<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] 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
United Health Care Corporation
- --------------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
LOGO
la8
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
March 30, 1998
Dear Shareholder:
We cordially invite you to attend our Annual Meeting of Shareholders. We
will hold our meeting on Wednesday, May 13, 1998, at 10:00 a.m., Central Time,
at the Lutheran Brotherhood Building Auditorium, 625 Fourth Avenue South,
Minneapolis, Minnesota.
On the following pages we include information about the business of the
meeting and the nominees for election as members of the Board of Directors. We
hope you can attend the meeting. If not, however, please exercise your right
as a shareholder and vote. The vote of every shareholder is important. We
appreciate your cooperation in promptly completing, signing and returning the
enclosed proxy.
Sincerely,
/s/ William W. McGuire
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 13, 1998
TO THE SHAREHOLDERS OF UNITED HEALTHCARE CORPORATION:
United HealthCare Corporation ("United" or the "Company") will hold its
Annual Meeting of Shareholders on Wednesday, May 13, 1998, at the Lutheran
Brotherhood Building Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota, at 10:00 a.m. Central Time. The purposes of the meeting are:
1. To elect three people to the Company's Board of Directors.
2. To consider and vote on a proposal to amend the United HealthCare
Corporation 1993 Employee Stock Purchase Plan.
3. To consider and vote on a proposal to ratify the appointment of Arthur
Andersen LLP as independent public accountants for the Company for the
fiscal year ending December 31, 1998.
4. To transact other business that may properly come before the meeting or
any adjournment of the meeting.
Only shareholders of record of United Common Stock at the close of business
on March 16, 1998, 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 31, 1998
WE CORDIALLY INVITE YOU TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO
BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU LATER CHOOSE 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 13, 1998
----------------
GENERAL MATTERS
The Board of Directors of United HealthCare Corporation ("United" or the
"Company") furnishes this Proxy Statement in connection with the Board's
solicitation of the enclosed proxy. The Board will use the proxy at the Annual
Meeting of Shareholders (the "Annual Meeting") and at any adjournment thereof.
The Annual Meeting will take place on May 13, 1998, at 10:00 a.m. Central
Time, at the Lutheran Brotherhood Building Auditorium, 625 Fourth Avenue
South, Minneapolis, Minnesota. The Board will use the proxy for the purposes
listed in the Notice of Annual Meeting of Shareholders.
Management will vote the shares of United Common Stock that the proxies
represent in the manner a shareholder directs. If a shareholder gives no
direction, management will vote FOR the election of the director nominees
named in this Proxy Statement and FOR the other proposals discussed in this
Proxy Statement. To revoke a proxy a shareholder needs to:
. Deliver to an officer of the Company a written notice terminating the
proxy's authority;
. File with an officer of the Company another proxy bearing a later date;
or
. Appear and vote at the Annual Meeting.
Management of the Company is mailing this Proxy Statement and the enclosed
form of proxy to shareholders beginning on or about March 31, 1998.
The Company will appoint inspectors of election for the meeting. These
inspectors will tabulate votes that shareholders cast by proxy or in person at
the Annual Meeting. To determine if a quorum is present, the Company will
count the number of shares represented in person or by proxy. The Company will
treat a shareholder who abstains from voting on any matter as if he or she
were present at the meeting for purposes of determining a quorum and
calculating the vote on that matter. But the Company will not consider that
shareholder to have voted in favor of such matter. If a broker returns a "non-
vote" proxy, indicating a lack of authority to vote on a matter, the Company
will deem the shares covered by the non-vote to be present at the Annual
Meeting for purposes of determining a quorum but not for purposes of
calculating the vote regarding the matter.
1
<PAGE>
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 16, 1998, will be
entitled to vote at the Annual Meeting. At the close of business on March 16,
1998, a total of 192,580,947 shares of United Common Stock were outstanding.
Each share is entitled to one vote. The Company also has 500,000 shares of
5.75% Series A 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 approve all matters proposed to
the shareholders at the Annual Meeting. There is no right to cumulative voting
as to any matter.
The Company will pay expenses in connection with the solicitation of
proxies. Management is primarily soliciting proxies by mail. 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.
The Company is furnishing each shareholder with a copy of the Company's
Annual Report for the year ended December 31, 1997, with this Proxy Statement.
MATTERS TO BE SUBMITTED TO A VOTE
The following paragraphs describe the matters management of the Company
intends to present 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. Each class is as 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 directors in Class III
expires at the Annual Meeting.
On May 14, 1997, the Board of Directors increased the size of the Board from
11 to 12 members and appointed Mary O. Mundinger to the Board as a Class II
director. One of the incumbent Class III directors, Kennett L. Simmons
(elected to the Board on October 31, 1995), is retiring from the Board
effective at the Annual Meeting. The Board is nominating three directors for
election as Class III directors at the Annual Meeting. If elected, these
directors will serve a three-year term expiring at the annual meeting of
shareholders to be held in 2001. The Board is not nominating another person to
fill the vacancy created by Mr. Simmons' retirement. The Board currently
intends to consider suitable candidates and propose another candidate at the
1999 annual meeting. The Board reserves the right to fill the vacancy prior to
the 1999 annual meeting if the Board identifies a suitable candidate and, in
the Board's judgment, it is advisable to elect the candidate before the 1999
meeting.
The people named in the accompanying proxy will vote FOR the election of the
nominees described in this Proxy Statement unless a shareholder withholds
authority to vote. All of the nominees have informed the Board of Directors
that they are willing to serve as directors. If any nominee should decline or
become unable to serve as a director for any reason, the people named in the
accompanying proxy will vote the proxy for another person as they determine.
2
<PAGE>
The following table provides certain information about the nominees for
election as directors of the Company, and also provides information about
other directors whose terms of office continue after the Annual Meeting. This
information is as of March 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS I)
Thomas H. Kean 62 Director
Robert L. Ryan 54 Director
William G. Spears 59 Director
Gail R. Wilensky 54 Director
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS II)
James A. Johnson 54 Director
Douglas W. Leatherdale 61 Director
Walter F. Mondale 70 Director
Mary O. Mundinger 60 Director
NOMINEES FOR ELECTION AS DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CLASS III)
William C. Ballard, Jr. 57 Director
Richard T. Burke 54 Director
William W. McGuire, M.D. 49 Chairman, President and Chief Executive
Officer
</TABLE>
The Class I directors' terms expire in 1999. Shareholders elected Messrs.
Kean and Spears and Ms. Wilensky at the Company's May 12, 1996 annual meeting.
The Board of Directors appointed Mr. Ryan on July 30, 1996, as a Class I
director when the Board increased its size from 10 to 11 members.
The Class II directors' terms expire in 2000. Shareholders elected Messrs.
Johnson, Leatherdale and Mondale at the Company's May 14, 1997 annual meeting.
The Board of Directors appointed Ms. Mundinger as a Class II director on May
14, 1997, when the Board increased its size from 11 to 12 members.
The Class III directors' terms expire in 1998. Shareholders elected Messrs.
Ballard and Burke and Dr. McGuire at the Company's May 10, 1995 annual
meeting. The Board appointed Mr. Simmons, the fourth Class III director, to
the Board on October 31, 1995. Mr. Simmons is not standing for reelection.
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. Mr. Ballard
is a director of LG&E Energy Corp., Mid-America Bancorp, American Safety Razor
Company, Atria Communities, Inc., HealthCare REIT, Inc., and Healthcare
Recoveries, 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.
Mr. Burke is owner, Chief Executive Officer and Governor of the Phoenix
Coyotes, a National Hockey League team. Mr. Burke is also a director of
Tesseract Group, Inc., and First Cash, Inc.
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 and 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. 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. Since May 1990,
Mr. Leatherdale has been the Chairman, Chief Executive Officer, President and
Chief Operating Officer of The St. Paul Companies, Inc. The St. Paul Companies
is an insurance, financial and general business corporation. In addition, Mr.
Leatherdale is a director of Northern States Power Company and The John Nuveen
Company.
Dr. McGuire became a director of the Company in February 1989 and the
Chairman of the Board of Directors 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 became a director of the Company in May 1997. Mr. Mondale has
been a partner in the law firm of Dorsey & Whitney LLP since January 1997, and
was also a partner there 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 the Vice President of the United States. From 1964 to
1976, Mr. Mondale was a U.S. Senator from Minnesota, and he served as the
Attorney General of Minnesota from 1960 to 1964. Mr. Mondale also serves as a
director of CNA Financial Corporation, Northwest Airlines Corporation, St.
Jude Medical, Inc., Dain Rauscher Corporation and several Black Rock mutual
funds managed by Black Rock Financial Management, Inc.
Ms. Mundinger became a director of the Company in May 1997. She is Dean and
Professor, School of Nursing and Associate Dean, Faculty of Medicine at
Columbia University in New York. Ms. Mundinger also served as Centennial
Professor in Health Policy for the Columbia University School of Nursing in
1994. She is also a director of Cell Therapeutics, Inc.
Mr. Ryan became a director of the Company in July 1996. Since 1993, Mr. Ryan
has been 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 director of TECO Energy, Inc., Tampa Electric Co. and
Dain Rauscher Corporation.
4
<PAGE>
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 Medicare Payment
Advisory 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., Pharmerica, Inc., Syncor
International, St. Jude Medical, Inc., Shared Medical Systems Corporation,
Quest Diagnostics Incorporated and Neopath, Inc.
DIRECTOR COMPENSATION
The Company pays directors who are not Company employees an annual retainer
of $20,000, in equal quarterly installments, and a $1,500 fee for attending
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 other substantial work. The Company
paid the chairman of the Audit Committee and the chairman of the Compensation
and Human Resources Committee, each a $5,000 fee for the year ended December
31, 1997.
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 1997, the Company paid approximately $3,500 in
health care premiums on behalf of Mr. Burke, $4,000 on behalf of Mr. Simmons,
and an aggregate of approximately $4,400 on behalf of past directors.
The Company gives directors of the Company who are not Company employees
("eligible directors") grants of non-qualified stock options under the 1995
Non-employee Director Stock Option Plan (the "1995 Plan"). Under the 1995
Plan, 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 made
automatically on the date the eligible director is first elected to 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 made automatically on the
first business day immediately following each annual meeting of the Company's
shareholders (the "Annual Option Grant Date"). They become exercisable six
months after grant. The option price for options granted under the 1995 Plan
is the closing sale price of the Company's Common Stock on the date the option
is granted, as reported on the New York Stock Exchange.
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
5
<PAGE>
Common Stock on the 1996 Annual Option Grant Date. They also will receive an
option to purchase 4,000 shares of United Common Stock on the 1997 Annual
Option Grant Date and each subsequent Annual Option Grant Date during the
remaining term of the 1995 Plan, if they are eligible directors at that time.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997, the Board of Directors held four
regular meetings. Except for Mr. Leatherdale, all incumbent directors attended
at least 75% of the Board and Committee meetings of which they were members.
In addition to the meetings, the Board passed several resolutions during 1997
by written consent.
The Board of Directors has established four standing committees: an Audit
Committee, a Compensation and Human Resources Committee, an Executive
Committee, and a Nominating Committee. These committees help the Board fulfill
its responsibilities and assist it in making informed decisions as to the
Company's operations.
The Audit Committee consists of Messrs. Leatherdale (Chairman), Mondale and
Johnson, and Ms. Wilensky, each of whom is a non-employee director and
independent of Company management. The Audit Committee held four regular
meetings in 1997. The Audit Committee assists the Board by overseeing the
Company's financial reporting, public disclosure, and compliance activities.
The Committee operates as a direct line of communication between the Board and
the Company's independent public accountants as well as the Company's
corporate audit, compliance, and legal personnel. The Audit Committee has
established a subcommittee, the Compliance Committee, made up of senior
executive officers of the Company, to assist the Audit Committee in its
responsibilities relating to reviewing the Company's operational compliance
with applicable legal requirements and sound ethical standards.
The Compensation and Human Resources Committee consists of Messrs. Spears
(Chairman), Ryan, Kean and Ballard, and Ms. Mundinger, each of whom is a non-
employee director and independent of Company management. The Compensation and
Human Resources Committee held four regular meetings and passed several
resolutions by written consent during 1997. The Compensation and Human
Resources Committee is generally responsible for overseeing the Company's
compensation, employee benefit, and stock-based programs. The Committee also
negotiates and administers the Company's employment arrangements with its
Chief Executive Officer, supervises bonus programs for the Company's employees
and reviews and monitors director compensation programs.
The Nominating Committee consists of Messrs. Ballard (Chairman), Kean,
Spears and Leatherdale, and Dr. McGuire. The Nominating Committee held three
regular meetings in 1997. The Nominating Committee's duties include
identifying and nominating individuals to be proposed for election as
directors at the annual meeting of shareholders, filling board vacancies, and
overseeing the director evaluation process. The Committee will consider
candidates proposed by shareholders upon timely written notice to the Company
Secretary. To be timely, any notice must be received at the Company's
principal executive offices not less than 60 days prior to the date of the
annual meeting and must include (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 it appears in the Company's stock register; (iii) the number of shares of
capital stock of the Company that are beneficially owned by each such nominee
and by such shareholder; and (iv) other information concerning each nominee as
would be required for soliciting proxies for the election. The notice also
must include a signed consent of each nominee to serve as a director of the
Company, if elected.
6
<PAGE>
The Executive Committee consists of Messrs. Simmons, Spears, Ballard and
Leatherdale, and Dr. McGuire. The Executive Committee held one special meeting
during 1997 and passed one resolution during 1997 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. PROPOSAL TO AMEND THE UNITED HEALTHCARE CORPORATION
1993 EMPLOYEE STOCK PURCHASE PLAN
SUMMARY OF THE 1993 PLAN
The following summary is qualified in its entirety by reference to the full
text of the 1993 Employee Stock Purchase Plan (the "1993 Plan"). Shareholders
may review a copy of the 1993 Plan at the Annual Meeting, or obtain a copy by
writing to the Secretary of the Company.
The 1993 Plan allows employees of the Company and its subsidiaries to
purchase shares of United Common Stock. Under the current terms of the 1993
Plan, employees are generally eligible to participate if they are regular
employees (i) scheduled to work at least 20 hours per week on a regular basis,
and (ii) employed for at least 60 days by the Company. The proposal described
below changes these eligibility requirements.
Participants in the 1993 Plan have after-tax payroll deductions for six-
month periods beginning in May and December of each year at a rate not
exceeding 10% of compensation. Participants can use these amounts at the end
of the six-month period to purchase shares of Company Common Stock at 85% of
the lesser of the market price on the first or the last day of the six-month
period. Employee contributions are deposited in an account with a custodian
bank until the shares are purchased. Participants may not buy more than 1,000
shares of Common Stock per purchase period. Participants may withdraw from
participating in the 1993 Plan before purchasing Common Stock. In such an
event, they would receive amounts they contributed prior to withdrawal.
PROPOSAL
In February 1997, the Company's Board of Directors approved several
amendments to the 1993 Plan, one of which requires shareholder approval. The
other amendments made nonsubstantive or administrative adjustments to the 1993
Plan. The amendment being proposed to the Company's shareholders at the Annual
Meeting redefines the employees eligible to participate in the 1993 Plan.
Section 2.01(h) of the 1993 Plan identifies the employees eligible to
participate in the Plan. Section 2.01(h)(ii) currently excludes regular
employees who have not been employed by of the Company for at least 60
consecutive days immediately prior to the first day of a purchase period (the
"60-Day Requirement"). For purposes of this requirement, an approved leave of
absence does not terminate an employee's continuous employment. The proposed
amendment to Section 2.01(h) of the 1993 Plan accomplishes the following:
. Replaces the 60-Day Requirement with a new clause that allows new
regular employees to begin participating in the 1993 Plan immediately;
and
. Makes employees whose customary employment by the Company is for less
than five months in any calendar year ineligible to participate in the
1993 Plan.
The purpose of this amendment is to align more closely the language of the
1993 Plan with applicable law and to simplify administration of the 1993 Plan.
7
<PAGE>
MANAGEMENT'S RECOMMENDATION
The Board of Directors recommends a vote FOR the proposal to amend Section
2.01(h) of the 1993 Plan. The affirmative vote of the holders of a majority of
shares present in person or by proxy and entitled to vote at the Annual
Meeting is necessary to approve the proposal. Unless otherwise instructed,
management will vote proxies in favor of the amendment.
III. 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,
1998. The Board has proposed the shareholders ratify this appointment 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, and will be available to respond to questions from shareholders. If
the shareholders do not ratify the appointment, the Board of Directors is not
obligated to appoint other independent public accountants, but will consider
an unfavorable vote.
The Board of Directors recommends a vote FOR this proposal. Management will
vote proxies in favor of ratifying this appointment unless otherwise
specified.
8
<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, McDonough and Koppe) as of December 31, 1997 (collectively the
"named executive officers"). In each case information is provided for the
years ended December 31, 1995, 1996 and 1997.
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 12/31/97 YEAR SALARY ($) BONUS($) SATION($)(1) SARS(#)(2) ($)(3) SATION ($)(4)
----------- ---- ---------- -------- ------------ ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William W. McGuire, M.D. 1997 1,200,000 -- 70,604(5) 450,000 -- 104,364
Chief Executive Officer 1996 1,100,000 -- 51,011(5) 250,000 -- 85,408
1995 875,000 875,000 80,547(5) 150,000 -- 77,113
Travers H. Wills 1997 515,384 -- -- 190,000 -- 15,462
Chief Operating Officer 1996 475,000 -- -- 60,000 -- 23,625
1995 312,500 312,500 -- 130,000 -- 11,971
James G. Carlson 1997 400,000 -- -- 85,000 -- 4,750
President, Health Plans 1996 392,308 -- -- 40,000 -- 4,500
1995 100,000(6) 380,000 -- -- -- --
David P. Koppe 1997 364,135 -- -- 30,000 -- 10,915
Chief Financial Officer 1996 350,000 -- -- 35,000 -- 15,585
1995 253,846 174,000 -- 80,000 -- 10,615
Thomas P. McDonough 1997 325,000 -- -- 75,000 -- 4,750
Chief Executive Officer, 1996 283,173 -- -- -- -- 12,394
Strategic Business 1995 68,750(6) 130,000 25,080(7) -- -- --
Services
</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 each named executive officer.
(2) None of the named executive officers 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 executive officers 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
$69,152 in 1997, $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.
(5) Other annual compensation for Dr. McGuire includes Company provided
transportation of $37,164 in 1997, $20,820 in 1996 and $57,541 in 1995
and auto allowances of $21,600 in 1997, $21,430 in 1996 and $19,564 in
1995.
(6) Messrs. Carlson and McDonough became employees and executive officers of
the Company in October of 1995.
(7) Other annual compensation for Mr. McDonough is relocation expense.
9
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides information about stock awards to the named
executive officers under the Company's stock option and incentive plans during
the year ended December 31, 1997. No SARs were granted to these individuals in
1997.
OPTIONS/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED (#)(1) IN 1997 ($/SHARE) DATE 5%($) 10%($)
---- -------------- ------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William W. McGuire,
M.D.................... 250,000(2) 5.8% $46.8750 2/11/07 7,369,859 18,676,669
200,000(3) 4.7% 43.0625 10/27/07 5,416,355 13,726,107
------- ------------- -------------
450,000 12,786,214 32,402,776
Travers H. Wills........ 90,000(4) 2.1% 46.8750 2/11/07 2,653,149 6,723,601
100,000(3) 2.3% 43.0625 10/27/07 2,708,177 6,863,053
------- ------------- -------------
190,000 5,361,327 13,586,654
James G. Carlson........ 40,000(4) 0.9% 46.8750 2/11/07 1,179,177 2,988,267
45,000(3) 1.1% 43.0625 10/27/07 1,218,680 3,088,374
------- ------------- -------------
85,000 2,397,857 6,076,641
David P. Koppe.......... 30,000(4) 0.7% 46.8750 2/11/07 884,383 2,241,200
Thomas P. McDonough..... 30,000(4) 0.7% 46.8750 2/11/07 884,383 2,241,200
45,000(3) 1.1% 43.0625 10/27/07 1,218,680 3,088,374
------- ------------- -------------
75,000 2,103,063 5,329,574
</TABLE>
- --------
(1) All options granted in 1997 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 sixth anniversary of the date
of the grant. Pursuant to the terms of the plan under which these options
were granted, the Compensation and Human Resources 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) Options are 100% exercisable following the ninth anniversary of the date
of the grant. Pursuant to the terms of the plan under which these options
were granted, the Compensation and Human Resources 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.
10
<PAGE>
OPTION/SAR EXERCISES AND HOLDINGS
For the named executive officers, the following table contains information
about the exercise of options during 1997 and unexercised options held as of
December 31, 1997. None of these individuals exercised SARs during 1997 or
held SARs as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS THE-MONEY OPTIONS/SARS
ACQUIRED VALUE AT 12/31/97 (#) AT 12/31/97 ($)
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE (2)
---- ------------ --------- --------------------- ------------------------
<S> <C> <C> <C> <C>
William W. McGuire,
M.D.................... 150,000 7,232,775 1,226,086/905,226 38,913,768/9,478,670
Travers H. Wills........ 110,000 2,930,250 192,835/366,890 2,958,113/3,111,763
James G. Carlson........ 21,500 903,355 35,276/171,128 437,063/2,032,080
David P. Koppe.......... -- -- 109,830/141,850 1,659,091/1,469,234
Thomas P. McDonough..... 4,000 180,380 28,512/138,511 372,846/1,325,211
</TABLE>
- --------
(1) Calculated as market price per share at time of exercise less the per
share exercise price, times the the number of shares purchased.
(2) Calculated as market price per share as of December 31, 1997, less the
per share exercise price, times the the number of unexercised options.
11
<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, 1997. The
comparison assumes the investment of $100 on December 31, 1992 in each index
and that dividends were reinvested when paid. The companies included in the
peer group are Aetna, Inc., First Health Group Corporation (formerly
HealthCare COMPARE Corporation), Humana, Inc., Oxford Health Plans, Inc.,
PacifiCare Health Systems, Inc., Sierra Health Services, Inc., and Wellpoint
Health Networks, Inc. The Company is not included in the peer group index. In
calculating the 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.
1993 1994 1995 1996 1997
------- ------ ------- ------- -------
United HealthCare Corporation $133.48 $158.89 $230.34 $158.63 $175.26
Peer Group 126.54 134.78 182.97 191.82 159.84
S&P 500 Index 110.08 111.53 153.45 188.68 251.63
The peer group differs from that used in the Company's 1996 Proxy Statement.
Three companies previously reported in the 1996 group, Foundation Health
Corporation, Healthsource, Inc. and Value Health, Inc. are not in the 1997
peer group because they were acquired or merged with other companies during
1997. Healthsource, Inc. was acquired by Cigna Corporation, Foundation Health
Corporation merged with Health Systems International, Inc. to form Foundation
Health Systems, Inc. and Value Health, Inc. was acquired by Columbia/HCA
Healthcare Corporation. Additionally, the Company's 1997 peer group was
expanded to include Aetna, Inc.
12
<PAGE>
REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors has delegated to the Compensation and Human Resources
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 affecting
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, 1997, the Committee
consisted of William G. Spears, William C. Ballard, Robert L. Ryan, Thomas H.
Kean and Mary O. Mundinger. None of these individuals was or is a Company
employee.
Compensation Policies for Executive Officers. 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 give key employees the opportunity
to acquire a significant ownership interest in the Company through various
stock option, restricted stock and stock purchase plans. The Company also
makes available to its executive officers a broad range of benefit programs,
which also are 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 also are eligible to participate in the Company's non-qualified
compensation deferral plans. These deferral plans include a component under
which the Company matches a portion of the amount of compensation deferred by
the employee, up to a certain percentage. The employee also may defer
compensation without a Company match. In addition, certain of the Company's
executive officers are eligible to participate in a long-term incentive plan
created by the Company's Board of Directors in February 1997. Part of the
compensation paid to the Company's executive officers is determined by
employment agreements between the Company and certain officers. The employment
agreements with the named executive officers are described elsewhere in this
Proxy Statement.
The Committee recognizes that the industry in which the Company operates is
highly competitive. Additionally, the industry is continually undergoing
significant changes resulting in a 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, including some but not all of
the companies in the peer group used in the Performance Graph. One aim of the
Company's executive compensation policies is to make it possible for
executives to earn cash compensation equaling or exceeding the amount 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 Committee reviews
the base salary ranges for the executive officers periodically. The Committee
may increase (or decrease) these ranges to reflect changes in the
responsibilities of 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.
13
<PAGE>
The other, and potentially more significant, part of executive cash
compensation is 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:
(i) the overall performance of the Company; (ii) the overall performance of
the business unit or corporate division in which the executive serves; and
(iii) the executive's individual performance. The Committee establishes
performance objectives for the Company, and management sets the objectives for
each business unit or corporate division based on 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 to remain
a growing, highly respected leader in health care management services and the
health and well-being market. The performance objectives include specific
revenues, earnings, selling, general and administrative costs, medical care
ratio, membership and stock price goals. Individual executive performance is
measured against an annual incentive target, which represents a percentage of
base salary 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. The more senior executive officers have a higher percentage of their
potential total compensation subject to the Company's results and to their
individual performance.
After the end of the Company's fiscal year, the Committee determines the
overall Company rating or factor, based on the Company's overall performance.
The overall Company rating 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 sets
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 the 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 then is
calculated by multiplying the total dollar amount of the incentive targets for
executives in a particular business unit or corporate division by a factor
that is a combination of the Company and business unit or corporate division
factors. The Chief Executive Officer consults with the other members of the
Office of the Chairman (comprised of Dr. McGuire, Mr. Wills and Stephen J.
Hemsley, who joined the Company in June 1997), and they evaluate the
individual performance of each executive officer, allocating the available
incentive compensation amounts among the participating executives in each
business unit or corporate division.
For 1997, the Committee adopted management's incentive recommendations and
paid $15 million in cash incentive compensation (representing an approximate
.5 factor). These payments favored business unit and corporate divisions that
exceeded expectations while other units that did not meet expectations
received significantly reduced payments. Some units and divisions received no
incentive compensation. Management also recommended, and the Committee
concurred, that members of the Office of the Chairman and certain others of
the Company's most senior officers would receive no cash incentive
compensation. In reaching these decisions, management and the Committee
considered the Company's performance in relation to its industry and the goals
the Company had set for itself. In 1997, the Company performed very well,
outperforming most of its peers in a very challenging environment. The Company
did not, however, achieve all of the goals it had set. In particular, the
Company's earnings per share were less than its original target and less than
the initial estimates of analysts who evaluate the Company's performance.
Additionally, some initiatives the Company had planned for 1997 were delayed,
reduced, or canceled as the Company focused on the challenges the
14
<PAGE>
1997 marketplace presented. The Committee also agreed with management that
many of the Company's actions in 1997 would, if successfully implemented,
reflect themselves in future years' performance and stock value. Executives
who received no cash incentive compensation would, with the greater option
ownership they had, benefit through any such stock appreciation.
The Committee believes that it is important to provide executive officers
with a longer term interest in the Company's performance through various stock
ownership programs, including stock option, restricted stock grant, stock
purchase and other programs. The Committee recognizes that increases in the
Company's stock price have been a significant source of compensation to some
employees and have contributed to employee productivity and loyalty. Beginning
in late 1992 and continuing to the present, the majority of the options
granted to executives had one-time vesting schedules between six to nine years
after issuance. Under these options, the Committee can establish an earlier
exercise date for all or a portion of the grant based on a review of the
executive's performance. That review would consider the Company performance,
business unit performance, and individual performance factors and goals under
the Management Incentive Plan described above. As part of its deliberations on
1997 incentive compensation, the Committee continued its practice of regularly
reviewing outstanding options to determine whether it was appropriate to
establish earlier exercise dates.
The Committee currently believes that the total number of shares outstanding
at any time that are subject to unexercised stock options and restricted stock
grants with unlapsed restrictions should be 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 7.4% to
8.1% of outstanding shares at year-end. The Committee continues to place
ongoing emphasis 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: (i) the
executive's responsibilities and potential for directly contributing to the
Company's performance; (ii) base salary amount; (iii) the practicality of
tying vesting of options to individual or Company performance standards; and
(iv) the total number of options previously granted to the executive.
Chief Executive Officer's 1997 Compensation. The Committee determines Dr.
McGuire's compensation consistent with the principles noted above and by the
terms of his employment agreement with the Company. As the Company's Chief Ex-
ecutive Officer, a significant amount of Dr. McGuire's cash compensation var-
ies with overall Company performance.
Dr. McGuire's 1997 base salary of $1.2 million was established based on the
Committee's review of his performance on behalf of the Company and according
to his employment agreement. The Committee determines any increases in Dr.
McGuire's annual base salary from year to year, in addition to any increases
required by his employment agreement, to be competitive with compensation paid
similarly situated chief executives in the health care industry as well as
other companies of comparable size and operating complexity. Based on the
advice it received in 1992 and 1995, when the Committee used the services of
an independent compensation consulting firm to help develop Dr. McGuire's
compensation package, the Committee believes Dr. McGuire's base 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.
15
<PAGE>
For the reasons described in the preceding section, the Committee accepted
Dr. McGuire's recommendation that he receive no cash incentive compensation
for 1997.
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 1997, Dr. McGuire received two
stock option grants. On February 11, 1997, Dr. McGuire was granted options for
250,000 shares of Company Common stock with each share having an exercise
price of $46.875, which was the fair market value of one share of stock on the
grant date. These options may be exercised at the rate of 25% a year, over a
period of four years, from the date of the grant. On October 27, 1997, along
with other Company executives, Dr. McGuire received an additional grant of
options. Dr. McGuire's grant was for 200,000 shares of Company Common Stock,
with each share having an exercise price of $43.0625. That price was the fair
market value of one share of stock on the grant date. These options will
become 100% exercisable on October 27, 2003, although the Committee has the
authority to establish earlier exercise dates for all or a portion of these
options prior to that date, based on Dr. McGuire's performance. In addition,
during 1997, the Committee established 1997 exercise dates for options granted
to Dr. McGuire in prior years representing the right to purchase a total of
79,862 shares of Company Common Stock. In establishing these earlier exercise
dates, the Committee considered the Company's overall performance during 1997
and 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. As a result, the Company does not expect
performance-based compensation associated with stock options to be subject to
the deduction limit. Because the majority of the Company's executive officers'
compensation that could exceed the $1 million limitation is associated with
such stock options, the Company does not expect this deduction limitation to
have a material effect on its operations or financial condition. The Company
does not expect to take any further action with respect to its compensation
programs to avoid paying compensation that exceeds the $1 million limitation
and for which the Company would lose the corresponding tax deduction.
SUBMITTED BY THE COMPENSATION AND HUMAN RESOURCES COMMITTEE OF THE
UNITED HEALTHCARE CORPORATION BOARD OF DIRECTORS.
William C. Ballard
Thomas H. Kean
Mary O. Mundinger
Robert L. Ryan
William G. Spears
16
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has various forms of executive agreements with certain of the
executive officers named in the Summary Compensation Table.
William W. McGuire, M.D. Dr. McGuire entered into an employment agreement,
effective January 1, 1996, which replaced an earlier agreement.
Dr. McGuire's agreement has an initial term of three years during which he
is to serve as United's Chief Executive Officer and President. The agreement
will be automatically extended for an additional one-year period at the end of
each year of the initial term unless either the Company or Dr. McGuire gives
notice of intent not to renew. During the term of his employment under this
agreement, Dr. McGuire will receive a minimum base salary of $1.1 million,
which will increase by a minimum of $100,000 annually. Dr. McGuire also is
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. Under this agreement, each year Dr. McGuire
will receive non-qualified stock options to purchase a minimum of 250,000
shares of the Company's Common Stock at an 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% per year, subject to additional vesting provisions if
specified future events occur. In addition, the Company will provide and pay
for a term life insurance policy on Dr. McGuire that he will own, in an amount
three times his current base salary, as well as an individual supplemental
long-term "own occupation" disability insurance policy. The agreement also
requires the Company to provide Dr. McGuire with a supplemental retirement
benefit 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 agreement provides severance benefits if Dr. McGuire's employment by the
Company ends 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 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 $1.1 million plus an annual cash bonus calculated using the
same percentage of minimum base salary used to calculate the most recent cash
bonus he received, or (ii) his then-current annualized base salary, plus an
amount equal to the most recent cash bonus 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. If Dr. McGuire ends his employment with the Company
without Good Reason before the end of the term of the agreement, the Company
will pay Dr. McGuire a severance benefit equal to the Severance Payment
payable according to the Company's normal payroll practices for the period
following the effective date of the termination to the end of the initial term
of the agreement or the end of any extension of such term.
If Dr. McGuire's employment with the Company ends because of his death or
permanent disability prior to the end of the term of the agreement, his
beneficiaries will receive a benefit payable according to the Company's normal
payroll practices equal to the greater of: (i) the minimum base annual salary
of $1.1 million plus an annual cash bonus calculated using the same percentage
of minimum base
17
<PAGE>
salary used to calculate the most recent cash bonus he received, or (ii) his
then-current actual annualized base salary plus the most recent annual cash
bonus actually received by him for the remaining term of the agreement.
Dr. McGuire also has agreed to noncompetition, nonsolicitation and
confidentiality arrangements covering the term of the agreement and certain
periods following the end of his employment.
Travers H. Wills. Mr. Wills entered into an employment agreement with the
Company, effective January 1, 1998, which replaced an earlier agreement. His
agreement has an initial term ending on December 31, 1998 and will
automatically be renewed annually unless the agreement is terminated under
certain circumstances. During the term of his employment agreement, Mr. Wills
will receive a minimum annual salary of $525,000. 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 his agreement, the Company ends Mr. Wills' employment
without Cause (as defined in the agreement), or Mr. Wills ends his employment
due to a Change in Employment (as such term is defined in the agreement) the
Company will continue to pay to Mr. Wills his annualized base salary for a 12-
month period and an amount equal to one-half of certain 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 a termination without Cause or due to a Change in Employment will continue
to vest during the 12-month period in which the Company is paying Mr. Wills.
The Company has also agreed to make health care coverage available to Mr.
Wills and his spouse at group rates until such time as Mr. Wills and his
spouse becomes eligible for Medicare.
As part of this agreement, Mr. Wills agreed to noncompetition and
nonsolicitation arrangements during the term of the agreement and for certain
periods following the termination of his employment.
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. If, during the term of this agreement, the Company ends Mr.
Koppe's employment without Cause (as defined in the agreement) or Mr. Koppe
ends his employment due to a Change in Employment (as defined in the
agreement), the Company will continue to pay Mr. Koppe's annualized base
salary for a 12-month period and an amount equal to one-half of the total of
any bonus or incentive compensation paid or payable for the two most recent
calendar years or other period generally used by the Company to determine
bonus or incentive payments. As part of his agreement, Mr. Koppe agreed to
noncompetition and nonsolicitation arrangements during the term of the
agreement and certain periods following termination of his employment.
James G. Carlson. Mr. Carlson entered into an employment agreement with the
Company, effective October 2, 1995. The agreement remains in effect until
December 31, 1998 unless it is terminated earlier. 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.
18
<PAGE>
If, during the term of the agreement, the Company ends Mr. Carlson's
employment without Cause (as such term is defined in his agreement) or Mr.
Carlson ends his employment for Good Reason (as 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. In
addition, he will receive a prorated management incentive plan payment for the
fraction of the management incentive plan payment period ending on his
termination date and any management incentive plan payments remaining unpaid
from the preceding year. Mr. Carlson also will 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 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 Company will reduce the amount of severance benefits under the
agreement by 80% of any compensation Mr. Carlson earns from another employer
during the period in which he receives severance benefits.
If Mr. Carlson becomes disabled during the term of the agreement, he will
continue to receive his base salary at the annual rate in effect on the date
of disability for the remaining term of his agreement while he remains
disabled. He also will receive a prorated management incentive 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 disability insurance the Company purchases for him, 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 noncompetition and
nonsolicitation arrangements during the term of the agreement and for certain
periods following the termination of his employment.
Thomas P. McDonough. Mr. McDonough does not have a written employment
agreement with the Company. Mr McDonough has resigned from the Company
effective as of April 1, 1998.
Stephen J. Hemsley. In June 1997, Mr. Hemsley joined the Company as its
Senior Executive Vice President and a member of the Office of the Chairman.
The Company is currently negotiating an employment agreement with Mr. Hemsley
which the Company anticipates will be finalized in 1998. That agreement is
expected to contain compensation, benefits, termination, noncompetition and
nonsolicitation provisions similar to those in the other senior executive
agreements described in this section.
SEVERANCE ARRANGEMENTS AND CHANGE-IN-CONTROL PROVISIONS
According to the Company's Severance Pay Plan, which applies to all regular
Company employees, certain of the executive officers may be eligible to
receive severance pay following their termination in certain events. However,
any payments an executive officer receives in connection with a change-in-
control (as defined in and pursuant to an employment agreement with the
Company) will replace and be in lieu of payment and/or benefits under any
Company severance program, including
19
<PAGE>
the Company's Severance Pay Plan. Under the Company's Severance Pay Plan, the
amounts of severance payments following termination depend upon the executive
officer's length of service, grade level within the Company, and the execution
of a Company-approved release.
In the case of a change-in-control of the Company, certain of the
outstanding stock options granted under the Company's Amended and Restated
1991 Stock and Incentive 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 that 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, and Ms. Mundinger served as the
members of the Compensation and Human Resources Committee during 1997.
20
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about each shareholder known to the
Company to own beneficially more than 5% of the outstanding shares of Company
Common Stock as of March 2, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) CLASS (2)
------------------- ---------------------------- ----------
<S> <C> <C>
FMR 20,869,711(3) 10.9
82 Devonshire Street
Boston, MA 02109-3614
Massachusetts Financial Services
Company 16,370,584(4) 8.5
500 Boylston Street, 15th Floor
Boston, MA 02116
The Equitable Companies, Incor-
porated 13,541,865(5) 7.1
1290 Avenue of the Americas
New York, NY 10104
J.P. Morgan & Co. 10,813,698(6) 5.6
60 Wall Street
New York, NY 10260
</TABLE>
- --------
(1) Except as otherwise described, the shareholders in the table have sole
voting and investment powers with respect to the shares listed.
(2) Percent of class calculation is based on 192,172,839 shares of the
Company's Common Stock outstanding as of March 2, 1998, but does not
include 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) This information is based on a Schedule 13G/A filed by FMR Corp. ("FMR")
with the SEC on March 10, 1998, reporting beneficial ownership data as of
February 28, 1998. FMR, through its control over Fidelity Management and
Research Company ("FMRC"), a wholly-owned investment adviser subsidiary
of FMR, and Fidelity Management Trust Company ("FMT") and Fidelity
International Limited ("FIL"), holds sole investment power with respect
to 20,869,711 shares of Common Stock. Edward C. Johnson, Chairman of FMR,
and Abigail P. Johnson, a director of FMR, through their control over FMR
each hold investment power with respect to 20,869,711 shares of Common
Stock. FMRC is the beneficial owner of 19,566,090 shares of Common Stock
as a result of acting as investment adviser to various investment
companies. These investment companies retain sole voting power with
respect to 19,566,090 shares of Common Stock. The voting power with
respect to these shares lies with the investment companies' boards of
trustees. Except as otherwise stated, none of these entities holds sole
or shared voting or investment power with respect to 5% or more of the
Common Stock of the Company.
(4) This information is based on a Schedule 13G filed by Massachusetts
Financial Services Company ("MFS") with the SEC on February 12, 1998,
reporting beneficial ownership data as of December 31, 1997. MFS holds
sole voting power with respect to 16,255,984 shares of Common Stock and
sole investment power with respect to 16,370,584 shares. The MFS Schedule
13G further indicates that these shares are also beneficially owned by
certain other nonreporting entities. Except as otherwise stated, none of
these entities holds sole or shared voting or investment power with
respect to 5% or more of the Common Stock of the Company.
21
<PAGE>
(5) The information is based on a Schedule 13G filed by The Equitable
Companies, Incorporated ("The Equitable") with the SEC on February 13,
1998, reporting beneficial ownership data as of December 31, 1997.
Alliance Capital Management L.P., a subsidiary of The Equitable, is
deemed to have sole investment power with respect to 13,236,402 shares of
Common Stock. The Equitable is beneficial owner of 13,541,865 shares of
Common Stock, and retains sole investment power with respect to
13,531,177 of those shares. AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, Alpha Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle and AXA-UAP, as parents of The Equitable, and another
shareholder of the company, AXA Colonia Konsern AG, are beneficial owners
of 13,542,975 shares of Common Stock, and each holds sole investment
power with respect to 13,532,287 shares of Common Stock. Except as
otherwise stated, none of these entities holds sole or shared voting or
investment power with respect to 5% or more of the Common Stock of the
Company.
(6) This information is based on a Schedule 13G filed by J.P. Morgan & Co.
Incorporated ("J.P. Morgan") with the SEC on February 13, 1998, reporting
beneficial ownership data as of December 31, 1997. J.P. Morgan, through
its subsidiaries Morgan Guarantee Trust Company of New York, J.P. Morgan
Investment Management, Inc., and J.P. Morgan Florida Federal Savings
Bank, holds sole investment power with respect to 10,673,168 shares of
Common Stock. Except as otherwise stated, none of these entities holds
sole or shared voting or investment power with respect to 5% of more of
the Common Stock of the Company.
The following table provides information about the March 2, 1998 beneficial
ownership of Company Common Stock by each director and nominee for director,
each named executive officer, and by all directors and all executive officers
as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL
OWNER OR AMOUNT AND NATURE OF PERCENT
IDENTITY OF GROUP BENEFICIAL OWNERSHIP(1)(2) OF CLASS(3)
------------------ -------------------------- -----------
<S> <C> <C>
Wlilliam C. Ballard 95,200(4) *
Richard T. Burke 933,125(5) *
James A. Johnson 69,200(6) *
Thomas H. Kean 62,000(7) *
Douglas W. Leatherdale 323,420(8) *
William W. McGuire, M.D. 1,618,399(9) *
Walter F. Mondale 500 *
Mary O. Mundinger -0- *
Robert L. Ryan 4,000(10) *
Kennett L. Simmons 63,929(11) *
William G. Spears 127,612(12) *
Gail R. Wilensky 60,100(13) *
James G. Carlson 60,642(14) *
Thomas P. McDonough 36,016(15) *
David P. Koppe 159,881(16) *
Travers H. Wills 228,372(17) *
--------- ----
All executive officers
and
directors as a group
(22 persons) 4,332,623(18) 2.22%
========= ====
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise described, the shareholders in the table have sole
voting and investment powers with respect to their shares.
22
<PAGE>
(2) This table does not include the number of shares allocated to the named
individuals under the Company's ESOP for 1997 since that allocation has
not yet been finalized. The average number of shares allocated to the
individuals named in the table for their 1996 participation in the ESOP
was 5 shares. In addition to the persons who currently have ESOP shares,
one other executive officer will be eligible for a 1997 allocation of
shares.
(3) Percent of class calculation is based on 192,172,839 shares of the
Company's Common Stock outstanding as of March 2, 1998, but does not
include 10,105,706 shares representing Common Stock issuable with respect
to the outstanding shares of the Company's 5.75% Series A Convertible
Preferred Stock.
(4) Includes 92,000 shares that can be purchased under stock options
exercisable within 60 days.
(5) Includes 188,000 shares that can be purchased under stock options
exercisable within 60 days by Mr. Burke and 16,116 shares that can be
purchased under stock options exercisable within 60 days by Mr. Burke's
spouse. Also includes approximately 114 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.
(6) Includes a total of 200 shares held by Mr. Johnson in a family trust as
well as 60,000 shares that can be purchased under stock options
exercisable within 60 days.
(7) Includes 1,000 shares held by Mr. Kean for the benefit of his minor child
and 60,000 shares that can be purchased under stock options exercisable
within 60 days.
(8) Includes a total of 1,420 shares held by each of Mr. Leatherdale's two
dependent children (720 and 700 shares individually) as well as 242,000
shares that can be purchased under stock options exercisable within 60
days.
(9) Includes 1,429,086 shares that can be purchased under stock options
exercisable within 60 days. Also includes approximately 749 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 3,000 shares that can be purchased under stock options
exercisable within 60 days.
(11) Includes 63,929 shares that can be purchased under stock options
exercisable within 60 days.
(12) Includes 124,000 shares that can be purchased under stock options
exercisable within 60 days.
(13) Includes 60,000 shares that can be purchased under stock options
exercisable within 60 days.
(14) Includes 59,317 shares that can be purchased under stock options which
are exercisable within 60 days. Also includes approximately 5 shares held
by the Trustee of the Company's ESOP for Mr. Carlson's account with
respect to which Mr. Carlson has sole voting power and no investment
power.
23
<PAGE>
(15) Includes 36,012 shares that can be purchased under stock options which
are exercisable within 60 days. Also includes approximately 5 shares held
by the Trustee of the Company's ESOP for Mr. McDonough's account with
respect to which Mr. McDonough has sole voting power and no investment
power.
(16) Includes 128,930 shares that can be purchased under stock options
exercisable within 60 days. Also includes approximately 749 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.
(17) Includes 227,335 shares that can be purchased under stock options
exercisable within 60 days. Also includes approximately 37 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.
(18) Includes 3,225,386 shares that can be purchased under stock options
exercisable within 60 days. Also includes approximately 6,566 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 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
10% beneficial owners are required by SEC regulations to furnish United with
copies of all Section 16(a) forms they file.
Based solely on the Company's review of copies of such reports and written
representations from the Company's executive officers and directors, the
Company believes that its executive officers and directors complied with all
Section 16(a) filing requirements during 1997, except as follows:
. On December 10, 1997, Mr. Burke sold 25,000 shares of Company Common
Stock. This transaction was reported to the SEC on his Form 5 for the
fiscal year ended December 31, 1997.
. On May 1, 1997, Mr. Johnson purchased 200 shares of Company Common Stock
in two open market transactions through a family trust. These
transactions were reported to the SEC on an amended Form 4 for May 1997,
which was filed in October 1997.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
. During the Company's fiscal year ended December 31, 1997, the Company
paid approximately $765,000 in insurance premiums to The St. Paul
Companies, Inc., of which Mr. Leatherdale is a director and an executive
officer.
24
<PAGE>
. Dorsey & Whitney LLP is the Company's corporate legal counsel. Mr.
Mondale is a partner at Dorsey & Whitney.
. During the Company's fiscal year ended December 31, 1997, Mr. Mondale's
son exercised non-qualified stock options to purchase shares of Company
Common Stock in transactions that produced net proceeds of approximately
$97,000. Mr. Mondale's son was employed by the Company from October 1992
to October 1996.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters that may
come before the Annual Meeting. However, if any matters calling for a vote of
the shareholders, other than those referred to above, should properly come
before the meeting, the persons named in the enclosed proxy intend to vote
such proxy according to their best judgment.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
The Company must receive any proposal by a shareholder to be presented at
the next Annual Meeting of shareholders at the Company's principal executive
offices, 300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343,
not later than December 1, 1998.
BY ORDER OF THE BOARD OF DIRECTORS,
David J. Lubben
Secretary
25
<PAGE>
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 16, 1998, at the Annual Meeting of
Shareholders to be held on May 13, 1998 or any adjournment thereof.
1. ELECTION OF DIRECTORS
Nominees: William C. Ballard, Jr., William W. McGuire,
M.D., Richard T. Burke
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 amend the United HealthCare Corporation
1993 Employee Stock Purchase Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
- --------------------------------------------------------------------------------
3. PROPOSAL to ratify appointment of independent
public accountants.
FOR [_] AGAINST [_] ABSTAIN [_]
4. 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)
P R O X Y
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 AND FOR PROPOSAL 3.
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: ________________________ , 1998.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
