<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>
American Healthways, Inc.
--------------------------------------------------------------------------------
(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:
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(4) Date Filed:
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<PAGE> 2
(AMERICAN HEALTHWAYS LOGO)
3841 Green Hills Village Drive
Nashville, Tennessee 37215
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Stockholders of American Healthways, Inc.:
The Annual Meeting of Stockholders of American Healthways, Inc., a Delaware
corporation (the "Company"), will be held at the SunTrust Center, 5th Floor
Auditorium, 424 Church Street, Nashville, Tennessee 37219, at 9:00 a.m., local
time, on Monday, January 22, 2001 for the following purposes:
(1) To elect two (2) directors, to hold office for a term of three (3)
years or until their successors have been elected and qualified;
(2) To amend the Company's 1996 Stock Incentive Plan (the "1996 Plan") to
increase the number of shares of the Company's common stock, $.001 par
value, available for issuance under the 1996 Plan by 400,000 shares;
and
(3) To transact such other business as may properly come before the
meeting, or any adjournment or postponement thereof.
The proxy statement and form of proxy accompanying this Notice are being
mailed to stockholders on or about December 19, 2000. Only stockholders of
record at the close of business on November 30, 2000 are entitled to notice of
and to vote at the meeting or any adjournment or postponement thereof.
Your attention is directed to the Proxy Statement accompanying this notice
for a more complete statement regarding the matters to be acted upon at the
meeting.
We hope very much that you will be able to be with us. If you do not plan
to attend the meeting in person, you are requested to complete, sign and date
the enclosed proxy and return it promptly in the enclosed addressed envelope,
which requires no postage if mailed in the United States.
By Order of the Board of Directors
/s/ THOMAS G. CIGARRAN
Thomas G. Cigarran
Chairman
December 19, 2000
<PAGE> 3
AMERICAN HEALTHWAYS, INC.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MONDAY, JANUARY 22, 2001
The enclosed proxy is solicited by the Board of Directors on behalf of
American Healthways, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on Monday, January 22, 2001, at 9:00 a.m., local time,
at the SunTrust Center, 5th Floor Auditorium, 424 Church Street, Nashville,
Tennessee 37219, and at all adjournments or postponements thereof, for the
purposes set forth in the foregoing Notice of Annual Meeting of Stockholders.
Copies of the proxy, this Proxy Statement and the attached Notice are being sent
to stockholders on or about December 19, 2000.
The Company's officers and employees may solicit proxies personally or by
mail, telephone or facsimile. All costs of this solicitation will be borne by
the Company, including expenses in connection with preparing, assembling and
mailing this Proxy Statement. The Company does not anticipate paying any
compensation to any party other than its regular employees for the solicitation
of proxies but may reimburse brokerage firms and others for their reasonable
expenses in forwarding solicitation material to beneficial owners.
Shares represented by such proxies will be voted in accordance with the
choices specified thereon. If no choice is specified, the shares represented by
such proxies will be voted FOR the election of the director nominees set forth
under Proposal No. 1 and FOR the amendment to the 1996 Plan set forth under
Proposal No. 2. The Board of Directors does not know of any other matters which
will be presented for action at the meeting, but the persons named in the proxy
intend to vote or act with respect to any other proposal which may be properly
presented for action according to their best judgment in light of the conditions
then prevailing.
A proxy may be revoked by a stockholder at any time before its exercise by
attending the meeting and electing to vote in person, by filing with the
Secretary of the Company a written revocation or by duly executing a proxy
bearing a later date.
Each share of the Company's common stock, $.001 par value (the "Common
Stock") issued and outstanding on the record date, November 30, 2000, will be
entitled to one vote on all matters to come before the meeting. Cumulative
voting is not permitted. As of November 30, 2000, there were outstanding
8,299,139 shares of Common Stock.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to those
persons known to the Company to be the beneficial owners (as defined by certain
rules of the Securities and Exchange Commission (the "Commission")) of more than
five percent (5%) of the Company's Common Stock, its only voting security, and
with respect to the beneficial ownership of the Company's Common Stock by all
directors and nominees, each of the executive officers named in the Summary
Compensation Table and all executive officers and directors of the Company as a
group. The information set forth below is based on ownership information
received by the Company as of November 30, 2000. Unless specified otherwise, the
shares indicated are presently outstanding, and each of the stockholders listed
below has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
AMOUNT OF
COMMON PERCENT OF
STOCK OUTSTANDING
NAME AND ADDRESS BENEFICIALLY COMMON
OF BENEFICIAL OWNER OWNED(1) STOCK(1)
------------------- ------------ -----------
<S> <C> <C>
Waddell & Reed, Inc......................................... 1,096,100(2) 13.21%
6300 Lamar Avenue
Post Office Box 29217
Shawnee Mission, KS 66201-9217
Thomas G. Cigarran****...................................... 814,666(3) 9.63
3841 Green Hills Village Drive
Nashville, TN 37215
Safeco Asset Management..................................... 755,400(4) 9.10
601 Union Street
Suite 2500
Seattle, WA 98101-4074
Wasatch Capital Advisors.................................... 603,500(5) 7.27
150 Social Hall Avenue
Fourth Floor
Salt Lake City, UT 84111
Henry D. Herr****........................................... 491,129(6) 5.85
3841 Green Hills Village Drive
Nashville, TN 37215
Robert E. Stone***.......................................... 215,269(7) 2.56
William C. O'Neil, Jr.**.................................... 159,667(8) 1.92
Martin J. Koldyke**......................................... 111,782(9) 1.35
David A. Sidlowe***......................................... 63,252(10) *
Ben R. Leedle***............................................ 59,002(11) *
C. Warren Neel**............................................ 20,693(12) *
Frank A. Ehmann**........................................... 20,221(13) *
All directors and executive officers as a group (9
persons).................................................. 1,955,681(14) 22.25
</TABLE>
---------------
* Indicates ownership of less than one percent of the Company's outstanding
Common Stock.
** Director of the Company
*** Named Executive Officer
**** Director and Named Executive Officer
2
<PAGE> 5
(1) Pursuant to the rules of the Commission, certain shares of the Company's
Common Stock which an individual owner set forth in this table has a right
to acquire within 60 days after the record date hereof pursuant to the
exercise of stock options are deemed to be outstanding for the purpose of
computing the ownership of that owner, but are not deemed outstanding for
the purpose of computing the ownership of any other individual owner shown
in the table. Likewise, the shares subject to options held by the other
directors and executive officers of the Company which are exercisable
within 60 days of the record date hereof, are all deemed outstanding for
the purpose of computing the percentage ownership of all executive officers
and directors as a group.
(2) Information with respect to stock ownership is based upon the Form 13F
dated September 2000 filed with the Commission.
(3) Includes 157,500 shares issuable upon the exercise of outstanding options.
(4) Information with respect to stock ownership is based upon the Form 13F
dated September 2000 filed with the Commission.
(5) Information with respect to stock ownership is based upon the Form 13F
dated September 2000 filed with the Commission.
(6) Includes 89,488 shares owned by Mr. Herr's wife and 94,314 shares issuable
upon the exercise of outstanding options.
(7) Includes 102,925 shares issuable upon the exercise of outstanding options.
(8) Includes 8,230 shares issuable upon the exercise of outstanding options.
(9) Includes 3,438 shares owned by an affiliate of Mr. Koldyke. Also includes
1,500 shares issuable upon the exercise of outstanding options held by Mr.
Koldyke.
(10) Includes 2,140 shares owned by Mr. Sidlowe's children and 40,093 shares
issuable upon the exercise of outstanding options.
(11) Includes 57,950 shares issuable upon the exercise of outstanding options.
Mr. Leedle became an Executive Officer of the Company in September 2000.
(12) Includes 12,565 shares issuable upon the exercise of outstanding options.
(13) Includes 13,443 shares issuable upon the exercise of outstanding options.
(14) Includes 488,520 shares issuable upon the exercise of outstanding options.
3
<PAGE> 6
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for a
staggered Board of Directors. Each director serves a three-year term and until
his successor is elected and qualified. The two directors to be elected at the
2001 Annual Meeting will serve until the Annual Meeting of Stockholders in 2004
(the "Class I" directors), two directors currently serving on the Board will
continue to serve until the Annual Meeting of Stockholders in 2002 (the "Class
II" directors), and two directors currently serving on the Board will continue
to serve until the Annual Meeting of Stockholders in 2003 (the "Class III"
directors).
Unless contrary instructions are received, shares of Common Stock of the
Company represented by duly executed proxies will be voted in favor of the
election of the nominees named below. If for any reason a nominee is unable to
serve as a director, it is intended that the proxies solicited hereby will be
voted for such substitute nominee as the Board of Directors of the Company may
propose. The Board of Directors has no reason to expect that the nominees will
be unable to serve, and therefore, at this time does not have any substitute
nominees under consideration.
A nominee for election must receive a plurality of the votes cast to be
elected as a director. Stockholders have no right to vote cumulatively for
directors, but rather each stockholder shall have one vote for each share of
Common Stock held by such stockholder for each director.
The following persons are the nominees for election to serve as Class I
directors. Both nominees are presently directors of the Company. Certain
information relating to the nominees, which has been furnished to the Company by
the individuals named, is set forth below.
<TABLE>
<CAPTION>
CLASS OF
DIRECTOR;
ANNUAL MEETING
AT WHICH
NAME OF DIRECTOR TERM WILL EXPIRE BACKGROUND INFORMATION
---------------- ---------------- ----------------------
<S> <C> <C>
Frank A. Ehmann I; 2004 Mr. Ehmann, 66, has been a director of the Company since 1991.
Mr. Ehmann was a partner of RCS Health Care Partners Ltd., an
affiliate of Robertson Stephens Co., from 1990 to 1994. From
1987 to 1989, he was President and Chief Operating Officer of
United Stationers, Inc. He served as President and Co-Chief
Operating Officer of Baxter-Travenol Laboratories, Inc. from
1986 to 1987, and as President and Chief Operating Officer of
American Hospital Supply Corporation in 1985, when it merged
with Baxter-Travenol. Mr. Ehmann also serves as a director of
SPX Corp and AHA Investment Funds.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
CLASS OF
DIRECTOR;
ANNUAL MEETING
AT WHICH
NAME OF DIRECTOR TERM WILL EXPIRE BACKGROUND INFORMATION
---------------- ---------------- ----------------------
<S> <C> <C>
William C. O'Neil,
Jr. I; 2004 Mr. O'Neil, 66, has served as a director of the Company since
1985. From 1989 to 1998, Mr. O'Neil was the Chairman, President
and Chief Executive Officer of ClinTrials Research, Inc., a
pharmaceutical clinical research services company. Prior
thereto, Mr. O'Neil was Chairman, President and Chief Executive
Officer of International Clinical Laboratories, Inc., a
national laboratory testing company. Mr. O'Neil is also a
Director of Advocat, Inc., Sigma Aldrich Corporation and
Central Parking Corporation.
</TABLE>
The following four persons currently are members of the Board of Directors
and will continue in their present positions after the Annual Meeting. The
following persons are not nominees, and stockholders are not being asked to vote
for them. Certain information relating to the following persons has been
furnished to the Company by the individuals named.
<TABLE>
<CAPTION>
CLASS OF
DIRECTOR;
ANNUAL
MEETING
AT WHICH
NAME OF DIRECTOR TERM EXPIRES BACKGROUND INFORMATION
---------------- ------------ ----------------------
<S> <C> <C>
Thomas G. Cigarran II; 2002 Mr. Cigarran, 58, has served as Chairman, President and Chief
Executive Officer of the Company since September 1988 and as a
director since 1981. Mr. Cigarran also is Chairman and a
director of AmSurg Corp.
Dr. C. Warren Neel II; 2002 Dr. Neel, 61, has been a director since October 1991. Since 1977,
Dr. Neel has served as Dean of the College of Business
Administration at The University of Tennessee in Knoxville. Dr.
Neel is also a director of Saks, Inc., O'Charley's, Inc. and
Clayton Homes, Inc.
Henry D. Herr III; 2003 Mr. Herr, 54, has served as Executive Vice President of Finance
and Administration and Chief Financial Officer of the Company
since February 1986 and as a director since 1988. Mr. Herr also
is a director of AmSurg Corp.
Martin J. Koldyke III; 2003 Mr. Koldyke, 68, has been a director since 1981. Mr. Koldyke has
been a general partner of Frontenac Company, a venture capital
management partnership, since 1971. Mr. Koldyke is a former
Chairman of the Illinois Health Finance Authority, Chairman and
a Trustee of WTTW Channel 11, Chicago, a Trustee of
Northwestern University and Chairman Emeritus of the Golden
Apple Foundation.
</TABLE>
5
<PAGE> 8
The Board of Directors of the Company held six meetings during the fiscal
year ended August 31, 2000. The Board of Directors has Nominating, Audit and
Compensation Committees. The Audit Committee is comprised of Messrs. Ehmann,
Koldyke and O'Neil and Dr. Neel, each of whom is independent as defined by the
National Association of Securities Dealers' listing standards. The Audit
Committee meets with the Company's independent auditors to review the Company's
consolidated financial statements. It is the function of this committee to
ensure that the Company's financial statements accurately reflect the Company's
financial position and results of operations. The Audit Committee held five
meetings during fiscal 2000.
The Compensation Committee is responsible for the periodic review of
management's compensation and administration of the Company's compensation
plans. The Compensation Committee consists of Messrs. Ehmann and Koldyke and Dr.
Neel. The Compensation Committee held three meetings during fiscal 2000.
The Nominating Committee consists of Messrs. Cigarran and O'Neil and Dr.
Neel. The Nominating Committee recommends to the Board of Directors nominees for
election to the Board. The Nominating Committee will consider nominees
recommended by the Company's stockholders provided such proposed nominations are
submitted to the Company in the manner and within the time limits for
stockholder proposals as set forth on page 23 of this Proxy Statement. The
Nominating Committee held one meeting during fiscal 2000.
Each of the incumbent directors of the Company attended at least 75% of the
aggregate of the total number of meetings held during fiscal 2000 by the Board
of Directors and any committees.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table provides information as to annual, long-term or other
compensation during fiscal years 2000, 1999 and 1998 for the Company's Chief
Executive Officer and each of the other executive officers of the Company
(collectively, the "Named Executive Officers") as of August 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas G. Cigarran.................... 2000 $341,250 $ 76,781 50,000 $47,302(2)
Chairman of the Board, President, 1999 325,000 48,750 25,000 38,463
Chief Executive Officer 1998 310,000 130,200 25,000 49,683
Henry D. Herr......................... 2000 $200,000 $ 0 15,000 $14,681(3)
Executive Vice President-Finance and 1999 260,000 39,000 12,500 27,660
Administration, Chief Financial 1998 250,000 105,000 0 36,448
Officer, Secretary
Robert E. Stone....................... 2000 $210,000 $ 47,250 24,000 $30,940(4)
Executive Vice President 1999 200,000 30,000 10,000 29,479
1998 189,000 79,382 10,000 33,136
David A. Sidlowe...................... 2000 $143,500 $ 25,831 8,000 $17,095(5)
Senior Vice President, Controller 1999 136,000 16,380 4,500 17,356
1998 130,000 43,680 4,500 20,689
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $3,600 per year automobile allowance for each Named Executive
Officer.
(2) Includes $30,821 contributed by the Company to the Company's Corporate and
Subsidiary Officer Capital Accumulation Plan (the "Capital Accumulation
Plan"), $4,735 contributed by the Company to the Company's Retirement
Savings Plan (the "401(k) Plan") and $8,146 of life insurance premiums paid
by the Company on behalf of Mr. Cigarran.
(3) Includes $4,400 contributed by the Company to the Capital Accumulation Plan,
$4,861 contributed by the Company to the 401(k) Plan and $1,820 of life
insurance premiums paid by the Company on behalf of Mr. Herr.
(4) Includes $15,708 contributed by the Company to the Capital Accumulation
Plan, $4,735 contributed by the Company to the 401(k) Plan and $6,897 of
life insurance premiums paid by the Company on behalf of Mr. Stone.
(5) Includes $9,390 contributed by the Company to the Capital Accumulation Plan
and $4,105 contributed by the Company to the 401(k) Plan on behalf of Mr.
Sidlowe.
7
<PAGE> 10
OPTION GRANTS TABLE
The following table provides information as to options granted to the Named
Executive Officers during fiscal 2000. No separate stock appreciation rights
("SAR") were granted during fiscal 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Cigarran.................... 25,000 5.02% $6.20 11/12/09 $97,479 $247,030
Henry D. Herr......................... 15,000 3.01 6.20 11/12/09 58,487 148,218
Robert E. Stone....................... 20,000 4.02 6.20 11/12/09 77,983 197,624
4,000 .80 4.06 6/23/10 10,213 25,882
David A. Sidlowe...................... 5,000 1.00 6.20 11/12/09 19,496 49,406
3,000 .60 4.06 6/23/10 7,660 19,413
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options granted to the Named Executive Officers generally vest at the
rate of 25% per year over a four year period beginning on the date of the
grant. If there is a change in control or a potential change in control (as
defined in the 1996 Plan), any stock options which are not then exercisable,
in the discretion of the Board, may become fully exercisable and vested, and
stock options will, unless otherwise determined by the Compensation
Committee in its sole discretion, be cashed out on the basis of the change
in control price, as defined in the 1996 Plan.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information as to options exercised by the
Named Executive Officers during fiscal 2000. None of the Named Executive
Officers has held or exercised separate SARs. In addition, this table includes
the number of shares covered by both exercisable and unexercisable stock options
as of the record date. Also reported are the values for "in-the-money" options,
which represent the positive spread between the exercise price of existing stock
options and the year-end price of the Company's Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF NUMBER OF UNEXERCISED OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR END YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Cigarran.................... 0 0 138,750 68,750 $ 64,750 $ 0
Henry D. Herr......................... 0 0 87,439 24,375 136,987 0
Robert E. Stone....................... 0 0 94,800 33,375 213,348 7,760
David A. Sidlowe...................... 0 0 37,718 12,185 96,567 5,280
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the 4:00 p.m. closing price of the Company's Common Stock on The
Nasdaq Stock Market on August 31, 2000 of $6.00 per share.
8
<PAGE> 11
DIRECTORS COMPENSATION
Directors who are officers or employees of the Company receive no
compensation, as such, for serving as members of the Board. Directors who are
not officers or employees of the Company ("Outside Directors") each receive (i)
a $15,000 cash retainer; and (ii) pursuant to the 1996 Plan, a restricted stock
award of Common Stock with a fair market value (as defined in the 1996 Plan) of
$10,962.00, which is awarded on the date of the Annual Meeting of Stockholders.
The dollar value of the annual restricted stock award to Outside Directors
under the 1996 Plan is adjusted annually by the percentage change from the
previous year in the Consumer Price Index, Urban Wage Earners and Clerical
Workers (1982-1984=100), All Cities Average (the "Consumer Price Index");
provided, however, the annual increase shall in no event be more than 6%. The
Company may also grant options to Outside Directors pursuant to the
Discretionary Stock Option Plan for Outside Directors. No such grants were made
during fiscal 2000.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with all of its executive officers.
The employment agreements, as amended and restated (the "Agreements"), with
Messrs. Cigarran, Herr and Stone currently expire in August 2003, but contain a
provision that automatically extends the term for one year on each successive
anniversary date of the Agreements (so that the term on such anniversary date
will always be three years) unless canceled by the Company. In addition, the
Agreements are renewable for an additional five years at each executive's option
upon the acquisition (as defined in the Agreements) of the Company by another
entity and provide that upon such an acquisition the executive may resign and
receive up to 30 months of his base salary in a lump-sum payment. The Agreements
provide that if the Company elects not to extend the executive's employment or
to otherwise terminate the executive without just cause as defined in the
Agreements, the executive will receive his base salary, reduced by any salary
earned by the executive from another employer, plus certain benefits for a
period of the greater of two years or the remaining term of the respective
Agreement. The Agreements also provide for certain payments upon disability of
the executive and require the Company to purchase a term life insurance policy
on each executive's life in a minimum amount of $500,000 which is payable to the
executive's estate or beneficiaries upon his death. The Agreements contain
restrictive provisions relating to the use of confidential information and
competing against the Company within one year after termination of the
executive's employment. The Agreements expire in all respects on the date the
executive becomes 65 years of age.
The Company's employment agreement with Ben R. Leedle, the Company's
Executive Vice President and Chief Operating Officer Health Plan Group,
currently expires in August 2003, but contains a provision that automatically
extends the term for one year on the first and each successive anniversary date
of the agreement unless canceled by the Company. The agreement provides that if
the Company elects not to extend Mr. Leedle's employment, or if Mr. Leedle
terminates the agreement for certain reasons within 12 months of a change in
control of the Company, he will be considered to have been terminated without
just cause and will receive his base salary, reduced by any salary earned from
another employer, plus certain benefits for the greater of two years or the
remaining term of the agreement. Mr. Leedle's agreement contains restrictive
provisions relating to the use of confidential information and competing against
the Company within one year after termination of his employment. The agreement
expires in all respects on the date the executive becomes 65 years of age.
The Company's employment agreement with David A. Sidlowe, the Company's
Senior Vice President and Controller, currently expires in June 2002, but
contains a provision that automatically extends the term for
9
<PAGE> 12
one year on the first and each successive anniversary date of the agreement
unless canceled by the Company. The agreement provides that if the Company
elects not to extend Mr. Sidlowe's employment, he will be considered to have
been terminated without just cause and will receive his base salary, reduced by
any salary earned from another employer, plus certain benefits for the remaining
term of the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2000, the Compensation Committee of the Board of Directors
was composed of Messrs. Ehmann, Koldyke, O'Neil and Dr. Neel. None of these
persons has at any time been an officer or employee of the Company or any of its
subsidiaries. In addition, there are no relationships among the Company's
executive officers, members of the Compensation Committee or entities whose
executives serve on the Board of Directors or the Compensation Committee that
require disclosure under applicable Commission regulations.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors makes
decisions on compensation of the Company's executive officers. Each member of
the Compensation Committee is a non-employee director. It is the responsibility
of the Compensation Committee to determine whether in its judgment the executive
compensation policies are reasonable and appropriate, meet their stated
objectives and effectively serve the best interests of the Company and its
stockholders.
Compensation Philosophy and Policies for Executive Officers
The Compensation Committee believes that the primary objectives of the
Company's executive compensation policies should be:
- to attract and retain talented executives by providing compensation that
is, overall, highly competitive with the compensation provided to
executives at companies of comparable position in the health care
services industry, while maintaining compensation within levels that are
consistent with the Company's annual budget, financial objectives and
operating performance;
- to provide appropriate incentives for executives to work toward the
achievement of the Company's annual financial performance and business
goals based on the Company's annual budget; and
- to more closely align the interests of executives with those of
stockholders and the long-term interests of the Company by providing
long-term incentive compensation in the form of non-qualified stock
options or other equity-based long-term incentive compensation.
The Compensation Committee believes that the Company's executive
compensation policies should be reviewed annually and should be reviewed in
light of the Company's financial performance, its annual budget and its position
within the health care services industry, as well as the compensation policies
of similar companies in the health care services industry. The compensation of
individual executives should then be reviewed annually by the Compensation
Committee in light of its executive compensation policies for that year.
In reviewing the comparability of the Company's executive compensation
policies, the Compensation Committee periodically reviews executive compensation
for other comparable companies. Some of the comparable companies the
Compensation Committee reviews are included among the Composite Group used in
the Performance Graph presented in this proxy statement, but in light of factors
that are unique to the
10
<PAGE> 13
Company, the Compensation Committee believes that, while the Company competes
generally with such other health care service companies, the position of the
Company as a leading provider of disease management services for health plans in
the United States provide unique circumstances. These differences are important
factors that the Compensation Committee expects to consider in determining
executive compensation and in analyzing comparable financial performance.
The Compensation Committee believes that in addition to corporate
performance, it is appropriate in setting and reviewing executive compensation
to consider the level of experience and responsibilities of each executive as
well as the personal contributions a particular individual may make to the
success of the corporate enterprise. Qualitative factors such as leadership
skills, analytical skills, organization development, public affairs and civic
involvement are deemed to be important qualitative factors to take into account
in considering levels of compensation. No relative weight is assigned to these
qualitative factors, which are applied subjectively by the Compensation
Committee.
Compensation of Executive Officers
The Compensation Committee believes that the compensation of executive
officers should be comprised of base compensation, annual incentive compensation
and intermediate and long-term compensation and has applied the policies
described herein to fiscal 2000 compensation for executive officers as described
below. Ben Leedle, Executive Vice President and Chief Operating
Officer -- Health Plan Group, was appointed to his executive officer position on
September 1, 2000 and therefore is not included in this report.
Base Compensation. Base compensation for executive officers of the Company
is based on the terms of employment agreements between the Company and the
executives. These agreements provide for a minimum base salary adjusted for
increases in the Consumer Price Index and such other increases as the
Compensation Committee shall determine to be appropriate. In determining whether
an increase in base compensation for the executive officers was appropriate for
fiscal 2000, the Compensation Committee reviewed recommendations of management
and consulted with the Chief Executive Officer. The Compensation Committee
determined on the basis of discussions with the Chief Executive Officer, its
experience in business generally and with the Company specifically what it
viewed to be appropriate levels of base compensation after taking into
consideration the contributions of each executive and the performance of the
Company. As a result of this review, the Compensation Committee awarded an
increase in the annual base compensation for executive officers (other than Mr.
Herr) in fiscal 2000 of 5%. The minimum increase mandated by the employment
agreements with the executive officers was 3.4%. The Compensation Committee did
not assign any relative weight to the quantitative and qualitative factors it
applied in reaching its base compensation decisions. Mr. Herr's base
compensation was reduced for fiscal 2000 to reflect the temporarily reduced role
Mr. Herr assumed with the Company during that year.
Annual Incentive Compensation. The Compensation Committee believes that
compensation should primarily be linked to operating performance. To achieve
this link with regard to short-term performance, the Compensation Committee for
fiscal 2000 relied on cash bonuses awarded under the Annual Incentive
Compensation Plan under which cash awards could be earned by executive officers
based upon a comparison of actual earnings per share of the Company and targeted
earnings per share approved by the Compensation Committee for fiscal 2000 at the
beginning of the fiscal year. The maximum total Annual Incentive Compensation
award that executive officers could receive ranged from 48% to 60% of base
salary for fiscal 2000. Although the Company did not achieve the earnings per
share targets established under the Annual Incentive Compensation Plan by the
Compensation Committee at the beginning of the fiscal year, the Compensation
Committee considered factors such as the changed focus of the Company during
fiscal 2000 to
11
<PAGE> 14
focus on an improved and expanded health plan segment infrastructure capability
which reduced earnings per share, and also considered new health plan disease
management contracts signed during the year which were not yet reflected in
earnings per share for fiscal 2000. Based upon the foregoing, the Compensation
Committee made discretionary awards ranging from 18% to 22.5% of base salary for
fiscal 2000. Mr. Herr did not participate in the Annual Incentive Compensation
Plan for fiscal 2000.
Intermediate and Long-Term Incentive Compensation. Stock options,
contributions under the Company's 401(k) Plan and contributions under the
Company's Capital Accumulation Plan are the principal vehicles for payment of
intermediate and long-term compensation. The 401(k) Plan, which is based on a
calendar year, provides for a matching contribution by the Company of 52% of the
participant's voluntary salary contributions with the Company's contribution
limited to the lesser of 3.12% of the executive officer's salary and an annual
maximum Company contribution of $4,995, based on a maximum voluntary salary
contribution established by the U.S. Department of Labor. Approximately 29% of
this matching contribution is in the form of Company Common Stock. All matching
Company contributions to the 401(k) Plan vest immediately for each executive
officer and are payable pursuant to the provisions of the 401(k) Plan.
Under the Company's Capital Accumulation Plan, which is based on a calendar
year, the Company makes contributions to the Capital Accumulation Plan on behalf
of the executive officers that for calendar 2000 are based on (a) the executive
officer's voluntary salary deferrals into the Capital Accumulation Plan and (b)
performance against targeted Company earnings per share for fiscal 2000
established prior to the start of the Capital Accumulation Plan year by the
Compensation Committee. The portion of the Company's contribution that is based
on the executive officer's voluntary salary deferrals provides that to the
extent the executive officer cannot defer at least 6% of his base salary under
the 401(k) Plan because of U.S. Department of Labor maximum contribution limits,
then the executive officer can defer the difference between his actual deferral
and 6% of his annual base salary into the Capital Accumulation Plan, and the
Company will provide a matching contribution of 52% of the amount deferred. The
executive officer is also eligible to contribute up to an additional 4% of base
salary into the Capital Accumulation Plan but no matching contribution will be
made by the Company for this portion of the salary deferral.
With respect to the portion of the Capital Accumulation Plan contribution
that is based on performance criteria for fiscal 2000 established by the
Compensation Committee, executive officers were eligible to receive a Company
contribution of between 3.5% and 18.5% of base salary for calendar 2000,
provided that a minimum level of Company earnings per share for fiscal 2000 were
attained. Awards are made as of December 31 of each year but are based on
performance criteria for the fiscal year ended August 31 during that year.
Therefore, the actual performance award under the Capital Accumulation Plan
credited to executive officers during fiscal 2000 was an award of 5.5% of base
salary earned during calendar 1999 based on performance during the fiscal year
ended August 31, 1999. In addition, executive officers still employed by the
Company as of December 31, 2000, will receive an award of 7.0% of base salary
during that calendar year based on a discretionary award made by the
Compensation Committee in recognition of the Company's performance during fiscal
2000 which was not reflected in the Company's earnings per share for fiscal
2000. Mr. Herr did not participate in the Capital Accumulation Plan for calendar
2000.
The Company's contributions to the Capital Accumulation Plan vest equally
over four years, and vested amounts are paid out upon the earliest of (1) one
year following an executive's termination of employment, (2) retirement or (3)
upon a date selected at the beginning of each Capital Accumulation Plan year by
the executive, but in no event will this selected date be earlier than four
years from the beginning of the Capital Accumulation Plan year. Capital
Accumulation Plan account balances earn interest at a rate equal to the
prevailing prime rate of interest plus 1% as of November 1 of each year for the
succeeding calendar year.
12
<PAGE> 15
The Compensation Committee considers that an integral part of the Company's
executive compensation program is equity-based compensation plans which align
executives' long-range interests with those of the stockholders. This long-term
incentive program is principally reflected in the 1991 Employee Stock Incentive
Plan (the "1991 Plan") and the 1996 Plan.
The Company has no set policy as to when stock options should be awarded,
although historically the Company has awarded stock options to its executive
officers annually. The Committee believes that the Company should continue to
make it a part of its regular executive compensation policies to consider
granting awards of non-qualified stock options to executive officers to provide
long-term incentives as part of the compensation package that is reviewed
annually for each executive officer. The Company's stock option agreements
generally have provided that the exercise price of each stock option was the
average of the closing bid price of the Company's Common Stock on the first five
trading days of the month in which the options were granted; each grant was
subject to vesting conditions established at the date of the grant; and stock
options vested on an equal basis over a period of four years. The Committee's
policy is that the material terms of stock options for executive officers should
not be amended after grant.
The Committee believes that long-term stock-based incentive compensation
should be structured so as to closely align the interests of the executives with
the interests of the Company's stockholders and, in particular, to provide only
limited value (if any) in the event that the Company's stock price fails to
increase over time. The Committee determines the award of stock option grants to
the executive officers and takes into account the recommendations of the Chief
Executive Officer prior to approving annual awards of long-term stock-based
incentive compensation to the other executive officers. These stock options are
granted in part to reward the senior executives for their long-term strategic
management of the Company, and to motivate the executives to improve stockholder
value by increasing this component of their compensation package, and reflect
the Committee's objective to provide a greater portion of compensation for
executives in the form of long-term equity-linked awards. During fiscal 2000,
the Committee awarded Mr. Herr 15,000 options to purchase Common Stock at an
exercise price of $6.20 per share, awarded Mr. Stone 20,000 options to purchase
Common Stock at an exercise price of $6.20 per share and 4,000 options to
purchase Common Stock at an exercise price of $4.06 per share, and awarded Mr.
Sidlowe 5,000 options to purchase Common Stock at an exercise price of $6.20 per
share and 3,000 options to purchase Common Stock at an exercise price of $4.06
per share.
Compensation of Chief Executive Officer
The Committee believes that the compensation of the Chief Executive Officer
is consistent with its general policies concerning executive compensation and is
appropriate in light of the Company's financial objectives and performance.
Awards of intermediate and long-term incentive compensation to the Chief
Executive Officer are considered concurrently with awards to other executive
officers and follow the same general policies as such other intermediate and
long-term incentive awards.
In reviewing and approving Mr. Cigarran's fiscal 2000 compensation, the
Compensation Committee subjectively took into account the Company's performance
in fiscal 1999 as well as the Company's progress in developing its disease
management business. In light of these factors, the Compensation Committee
determined that Mr. Cigarran would receive an increase in his annual base
compensation of 5%. Mr. Cigarran received an Annual Incentive Compensation plan
award for fiscal 2000 of 22.5% of base salary based on the same discretionary
criteria as described above for other executive officers. Mr. Cigarran also
received a Company performance contribution pursuant to the Capital Accumulation
Plan for calendar 1999 equal to 5.5% of his base salary during that period of
time (in addition to the fixed matching contribution required
13
<PAGE> 16
thereunder) and will receive a Company performance award pursuant to the Capital
Accumulation Plan equal to 7% of his base salary earned during calendar 2000
(this award will not be contributed to his account until December 31, 2000); a
matching contribution of $4,735 to the Company's 401(k) Plan on his behalf for
the period September 1, 1999 through August 31, 2000; and long-term stock-based
incentives in the form of an option to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $6.20 per share.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted as part of the Omnibus Budget Reconciliation Act of 1993,
generally disallows a tax deduction to public companies for compensation over
$1,000,000 paid to the Chief Executive Officer and four other most highly
compensated executive officers. Under IRS regulations, qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The Compensation Committee does not believe that
any of the executive compensation arrangements for fiscal 2000 will result in
the loss of a tax deduction pursuant to Section 162(m). The Committee will
continue to monitor the application of Section 162(m) to executive compensation.
Respectfully submitted,
Frank A. Ehmann, Chairman
Martin J. Koldyke
C. Warren Neel
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors, a
copy of which is attached as Exhibit A, the Audit Committee of the Board of
Directors assists the Board of Directors in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. During fiscal 2000, the Audit Committee met
five times. The Audit Committee discussed the interim financial information
contained in each quarterly earnings announcement with the Chief Financial
Officer of the Company and the Company's independent auditors prior to public
release of that information.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee also discussed with management and the independent auditors the
quality and adequacy of the Company's internal controls. The Audit Committee
reviewed with the independent auditors their audit plans, audit scope, and
identification of audit risks.
The Audit Committee discussed and reviewed with the independent auditors
all communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communications with Audit Committees" and discussed and reviewed the results of
the independent auditors' examination of the financial statements.
14
<PAGE> 17
The Audit Committee reviewed the audited financial statements of the
Company as of and for the fiscal year ended August 31, 2000 with management and
the independent auditors. Management has the responsibility for the preparation
of the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended August 31, 2000, for filing with the Commission.
The Audit Committee also approved the reappointment of Deloitte & Touche LLP as
the Company's independent auditors.
Respectfully submitted,
William C. O'Neil, Chairman
Frank A. Ehmann
Martin J. Koldyke
C. Warren Neel
15
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the total stockholder return of $100 invested
on August 31, 1995 in (a) the Company, (b) the Center for Research in Security
Prices ("CRSP") Index for NASDAQ Stock Market (U.S. Companies) ("NASDAQ U.S.
Stocks") and (c) the CRSP Index for NASDAQ Health Services Stocks ("NASDAQ
Health Services"), assuming the reinvestment of all dividends.
<TABLE>
<CAPTION>
AMHC NASDAQ U.S. Stocks NASDAQ HEALTH SERVICES
---- ----------------- ----------------------
<S> <C> <C> <C>
8/31/95 100.00 100.00 100.00
8/31/96 187.234 117.152 130.209
8/31/97 189.362 160.521 157.816
8/31/98 248.461 164.979 82.784
8/31/99 221.544 229.613 91.75
8/31/00 198.769 279.055 97.67
</TABLE>
Notes:
A. The lines represent annual index levels derived from compounded daily returns
that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.00 on August 31, 1995.
16
<PAGE> 19
PROPOSAL NO. 2
AMENDMENT NO. 3 TO THE 1996 STOCK INCENTIVE PLAN
The Board of Directors has approved and recommends that its stockholders
approve an amendment to the 1996 Plan to increase the number of shares of Common
Stock available for issuance under the 1996 Plan by 400,000 shares, for a total
of 1,530,000 shares subject to option thereunder. Of the original shares
authorized under the 1996 Plan, 50,000 of such shares are reserved for issuance
in connection with restricted stock awards to Outside Directors as part of their
annual compensation for serving as directors of the Company; no additional
shares are being reserved for such restricted stock awards as part of the
proposed amendment. The status of the options outstanding and available for
grant under the Company's various stock option plans as of November 30, 2000 is
as follows:
<TABLE>
<CAPTION>
SHARES
SHARES SUBJECT TO AVAILABLE FOR
PLAN OUTSTANDING OPTIONS OPTION GRANTS
---- ------------------- -----------------
<S> <C> <C>
1988 Plan 51,874 --
1991 Plan 643,999 2,955
1996 Plan 1,009,440 2,270
</TABLE>
Stock options have been granted pursuant to the Non-Statutory Stock Option
Plan of 1988, 1991 Plan and 1996 Plan to the Company's management employees to
provide them with additional incentive to contribute to the best interests of
the Company by aligning their interests with the interests of the Company's
stockholders. Options to purchase 317,730 shares were granted pursuant to the
1996 Plan by the Company's Board of Directors in September 2000 consistent with
the Company's annual stock grant program but are subject to the approval of
Amendment No. 3 to the 1996 Plan. Of all options granted under the 1996 Plan,
including those granted in September 2000, approximately 73% of the options
granted were granted to management employees other than executive officers.
Approximately 190 management employees currently own stock options.
The Board of Directors and management of the Company believe that it is
important to make stock option grants on an annual basis to its management
employees and also to grant options to newly hired employees. The Company
believes that its competitive advantage is primarily the result of the
knowledge, experience and commitment of its management employees. The rapidly
changing healthcare environment creates numerous opportunities for individuals
with the skills needed by the Company to realize its potential in its hospital
contract business and in its rapidly developing disease management business with
health plans. The Company's ability to grant options to purchase Common Stock is
an essential element to assure that existing management employees remain
committed to the Company as well as to assure that the Company can recruit
additional management employees needed to fully develop these businesses. Other
health care services businesses, including health care services businesses that
may compete with the Company, are offering stock option grants as part of their
compensation program, and therefore, it is essential that the Company continue
to be able to offer stock options to assure that it has the management employees
that it needs to realize the Company's growth potential.
Accordingly, on November 10, 2000, the Company's Board of Directors adopted
a resolution amending the 1996 Plan, subject to stockholder approval, to
increase the number of shares authorized for issuance thereunder by 400,000. If
the amendment as proposed is approved, there will be 1,480,000 shares (not
including the 50,000 shares reserved for issuance in connection with restricted
stock awards to Outside Directors) available for issuance under the 1996 Plan,
of which options for 1,329,440 shares will be
17
<PAGE> 20
outstanding; options for 68,290 shares authorized under this Plan have been
exercised since adoption of the 1996 Plan. A copy of the proposed amendment to
the 1996 Plan is attached as Exhibit B.
A majority of the votes of all shares present, represented and entitled to
vote is necessary for approval of this proposal. The Board recommends that
stockholders vote FOR this proposal. Unless contrary instructions are received,
shares of Common Stock of the Company represented by duly executed proxies will
be voted in favor of the amendment to the 1996 Plan.
SUMMARY OF MATERIAL PROVISIONS OF THE 1996 PLAN
The following is a summary of the material provisions of the 1996 Plan, as
amended by Proposal No. 2:
Shares. The 1996 Plan authorizes the issuance of up to 1,530,000 shares of
the Company's Common Stock. 50,000 of such shares are reserved for issuance in
connection with restricted stock awards to Outside Directors as part of their
annual compensation for serving as directors of the Company. Shares awarded
under the 1996 Plan may consist, in whole or in part, of any combination of
authorized and unissued shares of Common Stock or treasury shares. If shares
subject to an option under the 1996 Plan cease to be subject to such option, or
if shares awarded under the 1996 Plan are forfeited, or otherwise terminate
without a payment being made to the participant in the form of Common Stock and
without the payment of any dividends thereon, such shares will again be
available for future distribution under the 1996 Plan. Options to purchase
317,730 shares of Common Stock were granted in September 2000 as part of the
Company's annual stock option grant program that are subject to the approval of
Proposal No. 2 to increase the number of authorized shares under the 1996 Plan.
Participation. Awards may be made to key employees, including officers,
and consultants of the Company, its subsidiaries and affiliates, but (except for
automatic annual grants of restricted stock to Outside Directors as described
below) may not be granted to any director who is a member of the Committee
administering the 1996 Plan or to any other director unless the director is also
a regular employee of the Company, its subsidiaries or affiliates. No employee
is eligible for awards relative to shares of Common Stock which exceed 100,000
shares in any three year period. The number of officers and other key employees
currently eligible for awards pursuant to the 1996 Plan is approximately 190.
As part of their compensation for serving as directors of the Company,
Outside Directors receive an annual grant of restricted stock that was
originally equal in value to $10,000. The dollar amount of the annual grants is
adjusted by the percentage change from the previous year in the Consumer Price
Index, subject to a maximum 6% annual increase. The grant of restricted stock
made in January 2000 was equal in value to $10,962. For purposes of determining
the amount of restricted stock to be granted to each Outside Director, the value
of the Company's Common Stock equals the average of the closing bid price of
such stock for the first five trading days of the month in which the Annual
Meeting of Stockholders is held. Restricted stock is awarded to each Outside
Director annually on the date of the Company's Annual Meeting of Stockholders.
There are currently four Outside Directors eligible to participate in the 1996
Plan.
Administration. The 1996 Plan is administered by a Committee of no less
than two disinterested individuals appointed by the Board of Directors, which
Committee is currently the Compensation Committee. The Compensation Committee
has no authority to determine the terms or conditions of any awards to Outside
Directors.
18
<PAGE> 21
Awards Under the Plan. The Compensation Committee has the authority to
grant the following types of awards to officers and key employees under the 1996
Plan: (1) Stock Options, (2) SARs, (3) Restricted Stock, and (4) Other
Stock-Based Awards.
1. Stock Options. Incentive stock options ("ISO") and non-qualified
stock options may be granted for such number of shares of Common Stock as
the Compensation Committee will determine and may be granted alone, in
conjunction with, or in tandem with, other awards under the 1996 Plan, but
subject to the per person limitation on awards.
A stock option will be exercisable at such times and subject to such
terms and conditions as the Compensation Committee will determine and over
a term to be determined by the Compensation Committee, which term will be
no more than ten years after the date of grant. The option price for any
ISO will not be less than 100% (110% in the case of certain 10%
stockholders) of the fair market value of the Common Stock as of the date
of grant and for any non-qualified stock option will be not less than 50%
of the fair market value as of the date of grant.
2. Stock Appreciation Rights. SARs may be granted in conjunction with
all or part of a stock option and will be exercisable only when the
underlying stock option is exercisable. Once an SAR has been exercised, the
related portion of the stock option underlying the SAR will terminate.
Upon the exercise of an SAR, the Company will pay to the employee in
cash, Common Stock, or a combination thereof (the method of payment to be
at the discretion of the Compensation Committee), an amount of money equal
to the excess between the fair market value of the stock on the exercise
date and the option exercise price, multiplied by the number of SARs being
exercised.
In addition to the foregoing SARs, the Compensation Committee may
grant limited SARs which will be exercisable only in the event of a change
in control or potential change in control of the Company, as defined in the
1996 Plan. In awarding SARs or limited SARs, the Compensation Committee may
provide that in the event of a change in control or potential change in
control, SARs or limited SARs may be cashed out on the basis of the change
in control price, as defined in the 1996 Plan.
3. Restricted Stock. Restricted stock may be granted alone, in
conjunction with, or in tandem with, other awards under the 1996 Plan and
may be conditioned upon the attainment of specific performance goals or
such other factors as the Compensation Committee may determine. The
provisions attendant to a grant of restricted stock may vary from
participant to participant.
Other than awards of restricted stock made to Outside Directors, in
making an award of restricted stock, the Compensation Committee will
determine the periods during which the stock is subject to forfeiture, and
may grant such stock at a purchase price equal to or less than the par
value of the Common Stock.
During the restriction period, the recipient may not sell, transfer,
pledge or assign the restricted stock. The certificate evidencing the
restricted stock will remain in the possession of the Company until the
restrictions have lapsed.
4. Other Stock-Based Awards. The Compensation Committee also may
grant other types of awards that are valued, in whole or in part, by
reference to or otherwise based on the Common Stock. These awards may be
granted alone, in addition to, or in tandem with, stock options, SARs and
restricted stock. Such awards will be made upon terms and conditions as the
Compensation Committee may in its discretion provide.
19
<PAGE> 22
Automatic Annual Grants to Outside Directors. As part of the compensation
to Outside Directors for serving as directors of the Company, the 1996 Plan
provides for an automatic annual grant of restricted stock that was originally
equal in value to $10,000, to be awarded to each Outside Director on the date of
the Company's Annual Meeting of Stockholders. The value of the restricted stock
grant to Outside Directors is adjusted annually on the date of grant by the
percentage change from the previous year in the Consumer Price Index, subject to
a maximum 6% annual increase. For purposes of determining the amount of the
restricted stock to be granted to each Outside Director, the value of the
Company's Common Stock equals the average of the closing bid price of such stock
on the first five trading days of the month in which the Annual Meeting of
Stockholders is held. Restricted stock granted to an Outside Director vests in
three equal annual installments, beginning on the date of grant and continuing
on the first and second Annual Meeting of Stockholders following the Annual
Meeting of Stockholders at which the restricted stock grant is made, if the
Outside Director is still a director of the Company on such dates. The shares of
stock subject to the restricted stock award which have vested are not
transferable until the earlier of (i) five years from the date of grant and (ii)
the date on which the director ceases to serve as a director of the Company for
any reason. Outside Directors are not otherwise eligible to receive awards under
the 1996 Plan.
Change in Control Provisions. If there is a change in control or a
potential change in control, any SARs and stock options, which are not then
exercisable, in the discretion of the Board of Directors, will become fully
exercisable and vested. Similarly, the restrictions applicable to restricted
stock and other stock-based awards will lapse and such shares and awards will be
deemed fully vested. Stock options, SARs, limited SARs, restricted stock and
other stock-based awards, will, unless otherwise determined by the Compensation
Committee in its sole discretion, be cashed out on the basis of the change in
control price described below. All restrictions imposed on restricted stock
granted to Outside Directors will expire upon a change in control.
The change in control price will be the highest price per share paid in any
transaction reported on The Nasdaq Stock Market, or paid or offered to be paid
in any bona fide transaction relating to a potential or actual change in control
of the Company, at any time during the immediately preceding 60 day period as
defined by the Compensation Committee. A change in control occurs if (1) any
person becomes a beneficial owner, directly or indirectly, of 35% or more of the
total voting stock of the Company (subject to certain exceptions), (2) as a
result of, or in connection with, any cash tender or exchange offer, merger or
other business combination or similar transaction, less than a majority of the
combined voting power of the then outstanding securities of the Company are held
in the aggregate by the holders of Company securities entitled to vote generally
in the election of directors immediately prior to such transaction, or (3)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof. A potential change in control means (1) approval by
the stockholders of an agreement which, if completed, would constitute a change
in control, or (2) the acquisition by a person of 5% or more of the total voting
stock of the Company and the adoption by the Board of Directors of a resolution
that a potential change in control, as defined in the 1996 Plan, has occurred.
Amendment. The 1996 Plan may be amended by the Board of Directors, except
that the Board of Directors may not, without the approval of the Company's
stockholders, increase the total number of shares reserved for the purposes of
the 1996 Plan, materially increase the benefits accruing to participants under
the 1996 Plan, or materially modify the requirements as to eligibility for
participation in the 1996 Plan. In addition, the provisions of the 1996 Plan
relating to grants to Outside Directors may not be amended more than once every
six months except to comply with changes in the Code, and the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
thereunder.
20
<PAGE> 23
Adjustment. In the case of a stock split, stock dividend,
reclassification, recapitalization, merger, reorganization, or other changes in
the Company's structure affecting the Common Stock, appropriate adjustments will
be made by the Compensation Committee, in its sole discretion, in the number of
shares reserved under the 1996 Plan and in the number of shares covered by
options and other awards then outstanding under the 1996 Plan and, where
applicable, the exercise price for awards under the 1996 Plan.
Federal Income Tax Aspects with Respect to Stock Options and Restricted
Stock Awards. The following is a brief summary of the federal income tax
aspects of stock options and restricted stock awards made under the 1996 Plan
based upon the federal income tax laws in effect on the date hereof. This
summary is not intended to be exhaustive, and does not describe state or local
tax consequences.
1. Incentive Stock Options. No taxable income is realized by the
participant upon the grant or exercise of an ISO. If Common Stock is issued
to a participant pursuant to the exercise of an ISO, and if no
disqualifying disposition of the shares is made by the participant within
two years of the date of grant or within one year after the transfer of the
shares to the participant, then: (a) upon the sale of the shares, any
amount realized in excess of the option price will be taxed to the
participant as a long-term capital gain, and any loss sustained will be a
capital loss, and (b) no deduction will be allowed to the Company for
federal income tax purposes. The exercise of an ISO will give rise to an
item of tax preference that may result in an alternative minimum tax
liability for the participant unless the participant makes a disqualifying
disposition of the shares received upon exercise.
If Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of the holding periods described above, then
generally: (a) the participant will realize ordinary income in the year of
disposition in an amount equal to the excess, if any, of the fair market
value of the shares at exercise (or, if less, the amount realized on the
disposition of the shares) over the option price paid for such shares, and
(b) the Company will be entitled to deduct any such recognized amount. Any
further gain or loss realized by the participant will be taxed as
short-term or long-term capital gain or loss, as the case may be, and will
not result in any deduction by the Company.
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the
participant's employment, the option will generally be taxed as a non-
qualified stock option.
2. Non-qualified Stock Options. Except as noted below, with respect
to non-qualified stock options: (a) no income is realized by the
participant at the time the option is granted; (b) generally upon exercise
of the option, the participant realizes ordinary income in an amount equal
to the difference between the option price paid for the shares and the fair
market value of the shares on the date of exercise and the Company will be
entitled to a tax deduction in the same amount; and (c) at disposition, any
appreciation (or depreciation) after date of exercise is treated either as
short-term or long-term capital gain or loss, depending upon the length of
time that the participant has held the shares.
3. Restricted Stock. A participant receiving restricted stock
generally will recognize ordinary income in the amount of the fair market
value of the restricted stock at the time the stock is no longer subject to
forfeiture, less the consideration paid for the stock. However, a
participant may elect, under Section 83(b) of the Code within 30 days of
the grant of the stock, to recognize taxable ordinary income on the date of
grant equal to the excess of the fair market value of the shares of
restricted stock (determined without regard to the restrictions) over the
purchase price of the restricted stock. Thereafter, if the shares are
forfeited, the participant will be entitled to a capital loss in an amount
equal to the
21
<PAGE> 24
purchase price of the forfeited shares regardless of whether the
participant made a Section 83(b) election.
OPTIONS GRANTED UNDER THE 1996 PLAN
Because awards under the 1996 Plan are made at the discretion of the
Compensation Committee, the benefits that will be awarded under the 1996 Plan
are not currently determinable. The following table shows as to each of the
Executive Officers, as to all executive officers as a group, as to all
non-executive officer directors as a group and as to all other employees as a
group, the aggregate number of shares of Common Stock subject to options granted
under the 1996 Plan on September 29, 2000, which are subject to the approval of
this Proposal No. 2, and the weighted average per share exercise price. As of
November 30, 2000, the market value of a share of the Company's Common Stock
based on the closing price for such stock on The Nasdaq Stock Market was $7.94.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
NUMBER OF AVERAGE
STOCK EXERCISE
NAME OPTIONS GRANTED PRICE PER SHARE
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas G. Cigarran.......................................... 25,000 $5.65
Henry D. Herr............................................... 15,000 $5.65
Robert E. Stone............................................. 20,000 $5.65
Ben R. Leedle............................................... 20,000 $5.65
David A. Sidlowe............................................ 5,000 $5.65
All executive officers as a group (5 persons)............... 85,000 $5.65
All non-executive officer directors as a group.............. -- --
All other employees as a group.............................. 232,730 $5.65
-----------------------------------------------------------------------------------------------
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Commission. Officers, directors and greater than 10%
stockholders are required by regulation of the Commission to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of the Forms 3, 4 and 5 and amendments thereto and
certain written representations furnished to the Company, the Company believes
that during the fiscal year ended August 31, 2000, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche, LLP, which was the Company's independent accountant for
fiscal 2000, has been selected as the independent public accountant of the
Company for the 2001 fiscal year. The Company has been informed that
representatives of Deloitte & Touche, LLP plan to attend the Annual Meeting.
Such representatives will have the opportunity to make a statement if they
desire to do so and will be available to respond to questions by the
stockholders.
22
<PAGE> 25
DEADLINE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS TO BE PRESENTED AT THE
2002 ANNUAL MEETING OF STOCKHOLDERS
Any proposal intended to be presented for action at the 2002 Annual Meeting
of Stockholders by any stockholder of the Company must be received by the
Secretary of the Company not later than August 23, 2001, in order for such
proposal to be considered for inclusion in the Company's Proxy Statement and
proxy relating to its 2002 Annual Meeting of Stockholders. In the event that a
proposal intended to be presented for action at the 2002 Annual Meeting of
Stockholders by any stockholder of the Company is not received until after
October 25, 2001 and prior to November 24, 2001, then the management proxies
will be permitted to use their discretionary voting authority with respect to
that proposal, whether or not the proposal is discussed in the Proxy Statement.
Proposals should be sent to the Company by certified mail return receipt
requested. Nothing in this paragraph shall be deemed to require the Company to
include any stockholder proposal which does not meet all the requirements for
such inclusion established by the Commission at the time in effect.
METHOD OF COUNTING VOTES
Unless a contrary choice is indicated, all duly executed proxies will be
voted in accordance with the instructions set forth on the back side of the
proxy card. Abstentions and "non-votes" will be counted as present only for the
purposes of determining a quorum. Abstentions and "non-votes" will not be
counted either for or against the election of directors. Abstentions will be
treated as votes against and "non-votes" will have no effect on the outcome of
proposals presented to stockholders other than election of directors. A
"non-vote" occurs when a nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
MISCELLANEOUS
It is important that proxies be returned promptly to avoid unnecessary
expense. Therefore, stockholders who do not expect to attend in person are
urged, regardless of the number of shares of stock owned, to date, sign and
return the enclosed proxy promptly.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED AUGUST 31, 2000 MAY BE OBTAINED, WITHOUT CHARGE, BY ANY STOCKHOLDER TO
WHOM THIS PROXY STATEMENT IS SENT, UPON WRITTEN REQUEST TO HENRY D. HERR,
SECRETARY, AMERICAN HEALTHWAYS, INC., 3841 GREEN HILLS VILLAGE DRIVE, NASHVILLE,
TENNESSEE 37215. COPIES OF EXHIBITS FILED WITH THE FORM 10-K ALSO WILL BE
AVAILABLE UPON WRITTEN REQUEST ON PAYMENT OF CHARGES APPROXIMATING THE COMPANY'S
COST.
Date: December 19, 2000.
23
<PAGE> 26
EXHIBIT A
CHARTER OF
AUDIT COMMITTEE OF
AMERICAN HEALTHWAYS, INC.
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") to assist the Board in monitoring on a periodic basis
the processes used by the Company to produce financial statements, the Company's
systems of internal accounting and financial controls, and the independence of
the Company's outside auditors.
In discharging its responsibilities, the Committee is empowered to
investigate any matter with full access to all books, records, facilities and
personnel of the Company and the power to retain outside counsel, auditors or
other experts or consultants for this purpose. The Committee shall make regular
reports to the Board.
The Committee shall review and reassess the adequacy of this Charter on an
annual basis and submit it annually to the Board for approval.
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition and experience will meet the applicable
listing standards of the NASD.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independent judgment in carrying out the
responsibilities of a director (unless as to one non-independent member
the Board under exceptional and limited circumstances determines that
membership is required by the best interests of the Company and its
shareholders); and
2. Who are financially literate (as defined in the NASD listing standard)
or who become financially literate within a reasonable period of time
after appointment to the Committee. In addition, at least one member of
the Committee will have sufficient experience or background which
results in financial sophistication (as defined in the NASD listing
standard).
The Committee's monitoring responsibility recognizes that the Company's
management is responsible for preparing the Company's financial statements in
accordance with generally accepted accounting principles and that the outside
auditors are responsible for auditing those financial statements. Additionally,
the Committee recognizes that the Company's financial management, as well as its
outside auditors, have more time, knowledge and more detailed information on the
Company and its financial reports than do Committee members; consequently, in
carrying out its responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements and is not conducting
an audit or investigation of the financial statements or determining that the
Company's financial statements are true and complete or are in accordance with
generally accepted accounting principles.
The following functions shall be the common recurring activities of the
Committee in carrying out its monitoring responsibilities. These functions are
set forth as a guide with the understanding that the Committee may diverge from
this guide as it deems appropriate given the circumstances.
- The Committee shall review with management and the outside auditors the
annual audited financial statements to be included in the Company's
Annual Report on Form 10-K (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K) and review and consider
with the outside
<PAGE> 27
auditors the matters required to be discussed by Statements of Auditing
Standards ("SAS") No. 61 and No. 90.
- As a whole, or through the Committee chair, the Committee shall review
with the outside auditors the Company's interim financial results to be
included in the Company's quarterly reports to be filed with Securities
and Exchange Commission on Form 10-Q and the matters required to be
discussed by SAS No. 61 and No. 90; this review will occur prior to the
Company's filing of the Form 10-Q.
- The Committee shall discuss with management and the outside auditors the
quality and adequacy of the Company's internal controls that could
significantly affect the Company's financial statements.
- The Committee shall:
- request from the outside auditors annually a formal written statement
delineating all relationships between the outside auditors and the
Company that may impact the objectivity and independence of the outside
auditors, consistent with Independence Standards Board Standard Number
1;
- discuss with the outside auditors in an active dialogue any such
disclosed relationships and their impact on the outside auditors'
independence; and
- if determined appropriate by the Committee, recommend that the Board
take appropriate action in response to the outside auditor's report to
ensure the outside auditor's independence.
- The Committee, subject to any action that may be taken by the Board,
shall have the ultimate authority and responsibility to select (or
nominate for shareholder approval), evaluate and, where appropriate,
replace the outside auditors, and the outside auditors are ultimately
accountable to the Board and the Committee.
<PAGE> 28
EXHIBIT B
AMENDMENT NO. 3 TO
AMERICAN HEALTHWAYS, INC.
1996 EMPLOYEE STOCK INCENTIVE PLAN
Pursuant to subparagraph 11 of the American Healthways, Inc. 1996 Employee
Stock Incentive Plan ("1996 Plan"), the Board of Directors of American
Healthways, Inc. (the "Company") hereby amends the 1996 Plan so that the first
paragraph of Section 3 shall read as follows:
"The aggregate number of shares of Stock reserved and available for
distribution under the Plan shall not exceed 1,530,000 shares, which
includes 50,000 shares reserved for issuance pursuant to Section 9
hereof. Any number of shares of Stock may be awarded so long as the
total shares of Stock awarded does not exceed 1,530,000 shares. Such
shares of Common Stock may consist, in whole or in part, of authorized
and unissued shares or treasury shares."
<PAGE> 29
P R O X Y
AMERICAN HEALTHWAYS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JANUARY 22, 2001.
The undersigned hereby appoints Thomas G. Cigarran and Henry D. Herr, and
either of them, as proxies, with full power of substitution, to vote all shares
of the undersigned as shown below on this proxy at the Annual Meeting of
Stockholders of American Healthways, Inc. to be held at the SunTrust Center, 5th
Floor Auditorium, 424 Church Street, Nashville, Tennessee 37219, on January 22,
2001, at 9:00 a.m., local time, and any adjournments thereof.
PROPOSAL 1: ELECTION OF DIRECTORS:
[ ] FOR all of the following nominees (except as indicated to the contrary
below):
Mr. Ehmann, Mr. O'Neil
WITHHOLD AUTHORITY (ABSTAIN) to vote for the following nominees (please
print name or names)
---------------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for all nominees
PROPOSAL 2: AMENDMENT NO. 3 TO THE 1996 STOCK INCENTIVE PLAN:
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
IN THEIR DISCRETION ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE SAID
MEETING OR ANY ADJOURNMENT THEREOF.
IMPORTANT: PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.
Your shares will be voted in accordance with your instructions. If no choice
is specified, shares will be voted FOR the nominees in the election of
directors, and FOR the amendment of the 1996 Stock Incentive Plan.
Date: ____________________ .
PLEASE SIGN HERE
AND RETURN PROMPTLY
-----------------------------
-----------------------------
Please sign exactly as your
name appears at left. If
registered in the names of
two or more persons, each
should sign. Executors,
administrators, trustees,
guardians and attorneys
should show their full
titles. If a corporation is
stockholder, the corporate
officer should sign in full
corporate name and title,
such as President or other
officer. If a partnership is
stockholder, please sign in
partnership name by
authorized person.
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IF you have changed your address, please PRINT your new address on this line.
