or any
form offered under the Retirement Plan. If payment commences before the
participant's attainment of age 65, the benefit amount will be subject to a
reduction of 0.25% for each month by which payment precedes the first day of the
month coinciding with or next following the participant's attainment of age 62.
The SERP provides that if a participant is terminated from employment
within one year following a Change in Control (as defined below) for reasons
other than death or disability, the participant becomes vested and entitled to
receive all benefits accrued under the SERP as of the date of such termination
if such termination arose from voluntary termination for "Good Reason" (as
defined below) or dismissal without "Just Cause" (as defined below). In this
instance, payment is to be made as of the later of the first day of the month
following the termination of employment or the first day of the month following
the participant's 55th birthday.
The SERP contains a definition of "Change in Control" that is similar to
that contained in the PUP. The term "Good Reason" is defined as the occurrence
after a Change in Control of either a reduction in the nature or status of the
participant's responsibilities or a reduction of the participant's base salary.
The term "Just Cause" is defined as (i) an act of fraud, embezzlement, theft or
other felonious criminal act; (ii) willful and continued failure to
substantially perform his duties; or (iii) willful engagement in conduct that is
demonstrably and materially injurious to Georgia Blue and its affiliated
companies.
The SERP is generally an unfunded obligation of Georgia Blue. As of January
1, 1997, Georgia Blue entered into a trust agreement with Wachovia Bank of North
Carolina, N.A., as Trustee, to establish the Blue Cross and Blue Shield of
Georgia, Inc. Nonqualified Retirement Trust (the "Trust"), to which Georgia Blue
would contribute assets for the purpose of payment of the benefits under the
SERP and other nonqualified plans, subject to the claims of Georgia Blue's
creditors in the event of its insolvency or bankruptcy. The terms of the Trust
provide that no later than 30 days following a Change in Control, Georgia Blue
will make an irrevocable contribution to the Trust in an amount sufficient to
fund more than 100% of the benefits accrued under the various nonqualified plans
of Georgia Blue. For these purposes, the definition of "Change in Control" is
similar to that contained in the PUP and the SERP documents. The Georgia Blue
Board of Directors has the responsibility of informing the Trustee that a Change
in Control has occurred. The timing of payment under the nonqualified plans is
not accelerated due to the Change in Control.
Eight individual key management employees participate in the SERP. Four of
the named executive officers participate in the Restoration Plan and the SERP,
and the estimated value of the benefit accrued for each of them during 1997 is
as follows: Raymond J. Colleran -- $77,500; John A. Harris -- $37,630; Mark
Kishel -- $97,928; R. Neil Vannoy -- $54,477.
AGREEMENT FOR SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS BETWEEN GEORGIA BLUE
AND RICHARD D. SHIRK
On December 1, 1996, Georgia Blue entered into an agreement with Richard D.
Shirk to provide him a nonqualified retirement benefit to supplement the benefit
provided to him under the Retirement Plan (the "RDS SERP"), as amended by that
certain First Amendment to the RDS SERP, dated March 7, 1998 with an effective
date of January 1, 1998. Mr. Shirk becomes eligible for benefits under the RDS
SERP upon the termination of his employment for any reason other than his
voluntary termination without "Good Reason." The term "Good Reason" is defined
in Mr. Shirk's employment agreement with Cerulean and Georgia Blue,
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dated January 1, 1997, as amended by that certain First Amendment to Employment
Agreement dated March 7, 1998, with an effective date of January 1, 1998 (the
"Employment Agreement"), as (i) any assignment of duties significantly different
from those contemplated by the Employment Agreement or any material limitation
in his authority, powers or responsibilities, (ii) failure to be elected or
removal as a member of the Board of Directors of either Cerulean or Georgia Blue
unless required by a change in Georgia law, (iii) receipt of any notice limiting
the term of the Employment Agreement to two years, (iv) a material breach by
either Cerulean or Georgia Blue of any of the material provisions of the
Employment Agreement which are not cured within 30 days after notice, and (v) a
Change in Control. For purposes of the Employment Agreement and the RDS SERP,
the term "Change in Control" is defined as (i) the acquisition of ownership of
stock or securities of either Cerulean or Georgia Blue representing 5% or more
of the voting power of any class of stock or securities of either Cerulean or
Georgia Blue (except as may be acquired by institutional investors if the stock
or securities are traded on a recognized exchange or through the Nasdaq Stock
Market); (ii) the date on which a majority of the members of the board of either
Cerulean or Georgia Blue are no longer continuing directors, as defined in the
license agreement between Cerulean and the BCBSA, originally dated February 2,
1996; (iii) approval by the shareholders of Cerulean or Georgia Blue of any
merger, consolidation or share exchange as a result of which the securities of
Cerulean or Georgia Blue will be changed, converted or exchanged into the shares
of another corporation or the liquidation of Cerulean or Georgia Blue or the
sale or disposition of 50% or more of the assets or earning power of either
Cerulean or Georgia Blue; or (iv) approval by the shareholders of any plan of
consolidation, merger or share exchange which would result in the persons who
were shareholders immediately prior to such transaction retaining less than 50%
of the voting power to elect directors of the surviving corporation.
The benefits payable under the RDS SERP vary, depending on Mr. Shirk's age
at the time of his termination of employment. If he is less than age 55 at the
time of his termination, his monthly benefit shall equal 2% of his "Final
Average Earnings" times his years of credited service, minus 21% (which
represents a reduction of 3% per year for each year that the benefit begins
before age 62), minus the monthly annuity amount he would receive from the
Retirement Plan, and minus the actuarial equivalent value of the monthly benefit
he would receive from Social Security at age 62. If termination occurs after age
55 but before age 60, his monthly benefit would equal 2% of his Final Average
Earnings for each of his first 25 years of credited service, minus 0.25% for
each month that his termination precedes his 62nd birthday, plus 3% of his Final
Average Earnings for each of his next five years of credited service, minus the
monthly annuity amount he would receive from the Retirement Plan, and minus the
actuarial equivalent of the monthly benefit he would receive from Social
Security at age 62. If his employment is terminated after age 60, his monthly
benefit would equal 65% of his Final Average Earnings, minus the monthly annuity
amount he would receive from the Retirement Plan, minus the actuarial equivalent
value of the monthly benefit he would receive from Social Security at age 62.
For purposes of the RDS SERP, Mr. Shirk is deemed to have completed 25
years of credited service at age 55. For each year after age 55, he will earn an
additional year of service, up to a maximum of 30 years. Pursuant to the First
Amendment to the RDS SERP, dated December 1, 1996, the term "Final Average
Earnings" is defined to equal one-twelfth of the final average earnings amount
determined under the Retirement Plan, with the following modifications: (i)
Final Average Earnings would not be limited to the compensation limits imposed
by Section 401(a)(17) of the Code; (ii) cash incentive payments would be
included, regardless of whether they were received or deferred by Mr. Shirk;
(iii) if his market target rate for any given calendar year exceeds his base
salary rate, the market target rate is to be used in the calculation, and market
target rate is to equal the 50th percentile market rate as determined by the
Compensation Committee on an annual basis.
The RDS SERP provides that the benefit should be continuously funded by
Georgia Blue through a grantor trust. Georgia Blue has made contributions to the
aforementioned Trust for this purpose.
If Mr. Shirk terminates employment following a Change in Control for any
reason other than voluntarily without Good Reason, the amount of his monthly
benefit is to be the greater of the normal calculation described above
(depending on his age at that time) or 60% of his Final Average Earnings,
without reduction for early commencement, but with reductions for benefits
payable under the Retirement Plan and Social
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Security. Benefits may be paid in a lump sum payment or any optional form of
payment permitted under the Retirement Plan.
Because Mr. Shirk's Employment Agreement defines "Good Reason" to include a
Change in Control, he may voluntarily terminate his employment at any time
following a Change in Control of Cerulean or Georgia Blue and be entitled to
immediate payment of the benefits under the RDS SERP. In addition, due to the
continuous funding requirement of the RDS SERP and the Change in Control funding
requirement of the Trust, it is anticipated that contributions will be required
to the Trust within 30 days of a Change in Control to prefund Mr. Shirks' entire
benefit. The Trust held assets valued at $985,450 as of June 30, 1998.
In addition, as of January 1, 1997, Cerulean amended Mr. Shirk's Employment
Agreement to state that Cerulean will provide Mr. Shirk an additional cash
payment sufficient to cover any excise tax imposed on him under Sections 280G or
4999 of the Code on the total payments (made under the PUP, the RDS SERP, the
Employment Agreement and any other plan or arrangement) he receives as a result
of a Change in Control (the "Excise Tax Payment"), and an additional payment to
cover the state and Federal income taxes and employment taxes on the Excise Tax
Payment (the "Gross Up Payment.")
The estimated value of the nonqualified benefits under the Restoration Plan
and the RDS SERP described in this section accrued at the end of 1997 is
$360,886 for Mr. Shirk.
The following Table 2 -- Pension Plan Table indicates an estimated annual
benefit payable to participants in the Retirement Plan and the Restoration Plan,
assuming continued employment until retirement at age 65. The table indicates
the estimated annual benefit calculated on a straight-line annuity basis in
persons in specified Final Average Earnings and completed years of service
categories. As of December 31, 1997, years of credited service under the
Retirement Plan for the named executive officers were: Mr. Shirk -- 5 3/4 years;
Mr. Harris -- 5 years; Mr. Colleran -- 4 11/12 years; Dr. Kishel -- 4 1/4 years;
and Mr. Vannoy -- 5 5/12 years.
TABLE 2: PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE --------------------------------------------------------
EARNINGS 10 15 20 25 30
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000.......................... $ 17,314 $ 25,972 $ 34,629 $ 43,286 $ 51,943
150,000.......................... 27,314 40,972 54,629 68,286 81,943
200,000.......................... 37,314 55,972 74,629 93,286 111,943
250,000.......................... 47,314 70,972 94,629 118,286 141,943
300,000.......................... 57,314 85,972 114,629 143,286 171,943
350,000.......................... 67,314 100,972 134,629 168,286 201,943
400,000.......................... 77,314 115,972 154,629 193,286 231,943
500,000.......................... 97,314 145,972 194,629 243,286 291,943
600,000.......................... 117,314 175,972 234,629 293,286 351,943
700,000.......................... 137,314 205,972 274,629 343,286 411,943
800,000.......................... 157,314 235,972 314,629 393,286 471,943
900,000.......................... 177,314 265,972 354,629 443,286 531,943
1,000,000.......................... 197,314 295,972 394,629 493,286 591,943
1,250,000.......................... 247,314 370,972 494,629 618,286 741,943
1,500,000.......................... 297,314 445,972 594,629 743,286 891,943
</TABLE>
CHANGE IN CONTROL SEVERANCE AGREEMENTS
In January 1998, Cerulean entered into individual Change in Control
Severance Agreements with 38 key employees. Ten executives entered into Tier I
agreements, and 28 key employees entered into Tier II agreements. These
agreements each have an initial term that ends on December 31, 2001, which is
automatically extended for an additional year absent notice from either party or
upon a public announcement of an intended Change in Control of Cerulean.
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The agreements provide that if, during the term of the agreement, the
employee is terminated without "Cause," for "Good Reason" or due to disability
following a public announcement of an intended Change in Control of Cerulean, or
if Cerulean fails to renew the agreement within 90 days prior to the public
announcement of an intended Change in Control, then the employee becomes
entitled to payment of severance benefits in a lump sum no later than 30 days
following termination of employment.
The severance benefits for employees under the agreements include:
(i) all earned but unpaid base salary, earned and accrued vacation
pay, universal leave pay, unreimbursed business expenses and other amounts
owed;
(ii) an amount equal to two times (for Tier II, one times) the sum of
(a) and (b) where (a) equals the greater of annual base salary at the time
of termination or annual base salary prior to public announcement of
intended Change in Control, and (b) equals the average of the bonuses, if
any, received by the employee under the Cerulean Annual Incentive Plan and
the Cerulean Long Term Incentive Plan during the two-year period that ended
immediately before the year in which the public announcement of the
intended Change in Control occurs;
(iii) if the employee is at least age 50 or has completed ten "years
of service" (as defined in the Retirement Plan) as of the date of
termination, for purposes of calculating his benefits under the Retirement
Plan, the SERP, the Restoration Plan or any other tax-qualified or
nonqualified defined benefit pension plan, he shall be considered to be
100% vested as of the date of his termination and he shall be considered to
have either three additional years of service or three additional years of
age, whichever produces the greater benefit payable to the employee (except
that the additional three years of service will not be eligible for the
double counting under the SERP);
(iv) an amount sufficient for the employee to purchase health and
dental insurance, life insurance and long-term disability insurance
coverage for himself and his dependents for 24 months, at the same cost and
level of coverage as the employee had at his date of termination (with the
COBRA continuation period beginning on date of termination); and
(v) up to $20,000 (for Tier II, up to $10,000) of outplacement
services from a nationally recognized outplacement firm chosen by the
employee.
The Change in Control Severance Agreements also provide that if a Change in
Control occurs during the term of the agreement, or if an intended Change in
Control is publicly announced within 90 days after the term of the agreement has
ended, certain benefits become payable regardless of whether the employee is
terminated from employment. These benefits include (i) the bonus, if any, which
would be earned under the Cerulean Annual Incentive Plan if the level of goal
achievement were annualized, then adjusted on a pro rata basis for the number of
days that the employee was actually employed during the year; and (ii) the
amount payable under the award to the employee under the PUP. These amounts are
required to be paid no later than 30 days following the Change in Control. In
addition, all stock options, restricted stock or performance shares that have
been granted to the employee during the term of the agreement become fully
vested upon a Change in Control.
Each of the Change in Control Severance Agreements contains provisions
requiring Cerulean to provide the employee an additional cash payment sufficient
to cover any Excise Tax Payment and an additional Gross Up Payment.
The four named executive officers who have entered into Tier I Change in
Control Severance Agreements are Raymond J. Colleran, John A. Harris, Mark
Kishel, and R. Neil Vannoy.
TAX-FAVORED SAVINGS PROGRAM
The Blue Cross and Blue Shield of Georgia, Inc. Tax-Favored Savings Program
is a tax-qualified profit sharing plan with a cash or deferred arrangement under
Code Section 401(k) (the "Savings Program"). The Savings Program is designed to
help participants build long-term savings for the future. Generally, all
employees are eligible to participate after they complete 30 days of service and
have attained age 21. A
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participant may contribute to the Savings Program on a before-tax basis from 1%
to 15% of pay up to the maximum dollar contribution amount ($10,000 in 1998).
The employer will match $0.50 for every dollar the participant contributes up to
$500 (maximum $250). For the remaining contribution, the employer will add $0.25
for each dollar the participant contributes up to $2,125 for a total employer
match of $2,375. Participants become 25% vested in all employer matching
contributions after two years, 50% vested after three years, 75% vested after
four years, and 100% vested once they complete five years of service. Lump sum
distributions generally may be made from the Savings Program upon termination of
employment or attainment of age 59 1/2. Participants also may obtain a hardship
withdrawal or borrow money from their account. All contributions to the Savings
Program and investment earnings are held in trust for the exclusive benefit of
participants and their beneficiaries. The name of the trust is Blue Cross and
Blue Shield Association National 401(k) Master Trust for the Tax-Favored Savings
Program. The trustee is INVESCO Trust Company. Cerulean's contributions to the
Savings Program for the named executive officers for 1996 and 1997 are included
in "All Other Compensation" in the Summary Compensation Table.
EXECUTIVE OR OTHER SEVERANCE AGREEMENTS
Chief Executive Officer
Pursuant to the Employment Agreement, each of Cerulean and Georgia Blue
employs Mr. Shirk as President and Chief Executive Officer. The Employment
Agreement has a term of two years commencing on January 1, 1997, provided that
the term of the Agreement automatically extends for an additional month on the
first day of each month so that the Employment Agreement always has an unexpired
term of two years unless the Board of Directors of either Cerulean or Blue Cross
affirmatively notifies Mr. Shirk to the contrary in writing, in which event the
monthly term extension ceases and the two year term becomes fixed. The
Employment Agreement provides Mr. Shirk with an annual base salary of $425,000,
which may be adjusted upward by the Boards of Directors or the Compensation
Committees of Cerulean and Georgia Blue. The Employment Agreement entitles Mr.
Shirk to participate in all incentive compensation plans of Cerulean and Georgia
Blue on a basis consistent with his position, but in no event less than on an
equal basis with any other executives of Cerulean and Georgia Blue.
The Employment Agreement provides that if Mr. Shirk is terminated for any
reason other than "For Cause" or by Mr. Shirk for "Good Reason," then "all
payments" (broadly defined to include salary and certain other benefits under
the Employment Agreement) shall continue at the same rate for a period of two
years. If Mr. Shirk's employment is terminated "For Cause," or Mr. Shirk
voluntarily terminates his employment without "Good Reason," Mr. Shirk will not
be entitled to any compensation whatsoever after the effective date of
termination other than benefits as may be vested at such time. The Employment
Agreement defines "For Cause" as (i) the willful engagement by Mr. Shirk in
conduct, or the taking by him of any action, which is materially injurious to
Cerulean or Georgia Blue, (ii) the willful and repeated failure by Mr. Shirk to
substantially perform his duties; or (iii) gross misconduct or conduct involving
moral turpitude. The Employment Agreement provides that "For Cause" shall first
be determined by the Governance Committees of the Boards of Directors of
Cerulean and Georgia Blue and then approved by an absolute majority of the
members of the Boards of Directors of Cerulean and Georgia Blue. The Employment
Agreement affirmatively provides that differences in management philosophy or
the structure of operations of Cerulean or Georgia Blue shall not be deemed to
be "For Cause."
The Employment Agreement provides that in the event Mr. Shirk dies while
employed, he is entitled to three months of salary and all other compensation
benefits, and thereafter all benefits shall terminate except benefits which are
vested on or prior to the date of death. In the event that Mr. Shirk becomes
physically or mentally disabled, he would become entitled to a continuation of
his salary for two years, and his benefit under the RDS SERP would immediately
become vested. The Employment Agreement entitles Mr. Shirk to six weeks of
vacation each year, an automobile allowance, and the right to reimbursement for
the cost of membership in luncheon and civic clubs and for any costs and
expenses incurred in connection with the negotiation or renegotiation of the
Employment Agreement or the enforcement of any provision thereof.
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The Employment Agreement provides Mr. Shirk with the RDS SERP. The
Employment Agreement also provides that if any portion of payments under the
Employment Agreement or any other agreement or plan of Cerulean or Georgia Blue
qualifies as an "excess parachute payment" under Section 280(G) of the Code and
is thereby subject to excise tax as described in Section 4999 of the Code,
Cerulean and Georgia Blue will provide Mr. Shirk with a cash gross-up payment
equal to Mr. Shirk's excise tax liability plus an additional amount to cover Mr.
Shirk's state and federal income taxes on the gross-up payment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions or relationships requiring disclosure under Item
404 of Regulation S-K for the fiscal year ended December 31, 1997.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board of Directors
discusses the Compensation Committee's objectives and policies applicable to the
compensation of Cerulean's executive officers. The report specifically reviews
the Compensation Committee's guidelines in establishing the compensation of
Cerulean's Chief Executive Officer, as reported in the Summary Compensation
Table, and generally with respect to all executive officers. The Compensation
Committee is composed entirely of independent, nonemployee directors, whose main
focus is always the enhancement of shareholder value. In designing its
compensation guidelines, the Compensation Committee desires to attract, retain
and appropriately reward executives of exceptional talent and seeks to align the
interests of those executives with Cerulean's shareholders and policyholders.
Both individual and corporate performance are considered. Generally, an
executive's compensation package contains three components: base salary,
short-term incentive compensation and long-term incentive compensation.
BASE SALARIES
Base salary is intended to provide a fixed level of compensation reflecting
the scope and nature of basic job responsibilities. In setting base salaries for
executive officers, the Compensation Committee considers the level of
compensation paid by other bonus-paying companies in the insurance industry that
are similar in size to Cerulean. Generally, the performance of the executive
officers (other than the Chief Executive Officer) is determined by the Chief
Executive Officer's evaluation of how well each executive officer has fulfilled
his or her responsibilities, taking into account actual performance as compared
to the financial goals established for Cerulean and other goals established for
his or her area of responsibility. The Compensation Committee annually reviews
the survey methodology and, after considering the recommendations of the Chief
Executive Officer, approves the base salaries for the executive officers.
SHORT-TERM INCENTIVE COMPENSATION
Under Cerulean's Annual Incentive Plan, Cerulean's executive officers and
other key employees have the opportunity to earn annual performance bonuses. At
the beginning of each year under the Annual Incentive Plan, performance goals
are established, and each participant is assigned a target award opportunity
based on his or her anticipated contribution to Cerulean's business performance.
The award opportunity is expressed as a percentage of base salary. At the end of
the calendar year, team and individual performance is measured by comparing
actual results achieved to the goals previously established to determine how
much of the target award each participant will receive. Each of the performance
measurements is weighted, based on the anticipated contribution to Cerulean's
performance. Awards are paid in cash. Ten percent of the overall incentive pool
is allocated for discretionary awards to be determined by the Chief Executive
Officer for superior performance achievement. The objectives of the Annual
Incentive Plan are (i) to reward significant contributions to annual business
performance and (ii) to closely align compensation to individual and company
performance. The target award percentages for 1997 range from 15% to 45% of base
salary of the executive. The threshold financial performance criteria pursuant
to the Annual Incentive Plan was not achieved for 1997.
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LONG-TERM INCENTIVE COMPENSATION
Prior to fiscal year 1998, Georgia Blue maintained a LTIP. The LTIP was
designed to reward participants for their contributions to the successful
achievement of specific financial, market share, and customer service goals
based on Cerulean's long-term business strategy period. Goals were established
for three-year performance periods. The LTIP had minimum threshold target and
maximum performance levels. Participants were required to be employed by one of
Cerulean's subsidiaries on the last day of performance. Prior to 1998, long-term
incentive award opportunities had been established for six performance cycles,
the 1992-1994 performance period, the 1993-1995 performance period, the
1994-1996 performance period, the 1995-1997 performance period, the 1996-1998
performance period and the 1997-1999 performance period. The Compensation
Committee makes the final award determination related to the achievement of the
defined goals for each performance period. Eligible executive officers received
payout for the 1994-1996 performance cycle which are reflected in the Summary
Compensation Table. Minimum threshold levels for financial performance were not
exceeded for the 1995-1997 cycle. No payouts to executive officers were due for
this performance.
In addition, certain eligible executive officers also participated in a
supplemental salary make-up plan for the 1996-1997 performance period. Under
this plan adopted in 1996, the executive officers did not receive salary
increases for 1996 (three years for the Chief Executive Officer beginning in
1995) to recover from the financial performance criteria not achieved in 1995
and to accelerate pay progress of non-executive associates. No cash awards were
due to the executive officers under this plan since target financial performance
was not achieved for the 1997 period. The LTIP was terminated as of December 31,
1997, and there are no payments due under the LTIP with respect to any period
for which it was in effect.
In July 1997, Cerulean adopted the PUP to replace the LTIP and to reward
the key executives for creating and increasing the value of Cerulean. The award
payable to a participant under the PUP will be equal to the increase in unit
value (calculated as of the end of the measurement period) multiplied by the
number of units granted. However, performance hurdles must be surpassed before
any award is payable under the PUP. If the growth in Cerulean's value over the
measurement period is less than the performance hurdle, the award will be zero.
Payouts under the PUP will be calculated on the occurrence of a market/liquidity
event defined in the plan. Prior to the time Cerulean's Common Stock is listed
or traded on a recognized U.S. exchange, the Board of Directors will determine
when a market/liquidity event occurs and creates a definite value of Cerulean
and results in liquidity. The initial measurement period began on February 2,
1996. At the end of 1997, the growth in Cerulean did not exceed the specified
performance hurdle for the period, therefore, units granted under the PUP did
not have any assigned value. The Compensation Committee believes that the awards
granted under the PUP to executive officers provide a long-term incentive to
such persons to contribute to the growth of Cerulean and establish a direct link
between compensation and shareholder return.
The LTIP and the PUP were established by the Compensation Committee to
focus management on long-term results, to retain key executives, and to provide
the executives with long-term incentive compensation in line with that of
executives at comparable companies and to enhance the link with shareholder
interests.
CHIEF EXECUTIVE OFFICER COMPENSATION
Approximately 49.5% of the total compensation opportunity target for Mr.
Shirk is salary and approximately 50.5% is variable compensation that is at risk
and tied to competitive corporate business results. Of Mr. Shirk's total
compensation opportunity, 28.2% is based on annual business performance and
22.3% is tied to long-term, sustained corporate-wide results. In determining the
size of the base salary component of Mr. Shirk's compensation, the Compensation
Committee generally considers the competitive industry pay practices, Cerulean's
performance, and whether Mr. Shirk's total compensation opportunity is
consistent with the compensation for chief executive officers in comparable
companies. Mr. Shirk's annual incentive bonus award for fiscal 1997 was earned
under the same plan applicable to all other executive officers of Cerulean.
Since the threshold financial performance criteria for the Annual Incentive Plan
was not achieved for 1997, Mr. Shirk did not receive an annual incentive bonus
award for 1997. Mr. Shirk has been granted 138,000 units under the PUP.
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OMNIBUS BUDGET RECONCILIATION ACT OF 1993 IMPLICATIONS FOR EXECUTIVE
COMPENSATION
It is the responsibility of the Compensation Committee to address the
issues raised by the recent change in the tax laws which made certain
non-performance-based compensation in excess of $1,000,000 to executives of
public companies nondeductible to these companies beginning in 1995. Depending
on the incentives awarded during any particular year, certain payments could be
nondeductible for Cerulean. The Compensation Committee will continue to monitor
this situation and will take appropriate action if it is warranted in the
future. In order to attract, retain and reward executives of exceptional talent
the policy of the Compensation Committee related to this issue is to establish
and maintain a compensation program that is competitive with that of comparable
companies in the insurance industry while maximizing the creation of long-term
shareholder value.
Compensation Committee: W. Jerry Vereen (Chairman), Edward M. Gillespie,
Mel H. Gregory, Jr., Frank J. Hanna, III and Fred L. Tolbert, Jr.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as Cerulean's independent auditors for
the fiscal year ended December 31, 1997 and the Board of Directors has
reappointed this firm to continue as independent auditors of Cerulean for the
fiscal year ending December 31, 1998.
A representative of Ernst & Young LLP is expected to attend the Meeting and
will have an opportunity to make a statement if he or she desires and will be
available to respond to questions from shareholders.
SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder require Cerulean's executive officers and directors and persons who
own more than ten percent of the Class A Stock, as well as certain affiliates of
such persons, to file initial reports of ownership and changes in ownership with
the Commission. Executive officers, directors and persons owning more than ten
percent of the Class A Stock are required by Commission regulation to furnish
Cerulean with copies of all Section 16(a) forms they file. Based solely on its
review of the written representations from the reporting persons that no other
reports were required for those persons, to Cerulean's knowledge, there were no
filing requirements applicable to its executive officers and directors during
and with respect to the fiscal year ended December 31, 1997. To Cerulean's
knowledge, there is no person who owns more than 10% of the Class A Stock.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals and Director nominations intended to be presented at
the 1999 Annual Meeting of Shareholders of Cerulean must be submitted to
Cerulean in accordance with the procedures set forth in Article I, Section 1.12
of the Cerulean Bylaws. The effect of these provisions is that shareholders must
submit such proposals and nominations in writing to Cerulean a reasonable time
before Cerulean begins to print and mail its proxy materials for the 1999 Annual
Meeting in order for such matters to be included in Cerulean's proxy materials
for, and voted upon at, the 1999 Annual Meeting. All such proposals and
nominations should be submitted on or before such date by certified mail, return
receipt requested, to Hugh J. Stedman, Corporate Secretary.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of Cerulean
knows of no matters that will be presented for consideration at the Meeting
other than as described in this Proxy Statement. However, if any other matter
shall come before the Meeting or any adjournments or postponements thereof and
shall be voted upon, the proxy will be deemed to confer authority to the
individuals named as authorized therein to vote the shares represented by such
proxy as to any such matters that fall within the purposes set forth in the
Notice of Meeting.
23
<PAGE> 27
(CERULEAN LOGO)
<PAGE> 28
IMPORTANT SHAREHOLDER VOTE -- SIGN AND RETURN
REVOCABLE PROXY
CLASS A CONVERTIBLE COMMON STOCK
(Cerulean Companies, Inc. Logo)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE DECEMBER 30, 1998 SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF CLASS A SHAREHOLDERS
The undersigned hereby appoints Hugh J. Stedman and Joseph M. Feuer, and each
of them, proxies, with full power of substitution, to act for and in the name
of the undersigned to vote all shares of Class A Convertible Common Stock of
CERULEAN COMPANIES, INC. (the "Company") which the undersigned is entitled to
vote at the Special Meeting in lieu of Annual Meeting of Class A Shareholders
of the Company to be held at the principal offices of Blue Cross and Blue
Shield of Georgia, 3350 Peachtree Road, N.E., Atlanta, Georgia on December 30,
1998, at 11:00 a.m. Eastern time, and at any and all adjournments thereof, as
indicated on reverse.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE> 29
Please mark your votes as indicated in this example [X]
PROXY SOLICITED BY THE BOARD OF DIRECTORS
This proxy card will be voted as directed. IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY CARD WILL BE VOTED "FOR" EACH OF THE NOMINEES LISTED BELOW ON THIS
PROXY CARD.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTE FOR THE FOLLOWING NOMINEES
- --------------------------------------------------------------------------------
Item 1. Election of Directors. Election of the following Nominees as Directors:
Arnold Tenenbaum, Warren Y. Jobe, John W. Robinson, Jr.
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY to vote for All Nominees
Withhold authority to vote for the following nominee(s):
------------------------
Please mark if you plan to attend the Meeting [ ]
The undersigned may elect to withdraw this proxy at any time prior to its use by
giving written notice to Hugh J. Stedman, Secretary of the Company, or by
executing and delivering to Hugh J. Stedman a duly executed proxy card bearing a
later date, in either case, at or prior to the Meeting.
Date: , 1998
-----------------------------------------
- -----------------------------------------------------
(Signature)
- -----------------------------------------------------
(Signature)
NOTE: Please sign as name appears hereon, Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
If you have questions or need assistance in voting your shares, please
contact the firm assisting us in the solicitation and tabulation of proxies:
GEORGESON
& COMPANY INC.
--------------
WALL STREET PLAZA
NEW YORK, NY 10005
TOLL-FREE: 1-800-223-2064
Internet http://www.georgeson.com
