<PAGE>
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota
55343
March 28,1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
United HealthCare Corporation, which will be held on May 14, 1997, at 10:00
a.m., Minneapolis time, at the Lutheran Brotherhood Building Auditorium, 625
Fourth Avenue South, Minneapolis, Minnesota.
Information about the business of the meeting and the nominees for election
as members of the Board of Directors is set forth in the formal meeting notice
and the proxy statement on the following pages.
We hope you can attend the meeting. However, if you will not be able to join
us, we urge you to exercise your right as a shareholder and vote. The vote of
every shareholder is important, and your cooperation in completing, signing
and returning the enclosed proxy promptly will be appreciated.
Sincerely,
LOGO
William W. McGuire, M.D.
Chairman, President and Chief
Executive Officer
<PAGE>
UNITED HEALTHCARE CORPORATION
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1997
TO THE SHAREHOLDERS OF UNITED HEALTHCARE CORPORATION:
The Annual Meeting of Shareholders of United HealthCare Corporation
("United" or the "Company") will be held on Wednesday, May 14, 1997, at the
Lutheran Brotherhood Building Auditorium, 625 Fourth Avenue South,
Minneapolis, Minnesota, at 10:00 a.m., Minneapolis time, for the following
purposes:
1. To elect three persons to the Company's Board of Directors.
2. To consider and vote upon a proposal to ratify the appointment of Arthur
Andersen LLP as independent public accountants for the Company for the
fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record of United Common Stock at the close of business
on March 17, 1997, will be entitled to receive notice of and to vote at the
meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
David J. Lubben
Secretary
March 28, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN
TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
<PAGE>
UNITED HEALTHCARE CORPORATION
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
May 14, 1997
----------------
GENERAL MATTERS
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by the Board of Directors of United HealthCare Corporation
("United" or the "Company") for use at the Annual Meeting of Shareholders to
be held on May 14, 1997, at 10:00 a.m., Minneapolis time, at the Lutheran
Brotherhood Building Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota (the "Annual Meeting"), and at any adjournment thereof, for the
purposes set forth in the Notice of Annual Meeting of Shareholders.
Shares of United Common Stock represented by proxies in the form solicited
will be voted in the manner directed by a shareholder. If no direction is
made, the proxy will be voted FOR the election of the nominees for director
named in this Proxy Statement and FOR the other proposals discussed herein. A
shareholder may revoke his or her proxy at any time before it is voted by
delivering to an officer of the Company a written notice of termination of the
proxy's authority, by filing with an officer of the Company another proxy
bearing a later date, or by appearing and voting at the meeting. This Proxy
Statement and the form of proxy enclosed are being mailed to shareholders
commencing on or about March 28, 1997.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting and the
number of shareholders present in person or by proxy will determine whether or
not a quorum is present. If a shareholder abstains from voting as to any
matter, then the shares held by such shareholder shall be deemed present at
the meeting for purposes of determining a quorum and for purposes of
calculating the vote with respect to such matter, but shall not be deemed to
have been voted in favor of such matter. If a broker returns a "non-vote"
proxy, indicating a lack of authority to vote on such matter, then the shares
covered by such non-vote shall be deemed present at the Annual Meeting for
purposes of determining a quorum but shall not be deemed to be represented at
the Annual Meeting for purposes of calculating the vote with respect to such
matter. A shareholder giving the enclosed proxy may revoke it at any time
before the vote is cast at the Annual Meeting.
Only the holders of the Company's Common Stock whose names appear of record
on the Company's books at the close of business on March 17, 1997, will be
entitled to vote at the Annual
1
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Meeting. At the close of business on March 17, 1997 a total of 185,600,404
shares of United Common Stock were outstanding, each share being entitled to
one vote. The Company also has 500,000 shares of 5.75% Convertible Preferred
Stock issued and outstanding. The holders of this stock have no general voting
rights and are not entitled to vote on the proposals presented at the Annual
Meeting. The affirmative vote of a majority of the shares of the Company's
Common Stock represented at the meeting in person or by proxy is necessary to
effectuate all matters proposed to the shareholders at the Annual Meeting.
There is no right to cumulate voting as to any matter.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company who will receive no extra
compensation for their services may solicit proxies by telephone, telecopier,
or personal calls. The Company has engaged Morrow & Co., Inc. to assist in
proxy solicitation for an estimated fee of $7,500 plus out of pocket expenses.
A copy of the Company's Annual Report for the year ended December 31, 1996
is being furnished to each shareholder with this Proxy Statement.
MATTERS TO BE SUBMITTED TO A VOTE
The following is a discussion of the matters to be presented at the Annual
Meeting:
I. ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes, Class
I, Class II, and Class III, as nearly equal in number as possible. Each class
serves three years with the terms of office of the respective classes expiring
in successive years. The term of office of the three directors in Class II
expires at the Annual Meeting.
On July 30, 1996, the Board of Directors increased the size of the Board
from 10 to 11 members and appointed Robert L. Ryan to the Board as a Class I
director. One of the incumbent Class II directors, Elizabeth J. McCormack, who
was elected at the Company's 1994 Annual Meeting, is retiring from the Board
of Directors effective at the Annual Meeting and accordingly will not stand
for reelection to a new term. On February 11, 1997, the Board of Directors
nominated Walter F. Mondale for election by the shareholders as a Class II
director to fill the position held by Ms. McCormick. As a result, three
directors are being nominated for election to Class II at the Annual Meeting
for a three year term expiring at the annual meeting of shareholders to be
held in 2000.
The persons named in the accompanying proxy will vote FOR the election of
the nominees described herein, unless authority to vote is withheld. The Board
of Directors has been informed that each of the nominees is willing to serve
as a director; however, if any nominee should decline or become unable to
serve as a director for any reason, the proxy may be voted for such other
person as the proxies shall, in their discretion, determine.
The following table sets forth certain information as of March 1, 1997,
concerning the nominees for election as directors of the Company and as to the
other directors whose terms of office will continue after the Annual Meeting:
2
<PAGE>
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS I)
Thomas H. Kean 61 Director
William G. Spears 58 Director
Gail R. Wilensky 53 Director
Robert L. Ryan 53 Director
NOMINEES FOR ELECTION AS DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS II)
James A. Johnson 53 Director
Douglas W. Leatherdale 60 Director
Walter F. Mondale 69 Nominee for Director
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS III)
William C. Ballard, Jr. 56 Director
Richard T. Burke 53 Director
William W. McGuire, M.D. 48 Chairman, President and Chief Executive Officer
Kennett L. Simmons 55 Director
</TABLE>
The Class I directors' terms expire in 1999. Three of the current Class I
directors (Messrs. Kean and Spears and Ms. Wilensky) were each elected at the
Company's May 12, 1996 annual meeting to a term expiring in 1999. Mr. Ryan was
appointed on July 30, 1996, as a Class I director for a term expiring in 1999.
The Class II directors' terms expire at the Annual Meeting. Messrs. Johnson
and Leatherdale were elected at the Company's May 11, 1994 annual meeting to
terms expiring in 1997. Elizabeth McCormack, a current Class II director, is
retiring from the Board and accordingly is not standing for reelection. Walter
F. Mondale has been nominated by the Board for election as a Class II director
to fill the vacancy created by Ms. McCormick's retirement.
The Class III directors' terms expire in 1998. Three of the Class III
directors (Messrs. Ballard and Burke and Dr. McGuire) were elected at the
Company's May 10, 1995 annual meeting to terms expiring in 1998. Mr. Simmons,
the fourth Class III director, was appointed as a Class III director on
October 31, 1995.
Mr. Ballard became a member of the Company's Board of Directors in February
1993. Mr. Ballard retired in 1992 after 22 years as the Chief Financial
Officer and a director of Humana, Inc., a company that owned and operated
hospitals and managed care operations. Mr. Ballard is currently of counsel to
Greenebaum, Doll & McDonald, a law firm in Louisville, Kentucky, and serves on
the Boards of Directors of LG&E Energy Corp., Mid-America Bancorp, Vencor,
Incorporated, American Safety Razor Company, Atria Communities, Inc. and
HealthCare REIT, Inc.
Mr. Burke has been a member of the Company's Board of Directors since the
Company's inception and was its Chief Executive Officer until February 1988.
From 1977 to August 1987 Mr. Burke was Chief Executive Officer of Physicians
Health Plan of Minnesota, now part of Medica, a large Minnesota HMO to which
the Company provides certain systems related services. Mr. Burke is also a
director of Education Alternatives, Inc. and First Cash, Inc. Mr. Burke is
part-owner, Chief Executive Officer and Governor of the Phoenix Coyotes, a
National Hockey League team.
3
<PAGE>
Mr. Johnson has been a member of United's Board of Directors since November
1993. Mr. Johnson is the Chairman of the Board and Chief Executive Officer of
Fannie Mae, a diversified financial services company. Prior to joining Fannie
Mae in January 1990, Mr. Johnson was a managing director in corporate finance
for Lehman Brothers, an investment banking firm. In addition, from 1977 to
1981, he was an executive assistant to Vice President Walter Mondale, advising
the Vice President on domestic and foreign policy and political matters. Mr.
Johnson is a director of Fannie Mae, Kaufman, Broad Home Corporation and
Dayton Hudson Corporation.
Mr. Kean has been a member of United's Board of Directors since August 1993.
Mr. Kean is currently the President of Drew University in New Jersey. Mr. Kean
served as the Governor of the State of New Jersey from 1982 to 1990. Prior to
that, from 1968 to 1977, he served in the New Jersey State Assembly, including
two years in the position of Speaker. Mr. Kean is a director of Amerada Hess
Corporation, Aramark Corporation, Bell Atlantic Corporation, Beneficial
Corporation and Fiduciary Trust Company International.
Mr. Leatherdale became a director of the Company in 1983. Mr. Leatherdale
has been the Chairman, Chief Executive Officer, President and Chief Operating
Officer of The St. Paul Companies, Inc., an insurance, financial and general
business corporation, since May 1990. Mr. Leatherdale served as Executive Vice
President and Chief Financial Officer of The St. Paul Companies, Inc. from
November 1982 until February 1989 when he became its President and Chief
Operating Officer. Mr. Leatherdale is a director of The St. Paul Companies,
Inc., Northern States Power Company and The John Nuveen Company.
Dr. McGuire became a director of the Company in February 1989 and the
Chairman of its Board in May 1991. Dr. McGuire became an Executive Vice
President of United in November 1988, the Company's President in November 1989
and the Company's Chief Executive Officer in February 1991. Dr. McGuire also
served as the Company's Chief Operating Officer from May 1989 to June 1995.
Mr. Mondale, a nominee for director, has been a partner in the law firm of
Dorsey & Whitney LLP since January 1997, and was also a partner from 1987 to
1993. He previously served as a director of the Company from August 1991 to
August 1993. Mr. Mondale served as United States Ambassador to Japan from
August 1993 through December 1996. In 1984, he was the Democratic nominee for
President of the United States. From 1977 to 1981, Mr. Mondale was Vice
President of the United States. From 1964 to 1976, Mr. Mondale was a U.S.
Senator from Minnesota and served as the Attorney General of Minnesota from
1960 to 1964. Mr. Mondale also serves as a director of several Black Rock
mutual funds managed by Black Rock Financial Management, Inc., CNA Financial
Corporation and Northwest Airlines Corporation. He is also a nominee for
director of Interra Financial, Incorporated and St. Jude Medical, Inc.
Mr. Ryan became a director of the Company in July 1996. Mr. Ryan is Senior
Vice President and Chief Financial Officer of Medtronic, Inc., a leading
medical technology company specializing in implantable and invasive therapies.
Prior to joining Medtronic, Mr. Ryan served as Vice President and Chief
Financial Officer of Union Texas Petroleum Corporation from 1982 to 1993. Mr.
Ryan is also a member of the Board of Directors of TECO Energy, Inc., Tampa
Electric Co. and Interra Financial, Incorporated.
4
<PAGE>
Mr. Simmons became a director of the Company in October 1995. Mr. Simmons
was the Chairman and Chief Executive Officer of The MetraHealth Companies,
Inc. ("MetraHealth") a privately held health care management company, from
July 1994 until October 1995 when that company was acquired by United. From
1991 to 1994, Mr. Simmons was self-employed. From 1987 to 1991 Mr. Simmons
held various executive positions with the Company, including Executive Vice
President for Operations, Chief Operating Officer and Chief Executive Officer.
Mr. Simmons was also a member of the Board of Directors of United from 1986 to
1991 and served as its Chairman from 1989 to 1991. Mr. Simmons is also a
director of Manor Care, Inc.
Mr. Spears became a director of the Company in February 1991. Mr. Spears has
been the Chairman of the Board of Spears, Benzak, Salomon & Farrell, Inc., an
investment counseling and management firm, since 1972. In April 1995, Spears,
Benzak, Salomon & Farrell became a wholly owned subsidiary of KeyCorp. Mr.
Spears is a Group Executive of KeyCorp and Chairman and Chief Executive
Officer of Key Asset Management. Mr. Spears also serves as a director of
Alcide Corporation.
Ms. Wilensky has been a member of United's Board of Directors since May
1993. Ms. Wilensky is currently the John M. Olin Senior Fellow at Project
HOPE, an international health foundation and Chair of the Physician Payment
Review Commission. From 1992 to 1993, she served as the Deputy Assistant to
President George Bush for policy development, and from 1990 to 1992 she was
the Administrator of the Health Care Financing Administration directing the
Medicaid and Medicare programs for the United States. Ms. Wilensky also serves
as a director of Advanced Tissue Sciences, Inc., Syncor International, St.
Jude Medical, Inc., Capstone Pharmacy Services, Inc., Coram HealthCare
Corporation, Shared Medical Systems Corporation, Quest Diagnostics
Incorporated and Neopath, Inc.
Director Compensation
Directors who are not employees of the Company are paid an annual retainer
of $20,000, which is paid in equal quarterly installments, and a $1,500 fee
for attendance at each Board meeting. The Chairman of the Board has the
authority to set the amount of any additional fees paid to Board members
chairing a committee of the Board of Directors or for performing such other
substantial work as requested by the Board. The Chairman of the Audit
Committee and the Chairman of the Compensation and Stock Option Committee were
each paid a $5,000 fee for chairing such Committees for the year ended
December 31, 1996.
The Company also provides health care coverage to current and past directors
who are not eligible for coverage under another group health care benefit
program or Medicare. During 1996, the Company paid approximately $3,100 in
health care premiums with respect to Mr. Burke, $4,000 with respect to Mr.
Simmons, and an aggregate of approximately $5,000 to past directors.
Directors of the Company who are not employed by the Company ("eligible
directors") receive grants of non-qualified stock options pursuant to the 1995
Non-employee Director Stock Option Plan (the "1995 Plan"). The 1995 Plan
provides that eligible directors who were not in office on the day immediately
following the Company's May 10, 1995 annual meeting will receive two types of
option grants: initial grants and annual grants. The initial grants (non-
qualified stock options for 9,000 shares of United Common Stock) are granted
automatically on the date the eligible director is first elected to
5
<PAGE>
the Board of Directors and become exercisable over the following three year
period at the rate of 3,000 shares per year. The annual grants (non-qualified
stock options for 4,000 shares of United Common Stock) are granted
automatically on the first business day immediately following each annual
meeting of the Company's shareholders (the "Annual Option Grant Date"). The
option price for options granted under the 1995 Plan is defined as the closing
sale price of the Company's Common Stock on the date of the grant of the
option, as reported on the New York Stock Exchange, Inc.
Eligible directors who were in office on the day immediately following the
Company's May 10, 1995 annual meeting received a grant of options to purchase
16,000 shares of United Common Stock on the 1995 Annual Option Grant Date and
a grant of options to purchase 8,000 shares of United Common Stock on the 1996
Annual Option Grant Date. They will also receive an option to purchase 4,000
shares of United Common Stock on each Annual Option Grant Date during the
remaining term of the 1995 Plan to the extent they are eligible directors at
that time.
Committees and Meetings of the Board of Directors
During the year ended December 31, 1996, the Board of Directors held four
regular meetings and two special meetings. Except for Messrs. Ryan and Kean,
all incumbent directors attended at least 75% of the meetings of the Board and
committees of which they were members. In addition to the meetings, the Board
passed several resolutions during 1996 by written consent.
To assist in the discharge of its responsibilities, the Board of Directors
of the Company has established four standing committees: an Audit Committee, a
Compensation and Stock Option Committee, an Executive Committee, and a
Nominating Committee.
During 1996, the Audit Committee consisted of Messrs. Leatherdale (Chairman)
and Johnson, Ms. Wilensky and Ms. McCormack. The Audit Committee held four
regular meetings and one special meeting in 1996. The Audit Committee reviews
and makes recommendations to the Board of Directors with respect to designated
financial and accounting matters.
The Compensation and Stock Option Committee consists of Messrs. Spears
(Chairman), Ryan, Kean and Ballard. The Compensation and Stock Option
Committee held four regular meetings, one special meeting and passed several
resolutions by written consent during 1996. The Compensation and Stock Option
Committee reviews and makes certain determinations with respect to designated
compensation and fringe benefit matters.
The Nominating Committee consists of Messrs. Ballard (Chairman), Spears,
Leatherdale and Dr. McGuire. The Nominating Committee met twice and passed
several resolutions by written consent in 1996. The Nominating Committee's
duties include identifying and nominating individuals to be proposed for
election as directors at the annual meeting of shareholders and to fill
vacancies existing on the Board. The Committee will consider candidates
proposed by shareholders upon timely written notice to the Secretary of the
Company. To be timely, any such notice must be received at the Company's
principal executive offices not less than sixty days prior to the date of such
annual meeting and must set forth (i) the name, age, business address,
residence address and the principal occupation or employment of each nominee
proposed in such notice; (ii) the name and address of the shareholder giving
the notice as the same appears in the Company's stock register; (iii) the
number of shares of capital stock of the Company which are beneficially owned
by each such
6
<PAGE>
nominee and by such shareholder; and (iv) such other information concerning
each such nominee as would be required for soliciting proxies for the election
of such nominee. Such notice must also include a signed consent of each such
nominee to serve as a director of the Company, if elected.
The Executive Committee, which consists of Messrs. Simmons, Spears, Ballard,
Leatherdale and Dr. McGuire, held one regular meeting during 1996 and passed
several resolutions during 1996 by written consent. The Executive Committee is
authorized to exercise all of the powers of the Board when the Board is not in
session.
II. APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP as independent
public accountants for the Company for the fiscal year ending December 31,
1997. A proposal to ratify this appointment will be presented at the Annual
Meeting. Arthur Andersen LLP has examined the Company's financial statements
since 1981. Representatives of Arthur Andersen LLP are expected to be present
at the Annual Meeting, will have an opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions
from shareholders. If the appointment is not ratified by the shareholders, the
Board of Directors is not obligated to appoint other independent public
accountants, but the Board of Directors will give consideration to such
unfavorable vote.
The Board of Directors recommends a vote FOR this proposal. Proxies will be
voted in favor of ratifying this appointment unless otherwise specified.
7
<PAGE>
EXECUTIVE COMPENSATION
Cash and Other Compensation
The following table provides certain summary information relating to cash
and other forms of compensation paid to, or accrued by the Company on behalf
of, the Company's Chief Executive Officer ("CEO"), Dr. McGuire, and each of
the four other most highly compensated executive officers of United (Messrs.
Wills, Carlson, George and Koppe) as of December 31, 1996, and a former
executive officer of United (Mr. Wise), in each case for the years ended
December 31, 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------------
Annual Compensation Awards Payouts
------------------------------------------- ---------- -------
Name and Other Securities
Principal Annual Underlying LTIP All Other
Position Compen- Options/ Payouts Compen-
at 12/31/96 Year Salary($) Bonus($) sation($)(1) SARs(#)(2) ($)(3) sation($)(4)
- ----------- ---- --------- --------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William W.
McGuire,
M.D. 1996 1,100,000 -- (5) 51,011(6) 250,000 -- 85,408
Chief Ex-
ecutive
Officer 1995 875,000 875,000 80,547(6) 150,000 -- 77,113
1994 717,308 1,969,423(7) -- 249,312 -- 43,995
Travers H.
Wills 1996 475,000 -- (5) -- 60,000 -- 23,625
Chief Op-
erating
Officer 1995 312,500 312,500 -- 130,000 -- 11,971
1994 270,769 974,202(7) -- 99,725 -- 33,760
James G.
Carlson 1996 392,308 -- (5) -- 40,000 -- 4,500
Executive
Vice Pres-
ident, 1995 100,000(8) 380,000 -- -- -- --
Field Op-
erations
David P.
Koppe(9) 1996 350,000 -- (5) -- 35,000 -- 15,585
Chief Fi-
nancial
Officer 1995 253,846 174,000 -- 80,000 -- 10,615
1994 147,462 600,000(7) -- 69,000 -- 3,752
David A.
George(10) 1996 300,000 -- (5) -- 45,000 -- 36,293
Executive
Vice Pres-
ident,
Strategic
Services
Allen F.
Wise(11) 1996 358,269 -- -- 35,000 -- 69,719
1995 112,500 427,500 -- -- -- 3,750
</TABLE>
- --------
(1) Except as noted in the table, perquisites and other personal benefits did
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus for the named executive officer.
(2) None of the named individuals has been granted stock appreciation rights
(SARs).
(3) In February 1997, the Company's Board of Directors approved the creation
of a long term incentive plan for certain of its executive officers. To
date, no amounts have been paid under that plan.
(4) For each of the named individuals except Dr. McGuire, the indicated
amounts consist of Company contributions made pursuant to the Company's
401(k) Savings Plans and Executive Savings Plan. The amounts indicated
for Dr. McGuire include Company paid insurance premiums of $26,706 in
1996 and $14,828 in 1995, as well as Company contributions made pursuant
to the Company's 401(k) Savings Plans and Executive Savings Plan.
8
<PAGE>
(5) None of the named executive officers received bonuses relative to
calendar year 1996 performance.
(6) Other annual compensation for Dr. McGuire includes Company provided
transportation of $57,541 in 1995 and $20,820 in 1996.
(7) In connection with their performance related to the negotiation and
execution of the May 1994 sale of the Company's pharmaceutical benefits
management subsidiary, Diversified Pharmaceutical Services, Inc., Dr.
McGuire and Mr. Wills each received a one time bonus of $750,000 and Mr.
Koppe received a one time bonus of $500,000 which are included in the
amounts disclosed.
(8) Mr. Carlson became an employee and executive officer of the Company in
October 1995 upon completion of the acquisition of MetraHealth.
(9) Mr. Koppe was named Chief Financial Officer of the Company in December
1994.
(10) Mr. George became an executive officer of the Company in October 1996.
(11) Mr. Wise was employed by the Company from October 1995 to October 1996,
as an Executive Vice President.
Stock Options and Stock Appreciation Rights
The following table sets forth information relating to stock awards to the
individuals named in the Summary Compensation Table under the Company's stock
option and incentive plans during the year ended December 31, 1996. No SARs
were granted to these individuals in 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
-------------------------- ----------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees Price Expiration
Name Granted(#)(1) in 1996 ($/share) Date 5%($) 10%($)
---- ------------- ------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William W. McGuire, M.D. 250,000(2) 7.1% $33.750 7/30/06 5,306,298 13,447,202
Travers H. Wills 60,000(3) 1.7% 33.750 7/30/06 1,273,512 3,227,328
James G. Carlson 40,000(3) 1.1% 33.750 7/30/06 849,008 2,151,552
David P. Koppe 35,000(3) 1.0% 33.750 7/30/06 742,882 1,882,608
David A. George 30,000(3) 0.8% 32.125 7/16/06 606,097 1,535,969
15,000(3) 0.4% 35.500 10/24/06 334,886 848,668
Allen F. Wise 35,000(3) 1.0% 33.750 7/30/06(4) 742,882 1,882,608
</TABLE>
- --------
(1) All options granted in 1996 expire ten years following the date of grant,
subject to earlier termination upon certain events related to termination
of employment.
(2) Options become exercisable at the rate of 25% per year over a period of
four years from the date of grant.
(3) Options are 100% exercisable following the ninth anniversary date of the
grant. Pursuant to the terms of the plan under which these options were
granted, the Compensation and Stock Option Committee has the authority to
establish earlier exercise dates for all or a portion of these options
prior to their expiration, based on the optionee's performance.
(4) Mr. Wise's option grant was forfeited upon termination of his employment.
9
<PAGE>
Option/SAR Exercises and Holdings
With respect to the individuals named in the Summary Compensation Table, the
following table contains information relating to the exercise of options
during 1996 and unexercised options held as of December 31, 1996. None of the
named individuals exercised SARs during 1996 or held SARs as of December 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND OPTION/SAR VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised in-
Shares Options/SARs the-Money Options/SARs
Acquired Value at 12/31/96 (#) at 12/31/96 ($)
on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable
---- ------------ --------- ----------------- ------------------------
<S> <C> <C> <C> <C>
William W. McGuire, M.D. -- -- 1,155,724/675,588 36,404,124/8,331,815
Travers H. Wills -- -- 179,890/299,835 2,622,466/3,067,449
James G. Carlson -- -- 23,388/119,516 494,489/1,933,537
David P. Koppe -- -- 61,280/160,400 691,700/1,363,125
David George -- -- 32,380/90,281 988,978/1,517,798
Allen F. Wise 60,174 2,269,763 0/0 0/0
</TABLE>
- --------
(1) Calculated as market price per share at time of exercise less the per
share exercise price, times the number of shares purchased.
10
<PAGE>
Performance Graph
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total shareholder return of the
Standard & Poor's 500 stock index and an index of a group of peer companies
selected by the Company, for a five year period ended December 31, 1996. The
comparison assumes the investment of $100 on December 31, 1991 in each index
and that dividends were reinvested when paid. The companies included in the
peer group are Foundation Health Corporation, HealthCare COMPARE Corporation,
Healthsource, Inc., Humana, Inc., Oxford Health Plans, Inc., PacifiCare Health
Systems, Inc., Sierra Health Services, Inc., Value Health, Inc. and Wellpoint
Health Networks, Inc. The Company is not included in the peer group index. In
calculating the annual cumulative total shareholder return of the peer group
index, the shareholder returns of the peer group companies are weighted
according to the stock market capitalizations of the companies.
LOGO
The peer group differs from that used in the Company's 1995 Notice of Annual
Meeting and Proxy. Two companies previously reported in the group, FHP
International Corporation and U.S. Healthcare, Inc., are no longer in the peer
group because they were acquired by other companies. FHP International
Corporation was acquired by PacifiCare Health Systems, Inc. and U.S.
Healthcare, Inc. was acquired by Aetna Inc. Additionally, the Company's peer
group was expanded to include the following companies: Healthsource, Inc.,
Humana, Inc., Oxford Health Plans, Inc., Sierra Health Services, Inc., and
Wellpoint Health Networks, Inc.
11
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors has delegated to the Compensation and Stock Option
Committee (the "Committee") the authority to make certain decisions with
respect to the compensation of the Company's Chief Executive Officer, as well
as various aspects of other compensation and fringe benefit matters applicable
to all of the Company's employees including executive officers. In addition,
the Committee administers the Company's stock option and stock based incentive
plans. During the Company's fiscal year ended December 31, 1996, the Committee
consisted of William G. Spears, William C. Ballard, Robert L. Ryan and Thomas
H. Kean; none of whom was or is a Company employee. James L. Seiberlich also
served as a member of the Committee during part of 1996 prior to his
retirement from the Board in May 1996. Mr. Seiberlich was not an employee of
the Company.
Compensation Policies for Executive Officers. Through its executive
compensation policies, the Company seeks to attract, retain and motivate
highly qualified executives who will contribute to the Company's continued
success. To achieve these goals, the Company emphasizes cash compensation and
stock programs that are tied to Company performance. Specifically, the
Company's stock programs provide key employees the opportunity to acquire a
significant ownership interest in the Company through various stock option,
restricted share and stock purchase plans. The Committee also believes that
the availability of comprehensive and competitive executive-level benefits is
important to its goal of retaining high quality leadership and motivating
executive performance consistent with shareholder interest. Accordingly, the
Company makes available to its executive officers a broad range of benefit
programs, which are also available to employees generally, including life and
disability insurance, a 401(k) savings plan, an employee stock ownership plan
and other benefit programs. Along with other highly compensated employees of
the Company, executive officers are also eligible to participate in the
Company's non-qualified compensation deferral plans which consist of a
component under which the Company matches a portion of the amount of employee
deferred compensation up to a certain percentage and a component under which
the employee may defer compensation without a Company match. In addition,
certain of the Company's executive officers will be eligible for participation
in a long term incentive plan created by the Company's Board of Directors in
February 1997 as described elsewhere in this report. Compensation paid to the
Company's executive officers is also determined, in part, by reference to
employment agreements between the Company and certain of its officers. The
employment agreements applicable to the executive officers named in the
Summary Compensation Table are described elsewhere in this Proxy Statement.
The Committee recognizes that the industry in which the Company operates is
both highly competitive and undergoing significant change, with the result
that there is substantial demand for qualified, experienced executive
personnel. For these reasons, the Committee believes the Company's
compensation arrangements must remain competitive with those offered by other
companies of similar size and scope of operations, including some but not all
of the companies comprising the peer group used in the Performance Graph. One
aim of the Company's executive compensation policies is to make it possible
for Company executives to earn cash compensation equaling or exceeding that
which the executive would earn at a competitor. The Committee believes,
however, that the higher level of compensation should be paid only when
performance warrants. For these reasons, the Company's executive cash
compensation consists of fixed base salary and bonus compensation. The base
salary ranges for the executive officers are reviewed periodically by the
12
<PAGE>
Committee and may be increased (or decreased) to reflect changes in the
responsibilities allocated to a particular position, changes in the base
salaries paid to executives at other companies of similar size and operating
complexity, changes in the size and scope of the Company's operations, or the
effect of inflation. Increases to an executive's base salary are based upon
the executive's personal contribution to corporate performance, increases in
his or her responsibilities, salaries paid to executives at other companies of
similar size and operating complexity and the rate of inflation.
The other, and potentially more significant, part of executive cash
compensation consists of incentive payments under the Company's Management
Incentive Program. Under the Management Incentive Program, an executive's
annual incentive compensation payment generally depends on three performance
factors: the overall performance of the Company; the overall performance of
the business unit or corporate division in which the executive serves; and the
executive's individual performance. The performance objectives for the Company
and the business unit or corporate division derive from the Company's
operating budget and targets for the upcoming year, along with projections for
growth and strategic objectives. They take into account the Company's goal of
remaining a growing, highly respected leader in health care management. The
performance objectives include specific goals as to revenues, earnings,
selling, general and administrative costs, medical loss ratio, membership and
stock price. Individual executive performance is measured against an annual
incentive target which represents a percentage of base salary that the
executive can earn as bonus compensation if performance warrants. This
percentage ranges from 50% to 100% of an executive's base salary. The
incentive target is set at a higher percentage for more senior officers, with
the result that the more senior executive officers have a higher percentage of
their potential total compensation subject to the Company's results and their
individual performance.
After the end of the Company's fiscal year, the Committee determines, based
on the Company's overall performance discussed above, the overall Company
rating, or Company factor, which is a multiplier in the range of 0.0 to 2.0.
The Committee also reviews, and either approves or revises, management's
recommendation regarding the total dollar amount to be placed into the Company
incentive pool for payment of incentive amounts to Company executives.
Following the Committee's determinations, the Company's top management
determines the rating or factor to be given to each business unit and
corporate division. The factor given a particular unit or division ranges from
0.0 to 2.0 and is based on the performance of such business unit or corporate
division with respect to its pre-set goals and objectives. The portion of the
Company incentive pool available to each business unit and corporate division
is then determined by multiplying the total dollar amount of the incentive
targets for executives in a particular business unit or corporate division by
a factor which is a combination of the Company and business unit or corporate
division factors. The Chief Executive Officer evaluates the individual
performance of each executive officer and allocates the available incentive
compensation amounts among the participating executives in each business unit
or corporate division. For 1996, the Committee established a 0.3 Company
factor. In so doing, the Committee adopted management's recommendation, which
was driven by management's disappointment with the Company's 1996 performance
as compared to the goals established for 1996. Both management and the
Committee acknowledged that the Company's performance reflected industry
conditions and was, in fact, better than many competitors' results.
Nonetheless, management recommended and the Committee agreed that performance
payments should be substantially reduced in order to maintain the Company's
payments for performance philosophy. In addition, the Committee accepted those
officers' additional recommendation that incentive payments under the program
for 1996 be concentrated on those business units whose performance had
13
<PAGE>
exceeded expectations despite the overall Company's performance, and that the
Company's senior managers (including the Company's Chief Executive Officer)
would not receive any bonus payments under the Management Incentive Plan for
1996. The aggregate amount of 1996 bonuses paid to the 2,400 employees
participating in the program was $10,000,000.
The Committee believes that it is also important to provide executive
officers with a longer term interest in the Company's performance through
various stock ownership programs, including stock option, restricted share
grant, stock purchase and other programs. The Committee also recognizes that
increases in the Company's stock price in recent years has been a significant
source of compensation to employees and believes this factor has contributed
to employee productivity and loyalty. Historically, the emphasis has been on
more typical non-qualified and incentive stock option grants with vesting
periods of three to five years, although some restricted share and accelerated
option vesting grants have also been made. Beginning in late 1992 and
continuing through 1996, the majority of the options granted to executives had
nine year vesting schedules under which no shares would be exercisable until
the ninth anniversary of the grant date unless the Committee established an
earlier exercise date for all or a portion of such grant based on a review of
the executive's performance with general reference to one or more of the
Company performance, business unit performance and individual performance
factors and goals under the Management Incentive Plan described above. The
Committee currently believes that the aggregate number of shares subject to
unexercised stock options and restricted stock grants with unlapsed
restrictions outstanding at any time should be targeted at approximately 10%
of the Company's total issued and outstanding shares of Common Stock at the
close of the preceding calendar year. Over the past three years, the amount of
shares subject to unexercised employee options has averaged approximately 6.5%
to 8% of outstanding shares at year end. The Committee continues to believe
that ongoing emphasis should be placed on stock option programs as a means of
compensating employees and further expects that the number of shares and the
percentage of outstanding shares subject to employee options will increase. In
determining the amount of options or restricted share awards to grant to
executive officers, the Committee considers various factors, including the
executive's responsibilities and potential for directly contributing to the
Company's performance, base salary amount, the practicality of tying vesting
of options to individual or Company performance standards, and the total
number of options previously granted to the executive.
Chief Executive Officer's 1996 Compensation. Dr. McGuire's compensation is
determined pursuant to the principles noted above and by the terms of his
employment agreement with the Company. As the Company's Chief Executive
Officer, a significant amount of Dr. McGuire's cash compensation varies with
overall Company performance.
Dr. McGuire's 1996 base salary of $1,100,000 was established as a result of
the Committee's review of Dr. McGuire's performance on behalf of the Company
in accordance with Dr. McGuire's employment agreement. With respect to the
determination of any increases in Dr. McGuire's annual base salary amount from
year to year, in addition to any of the increases required by Dr. McGuire's
employment agreement, the Committee attempts to determine an amount that is
competitive within the health care industry for similarly situated chief
executives as well as with the compensation paid executives of other companies
not necessarily within the health care industry but of comparable size and
operating complexity. Based on the advice it received in 1992 and 1995, when
the Committee utilized the services of an independent compensation consulting
firm to assist in the development of the Chief Executive Officer's
compensation package, the Committee believes Dr. McGuire's base
14
<PAGE>
salary is consistent with that for chief executive officers of other
comparable companies. Dr. McGuire's employment agreement is described in this
proxy statement under the section titled Executive Employment Agreements.
To determine Dr. McGuire's cash bonus compensation, the Committee, using the
Company factor discussed above as its basis, sets a factor of 0.0 to 2.0 by
which the Chief Executive Officer's incentive target (100% of his base salary)
is multiplied to determine his annual incentive payment. For the reasons
discussed above and based upon Dr. McGuire's recommendation, the Committee
determined that Dr. McGuire would not receive an annual incentive payment for
1996.
The Committee believes it is important to link a significant portion of Dr.
McGuire's potential compensation to future Company performance. As part of his
overall compensation package, Dr. McGuire receives grants of stock options and
restricted stock awards from time to time. In 1996, Dr. McGuire was granted
options for 250,000 shares of Company common stock with each share having an
exercise price of $33.750 which was the fair market value of one share of
stock on the grant date. Such options become exercisable at the rate of 25% a
year over a period of four years from the date of the grant. In addition,
during 1996, the Committee established 1996 exercise dates for options granted
to Dr. McGuire in prior years representing the right to purchase a total of
110,262 shares of Company common stock. In establishing these earlier exercise
dates, the Committee considered the Company's overall performance during 1996
and subjectively reviewed Dr. McGuire's performance in connection with the
Company's performance.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly held companies for compensation exceeding $1 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The Company's
stock option programs have been structured in a manner that appears to comply
with the statute's requirements and as a result, performance-based
compensation associated with stock options is not expected to be subject to
the deduction limit. The majority of the Company's executive officers'
compensation which could exceed the $1 million limitation is associated with
such stock options. Accordingly, the Company does not expect this deduction
limitation to have a material effect on its operations or financial condition
and does not currently anticipate taking any further action with respect to
its compensation programs to avoid paying compensation which exceeds the $1
million limitation and for which the Company therefore loses the corresponding
tax deduction.
SUBMITTED BY THE COMPENSATION AND STOCK OPTION COMMITTEE OF THE UNITED
HEALTHCARE CORPORATION BOARD OF DIRECTORS.
William C. Ballard
Thomas H. Kean
Robert L. Ryan
William G. Spears
Executive Employment Agreements
The Company has various forms of executive agreements with each of the
executive officers named in the Summary Compensation Table.
15
<PAGE>
William W. McGuire, M.D. Dr. McGuire entered into a new employment
agreement, effective as of January 1, 1996 (the "1996 Agreement"), which
replaced an earlier agreement.
The 1996 Agreement has an initial term of three years during which Dr.
McGuire is to serve as United's Chief Executive Officer and President. The
1996 Agreement will be automatically extended for an additional one year
period at the end of each year of the initial term unless notice of intent not
to renew is given by either the Company or Dr. McGuire. During the term of his
employment under the 1996 Agreement, Dr. McGuire will receive a minimum base
salary of $1,100,000, which will be increased by a minimum of $100,000
annually. Dr. McGuire is also eligible to participate in United's incentive
bonus plan at prescribed levels and its other employee benefit programs
including health care coverage benefits for him and his family. The 1996
Agreement provides that Dr. McGuire will receive annually non-qualified stock
options to purchase a minimum of 250,000 shares of the Company's Common Stock
at a exercise price equal to the fair market value of the shares of the
Company's Common Stock on the date of grant, subject to certain adjustments.
These options will vest over a period of four years at the rate of 25 percent
per year subject to additional vesting provisions upon the occurrence of
specified future events. In addition, the Company will provide and pay for and
Dr. McGuire will own, a term life insurance policy on Dr. McGuire in an amount
three times his current base salary as well as an individual supplemental long
term "own occupation" disability insurance policy. The 1996 Agreement also
requires the Company to provide Dr. McGuire with a supplemental retirement
benefit in an amount equal to a percentage of his final average highest three-
year cash compensation, ranging from 37.50% in 1996 to 65% if he retires at
age 65.
The 1996 Agreement provides severance benefits in the event Dr. McGuire's
employment by the Company terminates under certain circumstances. In the event
of termination by the Company without Cause or by Dr. McGuire with Good Reason
(as such terms are defined in the 1996 Agreement), the Company will continue
to pay Dr. McGuire, for a period of 36 months following the termination, the
greater of (i) the minimum base salary of $1,100,000 plus an annual cash bonus
equaling the same percentage of such minimum base annual salary as the most
recent annual cash bonus received by him bore to his then-effective minimum
base annual salary, or (ii) his then-current actual annualized base salary,
plus an amount equal to the most recent cash bonus actually received by him at
his termination (the "Severance Payment"). In certain instances, Dr. McGuire
may elect to receive a single lump sum payment, discounted to the present
value, instead of the Severance Payment. Any stock options, SARs or restricted
stock awards granted to Dr. McGuire prior to such termination will be 100%
vested at termination. In addition, following Dr. McGuire's termination,
United has agreed to pay a reasonable amount for out-placement and job search
services on behalf of Dr. McGuire. In the event Dr. McGuire terminates his
employment with the Company without Good Reason prior to the end of the term
of the agreement, for the period following the effective date of the
termination to the end of the initial term of the 1996 Agreement or the end of
any extension of such term, Dr. McGuire will receive a severance benefit
payable in accordance with the Company's normal payroll practices equal to the
Severance Payment.
If Dr. McGuire's employment with the Company is terminated due to his death
or permanent disability prior to the end of the term of the agreement, his
beneficiaries will receive a benefit payable in accordance with the Company's
normal payroll practices equal to the greater of the minimum base annual
salary of $1,100,000 plus an annual cash bonus equaling the same percentage of
such minimum base annual salary as the most recent annual cash bonus received
by him bore to his then-effective minimum base annual salary or his then-
current actual annualized base salary plus the most recent annual cash bonus
actually received by him for the remaining term of the 1996 Agreement.
16
<PAGE>
Dr. McGuire has also agreed to non-competition, non-solicitation and
confidentiality arrangements covering the term of the 1996 Agreement and
certain periods following the termination of his employment.
Travers H. Wills. Mr. Wills entered into an employment agreement with the
Company, effective May 27, 1994, having an initial term ending on December 31,
1996 with automatic annual renewals thereafter unless the agreement is
terminated under certain circumstances. The agreement was automatically
renewed on January 1, 1997, for an additional one year period expiring on
December 31, 1997. During the term of his employment agreement, Mr. Wills will
receive a minimum annual salary of $275,000. In addition, he is eligible to
participate in the Company's incentive compensation plans, its stock option
and grant plans and other employee benefit plans. In the event, during the
term of this Agreement, the Company terminates Mr. Wills' employment without
Cause, or a Change in Employment (as such terms are defined in the Agreement)
occurs which Mr. Wills elects to treat as a termination of employment, the
Company will continue, for an 18 month period, to pay Mr. Wills' annualized
base salary and an amount equal to any bonus or incentive compensation paid or
payable for the most recent calendar year or other period generally used by
the Company to determine such bonus or incentive payments. Any stock options,
SARs or restricted stock awards granted to Mr. Wills prior to such termination
without Cause or a Change in Employment, will continue to vest during the 18
month period in which the Company is making payments to Mr. Wills. In
addition, following Mr. Wills' termination, the Company has agreed to pay a
reasonable amount for out-placement and job search services on behalf of Mr.
Wills. As part of this agreement, Mr. Wills agreed to non-competition and non-
solicitation arrangements during the term of the agreement and for certain
periods following the termination of his employment.
James G. Carlson. Mr. Carlson entered into an employment agreement with the
Company, effective October 2, 1995, which remains in effect until December 31,
1998 unless it is earlier terminated. During the term of his employment
agreement, Mr. Carlson will receive an annualized base salary of not less than
$400,000. In addition, he is eligible to participate in the Company's
incentive compensation plans, its stock option and grant plans and other
employee benefit plans.
If, during the term of the agreement, the Company terminates Mr. Carlson's
employment without Cause (as such term is defined in his agreement) or Mr.
Carlson terminates his employment for Good Reason (as such term is defined in
his agreement), Mr. Carlson will receive severance pay paid biweekly over a
one year period equal to one year of both base salary and management incentive
plan payments, plus a prorated management incentive plan payment for the
fraction of the management incentive plan payment period ending on his
termination of employment and any management incentive plan payments remaining
unpaid from the preceding year pursuant to the terms of the management
incentive plan. Mr. Carlson will also continue to receive group health plan
coverage for himself and his dependents (or comparable reimbursement for the
cost of such coverage) during the time he is entitled to receive the above-
described severance benefits. Also, any unvested stock options or grants that
have a pre-established vesting schedule will continue to vest according to the
schedule for a period of two years from the last day of Mr. Carlson's
employment. The amount of severance benefits under the agreement will be
reduced by 80% of any compensation earned by Mr. Carlson from another employer
during the period in which he receives severance benefits.
If Mr. Carlson becomes disabled during the term of the agreement, he is
entitled to receive continued base salary at the annual rate in effect on the
date of disability during the remaining term of his agreement while he remains
disabled. He will also receive a prorated management incentive
17
<PAGE>
payment for the fraction of the management incentive payment measuring period
ending on the date of his disability, plus any management incentive payment
remaining unpaid from the preceding year. These payments will be reduced by
amounts he receives from Company paid-for disability insurance, compensation
from other employment, workers compensation, Social Security or governmental
programs relating to disability. If Mr. Carlson dies during the term of the
agreement, the Company will pay to his personal representative his base salary
for the month in which his death occurs, plus a prorated management incentive
payment for the fraction of the management incentive payment measuring period
ending on the date of his death, plus any management incentive payment
remaining unpaid from any preceding year.
As part of his agreement, Mr. Carlson agreed to non-competition and non-
solicitation arrangements during the term of the agreement and for certain
periods following the termination of his employment.
David A. George. Mr. George entered into an employment agreement with the
Company, effective October 2, 1995, which remains in effect until December 31,
1998 unless it is earlier terminated. During the term of his employment
agreement, Mr. George will receive an annualized base salary of not less than
$300,000. In addition, he is eligible to participate in the Company's
incentive, compensation plans, its stock option and grant plans and other
employee benefit plans.
If during the term of the agreement, the Company terminates Mr. George's
employment without Cause (as such term is defined in his agreement) or Mr.
George terminates his employment for Good Reason (as such term is defined in
his agreement), Mr. George will receive severance pay paid biweekly over a one
year period in an amount equal to one year of both base salary and management
incentive plan payments, plus a prorated management incentive plan payment for
the fraction of the management incentive plan payment period ending on the
date of his termination and any management incentive plan payments remaining
unpaid from the preceding year pursuant to the terms of the management
incentive plan. Mr. George will also continue to receive group health plan
coverage for himself and his dependents (or comparable reimbursement for the
cost of such coverage) during the time he is entitled to receive the above-
described severance benefits. Also, any unvested stock options or grants that
have a pre-established vesting schedule will continue to vest according to the
schedule for a period of two years from the last day of Mr. George's
employment. The amount of severance benefits under the agreement will be
reduced by 80% of any compensation earned by Mr. George from another employer
during the period in which he receives severance benefits.
Mr. George's agreement contains provisions similar to those in Mr. Carlson's
agreement with respect to his death or disability and non-competition and non-
solicitation arrangements.
David P. Koppe. Mr. Koppe entered into an employment agreement with the
Company, effective December 1, 1994 which remains in effect unless and until
it is terminated under certain circumstances. During the term of his
employment agreement, Mr. Koppe will receive a minimum annual salary of
$225,000. In addition, he is eligible to participate in the Company's
incentive compensation plans, stock option and grant plans and other employee
benefit plans. In the event, during the term of this agreement, the Company
terminates Mr. Koppe's employment without Cause or a Change in Employment (as
such terms are defined in the agreement) occurs which Mr. Koppe elects to
treat as a termination of employment, the Company will continue, for a 12
month period, to pay Mr. Koppe's annualized base salary and an amount equal to
one half of the total of any bonus or
18
<PAGE>
incentive compensation paid or payable for the two most recent calendar years
or other period generally used by the Company to determine and certain periods
following termination or expiration of the agreement.
Severance Arrangements and Change-in-Control Provisions
Pursuant to the Company's Severance Pay Plan which is applicable to all
regular Company employees, certain of the executive officers may be eligible
to receive payments as severance pay following their termination in certain
events. However, any payments to an executive officer in connection with a
change-in-control as defined in and pursuant to an employment agreement with
the Company shall replace and be in lieu of payment and/or benefits under any
Company severance program, including the Company's Severance Pay Plan. The
amounts of severance payments under the Company's Severance Pay Plan following
termination are dependent upon the executive officer's length of service,
grade level within the Company and the execution of a Company-approved
release. Any amounts paid to Messrs. Carlson and George pursuant to their
above-described employment agreements are in lieu of severance benefits under
any severance plan or program maintained by the Company.
Under the terms of the Company's Amended and Restated 1991 Stock and
Incentive Plan, in the case of a change-in-control of the Company, certain of
the outstanding stock options granted under that plan will become exercisable
in full. Change-in-control is defined for this purpose as the sale of all or
substantially all of the Company's assets or any merger, reorganization or
exchange or tender offer which, in each case, will result in a change in the
power to elect 50% or more of the members of the Company's Board of Directors.
Compensation Committee Interlocks and Insider Participation
Messrs. Ballard, Kean, Ryan and Spears served as the members of the
Compensation and Stock Option Committee during 1996. James L. Seiberlich also
served as a member of this committee during 1996 until he retired from the
Board in May 1996.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1997, information about the
ownership of Common Stock of the Company by each shareholder who is known by
the Company to own beneficially more than 5% of the outstanding Common Stock
of the Company. Except as otherwise indicated, the shareholders listed in the
table have sole voting and investment powers with respect to the shares
indicated.
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Owner of Beneficial Ownership Class (1)
------------------------------------ ----------------------- ----------
<S> <C> <C>
The Capital Group Companies, Inc. 14,791,680(2) 7.56
333 South Hope Street
Los Angeles, CA 90071
Massachusetts Financial Services
Company 10,322,282(3) 5.27
500 Boylston Street
Boston, MA 02116
</TABLE>
- --------
(1) Percent of class calculation is based on 185,489,845 shares of the
Company's Common Stock outstanding as of March 1, 1997, plus 10,105,706
shares representing Common Stock issuable with respect to the outstanding
shares of the 5.75% Series A Convertible Preferred Stock of the Company.
(2) With respect to the information reported relating to The Capital Group
Companies, Inc. ("Capital"), the Company has relied upon the information
supplied by such company in a Schedule 13G filing received by the Company
on or about February 18, 1997. Certain operating subsidiaries of Capital
exercised investment discretion over various institutional accounts which
held 14,791,680 shares of the Company's Common Stock. Capital Research and
Management Company, a registered investment advisor, had investment
discretion with respect to 9,920,000 shares of the above shares. The
remaining shares reported as being beneficially owned by Capital are
deemed to be beneficially owned by Capital Guardian Trust Company, Capital
International Limited and Capital International S.A., none of which owns
5% or more of the outstanding securities of the Company.
(3) With respect to the information reported relating to Massachusetts
Financial Services Company ("MFS"), the Company has relied upon the
information supplied by such company in a Schedule 13G received by the
Company on or about February 14, 1997. The Schedule 13G indicates that
these shares are also beneficially owned by certain other non-reporting
entities as well as MFS. Of the shares reported, MFS has sole voting power
with respect to 10,227,982 of the shares.
20
<PAGE>
The following table sets forth as of March 1, 1997, information about the
beneficial ownership of Common Stock of the Company by each director and
nominee for director, each executive officer named in the Summary Compensation
Table, and by all directors and all executive officers as a group. Except as
otherwise indicated, the shareholders listed in the following table have sole
voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and Nature Percent of
or Identity of Group of Beneficial Ownership(1) Class(2)
------------------------ -------------------------- ----------
<S> <C> <C>
William C. Ballard 91,200(3) *
Richard T. Burke 1,027,143(4) *
James A. Johnson 65,000(5) *
Thomas H. Kean 58,000(6) *
Douglas W. Leatherdale 331,420(7) *
Elizabeth J. McCormack 90,000(8) *
William W. McGuire, M.D. 1,422,611(9) *
Walter F. Mondale 500 *
Robert L. Ryan 1,000 *
Kennett L. Simmons 56,813(10) *
William G. Spears 123,612(11) *
Gail R. Wilensky 56,100(12) *
James G. Carlson 38,094(13) *
David A. George 33,052(14) *
David P. Koppe 103,606(15) *
Travers H. Wills 132,922(16) *
--------- ----
All executive officers and
directors as a group (21 persons) 4,027,971(17) 2.06%
========= ====
</TABLE>
- --------
* Less than 1%
(1) The number of shares indicated in this table does not include the 1996
allocation of shares to the identified individuals under the Company's
ESOP since that allocation has not yet been finalized. The average
number of shares allocated to the accounts of the persons for their 1995
participation in the ESOP was 10 shares. In addition to the persons who
currently have ESOP shares, Messrs. Carlson and George and one other
executive officer will be eligible for a 1996 allocation of shares.
(2) Percent of class calculation is based on 185,489,845 shares of the
Company's Common Stock outstanding as of March 1, 1997, plus 10,105,706
shares representing Common Stock issuable with respect to the
outstanding shares of the 5.75% Series A Convertible Preferred Stock of
the Company.
(3) Includes 88,000 shares purchasable under stock options exercisable
within sixty (60) days.
(4) Includes 184,000 shares purchasable under stock options exercisable
within sixty (60) days by Mr. Burke and 14,174 shares purchasable under
stock options exercisable within sixty (60) days by Mr. Burke's spouse.
Also includes approximately 110 shares held by the Trustee of the
Company's ESOP for Mr. Burke's spouse's account with respect to which
Mr. Burke's spouse has sole voting power and no investment power, and
259 shares held directly by Mr. Burke's spouse.
(5) Includes 56,000 shares purchasable under stock options exercisable
within sixty (60) days.
21
<PAGE>
(6) Includes 1,000 shares held by Mr. Kean for the benefit of his minor
child and 56,000 shares purchasable under stock options exercisable
within sixty (60) days.
(7) Includes a total of 1,420 shares held by each of Mr. Leatherdale's two
dependent children (700 and 720 shares individually) as well as 260,000
shares purchasable under stock options exercisable within sixty (60)
days.
(8) Includes 88,000 shares purchasable under stock options exercisable
within sixty (60) days.
(9) Includes 1,233,724 shares purchasable under stock options exercisable
within sixty (60) days. Also includes approximately 745 shares held by
the Trustee of the Company's ESOP for Dr. McGuire's account with respect
to which Dr. McGuire has sole voting power and no investment power.
(10) Includes 56,813 shares purchasable under stock options exercisable
within sixty (60) days.
(11) Includes 120,000 shares purchasable under stock options exercisable
within sixty (60) days.
(12) Includes 56,000 shares purchasable under stock options exercisable
within sixty (60) days.
(13) Includes 37,428 shares purchasable under stock options which are
exercisable within sixty (60) days and represent the conversion of
MetraHealth stock options into options for Company Common Stock.
(14) Includes 32,380 shares purchasable under stock options which are
exercisable within sixty (60) days and represent the conversion of
MetraHealth stock options into options for Company Common Stock.
(15) Includes 72,880 shares purchasable under stock options exercisable
within sixty (60) days. Also includes approximately 745 shares held by
the Trustee of the Company's ESOP for Mr. Koppe's account with respect
to which Mr. Koppe has sole voting power and no investment power.
(16) Includes 131,890 shares purchasable under stock options exercisable
within sixty (60) days. Also includes approximately 32 shares held by
the Trustee of the Company's ESOP for Mr. Wills' account with respect to
which Mr. Wills has sole voting power and no investment power.
(17) Includes 2,807,159 shares purchasable under stock options exercisable
within sixty (60) days. Also includes approximately 3,478 shares held by
the Trustee of the Company's ESOP for the accounts of executive officers
of the Company and Mr. Burke's spouse, with respect to which such
persons have sole voting power and no investment power, the indirect
holdings included in footnotes (4), (6) and (7) above, and the holdings
of spouses of executive officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than ten percent
(10%) of United's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC") and the New York Stock Exchange. Executive officers, directors and
greater than ten percent (10%) beneficial owners are required by SEC
regulations to furnish United with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with during its fiscal year
1996 except as follows:
22
<PAGE>
On November 29, 1996, Richard Burke, a director of the Company, sold 10,000
shares of Company Common Stock. This transaction was reported to the
Securities and Exchange Commission on his Form 4 for December 1996.
On October 7, 1996, David George, an officer of the Company, filed a Form 3
to report his holdings in the Company. The Form 3 did not report 326 shares of
the Company's Common Stock which Mr. George acquired through the Company's
Employee Stock Purchase Plan. On January 13, 1997, as soon as this deficiency
was discovered, an amended Form 3 was filed with the Securities and Exchange
Commission.
On December 13, 1995, Douglas Leatherdale, a director of the Company, gifted
1,000 shares of the Company's Common Stock. This transaction was reported to
the Securities and Exchange Commission on an amended Form 4 for December 1995
which was filed on September 3, 1996.
On December 1, 1995, Jeannine Rivet, an officer of the Company, purchased
475 shares of the Company's Common Stock through the Company's Employee Stock
Purchase Plan. Due to an administrative error, this purchase was not reported
to the Securities and Exchange Commission until February 15, 1997, when Ms.
Rivet filed a Form 5 for the fiscal year ended December 31, 1996.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
During the Company's fiscal year ended December 31, 1996, the Company paid
approximately $902,000 in insurance premiums to The St. Paul Companies, Inc.,
of which Mr. Leatherdale is a director and the Chief Executive Officer.
During the Company's fiscal year ended December 31, 1996, the Company paid
approximately $69,000 in salary and incentive payments to Mr. Burke's spouse,
an employee of the Company since July 1990.
During the Company's fiscal year ended December 31, 1996, the Company paid
approximately $98,000 in salary and incentive payments to Mr. Mondale's son,
who was employed by the Company from October 1992 through October 1996.
During the Company's fiscal year ended December 31, 1996, the Company
received approximately $12,000,000 from United Mine Workers of America for
managed care services. Ms. Wilensky is on the Board of Trustees of United Mine
Workers of America.
Dorsey & Whitney LLP is the Company's corporate counsel. David J. Lubben,
the General Counsel and Secretary of the Company, was a partner of Dorsey &
Whitney prior to joining the Company in October 1996. Mr. Mondale joined
Dorsey & Whitney as a partner in January 1997.
During the Company's fiscal year ended December 31, 1996, the Company paid
approximately $30,000 in consulting fees and reimbursable expenses to Mr.
Simmons.
23
<PAGE>
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may
come before the meeting. However, if any matters other than those referred to
above should properly come before the meeting calling for a vote of the
shareholders, it is the intention of the persons named in the enclosed proxy
to vote such proxy in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented at the next annual meeting of
shareholders must be received at the Company's principal executive offices,
300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343, not later
than December 7, 1997.
BY ORDER OF THE BOARD OF DIRECTORS,
David J. Lubben
Secretary
Dated: March 28, 1997
24
<PAGE>
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P R O X Y
UNITED HEALTHCARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints William W. McGuire, M.D. and David J. Lubben as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each or either of them to represent and to vote, as designated below, all of
the shares of Common Stock of United HealthCare Corporation held of record by
the undersigned on March 17, 1997, at the Annual Meeting of Shareholders to be
held on May 14, 1997 or any adjournment thereof.
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
Nominees: Douglas W. Leatherdale, James A. Johnson, Walter F. Mondale
FOR all nominees WITHHOLD AUTHORITY to vote for all nominees
listed above listed above [_]
except as noted
herein [_]
To withhold authority to vote for any individual nominee, print that
nominee's name on the line below:
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. PROPOSAL to ratify appointment of independent public accountants.
FOR [_] AGAINST [_] ABSTAIN [_]
- --------------------------------------------------------------------------------
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
(Continued and to be SIGNED AND DATED on Reverse Side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS GIVEN, REGISTERED SHARES WILL BE VOTED FOR ALL DIRECTORS NAMED IN ITEM 1 AND
FOR PROPOSAL 2.
SHARES HELD IN THE UNITED HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
(ESOP SHARES) WILL BE VOTED ACCORDING TO YOUR INSTRUCTIONS. HOWEVER, IF
INSTRUCTIONS ARE NOT RECEIVED, OR IF THIS CARD IS NOT PROPERLY EXECUTED, THE
ESOP SHARES WILL NOT BE DEEMED TO BE REPRESENTED FOR PURPOSES OF CALCULATING
THE VOTE.
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign. When signing as an attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
ESOP Shares
Registered Shares
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
Dated: ________________________ , 1997
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
- --------------------------------------------------------------------------------
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