<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>
ACCREDO HEALTH, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
(ACCREDO HEALTH, INC. LOGO)
ACCREDO HEALTH, INCORPORATED
1640 CENTURY CENTER PARKWAY
SUITE 101
MEMPHIS, TENNESSEE 38134
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, NOVEMBER 18, 1999
---------------------
To the Stockholders of Accredo Health, Incorporated:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Accredo Health, Incorporated (the "Company" or "Accredo"), will be
held in the Sweetbriar Room at the Crescent Club, 6075 Poplar Avenue, Memphis,
Tennessee, 38119, on Thursday, November 18, 1999 at 10:00 a.m. (Central Daylight
Time) for the following purposes:
(1) To elect three Class I directors to serve for a term of three (3)
years and until their successors are elected;
(2) To ratify the selection of Ernst & Young LLP as independent
auditors for the Company for the fiscal year ending June 30, 2000;
(3) To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on September 24, 1999
are entitled to notice of and to vote at the Annual Meeting or any adjournment
or postponement thereof.
Your attention is directed to the Proxy Statement accompanying this Notice
for more complete information regarding the matters to be acted upon at the
Annual Meeting.
The Board of Directors of the Company unanimously recommends that
stockholders vote FOR the director nominees named in the Proxy Statement, and
FOR approval of the appointment of Ernst & Young LLP as auditors for the
Company.
Stockholders are cordially invited to attend the meeting in person.
By Order of the Board of Directors
(Thomas W. Bell, Jr. Sig)
Thomas W. Bell, Jr.,
Secretary
October 19, 1999
IMPORTANT
YOUR PROXY IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO BE PERSONALLY PRESENT
AT THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
<PAGE> 3
(ACCREDO HEALTH, INC. LOGO)
ACCREDO HEALTH, INCORPORATED
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1999
This Proxy Statement is being furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Accredo Health, Incorporated
(the "Company" or "Accredo") from holders of the Company's common stock, $0.01
par value (the "Common Stock"). These proxies will be voted at the 1999 annual
meeting of stockholders of the Company (the "Annual Meeting") to be held at
10:00 a.m. (Central Daylight Time) on Thursday, November 18, 1999, in the
Sweetbriar Room, at The Crescent Club, 6075 Poplar Avenue, Memphis, Tennessee,
38119, and at any adjournments or postponements thereof. The mailing address of
the principal executive offices of the Company is 1640 Century Center Parkway,
Suite 101, Memphis, Tennessee 38134.
Only holders of record of shares of Common Stock outstanding as of the
close of business on September 24, 1999 (the "Record Date"), are entitled to
notice of and to vote on each matter submitted to a vote at the Annual Meeting
and any adjournment(s) or postponement(s) thereof. Each share of Common Stock is
entitled to one vote on all matters presented at the Annual Meeting.
Stockholders do not have the right to cumulate their votes for directors. As of
the close of business on September 24, 1999, the Company had 9,144,887 shares of
Common Stock outstanding. The Notice of Annual Meeting, this Proxy Statement,
and the proxy are being first mailed to stockholders on or about October 19,
1999.
A majority of the outstanding shares of Common Stock entitled to vote at
the meeting, represented in person or by proxy, is required to constitute a
quorum. If a quorum is not present at the Annual Meeting, or if for any reason
the Company believes that additional time should be allowed for the solicitation
of proxies, the Company may adjourn or postpone the Annual Meeting with or
without a vote of the stockholders. If adjournment is proposed by the Company,
the person named on the enclosed proxy will vote such shares for which they have
voting authority in favor of adjournment.
All shares of Common Stock represented at the Annual Meeting by properly
executed proxies received prior to or at the Annual Meeting and not properly
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated thereon. If no specification is made, the proxies will be voted in
favor of the matters listed on the proxy card. Directors must be elected by a
plurality of votes cast (in person or by proxy) by the holders of Common Stock
entitled to vote at the Annual Meeting if a quorum is present. The ratification
of auditors for Accredo and approval of any other matters will be determined
based upon the affirmative vote of the majority of shares present (in person or
by proxy) held by the holders of Common Stock entitled to vote at the Annual
Meeting if a quorum is present.
Shares represented by proxies that are marked "withhold authority" or
"abstain" will be counted as shares present for purposes of establishing a
quorum. Shares represented by proxies that include broker nonvotes will also be
counted as shares present for purposes of establishing a quorum. A broker
nonvote occurs when a broker or nominee holding shares for a beneficial owner
votes on one proposal but does not vote on another proposal because the broker
or nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Neither withholding authority to vote
with respect to one or more nominees or a broker nonvote will have an effect on
the outcome of the election of directors or the approval of auditors for
Accredo.
<PAGE> 4
All expenses of the Annual Meeting, including the cost of soliciting
proxies, will be paid by the Company. The Company may reimburse persons holding
shares in their names for others, or holding shares for the others who have the
right to give voting instructions, such as brokers, banks, fiduciaries and
nominees, for such persons' reasonable expenses in forwarding the proxy
materials to their principals.
Any stockholder returning the accompanying proxy card may revoke that proxy
at any time prior to its exercise by (a) giving written notice to the Company of
such revocation, (b) voting in person at the meeting, or (c) executing and
delivering to the Company a proxy card bearing a later date.
PROPOSALS FOR STOCKHOLDER ACTION
PROPOSAL 1.
ELECTION OF DIRECTORS
The Company's Board of Directors is composed of three classes, designated
Class I, Class II, and Class III. The term of the Class I directors expires at
the Annual Meeting. The current Class I directors are David D. Stevens and
Kenneth J. Melkus. The Board of Directors, by action taken at a meeting on June
22, 1999, increased the size of the Board to eight by enlarging the number of
Class I Directors from two to three, and designated David D. Stevens, Kenneth J.
Melkus, and Kevin L. Roberg as the nominees for election as Class I directors at
the Annual Meeting. The term of the Class II directors will expire at the 2000
annual meeting of the stockholders of the Company and the term of the Class III
directors will expire at the 2001 annual meeting of the stockholders of the
Company. Each succeeding term of a director in Class I, Class II, or Class III
shall be for three years or until his or her successor is elected. The Class II
directors are Andrew M. Paul and Kyle J. Callahan, and the Class III directors
are Patrick J. Welsh, John R. ("Randy") Grow, and Kenneth R. Masterson.
The Amended and Restated Certificate of Incorporation of the Company
presently provides that the Board of Directors shall consist of between five and
twelve members, and that the actual number of members shall be determined within
such minimum and maximum by resolutions adopted by an affirmative vote of at
least two-thirds (2/3) of the total number of directors then in office. The
Amended and Restated Certificate of Incorporation of the Company further
provides that any vacancy in the Board created by an increase in the number of
directors, death, resignation, retirement, disqualification, removal from office
or otherwise may be filled, until the next election of directors by the
stockholders, by the affirmative vote of at least two-thirds (2/3) of the total
number of directors then remaining in office, though they may constitute less
than a quorum of the Board.
Each nominee for election at the Annual Meeting has consented to be a
candidate and to be so named in this Proxy Statement and to serve, if elected.
If any nominee becomes unable or unwilling to serve, although not anticipated,
the persons named as proxies will have the discretionary authority to vote for a
substitute. Directors will be elected by a plurality of the votes cast by the
shares of Common Stock represented in person or by proxy at the Annual Meeting.
Therefore, the three nominees for election as Class I directors who receive the
greatest number of votes cast at the Annual Meeting will be elected to the Board
of Directors as Class I directors. Unless otherwise specified, the accompanying
proxy will be voted FOR David D. Stevens, Kenneth J. Melkus and Kevin L. Roberg
as Class I directors.
Information as to each nominee and as to directors continuing as Class II
directors and Class III directors follows:
CLASS I DIRECTORS -- NOMINEES FOR ELECTION AT THE ANNUAL MEETING -- TERM
EXPIRING AT THE 2002 ANNUAL MEETING
KENNETH J. MELKUS
Age -- 53
Mr. Melkus has been a Director of Accredo since October 1997. Mr. Melkus
currently serves as a consultant to Welsh Carson Anderson & Stowe (which through
various associations and ownership
2
<PAGE> 5
relationships is an affiliate of the Company). From its founding in 1993 to its
sale in 1996, Mr. Melkus served as Chairman of the Board and Chief Executive
Officer of HealthWise of America, Inc., an operator of health maintenance
organizations. From 1986 until 1993, Mr. Melkus served as Vice Chairman and
President of Surgical Care Affiliates, Inc., an operator of outpatient surgery
centers. Mr. Melkus is also a director of Quorum Health Group, Inc. and several
privately-held companies.
KEVIN L. ROBERG
Age -- 48
From 1995 to 1998, Mr. Roberg served as the Chief Executive Officer and
President of ValueRX and Medintell Systems Corporation, which was acquired by
ValueRX. Mr. Roberg has held numerous positions with healthcare companies since
1974, including positions with United Healthcare Corporation, Partners National
Health Plans, American MedCenters, Inc., and MedCenters Health Care, Inc. Mr.
Roberg serves as a director of Duane Reade Drug Stores; Dignified Assisted
Living, Inc.; JLJ Medical Devices; Lake Air Metal Products; OmniCell
Technologies, Inc.; and Childrens Health Care Foundation. Mr. Roberg is Chairman
of the Board of Childrens Health Care.
DAVID D. STEVENS
Age -- 46
Mr. Stevens has served as Chief Executive Officer of Accredo since it was
acquired from LeBonheur Health Systems, Inc. ("LHS") in 1996 and has served as a
Director of Accredo since June 1997. Previously, Mr. Stevens served as Chief
Operating Officer of Accredo's wholly owned subsidiary, Southern Health Systems,
Inc. ("SHS") since its inception in 1983. Mr. Stevens has served as President of
SHS since 1993 and Director since 1996. He has served as Chief Executive Officer
of SHS's wholly owned subsidiary, Nova Factor, Inc. ("Nova Factor") since 1996
and as a Director since 1990.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES AS CLASS I DIRECTORS.
CURRENT DIRECTORS WHOSE TERMS ARE NOT EXPIRING AT THE ANNUAL MEETING:
CLASS II DIRECTORS -- TERM EXPIRING AT THE 2000 ANNUAL MEETING
ANDREW M. PAUL
Age -- 43
Mr. Paul has been a Director of Accredo since 1996. Mr. Paul joined Welsh
Carson Anderson & Stowe (an affiliate of the Company) in 1984 and is a general
partner of the sole general partner of Welsh Carson Anderson & Stowe VII, L.P.
and an affiliated entity that are stockholders of the Company. Prior to 1984,
Mr. Paul was a member of Hambrecht & Quist's venture capital group. Mr. Paul
also is a director of Centennial Healthcare Corporation, Concentra Managed Care,
Inc., and several privately held companies.
KYLE J. CALLAHAN
Age -- 33
Mr. Callahan has served as Senior Vice President and a Director of Accredo
since Accredo's wholly owned subsidiary, Hemophilia Health Services, Inc.
("HHS") was acquired by the Company in June 1997. Mr. Callahan has served as
President of HHS since June 1997. From HHS's inception in 1990 until June 1997,
Mr. Callahan served in several management and executive positions with HHS,
including Vice President of Operations.
3
<PAGE> 6
CLASS III DIRECTORS -- TERM EXPIRING AT THE 2001 ANNUAL MEETING
PATRICK J. WELSH
Age -- 56
Mr. Welsh has been a Director of Accredo since June 1997. Mr. Welsh was a
founder of Welsh Carson Anderson & Stowe (an affiliate of the Company) in 1979
and is a general partner of the sole general partner of Welsh Carson Anderson &
Stowe VII, L.P. and an affiliated entity that are stockholders of the Company.
Prior to 1979, Mr. Welsh was president and a Director of Citicorp Venture
Capital, Ltd., an affiliate of Citicorp engaged in venture capital investing.
Mr. Welsh also serves as a director of several private companies.
JOHN R. (RANDY) GROW
Age -- 51
Mr. Grow has served as President of Accredo since it was acquired from LHS
in 1996 and has served as a Director of Accredo since June 1997. Mr. Grow has
also served as President of Accredo's indirect subsidiary, Nova Factor, since
1996, and Chief Operating Officer and Director since 1990. Previously, Mr. Grow
was employed in the home infusion industry as President of Curaflex Health
Infusion Services, Inc. from 1988 to 1989 and as Area Vice President of
Caremark, Inc. from 1985 to 1988.
KENNETH R. MASTERSON
Age -- 55
Mr. Masterson has been a Director of Accredo since April 1998. Mr.
Masterson joined Federal Express Corporation ("FedEx") in 1980 and in 1996 he
became Executive Vice President, General Counsel and Secretary of FedEx. In
1998, Mr. Masterson assumed the same duties for FDX Corporation, a
transportation holding company and the parent company of FedEx. Mr. Masterson is
also a director of Thomas & Betts Corporation.
BOARD COMMITTEES, ATTENDANCE, AND COMPENSATION OF DIRECTORS
COMMITTEES
The Board of Directors has established two Committees, the Audit Committee
and the Compensation Committee, each of which is briefly described below.
The Company's Audit Committee, composed solely of non-employee directors,
recommends the annual appointment of the Company's independent auditors and, in
conjunction with such auditors, reviews the scope of audit and other assignments
and related fees. The Audit Committee also reviews the accounting principles
used by the Company in financial reporting and the adequacy of the Company's
internal control procedures, all in conjunction with the Company's auditors. The
Audit Committee currently consists of Kenneth J. Melkus and Kenneth R.
Masterson.
The Company's Compensation Committee, composed solely of non-employee
directors, is responsible for reviewing and approving salaries, bonuses, and
other compensation for the Company's executive officers and administering any
stock option and other employee benefit plans of the Company. The Compensation
Committee currently consists of Andrew M. Paul and Patrick J. Welsh.
MEETINGS
During the Company's fiscal year ended June 30, 1999 ("fiscal 1999"), the
Board of Directors of the Company held two meetings. In addition, the
Compensation Committee met once and the Audit Committee met once. During fiscal
1999, each incumbent director attended 75% or more of the aggregate number of
meetings held by the Board of Directors and its committees on which he served,
with the exception of Mr. Masterson who, because of an unavoidable prior
commitment, attended one of the two Board meetings held in fiscal 1999.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
Employees of the Company who are members of the Board of Directors of the
Company do not receive any compensation for serving on the Company's Board of
Directors. Each non-employee member of the Board of Directors receives a fee of
$1,500 for each meeting of the Board of Directors attended by such director. All
directors of the Company, including members who are employees, receive
reimbursement of out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors or Committees thereof.
In May 1996, the Company adopted the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan ("1996 Option
Plan") to provide for grants of options to its officers, employees and
directors. The 1996 Option Plan was amended in 1997.
The 1996 Option Plan provides for the discretionary grant of options to
Directors of the Company who are not employees of the Company (each an "Eligible
Director"). Pursuant to the 1996 Option Plan each then Eligible Director was, in
February 1998, awarded an initial grant of non-qualified options to purchase
20,000 shares. Mr. Masterson was granted non-qualified options to purchase
20,000 shares in April 1998. The Option Price for each option granted to a
director under the 1996 Option Plan was $6.00, which was determined to be the
fair market value per share at the time of the grant. Such options are vested
ratably each year on the anniversary of the grant date over the four year period
commencing on the grant date. Directors of the Company are eligible for future
grants of stock awards under the 1996 Option Plan and the Company's 1999
Long-Term Incentive Plan.
PROPOSAL 2.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The independent accounting firm of Ernst & Young LLP has served as the
Company's independent auditors since its inception and the Company's Board of
Directors has selected Ernst & Young LLP to conduct the annual audit of the
financial statements of the Company for its fiscal year ending June 30, 2000.
Ernst & Young LLP has no financial interest, direct or indirect, in the Company
and does not have any connection with the Company except in its professional
capacity as an independent auditor. The ratification by the stockholders of the
selection of Ernst & Young LLP as independent auditors is not required by law or
by the Bylaws of the Company. The Board of Directors, consistent with the
practice of many publicly held corporations, is nevertheless submitting this
selection to its stockholders. If this selection is not ratified at the Annual
Meeting, the Board of Directors intends to reconsider its selection of
independent auditors for the fiscal year ending June 30, 2000. Even if the
selection is ratified, the Board of Directors in its sole discretion may direct
the appointment of a different independent accounting firm at any time during
the fiscal year if the Board determines that such a change would be in the best
interest of the Company and its stockholders. Representatives of Ernst & Young
LLP will be present at the Annual Meeting and will have an opportunity to make a
statement, if they so desire, and respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS.
5
<PAGE> 8
SECURITY OWNERSHIP OF DIRECTORS,
OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock held
beneficially, directly or indirectly, as of the Record Date (September 24, 1999)
by (a) each person known by the Company to be the beneficial owner of more than
five percent of the Common Stock, (b) each director and director nominee of the
Company, (c) the Company's Chief Executive Officer and the Company's four most
highly compensated executive officers other than the Chief Executive Officer
whose total salary and bonus for fiscal 1999 exceeded $100,000 (collectively,
the "Named Executive Officers"), and (d) all directors, nominees and officers of
the Company as a group, together with the percentage of the outstanding shares
of Common Stock which such ownership represents. Unless otherwise noted, the
address of the following beneficial owners is 1640 Century Center Parkway, Suite
101, Memphis, Tennessee 38134.
COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NAME NUMBER PERCENT
- ---- ----------- ---------
<S> <C> <C>
Welsh Carson Anderson & Stowe VII, L.P. ("WCAS VII")(2)..... 2,667,121 29.2
Janus Capital Corporation(3)................................ 516,290 5.6
David D. Stevens(4)......................................... 243,339 2.6
John R. Grow(5)............................................. 91,607 1.0
Joel R. Kimbrough(6)........................................ 103,832 1.1
Kyle J. Callahan(7)......................................... 59,917 *
Thomas W. Bell(8)........................................... 16,250 *
Kenneth R. Masterson(9)..................................... 39,000 *
Kenneth J. Melkus(10)....................................... 5,828 *
Andrew M. Paul(11)(12)...................................... 2,100,458 23.0
Patrick J. Welsh(11)(13).................................... 2,218,695 24.2
Kevin L. Roberg............................................. -- --
All executive officers, directors and nominees as a group
(10 persons)(14).......................................... 2,834,416 29.7
</TABLE>
- ---------------
* Less than 1%.
(1) Information relating to the beneficial ownership of Common Stock by the
above individuals is based upon information furnished by each such
individual using "beneficial ownership" concepts set forth in rules
promulgated by the Securities and Exchange Commission (the "Commission")
under Section 13(d) of the Exchange Act. Beneficial ownership includes
shares as to which such person or group, directly or indirectly, through
any contract, management, understanding, relationship, or otherwise has or
shares voting power and/or investment power as those terms are defined in
Rule 13d-3(a) of the Exchange Act. Except as indicated in other footnotes
to this table, each individual listed above possesses sole voting and
investment power with respect to all shares set forth by his or its name,
except to the extent such power is shared by a spouse under applicable law.
Any security that any person named above has the right to acquire within 60
days is deemed to be outstanding for purposes of calculating the ownership
percentage by the particular person or group, but are not deemed
outstanding for any other purpose.
(2) Includes 40,510 shares of Common Stock owned by WCAS Healthcare Partners,
L.P. and 622,611 shares of Common Stock held by individual general partners
of a limited partnership that is the sole general partner of WCAS VII. WCAS
Healthcare Partners, L.P. is a limited partnership with two general
partners: Russell L. Carson and Patrick J. Welsh. The sole general partner
of WCAS VII is a limited partnership with thirteen general partners,
including Messrs. Carson, Welsh and Paul. The additional general partners
of the sole general partner of WCAS VII are Bruce K. Anderson, Thomas E.
McInerney, Laura VanBuren, Robert A. Minicucci, Anthony J. deNicola, Paul
B. Queally, Lawrence B. Sorrel, Priscilla A. Newman, Rudolph Rupert and
Jonathan Rather. The address of Welsh Carson Anderson & Stowe VII, L.P. is
Welsh, Carson, Anderson & Stowe, 320 Park Avenue, Suite 2500, New York, NY
10022-6815.
6
<PAGE> 9
(3) The address of Janus Corporation is 100 Fillmore Street, Suite 300, Denver,
CO 80206. Such information is based solely upon the Form 13F-HR filed by
Janus Capital Corporation with the Commission on August 16, 1999.
(4) Includes options to purchase 183,214 shares granted under the Company's
1996 Option Plan.
(5) Includes options to purchase 61,607 shares granted under the Company's 1996
Option Plan.
(6) Includes options to purchase 91,607 shares granted under the Company's 1996
Option Plan.
(7) Includes options to purchase 18,250 shares granted under the Company's 1996
Option Plan.
(8) Includes options to purchase 16,250 shares granted under the Company's 1996
Option Plan.
(9) Includes options to purchase 5,000 shares granted under the Company's 1996
Option Plan. The address for Mr. Masterson is FDX Corporation, 942 S. Shady
Grove Road, Memphis, Tennessee 38120.
(10) Includes options to purchase 5,000 shares granted under the Company's 1996
Option Plan and 828 shares held by a trust for Mr. Melkus' daughter, Lauren
Melkus. The address for Mr. Melkus is 102 Woodmont Blvd., Suite 110,
Nashville, Tennessee 37205.
(11) The business address of the named person is 320 Park Avenue, Suite 2500,
New York, New York 10022.
(12) Includes those shares held directly and indirectly by WCAS VII except for
shares owned by the individual general partners of the sole general partner
of WCAS VII other than Mr. Paul and also includes options to purchase 5,000
shares granted under the Company's 1996 Option Plan. See footnote (2)
above. Mr. Paul is a director of the Company and a general partner of the
sole general partner of WCAS VII.
(13) Includes those shares held directly and indirectly by WCAS VII except for
shares owned by the individual general partners of the sole general partner
of WCAS VII other than Mr. Welsh and also includes options to purchase
5,000 shares granted under the Company's 1996 Option Plan. See footnote (2)
above. Mr. Welsh is a director of the Company and a general partner of the
sole general partner of WCAS VII.
(14) Includes options to purchase up to 390,928 shares, in the aggregate,
granted under the Company's 1996 Option Plan and also includes those shares
held directly and indirectly by WCAS VII except for shares owned by the
individual general partners of the sole general partner of WCAS VII other
than Mr. Paul and Mr. Welsh. See footnote (2) above.
7
<PAGE> 10
MANAGEMENT
The Named Executive Officers of the Company are listed in the table below.
Biographical information concerning David D. Stevens, John R. ("Randy") Grow,
and Kyle Callahan, who are also directors of the Company, is set forth under
Proposal 1 in this Proxy Statement. Biographical information concerning all
other executive officers of the Company is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David D. Stevens.......................... 46 Chairman of the Board of Directors and
Chief Executive Officer
John R. ("Randy") Grow.................... 51 President and Director
Joel R. Kimbrough......................... 41 Senior Vice President, Chief Financial
Officer and Treasurer
Kyle J. Callahan.......................... 33 Senior Vice President and Director
Thomas W. Bell, Jr........................ 48 Senior Vice President, General Counsel and
Secretary
</TABLE>
Mr. Kimbrough has served as Senior Vice President and Chief Financial
Officer and Treasurer of Accredo since it was acquired from LHS in 1996. He has
also served as Chief Financial Officer and Director of Nova Factor since its
inception in 1990, as Chief Financial Officer of SHS since 1989, and as a
Director of SHS since 1996. Previously, Mr. Kimbrough, a certified public
accountant, was employed by Ernst & Young LLP from 1980 to 1989.
Mr. Bell joined Accredo as Senior Vice President and General Counsel in
July 1998 and was elected Secretary of the Company in October 1998. Prior to
joining the Company, Mr. Bell practiced law from 1976 to 1998 as a member of the
firm of Armstrong Allen Prewitt Gentry Johnston & Holmes, PLLC in Memphis,
Tennessee, where Mr. Bell represented Nova Factor and SHS since their inception
in 1990 and 1983, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Stevens,
Grow, Kimbrough and Bell and HHS, a wholly owned subsidiary of the Company, has
entered into an employment agreement with Mr. Callahan. The terms of such
employment agreements expired on May 31, 1999 with respect to Messrs. Stevens,
Grow and Kimbrough, and the terms expire on June 1, 2000 with respect to Mr.
Callahan, and June 30, 2001 with respect to Mr. Bell, although each employment
agreement is subject to automatic one-year renewals. The Company is presently in
the process of formally extending these employment agreements for multi-year
terms which will extend through fiscal 2001 for Messrs. Stevens and Kimbrough
and fiscal 2002 for Messrs. Callahan and Grow. The Company may terminate the
employment agreements at any time. Each employment agreement provides that in
the event the Company terminates the executive's employment without "cause" (as
defined therein) and other than by reason of his death or disability, or in the
event the executive terminates his or her employment for "good reason" (as
defined therein), the executive shall continue to receive his or her salary as a
severance payment for a certain period of time (one year, with respect to
Messrs. Stevens, Grow, Kimbrough and Bell, and 18 months, with respect to Mr.
Callahan). In addition, upon such termination, Messrs. Stevens, Grow, Kimbrough
and Bell would be entitled to continue to participate in the Company's benefit
plans for a period of one year (or until the commencement of other full-time
employment, whichever is earlier).
The employment agreements entitle Messrs. Stevens, Grow, Kimbrough, Bell
and Callahan to annual base salaries which for the fiscal year ending June 30,
2000 ("fiscal 2000") are presently set at $285,768, $190,013, $187,164,
$178,920, and $178,920, respectively. Each employment agreement also provides
for the payment of an annual bonus of up to 50% of salary, based upon the extent
to which the Company achieves certain performance goals based upon target
earning levels established by the Board of Directors. Each of the employment
agreements entitles the executive to all benefits provided by the Company for
its senior
8
<PAGE> 11
executives. In addition, the Company has agreed to maintain $500,000 in term
life insurance for each of Messrs. Stevens, Grow, Kimbrough and Bell, payable to
their respective named beneficiaries.
Each of the employment agreements prohibits the executive's disclosure and
use of confidential information and restricts, for certain periods of time
following termination of employment (12 months, with respect to Messrs. Stevens,
Grow, Kimbrough and Bell, and 36 months, with respect to Mr. Callahan), his
solicitation of certain employees of the Company, conduct of certain business
with the Company's five largest suppliers, or competition with the Company.
9
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual salaries paid to the Company's
Chief Executive Officer and the Company's Named Executive Officers for the
fiscal years ended June 30, 1997, 1998, and 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------------- RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARD(S)($) OPTIONS(#) COMPENSATION
- --------------------------- ------ --------- -------- ------------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David D. Stevens(2)................ 1999 $263,534 $132,300 $-- $-- -- $4,224
Chairman of the Board and 1998 250,938 45,360 -- -- -- 4,657
Chief Executive Officer 1997 240,923 -- -- -- -- 3,882
John R. ("Randy") Grow(3).......... 1999 177,780 89,250 -- -- -- 4,611
President 1998 167,269 30,600 -- -- -- 4,525
1997 150,577 -- -- -- 4,298
Joel R. Kimbrough(4)............... 1999 172,345 86,650 -- -- -- 3,782
Senior Vice President, 1998 159,306 29,430 -- -- -- 3,587
Chief Financial Officer and 1997 135,519 -- -- -- -- 4,368
Treasurer
Kyle J. Callahan(5)................ 1999 170,983 85,838 -- -- -- 3,520
Senior Vice President 1998 160,621 29,430 -- -- 40,000 3,740
1997 12,500 17,150 -- -- -- --
Thomas W. Bell, Jr.(6)............. 1999 138,923 67,200 -- -- 50,000 1,799
Senior Vice President, 1998 -- -- -- -- -- --
General Counsel and 1997 -- -- -- -- -- --
Secretary
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits which for each Named
Executive Officer during any such year did not exceed the lesser of $50,000
or 10% of such individual's salary plus annual bonus.
(2) All other compensation for fiscal year 1999 includes Company contributions
of $3,316 under its 401(k) Plan and $908 for Company-paid life insurance.
All other compensation for fiscal year 1998 includes Company contributions
of $3,749 under its 401(k) Plan and $908 for Company-paid life insurance.
All other compensation for fiscal year 1997 includes Company contributions
of $2,908 under its 401(k) plan and $974 for Company-paid life insurance.
(3) All other compensation for fiscal year 1999 includes Company contributions
of $3,278 under its 401(k) Plan and $1,333 for Company-paid life insurance.
All other compensation for fiscal year 1998 includes Company contributions
of $3,192 under its 401(k) Plan and $1,333 for Company-paid life insurance.
All other compensation for fiscal year 1997 includes Company contributions
of $2,899 under its 401(k) plan and $1,399 for Company-paid life insurance.
(4) All other compensation for fiscal year 1999 includes Company contributions
of $3,104 under its 401(k) Plan and $678 for Company-paid life insurance.
All other compensation for fiscal year 1998 includes Company contributions
of $2,909 under its 401(k) Plan and $678 for Company-paid life insurance.
All other compensation for fiscal year 1997 includes Company contributions
of $3,624 under its 401(k) plan and $744 for Company-paid life insurance.
(5) All other compensation for fiscal year 1999 includes Company contributions
of $3,376 under its 401(k) Plan and $144 for Company-paid life insurance.
All other compensation for fiscal year 1998 includes Company contributions
of $3,592 under its 401(k) Plan and $148 for Company-paid life insurance.
Mr. Callahan was employed by the Company for one month during fiscal year
1997.
(6) All other compensation for fiscal year 1999 includes Company contributions
of $775 under its 401(k) Plan and $1,024 for Company-paid life insurance.
Mr. Bell joined the Company in July 1998 and received a prorated salary
during the year ended June 30, 1999.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table is a summary of all stock options granted to the Named
Executive Officers during the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME GRANTED YEAR ($/SHARE) DATE VALUE($)(1)
---- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
David D. Stevens................... -- -- -- -- --
John R. ("Randy") Grow............. -- -- -- -- --
Joel R. Kimbrough.................. -- -- -- -- --
Kyle J. Callahan................... -- -- -- -- --
Thomas W. Bell, Jr.(2)............. 50,000 57.4% $6.00 7/10/08 $135,500
</TABLE>
- ---------------
(1) These values were determined using the Black-Scholes methodology and the
assumptions described in Note 13 to the Company's Consolidated Financial
Statements.
(2) Mr. Bell was granted an incentive stock option to purchase 50,000 shares of
Common Stock (divided into 35,000 tranche A option shares and 15,000 tranche
B option shares) on July 10, 1998. The exercise price per share of each
option was equal to the fair market value of the Common Stock on the date of
grant, as determined by the Board of Directors. Subsequent positions by the
SEC staff have caused the Company to recognize compensation expense
associated with these options using a value of $14.40 per share (90% of the
Company's initial public offering price on April 16, 1999). Tranche A
options vest at an annual rate of 25% and Tranche B options vest in 2002 or
at an accelerated rate if the Company meets certain performance goals based
on target earnings levels. The options will vest immediately upon certain
changes in control of the Company.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END VALUES
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table summarizes options exercised during fiscal year 1999
and presents the value of unexercised options held by the Named Executive
Officers at fiscal year end:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS HELD AT OPTIONS HELD AT
SHARES JUNE 30, 1999 JUNE 30, 1999(1)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David D. Stevens....... -- -- 142,500 128,929 $4,239,375 $3,835,638
John R. ("Randy")
Grow................. -- -- 71,250 64,464 2,119,688 1,917,804
Joel R. Kimbrough...... -- -- 71,250 64,464 2,119,688 1,917,804
Kyle J. Callahan....... -- -- 9,250 30,750 247,438 822,563
Thomas W. Bell, Jr..... -- -- 8,750 41,250 234,063 1,103,438
</TABLE>
- ---------------
(1) Based upon the closing price of the Common Stock of $32.75 per share as
reported on the Nasdaq National Market on June 30, 1999, less the exercise
price of the options.
11
<PAGE> 14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
This report is submitted by the Company's Compensation Committee at the
direction of the Board of Directors. It provides information regarding the
compensation and benefits provided to the Company's Chief Executive Officer and
other executive officers. The Compensation Committee of the Board of Directors
is responsible for reviewing and approving compensation for the Company's
executive officers. The Compensation Committee is composed of two non-employee
directors. Because the Compensation Committee believes that each executive
officer has the potential to affect the short-term and long-term profitability
of the Company, the Committee places considerable importance on the task of
creating and implementing the Company's executive compensation program.
The Company's executive compensation program is focused on stockholder
value, the overall performance of the Company, the effect of the executive's
performance on the success of the Company and the individual performance of the
particular executive.
COMPENSATION PHILOSOPHY
The Compensation Committee's philosophy is to integrate the compensation of
the Company's executive officers with corporate performance. The Committee's
objectives are to (i) measure executive performance against short-term and
long-term goals, (ii) treat employees fairly and, at the same time, be cost
effective, (iii) reward performance, (iv) recognize individual initiative and
achievements, (v) foster teamwork within the Company so that employees share in
the rewards and risks of the Company, and (vi) assure that executive
compensation will be tax deductible to the maximum extent permissible. The
Compensation Committee is also focused on assisting the Company in attracting,
motivating, and retaining qualified executives, and aligning the incentives of
management with the interests of stockholders. In administering the compensation
policies and programs used by the Compensation Committee and endorsed by the
Board of Directors, the Compensation Committee reviews and approves:
- total compensation of executive officers in relation to Company
performance;
- long-term incentive compensation in the form of stock awards; and
- cash or other bonuses based upon a percentage of annual salary to
motivate and retain high quality executive officers.
The compensation program of the Company currently consists of base salary,
annual incentive compensation in the form of cash bonuses, and options. Because
the Company's compensation plan involves incentives contingent upon the
Company's performance and individual performance, an executive officer's actual
compensation level in any particular year may be above or below that of
similarly situated officers of competitors. The Compensation Committee reviews
each element of executive compensation annually.
The key components of the Company's executive compensation program are
described below.
BASE SALARY
The Compensation Committee, along with the CEO of the Company, reviews and
approves an annual salary plan for the Company's executive officers following a
merit review conducted by the CEO. The salary plan is developed by the Company's
CEO. Many subjective factors are included in determining the executive's base
salary, such as (i) the executive officer's responsibilities, (ii) the scope of
the position, (iii) experience and length of service with the Company, (iv)
individual efforts and performance within the Company, the industry and the
community, (v) team building skills consistent with the Company's best
interests, (vi) observance of the Company's ethics and compliance program, (vii)
salaries paid by competitive companies to officers in similar positions, and
(viii) base compensation paid to other Company executives. While these
subjective factors are then integrated with other objective factors, including
the Company's net
12
<PAGE> 15
income, earnings per share, return on equity, and growth, the overall assessment
is primarily a subjective one, intended to reflect the level of responsibility
and individual performance of the particular executive officer.
BONUSES
The Compensation Committee believes that a significant portion of the total
cash compensation for executive officers should be based on the Company's
achievement of specific performance criteria, including earnings, and that a
significant part of the cash compensation package should be at risk.
Accordingly, executive officers of the Company receive a cash bonus based on a
percentage of annual base salary if the Company meets an annual performance
target. The performance targets are established and communicated at the
beginning of each year. The executive officers' performance targets have
historically been, and are contractually, based on the achievement by the
Company of earnings before taxes goals. Bonuses for executive officers can be as
much as 50% of base salary, depending on the percentage of the earnings before
taxes goal that is achieved. The calculation of the percentage of annual base
salary to be paid as bonus upon achievement of a certain percentage of the goal
for that year is set out in each executive's employment contract.
LONG-TERM COMPONENT -- STOCK INCENTIVE PLANS
To date, the Company has relied primarily upon stock option awards to
provide long-term incentives for executives and to align executives' incentives
more closely with the interests of stockholders. The Compensation Committee
continues to believe that stock option awards have been and remain an excellent
vehicle for providing financial incentives for management. In addition to the
1996 Option Plan, the Company has also adopted the Accredo Health, Incorporated
1999 Long-Term Incentive Plan which is also administered by the Compensation
Committee. The Company's stock incentive plans permit the Company to issue stock
options or other stock based awards to officers, key employees, and directors of
the Company. Subject to general limits prescribed by the stock incentive plans,
the Compensation Committee has the authority to determine the individuals to
whom stock awards will be granted, the terms of the awards, and the number of
shares subject to each award. The size of any particular stock award is based
upon the executive's position and the executive's individual performance during
the related evaluation period. Because the option exercise price is the price of
stock on the date of grant and the options generally carry a ten-year life,
under a stock option award executives benefit only if the value of the Company's
Common Stock increases.
The Company typically divides its options into two tranches. Tranche A
options previously granted vest over time while the exercisability of previously
granted Tranche B options accelerate if the Company achieves certain preset
performance goals. Thus, executives with stock options are rewarded for their
efforts to improve short and long-term performance. In this way, the financial
interests of management are aligned with those of the Company's stockholders.
For this reason, the Company uses stock options as its predominant long-term
incentive program.
As a result of the financial performance achieved by the Company in fiscal
1999 the Compensation Committee has recommended that 50% of Tranche B options
granted to the executives vest on September 1, 1999 and that the remaining 50%
of Tranche B options vest on September 1, 2000 if the executive remains employed
on that date.
Executive officers of the Company may also participate in the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Executive officers are
entitled to participate in the Stock Purchase Plan on the same terms as
non-executive employees who meet the applicable eligibility criteria, subject to
any legal limitations on the amounts that may be contributed or the benefits
that may be payable under the Stock Purchase Plan. All contributions to the
Stock Purchase Plan are made or invested in the Company's Common Stock. These
features are intended to align further the executives' and stockholders'
long-term financial interests.
OTHER BENEFITS
The Company's executives are also entitled to participate in (i) the
Company's self insured group medical plan, and (ii) the Company's 401(k) plan.
In addition, the Company maintains $500,000.00 in term
13
<PAGE> 16
life insurance for each of Messrs. Stevens, Grow, Kimbrough and Bell, payable to
their respective named beneficiaries. The Company makes only nominal use of
perquisites in compensating its executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee's basis for compensation of the Chief Executive
Officer, David D. Stevens, is based on the compensation philosophy discussed
above. Mr. Stevens participates in the same executive compensation plans
available to the other executive officers. For fiscal 2000, the Compensation
Committee set the base salary of Mr. Stevens at $285,768. The compensation level
established for Mr. Stevens was in response to the Committee's and the Board's
assessments of the Company's performance and accomplishments in fiscal 1999, as
well as Mr. Stevens' position in the Company and the nature of his
responsibilities and contributions. The Committee considered Mr. Stevens'
performance in terms of the Company's success in meeting its performance
targets, from both an operational and a financial standpoint, and in executing
its strategic plan. The Committee also considered the Company's performance
relative to its peers and competitors in the industry in evaluating Mr. Stevens'
compensation.
FEDERAL INCOME TAX DEDUCTIBILITY LIMITATIONS
The Compensation Committee intends to use its best efforts to structure
future compensation so that executive compensation paid by the Company is fully
deductible in accordance with Section 162(m) of the Internal Revenue Code
enacted in 1993, which generally disallows a tax deduction to public companies
for compensation over $1 million paid to certain executive officers unless
certain conditions are met. However, the Compensation Committee may, in a
particular case, decide to approve compensation that may prove not to be
deductible.
SUMMARY
The Compensation Committee believes that the Company's compensation
policies are strongly linked to the Company's performance and the enhancement of
stockholder value. The Compensation Committee intends to continually evaluate
the Company's compensation policies and plans to ensure that they are
appropriately configured to align the interests of officers and stockholders and
that the Company can attract, motivate, and retain talented management
personnel.
Submitted by the Compensation Committee of the Company's Board of
Directors.
Patrick J. Welsh
Andrew M. Paul
14
<PAGE> 17
STOCKHOLDER RETURN
PERFORMANCE GRAPH
The following is a comparative performance graph that compares the
percentage change of cumulative total stockholder return on the Company's Common
Stock with (a) the performance of a broad equity market indicator and (b) the
performance of a published industry index or peer group. The following graph
compares the percentage change of cumulative total stockholder return on the
Company's Common Stock with (1) the Nasdaq Stock Market Index (the "Broad
Index") and (2) the Hambrecht & Quist Healthcare Index (the "Industry Index").
The graph begins on April 16, 1999, the date on which the Company's Common Stock
first began trading on the Nasdaq National Market. For purposes of preparing the
graph, the Company assumed that an investment of $100 was made on April 16, 1999
in each of Company's Common Stock, the Broad Index, and the Industry Index and
that all dividends, if any, were reinvested at the time they were paid.
The Hambrecht & Quist Healthcare Index is comprised of approximately 100
stocks of publicly traded healthcare related companies in the Biotechnology,
Pharmaceuticals, Diagnostics and Imaging, Medical Products, and Healthcare
Services sectors. The components of the index portfolio are intended to be a
broad representative sample of the public companies in this specific industry
sector. Management believes that the Index includes companies that are
comparable to the Company in terms of their businesses, size and market
characteristics.
The comparison in the graph below is based on historical data and is not
intended to forecast the possible future performance of the Company's Common
Stock.
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 4/16/99)
<TABLE>
<CAPTION>
ACCREDO HEALTH, NASDAQ STOCK MARKET HAMBRECHT & QUIST
INCORPORATED (U.S.) HEALTHCARE
--------------- ------------------- -----------------
<S> <C> <C> <C>
'4/16/99' 100 100 100
'4/99' 138 102 102
'5/99' 170 100 107
'6/99' 205 108 111
</TABLE>
15
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Welsh and Paul, who presently serve as members of the Compensation
Committee of the Board of Directors, served on the Compensation Committee during
the fiscal year ended June 30, 1999. Neither Messrs. Welsh or Paul, nor any
executive officer of the Company, serves as a member of a board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE OF REAL PROPERTY
Pursuant to a lease agreement dated September 1, 1994 and amended on March
1, 1997 and May 25, 1999, the Company's subsidiary, HHS, leases from the mother
of Kyle J. Callahan (who is currently a director and executive officer of the
Company and HHS) approximately 28,000 square feet of administrative and other
space located at 6820 Charlotte Pike, Nashville, Tennessee. The lease contains
an initial term of 5 years and two five-year renewal options. The initial 5 year
term expires October 31, 1999. During fiscal 1999, HHS paid Mr. Callahan's
mother $313,420 under this lease. The Company believes that the foregoing Lease
was obtained on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
PAYMENT OF ESCROWED FUNDS
In June 1997, the Company purchased all of the outstanding shares of common
stock of HHS. The mother of Kyle J. Callahan (currently a director and executive
officer of the Company and HHS) was a significant stockholder of HHS. Part of
the consideration received by the selling shareholders was placed in two escrow
accounts to secure potential indemnification claims for breaches of the seller's
representations and warranties and to satisfy certain accounts payable of HHS
that had not been resolved at closing. In December 1998, $119,641 was paid out
of one escrow to Mr. Callahan's mother and in June 1999, $1,145,500 was paid to
his mother from the second escrow account. $620,401 continues to be held in
escrow pending resolution of certain pending matters.
COMMON STOCK PURCHASES BY AFFILIATES
Kenneth R. Masterson, a director and member of the Audit Committee,
acquired 34,000 shares of common stock from the Company for $204,000.00 on July
24, 1998 pursuant to a Subscription Agreement entered into by Mr. Masterson in
April 1998. Mr. Masterson was granted registration rights as to these shares.
PREPAYMENT OF SENIOR SUBORDINATED NOTES AND REDEMPTION OF SERIES A PREFERRED
STOCK
In April 1999, the Company used a portion of the proceeds from its initial
public offering of common stock to prepay the outstanding 10% Senior
Subordinated Notes, issued in June 1997 and due June 1, 2004. The total amount
paid to the noteholders was approximately $11.2 million dollars. In April 1999,
the Company also used $31.4 million dollars of the proceeds from its initial
public offering to redeem the 255,361 shares of issued and outstanding Series A
Preferred Stock at a redemption price of $100.00 per share, plus accrued and
unpaid dividends. Welsh Carson Anderson & Stowe VII, L.P. (an affiliate of the
Company), John R. Grow (an officer of the Company), Joel R. Kimbrough (an
officer of the Company), Andrew M. Paul (a director of the Company), David D.
Stevens (an officer of the Company), and Patrick J. Welsh (a director of the
Company) owned shares of Series A Preferred Stock which were redeemed, and
received payment from the Company in exchange for the redemption of their
shares. Welsh Carson Anderson & Stowe VII, L.P., Patrick J. Welsh, and Andrew M.
Paul were also holders of 10% Senior Subordinated Notes which were prepaid, and
received payment from the Company in prepayment of their Notes.
The Company's Certificate of Incorporation required the Company to apply
the net proceeds of any underwritten public offering to redeem the shares of
Series A Preferred Stock and the redemption price was set forth in the
Certificate of Incorporation. The price paid to retire the Senior Subordinated
Notes was
16
<PAGE> 19
established at the time of issuance. The affiliates, officers and directors of
the Company received the same consideration for redemption of their shares and
prepayment of their Notes as other holders of the Preferred Stock and Senior
Subordinated Notes.
COMPANY POLICY
The Company has adopted a policy pursuant to which transactions with
affiliates (other than those entered into in connection with the formation of
the Company) must be reviewed by the Audit Committee and approved by a majority
of the disinterested members of the Board of Directors and will be made on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Exchange Act, the Company's directors, executive
officers and any person holding more than ten percent of the Common Stock are
required to report their ownership of the Common Stock and any changes in that
ownership to the SEC and the Nasdaq National Market. These persons also are
required by SEC regulations to furnish the Company with copies of these reports.
Specific due dates for these reports have been established, and the Company must
report in this Proxy Statement any failure to make required filings in 1999.
Based solely on a review of the reports furnished to the Company or written
representations from the Company's directors, officers, and ten percent
beneficial owners, all reporting requirements were satisfied.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Stockholders of the Company wishing to submit a proposal for action at the
Company's 2000 annual meeting of stockholders and to have the proposal included
in the Company's proxy materials relating to that meeting, must deliver their
proposals to the Company at its principal offices not later than June 21, 2000.
Additional legal requirements apply to any inclusion of stockholder proposals in
proxy materials of the Company.
In order to be considered at the 2000 Annual Meeting, shareholder proposals
must comply with the advance notice and eligibility requirements contained in
the Company's By-Laws. The Company's By-Laws provide that shareholders are
required to give advance notice to the Company of any nomination by a
shareholder of candidates for election as directors and of any business to be
brought by a shareholder before an annual shareholders' meeting. Specifically,
the By-Laws provide that for a shareholder to nominate a person for election to
the Company's Board of Directors, the shareholder must be entitled to vote for
the election of directors at the meeting and must give timely written notice of
the nomination to the Secretary of the Company. The By-Laws also provide that
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have the legal right and authority to make the proposal for
consideration at the meeting and the shareholder must give timely written notice
thereof to the Secretary of the Company. In order to be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to the
meeting. In the event that less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder must be received not later than the close of business on the tenth
day following the day on which notice of the date of the meeting was mailed or
public disclosure was made. The notice must contain specified information about
each nominee or the proposed business and the shareholder making the nomination
or proposal.
The specific requirements of these advance notice and eligibility
provisions are set forth in Section 11 and Section 12 of Article II of the
Company's By-Laws, a copy of which is available upon request. Such requests and
any shareholder proposals should be sent to the Secretary of the Company at the
principal executive offices of the Company.
17
<PAGE> 20
ANNUAL REPORTS
The Company's fiscal 1999 Annual Report to stockholders is being mailed to
the Company's stockholders with this Proxy Statement. The Annual Report is not
part of the proxy soliciting material.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 as filed with the Securities and Exchange Commission may be
obtained by any stockholder, free of charge, upon written request to the Office
of the Secretary, Accredo Health, Incorporated, 1640 Century Center Parkway,
Suite 101, Memphis, Tennessee 38134.
OTHER MATTERS
The management of the Company knows of no other matters to be presented and
acted upon at the Annual Meeting other than those set forth in the accompanying
notice. However, if any other matters requiring a vote of the stockholders
should properly come before the Annual Meeting or any adjournment thereof, each
proxy will be voted with respect thereto in accordance with the best judgment of
the proxy holder.
18
<PAGE> 21
ACCREDO HEALTH, INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Thomas W. Bell, Jr. and Joel R. Kimbrough as
Proxies, each with power to appoint his substitute, and hereby authorizes either
one or both of them to represent and to vote, as designated below, all the
shares of Common Stock of ACCREDO HEALTH, INCORPORATED held of record by the
undersigned on September 24, 1999, at the Annual Meeting of Stockholders to be
held on November 18, 1999, and at any adjournment.
The Board of Directors recommends a vote FOR all of the following proposals:
1.ELECTION OF DIRECTORS. On the proposal to elect the following slate of Class I
Directors to serve until the 2000 annual meeting of stockholders and until
their successors are elected and qualified:
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
------------------------------------------------------------------------------
David D. Stevens, Kevin L. Roberg and Kenneth J. Melkus.
2.SELECTION OF AUDITORS. On the proposal to ratify the selection of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
June 30, 2000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3.OTHER BUSINESS. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
(Continued and to be signed on reverse side)
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted for all nominees for director listed above and for proposal 2 above.
Dated
------------------------------, 1999
Please sign exactly as name appears
below. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
-----------------------------------
Signature(s) (if held jointly)
Please mark, sign, date and return the proxy card promptly using the enclosed
envelope.
