<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HealthExtras, Inc.
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(Name of Registrant as Specified in Its Charter)
HealthExtras, Inc.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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|_| 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:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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<PAGE> 2
May 8, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
HealthExtras, Inc. The meeting will be held at the Ritz-Carlton Pentagon City,
1250 South Hayes Street, Arlington, Virginia 22202 on June 7, 2000 at 10:00
a.m., Eastern Time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of
PricewaterhouseCoopers LLP, the Company's independent accountants, will be
present to respond to appropriate questions of stockholders.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To make sure your shares are represented, we urge you to complete and
mail the enclosed proxy card. If you attend the meeting, you may vote in person
even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ David T. Blair
David T. Blair
CHIEF EXECUTIVE OFFICER
<PAGE> 3
HEALTHEXTRAS, INC.
2273 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
(301) 548-2900
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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The annual meeting of stockholders of HealthExtras, Inc. ("Company") will
be held at the Ritz-Carlton Pentagon City, 1250 South Hayes Street, Arlington,
Virginia 22202 on June 7, 2000 at 10:00 a.m., Eastern Time, for the following
purposes:
1. To elect four directors of the Company to terms expiring at the
annual meeting of stockholders in the year 2003 and until their
successors are elected and qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year ending
December 31, 2000; and
3. To transact any other business that may properly come before the
meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Stockholders of record at the close of business on April 25, 2000 are
entitled to receive notice of the annual meeting and to vote at the meeting and
any adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The proxy
will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael P. Donovan
Michael P. Donovan
CHIEF FINANCIAL OFFICER AND CORPORATE SECRETARY
Rockville, Maryland
May 8, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE> 4
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PROXY STATEMENT
OF
HEALTHEXTRAS, INC.
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of HealthExtras, Inc. ("HealthExtras" or the
"Company") to be used at the annual meeting of stockholders of the Company. The
annual meeting will be held at the Ritz-Carlton Pentagon City, 1250 South Hayes
Street, Arlington, Virginia 22202 on June 7, 2000 at 10:00 a.m., Eastern Time.
This proxy statement and the enclosed proxy card are first being mailed to
stockholders on or about May 8, 2000.
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VOTING AND PROXY PROCEDURE
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WHO CAN VOTE AT THE MEETING
You are entitled to vote your shares of HealthExtras common stock if the
records of the Company showed that you held your shares as of the close of
business on April 25, 2000. As of the close of business on that date, a total of
27,600,000 shares of HealthExtras common stock were outstanding. Each share of
common stock is entitled to one vote.
ATTENDING THE MEETING
If you are a beneficial owner of HealthExtras common stock held by a
broker, bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you want to vote
your shares of HealthExtras common stock held in street name in person at the
meeting, you will have to get a written proxy or vote authorization in your name
from the broker, bank or other nominee who holds your shares.
VOTE REQUIRED
A quorum consisting of a majority of the outstanding shares of common
stock entitled to vote is required to be represented at the meeting. If you
return valid proxy instructions or attend the meeting in person, your shares
will be counted for purposes of determining whether there is a quorum, even if
you abstain from voting. Broker non-votes also will be counted for purposes for
determining the existence of a quorum. A broker non-vote occurs when a broker,
bank or other nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received voting instructions from the
beneficial owner.
<PAGE> 5
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
will be elected by a plurality of the votes cast for the election of directors.
This means that the nominees receiving the greatest number of votes will be
elected. Votes that are withheld and broker non-votes will have no effect on the
outcome of the election. In voting on the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants, you may vote in favor of
the proposal, vote against the proposal or abstain from voting. The ratification
will be decided by the affirmative vote of a majority of the votes cast on the
matter. Abstentions and broker non-votes will have no effect on the voting.
VOTING BY PROXY
This proxy statement is being sent to you by the Board of Directors of
HealthExtras for the purpose of requesting that you vote your shares at the
annual meeting. You can vote by executing the enclosed proxy card to allow your
shares to be represented and voted in accordance with your instructions at the
annual meeting by the persons named as proxies on the proxy card. All shares of
HealthExtras common stock represented at the meeting by properly executed
proxies will be voted in accordance with the instructions indicated on the proxy
card. If you sign and return a proxy card without giving voting instructions,
your shares will be voted as recommended by the Company's Board of Directors.
The Board of Directors recommends a vote FOR each of the nominees for director
and FOR ratification of PricewaterhouseCoopers LLP as independent accountants.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. This includes a motion
to adjourn or postpone the meeting in order to solicit additional proxies. If
the annual meeting is postponed or adjourned, your HealthExtras common stock may
be voted by the persons named in the proxy card on the new meeting date as well,
unless you have revoked your proxy. The Company does not know of any other
matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Company in writing before your shares have been voted at the annual meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your HealthExtras common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet.
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PROPOSAL 1 -- ELECTION OF DIRECTORS
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The Company's Board of Directors currently consists of nine members and is
divided into three classes with three-year staggered terms, with one-third of
the directors elected each year. However, the Board has been expanded to ten.
Accordingly, four directors will be elected at the annual meeting to serve for
three-year terms until the annual meeting of stockholders in the year 2003, and
until their respective successors have been elected and qualified. The nominees
by the Board of Directors for election as directors at the annual meeting are
Bette B. Anderson, Thomas L. Blair, Edward S. Civera and Julia M. Lawler. All of
these persons currently are directors of the Company, except for Mr. Civera.
2
<PAGE> 6
If any nominee is unable to serve, the persons named as proxies on the
proxy card would vote your shares to approve the election of any substitute
proposed by the Board of Directors. Alternatively, the Board of Directors may
adopt a resolution to reduce the size of the Board. At this time, the Board of
Directors knows of no reason why any nominee might be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
NOMINEES.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of April 25, 2000.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ----- --- -------- --------
NOMINEES FOR TERMS EXPIRING IN 2003
<S> <C> <C> <C>
Bette B. Anderson.............................. 71 Director 2000
Thomas L. Blair(1)............................. 55 Chairman of the Board 1999
Edward S. Civera............................... 49 Nominee as Director --
Julia M. Lawler(2)............................. 40 Director 1999
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Julian A.L. Allen(3)........................... 30 Director 1999
William E. Brock............................... 69 Director 2000
Karen E. Shaff(2).............................. 45 Director 1999
DIRECTORS WHOSE TERMS EXPIRE IN 2002
David T. Blair(1).............................. 30 Chief Executive Officer and Director 1999
Thomas J. Graf(2).............................. 51 Director 1999
Paul H. Warren(3).............................. 44 Director 1999
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Marshall J. Coleman............................ 44 Chief Marketing Officer
Michael P. Donovan............................. 41 Chief Financial Officer
- -----------------------------
(1)Thomas L. Blair is the father of David T. Blair.
(2)Ms. Lawler, Ms. Shaff and Mr. Graf may be considered nominees of Principal Mutual Holding Company.
(3)Messrs. Allen and Warren may be considered nominees of Health Partners.
</TABLE>
BIOGRAPHICAL INFORMATION OF DIRECTORS
JULIAN A.L. ALLEN is a Principal and Vice President of Capital Z
Management, LLC, the management affiliate for Capital Z Partners. Prior to
joining Capital Z Management in July, 1998, Mr. Allen was a Vice President of
Zurich Centre Investments, the strategic private equity investing arm of Zurich
Financial Services, which he joined in September 1997, and an Associate of
Patricof & Co. Ventures, Inc. from September 1995. Prior to such time, Mr. Allen
worked as a financial analyst at Wasserstein Perella & Co. Mr. Allen currently
serves as a director of Emergent Advisors, Inc.
3
<PAGE> 7
BETTE B. ANDERSON was appointed to the Board on March 29, 2000. She has
served as Vice Chairman of Kelly, Anderson & Patrick, management consultants,
since 1995. She served as its President from 1989 through 1995. Ms. Anderson has
served on the Board of Directors for ITT Corporation, ITT Educational Services,
ITT Hartford Insurance and American Banknote Corp. She is Chairman of the United
States Treasury Historical Association and the Advisory Council of the Girl
Scouts of the United States of America. Previously, Ms. Anderson served as Under
Secretary of the United States Department of the Treasury and prior to that, she
was Senior Vice President in charge of credit administration for the Citizens
and Southern National Bank of Savannah, Georgia.
THOMAS L. BLAIR was the founder of HealthExtras and its predecessors. Mr.
Blair served as Chairman and Chief Executive Officer or Co-Chief Executive
Officer of United Payors & United Providers, Inc. from January 1995 until its
acquisition by BCE Emergis on March 28, 2000. Mr. Blair founded America's Health
Plan, Inc. in 1989 and served as its President and Chief Executive Officer from
1989 to 1992. From 1992 to 1995, Mr. Blair was President of Initial Managers &
Investors, Inc., which business was contributed to United Payors & United
Providers. From 1977 until 1988, Mr. Blair was a principal of Jurgovan & Blair,
Inc., which developed and managed health maintenance organizations. Mr. Blair is
also a director of Coventry Health Care, Inc.
DAVID T. BLAIR joined a predecessor of HealthExtras in July of 1997 as
Chief Financial Officer. From 1995 to 1997, prior to joining HealthExtras, Mr.
Blair was the Finance Manager of United Payors & United Providers. At United
Payors & United Providers, Mr. Blair focused his efforts on United Payors &
United Providers, initial public offering and several strategic acquisitions. In
1994, Mr. Blair co-founded and was President of Continued Health Care Benefit
Program, which markets healthcare benefits to individuals leaving the United
States armed forces. In 1995, this program was merged into United Payors &
United Providers. From 1991 to 1994, Mr. Blair worked in corporate finance and
new business development for Kelly, Anderson, Pethick and Associates, a
management consulting firm.
WILLIAM E. BROCK was appointed to the Board on March 29, 2000. He has
served as Senior Counsel and Trustee of the Center for Strategic and
International Studies in Washington, D.C. since 1994. From 1988 to 1994, Mr.
Brock served as Chairman of the Brock Group, a consulting firm. From 1988 to
1991, he served as the Chairman of the National Endowment for Democracy. From
1985 to 1987, he served as the United States Secretary of Labor and from 1981 to
1985, he was a United States Trade Representative. Mr. Brock has also served for
eight years as a member of the United States House of Representatives and for
six years as a member of the United States Senate. Mr. Brock is a director of
Sinclair Broadcasting Corp. and On Assignment, Inc.
EDWARD S. CIVERA is President and Chief Operating Officer of United Payors
& United Providers, which, as of March 28, 2000, became a subsidiary of BCE
Emergis. From 1997 to March 28, 2000, Mr. Civera served as President and
Co-Chief Executive Officer or Chief Operating Officer of United Payors & United
Providers. Prior to joining United Payors & United Providers, Mr. Civera was a
partner with PricewaterhouseCoopers LLP, then Coopers & Lybrand L.L.P., where he
had been employed for 25 years.
THOMAS J. GRAF joined Principal Life Insurance Company, the operating,
wholly owned, subsidiary of Principal Mutual Holding Company in 1972 and since
1994, has served as its Senior Vice President. Mr. Graf is also a director of
Coventry Health Care, Inc.
JULIA M. LAWLER joined Principal Life Insurance Company in 1984 and, since
May 1995, has served as Director, Capital Markets. Since 1993, Ms. Lawler has
served as an officer of Principal Life Insurance Company in various other
capacities, including Executive Advisor to the President.
4
<PAGE> 8
KAREN E. SHAFF is a Senior Vice President and Deputy General Counsel for
Principal Life Insurance Company. She joined Principal Life Insurance Company in
1982 and held several positions within its law department until being named Vice
President and Associate General Counsel in 1995, and to her current position in
1999.
PAUL H. WARREN is a Director and Senior Vice President of Capital Z
Management, LLC and Capital Z Partners. Mr. Warren was a partner in Insurance
Partners, L.P., a limited partnership organized in 1994 to make investments in
property and casualty insurers, life and health insurers, health care services
firms and related insurance businesses. In connection with Insurance Partners,
L.P., Mr. Warren serves as a director of Corporate Health Dimensions, Provincia
Salud, Provincia ART and Annuity & Life Re. In addition, Mr. Warren serves as a
director of Brookdale Living Communities, Inc. Prior to the formation of
Insurance Partners, L.P., Mr. Warren was a Managing Director of International
Insurance Advisors, Inc. and a Vice President in the insurance group at J.P.
Morgan & Co. Before that, Mr. Warren was an Assistant Secretary in the Hong Kong
Government.
BIOGRAPHICAL INFORMATION OF EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARSHALL J. COLEMAN joined HealthExtras in 1999 as Vice President of
Marketing. Mr. Coleman has over fifteen years experience in marketing
communications, brand and business development. From 1994 to 1999, Mr. Coleman
worked for America Online as Senior Manager of Marketing Communication, Manager
of Programming and Promotions and Manager of Business Development.
MICHAEL P. DONOVAN joined HealthExtras in April 1999 as the Chief
Financial Officer. From early 1998 until early 1999, Mr. Donovan was engaged in
a variety of technology and business development activities for HealthExtras.
From 1992 to 1997, Mr. Donovan served as Senior Vice President of Business and
Technology Development for PHP Healthcare Corporation. From 1989 to 1992, Mr.
Donovan served as Chief Financial Officer of Direct Health, Inc. Prior to that,
Mr. Donovan was a Senior Manager for KPMG, LLP, then KPMG Peat Marwick,
responsible for a variety of technology and health care clients.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company completed its initial public offering in December of 1999.
Prior to its initial public offering, Thomas L. Blair was the only director of
the Company. On December 17, 1999, Messrs. Allen, David T. Blair, Graf and
Warren and Ms. Lawler and Ms. Shaff were appointed to the Board. The only Board
action in 1999 was by unanimous written consents.
The Audit Committee consists of Bette B. Anderson and William E. Brock,
both of whom are considered to be independent for purposes of the requirements
of the Nasdaq National Market, and was established on March 29, 2000. The Audit
Committee annually reviews the qualifications of the Company's independent
certified public accountants, make recommendation to the Board of Directors as
to their selection and review the planning, fees and results of their audit.
The Compensation Committee also consists of Bette B. Anderson and William
E. Brock and was also established on March 29, 2000. The Compensation Committee
has the responsibility of recommending salary and incentive compensation for
executive officers to the Board of Directors.
The full Board of Directors acts as a Nominating Committee for the annual
selection of management's nominees for election as directors. The Company's
Nominating Committee will consider suggestions for nominees to the Board of
Directors that are timely received in proper written form. To be in proper
written form, a stockholder's notice should set forth in writing (i) as to each
person whom the
5
<PAGE> 9
stockholder proposes to be nominated for election as a director, all information
relating to such person that is required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC, including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected and (ii) as to the stockholder giving the notice (x) the
name and address, as they appear on the Company's books, of such stockholder and
(y) the class and number of shares of the Company that are beneficially owned by
such stockholder.
DIRECTORS' COMPENSATION
Directors did not receive compensation for their services as Directors in
1999. On March 29, 2000, the Company established the following benefits for
Directors. Directors who are not employees of the Company are entitled to
receive a fee of $2,500 for each Board of Directors meeting and $500 for each
committee meeting attended, plus travel and incidental expenses incurred in
attending meetings and carrying out their duties as directors.
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PROPOSAL 2 -- RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors has appointed PricewaterhouseCoopers LLP to be its
independent accountants for the 2000 fiscal year, subject to the ratification by
stockholders. A representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting to respond to appropriate questions from
stockholders and will have the opportunity to make a statement should he or she
desire to do so.
If the ratification of the appointment of the independent accountants is
not approved by a majority of the votes cast by stockholders at the annual
meeting, other independent accountants will be considered by the Board of
Directors. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
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OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors knows of no other matters that are likely to be
brought before the annual meeting. If any other matters should be properly
brought before the meeting, it is the intention of the persons named as proxies
on the enclosed proxy card to vote, or otherwise act, in accordance with their
development on such matters.
6
<PAGE> 10
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EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid to
or earned by the Chief Executive Officer during 1999 and the other executive
officer of the Company who received more than $100,000, during 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) ($)(1) ($)(2) (#) ($)
- ----------------------------- ------ ---------- -------- ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David T. Blair 1999 $111,183 $15,300 $-- $ -- 1,500,000 $5,500 (3)
Michael P. Donovan 1999 174,500 -- -- 301,334 600,000 --
- ------------------------------
(1) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than 10% of the total annual salary and bonus
reported.
(2) Represents the total value of an award of rights to receive the equivalent
of 266,667 shares of common stock of HealthExtras which was granted to Mr.
Donovan in February 1999 by a predecessor entity. The rights vest over a
four-year period commencing March 1, 1999. At December 31, 1999, the value
of the unvested restricted stock award was $3,200,000.
(3) Represents matching 401k contributions of $5,500.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock option grants to
Messrs. Blair and Donovan during the year ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS (2)
OPTIONS EMPLOYEES PRICE ------------------------
GRANTED IN PER EXPIRATION
NAME (#)(1) FISCAL YEAR SHARE DATE 5% 10%
- ------------------------- -------- ------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David T. Blair 1,500,000 50.7% $13.20 12/17/09 $6,480,000 $22,395,000
Michael P. Donovan 600,000 20.3 13.20 12/17/09 2,832,000 9,198,000
- ------------------------------
(1) 25% of the options granted are exercisable on December 17, 2000 and the
remaining 75% of the options granted vest in three equal annual installments
beginning on December 17, 2001.
(2) As of December 31, 1999, the exercise price of these options was in excess
of the market price of the underlying common stock. The dollar gains under
these columns result from calculations required by the Securities and
Exchange Commission's rules and are not intended to forecast future price
appreciation for HealthExtras' common stock. It is important to note that
options have value only if the stock price increases above the exercise
price shown in the table during the effective option period.
</TABLE>
7
<PAGE> 11
OPTION VALUE AT FISCAL YEAR END
The following table provides information regarding unexercised stock options
for Messrs. Blair and Donovan as of December 31, 1999. Messrs. Blair and Donovan
did not exercise any stock options during the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
NAME AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
- ------------------------ --------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
David T. Blair -- 1,500,000 -- --
Michael P. Donovan -- 600,000 -- --
- -------------------------------
(1) None of the options were in the money as of December 31, 1999.
</TABLE>
EMPLOYMENT AGREEMENTS
HealthExtras has executed employment agreements with David T. Blair and
Michael P. Donovan, both of which were effective January 1, 2000.
The employment agreements, which are substantially similar for each of the
executives, except for a bonus arrangement for Mr. Blair, provide for three-year
terms and automatically renew for an additional two years unless a notice of
non-renewal is given six months prior to the expiration date. Mr. Blair's base
salary, pursuant to his employment agreement, is $165,000 per year. In addition,
Mr. Blair is entitled to a bonus equal to one percent of HealthExtras' annual
after-tax profits. Mr. Donovan's base salary, pursuant to his employment
agreement, is $210,000 per year. Base salary may be increased by the Board of
Directors, in the case of Mr. David Blair, and by the Chief Executive Officer,
in the case of Mr. Donovan. In addition to base salary, the employment
agreements provide for, among other things, participation by the executives in
employee benefit plans, an automobile allowance and other fringe benefits
applicable to executive personnel and reimbursement of reasonable expenses
incurred in promoting our business.
Upon an executive's termination for cause, or upon an executive's
voluntary resignation, that executive shall be entitled only to such
compensation and benefits as shall have accrued through the date of the
executive's termination or resignation, as the case may be. In the event that an
executive is terminated for any reason other than cause or voluntary
resignation, including termination by reason of death or disability, that
executive shall receive payments under the employment agreement due for the
remaining term of the employment agreement, provided that such payment shall not
be less than the payment due for a 12 month period. Upon an executive's
voluntary resignation or termination for cause during the term of the agreement,
each employment agreement provides that, for a period of two years from the date
of termination, the executive will not compete directly or indirectly with
HealthExtras' business, nor will the executive solicit or contract with entities
contracting with HealthExtras, including bank clients.
8
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT,
IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE OF THE
COMPANY SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
Compensation of Executive Officers during 1999 was established by Thomas
L. Blair, sole Director of the Company prior to December 17, 1999 and with
respect to the predecessors of the Company under the direction of the members of
HealthExtras, LLC or Highland Investments, LLC. On March 29, 2000, the Board
established a Compensation Committee consisting of Bette B. Anderson and William
E. Brock. The Compensation Committee now is responsible for establishing and
implementing policies governing executive compensation. Furthermore, this
Committee will evaluate the performance of executive officers and approve
appropriate levels of compensation. The Compensation Committee of the Board of
Directors consists entirely of non-employee directors.
The Committee believes that compensation policy should reflect both
executives' management skills as well as Company performance and shareholder
returns. To this end, the following goals underlie the Committee's policies:
1) To attract and retain key executives who possess the
management skills and experience vital to the long-term
success of the Company.
2) To provide compensation that is competitive and consistent
with executive compensation levels found in similar companies.
3) To motivate executives to enhance long-term shareholder value
by building their ownership in the Company.
4) To make the compensation program an integral part of the
Company's long-term planning and management process.
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
OF HEALTHEXTRAS, INC.
Bette B. Anderson
William E. Brock
- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The Company has not included a performance graph because there were less
than 30 days from the Company's initial public offering to its fiscal year end
and the Company does not believe the graph would present a meaningful reflection
of the performance of the Company.
9
<PAGE> 13
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STOCK OWNERSHIP
- --------------------------------------------------------------------------------
The following table provides information about the shares of HealthExtras
common stock that may be considered to be owned by each beneficial owner of more
than 5% of the Company's outstanding common stock known to the Company, by each
director or nominee for director of the Company and by all directors and
executive officers of the Company as a group as of April 25, 2000. Unless
otherwise indicated, each of the named individuals has sole voting power and
sole investment power with respect to the shares shown.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES OWNED OUTSTANDING
---------------------------------------------------- --------------- ------------
<S> <C> <C>
Highland Investments, LLC(1)........................ 17,680,000 64.1%
Principal Mutual Holding Company(2)................. 17,680,000 64.1%
Thomas L. Blair(3).................................. 17,680,000 64.1%
Health Partners(4).................................. 4,420,000 16.0%
United Payors & United Providers, Inc.(5)........... 4,330,000 15.7%
David T. Blair(6)................................... -- --
Michael P. Donovan(6)(7)............................ -- --
Julian A.L. Allen(4)(8)............................. -- --
Bette B. Anderson................................... -- --
William E. Brock.................................... -- --
Edward S. Civera.................................... -- --
Thomas J. Graf(1)(9)................................ -- --
Julia M. Lawler(1)(9)............................... -- --
Karen E. Shaff (1)(9)............................... -- --
Paul H. Warren(4)(10)............................... -- --
All directors and executive officers as a group(11
persons)(11) ....................................... 22,100,000 80.1%
- ---------------------------------
(1) Highland Investments, LLC is controlled 49.5% by Mr. Thomas L. Blair and 50%
by an indirect subsidiary of Principal Mutual Holding Company. Thomas J.
Graf, Julia M. Lawler and Karen E. Shaff, directors of HealthExtras, are
employed by Principal Mutual or an affiliate of that company. The address of
Principal Mutual is 711 High Street, Des Moines, Iowa 50392. See Note 5
below for additional information.
(2) Principal Mutual does not hold any shares of HealthExtras common stock; but
it may be deemed the beneficial owner of the shares held by Highland
Investments, by virtue of its indirect controlling relationship with that
entity. See Note 5 below for additional information.
(3) Thomas L. Blair does not hold any shares of HealthExtras common stock; but
he may be deemed the beneficial owner of the shares held by Highland
Investments, by virtue of his controlling relationship with that entity. See
Note 5 below for additional information.
(4) Health Partners is a general partnership whose general partners are Capital
Z Financial Services Fund, II, L.P., Capital Z Financial Services Private
Fund II, L.P., and International Managed Care Advisors. Steven M.
Gluckstern, who is the Chairman of the Board, and Robert Spass, who is the
Deputy Chairman of the Board of Capital Z Partners, Ltd., the ultimate
general partner of Capital Z Financial Services Fund, II, L.P. and Capital Z
Financial Services Private Fund, II, L.P., may be deemed to be beneficial
owners of the shares held by Health Partners. Messrs. Gluckstern and Spass
disclaim any such beneficial ownership. The address for Health Partners is
54 Thompson Street, New York, New York 10012.
(5) United Payors & United Providers has purchased an option from Thomas L.
Blair to purchase 4,330,000 shares of common stock of the Company prior to
October 1, 2003 at an aggregate exercise price of $4 million. The shares
subject to this option are shares currently held by Highland Investments,
and are also included as shares beneficially owned by Highland Investments,
Principal Mutual and Thomas L. Blair. The address of United Payors & United
Providers is 2273 Research Boulevard, Rockville, Maryland 20850.
(6) Does not include options to purchase, at an exercise price of $13.20,
1,500,000 and 600,000 shares of common stock, respectively, granted to
Messrs. David T. Blair and Donovan. These options will vest 25% at the end
of twelve months from
10
<PAGE> 14
the date of grant and the remaining options will vest in one-third
increments at the end of each of the next three years after the first
vesting date.
(7) Does not include rights to receive 266,667 shares of our common stock
granted to Mr. Donovan. Rights to receive 66,667 of these shares vested on
February 29, 2000, but the shares have not yet been issued. The remaining
200,000 shares subject to these rights vest in one-third increments at the
end of each of the next three years after February 29, 2000.
(8) Mr. Allen, a director of HealthExtras, is an officer of Capital Z
Management, LLC, which manages Capital Z Financial Services Fund, II, L.P.
and Capital Z Financial Services Private Fund II, L.P. These persons are
affiliated with Health Partners. They disclaim, however, any beneficial
ownership of the shares of HealthExtras owned by Health Partners.
(9) Mr. Graf, Ms. Lawler and Ms. Shaff, directors of HealthExtras, are
affiliated with Principal Mutual. They disclaim, however, any beneficial
ownership of the shares of HealthExtras beneficially owned by Principal
Mutual.
(10)Mr. Warren, a director of HealthExtras, is a director, officer and member or
shareholder, as the case may be, of Capital Z Management, LLC, which manages
Capital Z Financial Services Fund II, L.P. and Capital Z Financial Services
Private Fund II, L.P. and Capital Z Partners, Ltd., the ultimate general
partner of Capital Z Financial Services Fund II, L.P. and Capital Z
Financial Services Private Fund II, L.P. Mr. Warren disclaims any beneficial
ownership of the shares of HealthExtras owned by Health Partners.
(11)Includes the shares owned by Highland Investments and Health Partners.
</TABLE>
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of any
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Executive officers, directors
and greater than 10% stockholders are required by regulation to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of the reports it has received, the
Company believes that each of the Company's executive officers and directors has
complied with applicable reporting requirements for transactions in HealthExtras
common stock during the fiscal year ended December 31, 1999.
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
The following are transactions involving Thomas L. Blair, the Chairman of the
Board and/or United Payors & United Providers and the Company. Mr. Blair was the
Chairman of the Board of Directors, Co- Chief Executive Officer and beneficial
owner of an aggregate of approximately 38.2% of United Payors & United Providers
common stock prior to United Payors & United Providers' acquisition by BCE
Emergis on March 28, 2000.
Effective January 1, 1999, the Company entered into an agreement with United
Payors & United Providers for United Payors & United Providers to furnish
administrative services to the Company. The amount paid by the Company to United
Payors & United Providers for such services was $3.3 million for the year ended
December 31, 1999. Under a revised agreement dated December 22, 1999, services
to be provided by United Payors & United Providers subsequent to March 31, 2000,
will be limited primarily to services relating to information technology and
communications and will be paid on a cost plus fee basis.
In addition, on July 26, 1999, the Company formalized an office space lease
arrangement with United Payors & United Providers by entering into a written
sublease agreement. The sublease agreement obligated the Company to pay its
proportionate share of the lease obligations of United Payors & United Providers
under its lease of the premises. A new sublease agreement was entered into as of
December 22, 1999. The
11
<PAGE> 15
sublease agreement provides for annual escalations and for the payment by the
Company of its proportionate share of the increase in the costs of operating the
building.
The Company entered into a line of credit in the amount of $3.0 million from
a commercial bank which extended to February 2000. This line of credit called
for interest at the prime rate, was collateralized by substantially all of the
Company's assets and was guaranteed by United Payors & United Providers. As of
December 31, 1999, all amounts due under the line of credit had been repaid. The
Company terminated the line of credit in January 2000 and the guarantee by
United Payors & United Providers has been cancelled.
As of December 31, 1999, the Company owned 40,150 shares of common stock, or
0.2% of the outstanding common stock, of United Payors & United Providers.
The Company has a five-year royalty agreement effective January 1, 1999
relating to the Company's program members accessing the United Payors & United
Providers network of healthcare providers. In return for providing that network
access to the Company, the Company will pay United Payors & United Providers
$1.00 per member per month for the initial year of membership, which amount
escalates in stages for subsequent membership years to a maximum of $1.50 per
member per month in the fourth year of continued membership and thereafter.
However, the Company can terminate these payments by conveying $25 million in
market value of the Company's common stock to United Payors & United Providers.
Amounts paid under this agreement in 1999, approximated $529,000.
For corporate business purposes, the Company utilizes the services of an
aircraft owned by Southern Aircraft Leasing, which is owned by Mr. Blair. For
the year ended December 31, 1999, the Company paid $156,185 for utilizing the
services of the aircraft.
Prior to completion of the Company's public offering, Mr. Blair agreed to
provide sufficient additional funding to enable the Company to continue
operations through December 2000. Mr. Blair advanced funds to the Company,
pursuant to this undertaking to cover operating expenses through non-interest
bearing loans. These loans by Mr. Blair were repaid by the Company with proceeds
from the public offering prior to December 31, 1999.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Company will pay the cost of this proxy solicitation. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of HealthExtras common stock. In addition to soliciting
proxies by mail, directors, officers and regular employees of the Company may
solicit proxies personally or by telephone. None of these persons will receive
additional compensation for these activities.
The Company's Annual Report to Stockholders has been mailed to stockholders
of record as of the close of business on April 25, 2000. Any stockholder who has
not received a copy of the Annual Report may obtain a copy by writing to the
Secretary of the Company. The Annual Report is not to be treated as part of the
proxy solicitation material or as having been incorporated herein by reference.
A copy of the Company's Form 10-K for the fiscal year ended December 31,
1999, as filed with the Securities and Exchange Commission, will be furnished
without charge to stockholders of record upon written request to Corporate
Secretary, HealthExtras, Inc., 2273 Research Boulevard, Rockville, Maryland
20850.
12
<PAGE> 16
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STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
Proposals that stockholders seek to have included in the proxy statement for
the Company's next annual meeting must be received by the Company no later than
January 10, 2001. Any such proposals will be subject to the requirements of the
proxy rules adopted by the Securities and Exchange Commission.
The Bylaws of the Company provide an advance notice procedure for certain
business to be brought before an annual meeting. In order for a stockholder to
properly bring business before an annual meeting, the stockholder must deliver
written notice to the Secretary of the Company at the principal executive
offices of the Company not less than 90 days before the time originally fixed
for such meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. In order for the notice of a stockholder proposal for consideration at
the Company's 2001 Annual Meeting of Stockholders to be timely, the Company
would have to receive such notice no later than March 9, 2001 assuming the
Annual Meeting is held on June 7, 2001 and that the Company provides at least
100 days' notice or public disclosure of the date of the meeting. The notice
must include the stockholder's name and address, as it appears on the Company's
record of stockholders, a brief description of the proposed business, the reason
for conducting such business at the annual meeting, the class and number of
shares of the Company's Common Stock that are beneficially owned by such
stockholder and any material interest of such stockholder in the proposed
business. In the case of nominations to the Board, certain information regarding
the nominee must be provided. See "ELECTION OF DIRECTORS-Meetings and Committees
of the Board of Directors-Nominating Committee." Nothing in this paragraph shall
be deemed to require the Company to include in its proxy statement and proxy
relating to an annual meeting any stockholder proposal which does not meet all
of the requirements for inclusion established by the SEC in effect at the time
such proposal is received.
13
<PAGE> 17
HEALTHEXTRAS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
10:00 A.M. EASTERN TIME
-------------------------------
The undersigned hereby appoints Thomas L. Blair, David T. Blair and Michael
P. Donovan, or each of them, each with full power of substitution, to act as
proxies for the undersigned, and to vote all shares of common stock of
HealthExtras, Inc., which the undersigned is entitled to vote at the Annual
Meeting of Stockholders, to be held on June 7, 2000, at 10:00 a.m. Eastern Time,
at The Ritz-Carlton Pentagon City, 1250 South Hayes Street, Arlington, Virginia,
and at any and all adjournments thereof, with all of the powers the undersigned
would possess if personally present at such meeting as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. The election as directors of all nominees listed at right (except as Nominees: Bette B. Anderson
marked to the contrary below). Thomas L. Blair
Edward S. Civera
Julia M. Lawler
</TABLE>
FOR ALL nominees WITHHOLD
listed at right AUTHORITY to vote
(except as marked to for all nominees
the contrary). listed at right.
|_| |_|
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR
ALL" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. The ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for HealthExtras, Inc. for the fiscal year ending
December 31, 2000.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
ALL OF THE NOMINEES AND "FOR" THE RATIFICATION OF ACCOUNTANTS
<PAGE> 18
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL
OF THE NOMINEES AS DIRECTORS AND "FOR" THE RATIFICATION OF THE INDEPENDENT
ACCOUNTANTS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THE PROXIES
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.
The stockholders signing below acknowledge receipt from the Company prior
to the execution of this proxy of a Notice of Annual Meeting of Stockholders and
of a Proxy Statement dated May 8, 2000 and of the Annual Report to Stockholders.
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Dated:___________________________
--------------------------------
STOCKHOLDER SIGN ABOVE
--------------------------------
CO-HOLDER (IF ANY) SIGN ABOVE
-----------------------------
NOTE: Please sign exactly as your name appears on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
