<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HealthCare COMPARE Corp.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- -------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
<PAGE> 2
Healthcare Logo
3200 Highland Avenue Downers Grove, IL 60515-1282 (630)
241-7900
April 16, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
HealthCare COMPARE Corp. to be held on Tuesday, May 20, 1997, at the offices of
the Company, 3200 Highland Avenue, Downers Grove, Illinois, beginning at 10:00
a.m. The Board of Directors and management are looking forward to personally
greeting stockholders who attend the meeting.
In addition to electing directors, you are being asked to consider a
proposal to approve certain provisions of our Chief Executive Officer's new
employment agreement: a performance-based compensation provision and the grant
of two stock options. The Board of Directors believes these proposals are in the
best interests of the Company and its stockholders and recommends a vote FOR
each of these proposals. They are more fully described in the accompanying proxy
statement, which you are encouraged to read carefully.
If you will not be able to attend the Annual Meeting, we urge you to
exercise your right to vote by promptly completing and returning your signed
proxy card in the envelope provided.
Thank you for your cooperation and continued support.
Sincerely,
THOMAS J. PRITZKER
THOMAS J. PRITZKER
Chairman of the Board
HealthCare COMPARE Corp. - America's Leader in Total Medical Cost Management
<PAGE> 3
Healthcare Logo
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 20, 1997
Notice is hereby given that the Annual Meeting of Stockholders of
HealthCare COMPARE Corp., a Delaware corporation (the "Company"), will be held
at the offices of the Company, 3200 Highland Avenue, Downers Grove, Illinois
60515 on Tuesday, May 20, 1997 at 10:00 a.m., local time, for the following
purposes:
(1) To elect eleven directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
(2) To consider and vote upon a proposal to approve the performance-based
compensation provision of the employment agreement with the Company's
Chief Executive Officer;
(3) To consider and vote upon a proposal to approve the grant of two stock
options to the Company's Chief Executive Officer; and
(4) To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the meeting and any postponements or
adjournments thereof. A complete list of the stockholders entitled to vote at
the meeting will be available for examination by any stockholder at the
Company's executive offices, for any purpose germane to such meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting.
By Order of the Board of Directors,
RONALD H. GALOWICH
RONALD H. GALOWICH
Secretary
Downers Grove, Illinois
April 16, 1997
------------------
THE BOARD OF DIRECTORS EXTENDS A CORDIAL INVITATION TO ALL STOCKHOLDERS TO
ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN AS PROMPTLY AS POSSIBLE THE ENCLOSED PROXY IN
THE ACCOMPANYING REPLY ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE TO DO SO.
<PAGE> 4
HEALTHCARE COMPARE CORP.
3200 HIGHLAND AVENUE
DOWNERS GROVE, ILLINOIS 60515
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
------------------
INTRODUCTION
The Board of Directors of HealthCare COMPARE Corp., a Delaware corporation
(the "Company"), is soliciting the accompanying proxy for use at the Annual
Meeting of Stockholders of the Company to be held on the date, at the time and
place and for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders and at any postponements or adjournments thereof. The
Company's principal executive offices are located at 3200 Highland Avenue,
Downers Grove, Illinois 60515, and its telephone number is (630) 241-7900.
Stockholders of record at the close of business on March 31, 1997 are entitled
to notice of and to vote at the meeting. This Proxy Statement and the
accompanying proxy are first being mailed to stockholders on or about April 16,
1997.
THE MEETING
VOTING AT THE MEETING
On March 31, 1997, 32,949,559 shares of common stock, $.01 par value (the
"Common Stock"), were issued and outstanding and held by approximately 1,200
holders of record. Each holder of Common Stock issued and outstanding on March
31, 1997 is entitled to one vote for each share of Common Stock held on that
date on all matters submitted to a vote of stockholders at the meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock will constitute a quorum. The affirmative
vote of the holders of a plurality of the shares represented at the meeting, in
person or by proxy, will be necessary for the election of directors. The
affirmative vote of the holders of a majority of the shares voting thereon, in
person or by proxy, will be necessary for the approval of (i) the
performance-based compensation provision of the employment agreement that the
Company recently entered into with James C. Smith, its President and Chief
Executive Officer, and (ii) the related grant of two stock options (the
"Options") to Mr. Smith.
PROXIES AND PROXY SOLICITATION
All shares of Common Stock represented by properly executed proxies will be
voted at the meeting in accordance with the directions marked on the proxies,
unless such proxies previously have been revoked. If you return your proxy but
do not indicate how you want it voted, it will be voted FOR the election of each
nominee named below under "Election of Directors," FOR the approval of the
performance-based compensation provision of the employment agreement with the
Company's Chief Executive Officer and FOR the grant of the Options to the
Company's Chief Executive Officer. If any other matters are properly presented
at the meeting for action, which is not presently anticipated, the proxy holders
will vote the proxies (which confer discretionary authority upon such holders to
vote on such matters) in accordance with their best judgment. You may revoke
your proxy at any time before it is voted by submitting a timely written notice
of revocation or by submitting a properly executed proxy bearing a later date
(in either case directed to the Secretary of the Company) or, if you attend the
meeting, you may elect to revoke your proxy and vote your shares personally.
1
<PAGE> 5
Abstentions will be treated as shares that are present for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to a vote of the stockholders. If a broker
indicates on a proxy that he or she does not have discretionary authority to
vote on a particular matter as to certain shares, those shares will be counted
for quorum purposes but will not be considered as present and entitled to vote
with respect to that matter.
In addition to solicitation by mail, the Company has hired the firm of D.F.
King & Co. Inc. to assist in the solicitation of proxies at an estimated cost of
not more than $7,500. Certain directors, officers and other employees of the
Company, not specially employed for this purpose, may solicit proxies, without
additional remuneration therefor, by personal interview, mail, telephone or
other means of communication. The Company will ask brokers and other fiduciaries
to forward proxy soliciting material to the beneficial owners of shares of
Common Stock which are held of record by such brokers and fiduciaries and will
reimburse them for their reasonable out-of-pocket expenses.
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning each person
who is known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock as of March 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES APPROXIMATE
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ -----------------
<S> <C> <C>
FMR Corp(1)................................................ 2,207,000 6.7%
82 Devonshire Street
Boston, MA 02109
Lincoln Capital Management Company(2)...................... 2,111,400 6.4%
200 South Wacker Drive
Suite 2100
Chicago, Illinois 60606
CIBC Trust Company (Bahamas) Limited, as Trustee of
Settlement T-551(3)...................................... 2,000,000 6.1%
Post Office Box N-3933
Shirley Street
Nassau, Bahamas
</TABLE>
- ---------------
(1) Includes 2,154,700 shares beneficially owned by Fidelity Management &
Research Company and 52,300 shares beneficially owned by Fidelity
Management Trust Company. FMR Corp. has sole voting power with respect to
2,100 shares and sole dispositive power with respect to 2,207,000 shares.
(2) In the Schedule 13G it filed with the Securities and Exchange Commission,
Lincoln Capital Management Company disclaimed beneficial ownership of such
shares.
(3) The beneficiaries of the trusts are certain grandchildren of A.N. Pritzker,
deceased. The trustee has sole voting and investment power with respect to
such shares.
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by (i) each director and nominee, (ii) each
executive officer named in the Summary Compensation Table appearing elsewhere
herein, and (iii) all directors and executive officers as a group as of March
31, 1997.
2
<PAGE> 6
Unless otherwise indicated, each person has sole investment and voting power (or
shares such powers with his or her spouse) with respect to the shares set forth
in the following table.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES PERCENT OF CLASS
NAME BENEFICIALLY OWNED (IF MORE THAN 1%)
---- ------------------ -----------------
<S> <C> <C>
Robert J. Becker, M.D., F.A.C.P. .......................... 83,900(1) *
Michael J. Boskin, Ph.D. .................................. 22,000(2) *
Daniel S. Brunner.......................................... 120,084(3) *
Robert S. Colman........................................... 136,312(4) *
Ronald H. Galowich......................................... 94,000(5) *
Harold S. Handelsman....................................... 9,000(6) *
Burton W. Kanter........................................... 26,000(7) *
Don Logan.................................................. 9,000(8) *
Thomas J. Pritzker......................................... 675,200(9) 2.0%
David E. Simon............................................. 19,000(10) *
James C. Smith............................................. 656,836(11) 2.0%
Mary Anne Carpenter........................................ 37,379(12) *
Alton L. Dickerson......................................... 50,012(13) *
Patrick G. Dills........................................... 22,824(14) *
Joseph E. Whitters......................................... 47,444(15) *
Edward L. Wristen.......................................... 85,178(16) *
All Directors and Executive Officers as a Group (16
persons)................................................... 2,094,169(17) 6.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 4,000 shares subject to immediately exercisable options held by
Dr. Becker and 50,000 shares beneficially owned by Dr. Becker's wife.
(2) Consists of 22,000 shares subject to immediately exercisable options held
by Dr. Boskin.
(3) Includes 7,750 shares subject to immediately exercisable options held by
Mr. Brunner and 60,000 shares held by a trust of which Mr. Brunner is a
co-trustee.
(4) Consists of 20,000 shares subject to immediately exercisable options held
by Mr. Colman, 116,126 shares held by a trust of which Mr. Colman is the
trustee and 186 shares beneficially owned by Mr. Colman's wife.
(5) Includes 20,000 shares subject to immediately exercisable options held by
Mr. Galowich.
(6) Consists of 9,000 shares subject to immediately exercisable options held by
Mr. Handelsman.
(7) Consists of 26,000 shares subject to immediately exercisable options held
by Mr. Kanter. Does not include 190,000 shares owned by Walnut Capital
Corp., of which Mr. Kanter is the Chairman of the Board, or 10,000 shares
owned by Walnut Financial Services, Inc. of which Mr. Kanter is the
Chairman of the Board. Mr. Kanter disclaims beneficial ownership of all
shares owned by Walnut Capital Corp. and by Walnut Financial Services, Inc.
(8) Consists of 9,000 shares subject to immediately exercisable options held by
Mr. Logan.
(9) Includes 80,000 shares subject to immediately exercisable options held by
Mr. Pritzker.
(10) Consists of 19,000 shares subject to immediately exercisable options held
by Mr. Simon.
(11) Includes 225,000 shares subject to immediately exercisable options held by
Mr. Smith and 28,696 shares held by a foundation of which Mr. Smith is an
officer and director.
(12) Includes 16,125 shares subject to immediately exercisable options held by
Ms. Carpenter.
(13) Includes 48,043 shares subject to immediately exercisable options held by
Mr. Dickerson.
(14) Includes 10,000 shares subject to immediately exercisable options held by
Mr. Dills.
(15) Includes 29,124 shares subject to immediately exercisable options held by
Mr. Whitters.
(16) Includes 73,000 shares subject to immediately exercisable options held by
Mr. Wristen.
(17) Includes an aggregate of 618,042 shares subject to immediately exercisable
options.
3
<PAGE> 7
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who beneficially own more than 10% of the outstanding Common Stock to
file reports of initial ownership and changes in ownership of Common Stock with
the Securities and Exchange Commission (the "Commission"). Based solely on a
review of such reports furnished to the Company, the Company believes that
during 1996 all persons known by it to be subject to these requirements complied
with them on a timely basis, except for Messrs. Becker (reporting one
transaction), Brunner (reporting one transaction), Colman (reporting four
transactions), Dickerson (reporting one transaction) and Whitters (reporting
four transactions), each of whom filed one untimely report.
ELECTION OF DIRECTORS
At the meeting, eleven directors will be elected to the Board of Directors.
Each director elected at the meeting will hold office until the next Annual
Meeting of Stockholders of the Company or until his respective successor is duly
elected and qualified.
The Board of Directors has nominated and it is the intention of the persons
named in the enclosed proxy to vote for the election of the nominees named
below, each of whom has consented to serve as a director if elected. All of the
nominees have previously been elected at meetings of the Company's stockholders
except for Messrs. Handelsman and Logan, who were elected by the Board of
Directors on August 8, 1996.
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
The following information is furnished with respect to each nominee:
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION YEAR FIRST
AND OTHER DIRECTORSHIPS(1) AGE ELECTED
-------------------------- --- ----------
<S> <C> <C>
Robert J. Becker, M.D., F.A.C.P............................. 74 1982
Chairman Emeritus and private investor since May 1990;
founder of the Company and Chairman of the Board from its
inception to May 1990; prior thereto, engaged in the
practice of internal medicine (allergy and clinical
immunology) for 26 years.
Michael J. Boskin, Ph.D..................................... 51 1994
Professor of Economics, Stanford University since 1971;
Research Associate, National Bureau of Economic Research
since 1975; President and Chief Executive Officer of Boskin
& Company, an economic consulting firm, since 1980; Adjunct
Scholar, American Enterprise Institute since 1993; Chairman
of the Council of Economic Advisors from 1989 to 1993;
director of Oracle Systems, Inc., a developer of computer
software, Exxon Corporation, an integrated oil and gas
company and Airtouch Communications, Inc., a wireless
communications company.
Daniel S. Brunner........................................... 53 1988
Executive Vice President--Government Affairs of the Company
since January 1994; Chief Operating Officer--Policy and
Government Affairs of the Company from 1992 to January 1994.
Robert S. Colman............................................ 55 1992
Founder in 1996 of Colman Partners, a private merchant
banking firm; partner since 1991 of Colman Furlong & Co., a
private merchant banking firm; director of Cleveland-Cliffs,
Inc., a producer and processor of iron ore; and Van Wagoner
Funds, Inc., a no-load, open-end management investment
company.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION YEAR FIRST
AND OTHER DIRECTORSHIPS(1) AGE ELECTED
-------------------------- --- ----------
<S> <C> <C>
Ronald H. Galowich.......................................... 61 1982
Chairman of the Board of Madison Group Holdings, Inc., a
multipurpose business and investment company, since 1990;
Chairman, Madison Realty Group, Inc., a real estate
investment and development firm, since 1985; Chairman and
Chief Executive Officer of Madison Information Technologies,
Inc., a data integration, software solutions and technology
company serving the healthcare industry, since 1994;
Secretary of the Company since 1983; General Counsel of the
Company from 1983 to March 1997; Executive Vice President of
the Company from 1983 to May 1994.
Harold S. Handelsman........................................ 50 1996
Senior executive officer of Hyatt Corporation, a diversified
company primarily engaged in real estate and hotel
management activities, since 1978; and Senior Vice
President, General Counsel and Secretary since 1983;
director of a number of private corporations.
Burton W. Kanter............................................ 66 1984
Of counsel to the law firm of Neal, Gerber & Eisenberg since
1986; Chairman of the Board of Walnut Financial Services,
Inc., a venture capital and consulting firm, since February
1995; Chairman of the Board of Walnut Capital Corp., a
venture capital firm, since 1983; director of Logic Devices
Incorporated, a manufacturer of microchips; Scientific
Measurement Systems, Inc., a manufacturer and retailer of
industrial tomographic machines; Power Cell, Inc., a
developer of long life auxiliary batteries; and Channel
America LPTV Holdings, Inc., a network of television
stations.
Don Logan................................................... 53 1996
President and Chief Executive Officer of Time Inc. a wholly
owned subsidiary of Time Warner Inc., since 1994; President
and Chief Operating Officer of Time Inc. from June 1992 to
July 1994; Chairman and Chief Executive Officer of Southern
Progress Corp., a wholly owned subsidiary of Time Inc. prior
to June 1992.
Thomas J. Pritzker.......................................... 46 1990(2)
Chairman of the Board of the Company since May 1990;
President of Hyatt Corporation, a diversified company
primarily engaged in real estate and hotel management
activities, since March 1979.
David E. Simon.............................................. 35 1990
President, Chief Executive Officer and director of Simon
DeBartolo Group, Inc., a real estate investment trust which
is a shopping center owner, developer and manager, since
1993; Executive Vice President and Chief Financial Officer
of Melvin Simon & Associates, Inc., a privately-held firm
engaged in the development of shopping centers, since 1990;
Vice President of Wasserstein Perella & Co., Inc., an
investment banking firm, from 1988 to 1990.
James C. Smith.............................................. 56 1984
President and Chief Executive Officer of the Company since
January 1984.
</TABLE>
- ---------------
(1) Only directorships of issuers with a class of securities registered pursuant
to Section 12 of the Exchange Act, or subject to the requirements of Section
15(d) of the Exchange Act and directorships of issuers registered as
investment companies under the Investment Company Act of 1940, as amended,
are required to be listed in the above table.
(2) Mr. Pritzker previously served as a director of the Company from 1985 to
1986.
5
<PAGE> 9
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors has designated an Audit Committee, a Compensation
Committee and a Committee on Director Affairs. The current members of the Audit
Committee are Burton W. Kanter (Chairman), Michael J. Boskin, Ronald H. Galowich
and Robert J. Becker, M.D. The current members of the Compensation Committee are
Robert S. Colman (Chairman), David E. Simon and Don Logan. The current members
of the Committee on Director Affairs are Michael J. Boskin (Chairman), Robert S.
Colman and Thomas J. Pritzker.
The functions of the Audit Committee include reviewing the independence of
the Company's independent auditors, recommending to the Board of Directors the
engagement and discharge of independent auditors, reviewing with the independent
auditors the plan, scope and results of auditing engagements, reviewing the
accounting principles being applied and the effectiveness of internal controls,
assuring, in its oversight role, that management fulfills its responsibilities
in the preparation of the Company's financial statements, directing and
supervising special investigations at the Board of Directors' request and
reviewing and approving or disapproving specific transactions when requested to
do so by the Board of Directors.
The functions of the Compensation Committee include administering and
interpreting the Company's various stock option and stock purchase plans, and
making certain recommendations to the Board of Directors with respect to
executive compensation and the hiring of members of senior management whose
salaries exceed a level specified from time to time by the Board of Directors.
The functions of the Committee on Director Affairs include identifying
potential candidates to serve as directors of the Company, recommending such
candidates to the Board of Directors and providing an annual assessment to the
Board of its performance. The Committee on Director Affairs will consider
nominees recommended by stockholders. Any suggestions may be submitted in
writing to the attention of "Committee on Director Affairs of the Board of
Directors" at the Company's principal offices.
During 1996, the Board of Directors held six meetings, the Audit Committee
held one meeting, the Compensation Committee held three meetings and the
Committee on Director Affairs held two meetings. Each director attended at least
75% of the aggregate number of meetings held by the Board of Directors and the
committees on which he served during 1996, with the exception of Mr. Simon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than Mr. Galowich, who served as a member of the Compensation
Committee until December 31, 1996 and as the General Counsel of the Company
until March 1997 and who serves as the Secretary of the Company, none of the
members of the Committee, during 1996 or prior thereto, was an officer or
employee of the Company or any of its subsidiaries. Mr. Galowich did not
participate in any deliberations regarding his compensation.
The Company's retainer agreement with Mr. Galowich, pursuant to which he
served as General Counsel of the Company, expired on December 31, 1996. As
consideration for such services, Mr. Galowich received $3,750 per month and was
entitled to participate in all employee welfare benefit programs maintained by
the Company for its employees and executives. In addition, the Company has
agreed to provide to Mr. Galowich and his wife (if he subsequently remarries and
requests coverage for his wife), for the life of each of them, at the Company's
expense (subject to certain limitations), various health benefits.
CERTAIN OTHER TRANSACTIONS
Trusts for the benefit of certain members of the Pritzker family
beneficially own approximately 6.1% of the Common Stock. See "Common Stock
Ownership of Certain Beneficial Owners." In addition, other trusts for the
benefit of certain members of the Pritzker family control Hyatt Corporation
("Hyatt") and other trusts for the benefit of certain members of the Pritzker
family own, directly or indirectly, Marmon Holdings, Inc. ("Marmon"). As used
herein, "Pritzker family" refers to the lineal descendants of Nicholas J.
Pritzker, deceased. Thomas J. Pritzker, Chairman of the Board of the Company, is
the President of Hyatt. The Company provides utilization management services and
preferred provider organization ("PPO") services to
6
<PAGE> 10
a benefit plan maintained by Hyatt. In addition, the Company provides
utilization review and PPO services to certain subsidiaries of Marmon. Such
services are performed pursuant to standardized service contracts, the terms of
which are no less favorable to the Company than those obtainable from
unaffiliated parties. During 1996, the aggregate fees paid to the Company by
Hyatt and by subsidiaries of Marmon were approximately $209,000 and $122,000,
respectively.
A subsidiary of the Company is the holder of a limited partnership interest
in Trimont Partners 1995 L.P. (the "1995 Partnership"), the general partner of
which is Triton Container International Limited ("Triton") and one of the other
limited partners of which is Rosemont Leasing, Inc. ("Rosemont"). The 1995
Partnership holds a 50% partnership interest in the 1995 tranche of Trimont
Leasing Partners ("Trimont"). Trimont owns intermodal cargo containers which are
managed by Triton and leased to third parties. Trusts for the benefit of certain
members of the Pritzker family and their relatives beneficially own
approximately 78% of Triton, and trusts for the benefit of members of the
Pritzker family indirectly own all of the capital stock of Rosemont.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to all
compensation paid to the Company's Chief Executive Officer and to each of the
five other most highly paid executive officers as of December 31, 1996 during
each of the Company's last three fiscal years by the Company for services
rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ---------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)(2)
--------------------------- ---- ------------ -------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
James C. Smith.................. 1996 $684,000 $375,000 $ 9,600 -- $10,635
President and Chief 1995 667,660 350,000 9,600 -- 9,306
Executive Officer 1994 650,000 300,000 10,920 -- 9,306
Edward L. Wristen............... 1996 259,167 40,000 -- -- 7,913
Executive Vice President, 1995 240,000 50,000 -- -- 7,678
Risk Products 1994 201,250 27,500 -- 80,000 6,635
Patrick G. Dills................ 1996 234,167 51,700 -- -- 7,862
Executive Vice President, 1995 215,417 23,600 -- -- 7,627
Managed Care Sales 1994 200,000 -- -- 50,000 6,657
Mary Anne Carpenter............. 1996 240,417 40,000 -- -- 8,579
Executive Vice President, 1995 215,417 40,000 -- -- 8,240
Service Products 1994 199,180 16,667 -- 60,000 7,812
Joseph E. Whitters.............. 1996 234,167 50,000 -- -- 7,729
Vice President, Finance and 1995 212,083 50,000 -- -- 7,503
Chief Financial Officer 1994 188,333 31,667 -- 80,000 7,475
Alton L. Dickerson.............. 1996 218,750 40,000 -- -- 8,077
Senior Vice President, 1995 189,583 40,000 -- -- 7,771
Provider Networks and 1994 154,347 28,333 -- 50,000 6,806
OUCH Systems Administration
</TABLE>
- ---------------
(1) Pursuant to the rules promulgated by the Commission, does not include
discounts on shares of Common Stock purchased by each of the named executive
officers from the Company pursuant to the Company's Employee Stock Purchase
Plan, which discounts are available generally to all eligible employees.
(2) The amounts shown in this column for 1996 consist of payments made by the
Company on behalf of each of Messrs. or Mses. Smith, Wristen, Dills,
Carpenter, Whitters and Dickerson of $7,125, $7,125, $7,125,
7
<PAGE> 11
$7,125, $7,125 and $7,125, respectively, under the Company's Retirement
Savings Plan, together with insurance premiums paid by the Company in the
amounts of $3,510, $788, $737, $1,454, $604, and $952 for the benefit of
Messrs. or Mses. Smith, Wristen, Dills, Carpenter, Whitters and Dickerson,
respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted in fiscal 1996 to any of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning option exercises in
fiscal 1996 by each of the named executive officers and the value of such
officers' unexercised options at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FISCAL YEAR END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Smith.......... 231,250 $6,714,290 225,000 -- $4,384,375 $ --
Edward L. Wristen....... 20,000 685,617 66,000 55,000 875,650 943,725
Patrick G. Dills........ 10,000 274,500 10,000 30,000 185,750 557,250
Mary Anne Carpenter..... 2,625 59,422 16,125 36,000 273,947 668,700
Joseph E. Whitters...... 19,376 530,370 29,124 48,000 512,766 891,600
Alton L. Dickerson...... 13,000 305,188 41,043 37,000 545,427 609,375
</TABLE>
- ---------------
(1) The closing sale price of the Common Stock on December 31, 1996 was $42.375.
EMPLOYMENT AGREEMENTS
In January 1997, the Company entered into an employment agreement with
James C. Smith which expires on December 31, 1999 unless previously terminated
in accordance with its terms. Under this agreement, Mr. Smith serves as the
President and Chief Executive Officer of the Company and receives an annual base
salary of not less than $900,000 (adjusted yearly based on increases, if any, in
the Consumer Price Index) and, for each year in which the Company's earnings per
share increases by at least 10% from the prior year (the "Threshold Increase"),
additional performance-based compensation equal to the product of $36,000
multiplied by each percentage point (or fraction thereof) by which the Company's
earnings per share for such year exceeds the Threshold Increase. See "Approval
of Performance-Based Compensation Provision." Pursuant to the agreement, Mr.
Smith is entitled to participate in all employee benefit programs and other
policies and programs of the Company. The Company has also agreed to provide to
Mr. Smith and his wife, for the life of each of them, at the Company's expense
(subject to certain limitations) various health benefits. The agreement also
requires the Company (under certain circumstances) to pay Mr. Smith the balance
of the base salary amounts due under the agreement, including all accrued
benefits, upon the termination of his employment. In connection with his
employment agreement, Mr. Smith was granted options in 1997 to purchase 600,000
shares of Common Stock. See "Approval of Stock Option Grants."
DIRECTORS' COMPENSATION
The Company pays each director who is not an employee or officer of the
Company an annual fee of $25,000 for serving on the Board of Directors. In
addition, the Company pays each outside director $1,000 for each Board of
Directors meeting attended and $750 for each committee meeting attended which is
on a date other than a date on which there is a Board of Directors meeting.
8
<PAGE> 12
The Company maintains the Directors' Option Plan (the "Directors' Plan")
pursuant to which the Chairman of the Board and other members of the Board of
Directors who are not employees or officers of the Company are eligible to
receive options to purchase shares of Common Stock. The Committee is also
permitted under the Directors' Plan to make discretionary grants of options to
new members of the Board of Directors. Solely for purposes of the Directors'
Plan, Ronald H. Galowich, who served as General Counsel of the Company until
March 1997, has been deemed to be a director who is not also an employee or
officer of the Company. Under the Directors' Plan, on the date of the Board of
Directors meeting immediately following each Annual Meeting of Stockholders of
the Company, each eligible participant receives an option to purchase 4,000
shares of Common Stock. The Chairman of the Board of Directors receives an
option to purchase an additional 10,000 shares of Common Stock, and the Chairman
of each of the Audit Committee, Compensation Committee and Committee on Director
Affairs receives an option to purchase an additional 1,000 shares of Common
Stock. The exercise price of each such option is equal to the "fair market
value" of the Common Stock on the date of grant. In 1996, pursuant to the
Directors' Plan, Mr. Pritzker was granted an option to purchase 14,000 shares of
Common Stock, each of Messrs. Kanter and Colman and Dr. Boskin was granted an
option to purchase 5,000 shares of Common Stock and each of Messrs. Galowich and
Simon and Dr. Becker was granted an option to purchase 4,000 shares of Common
Stock. Each of such options was granted on May 21, 1996 and has an exercise
price of $47.125, the closing price of the Common Stock on the Nasdaq National
Market on such date. In addition, on September 17, 1996, each of Messrs.
Handelsman and Logan was granted an option to purchase 9,000 shares of Common
Stock at an exercise price of $41.625, the closing price of the Common Stock on
the Nasdaq National Market on such date.
Pursuant to an employment agreement which expired on May 2, 1993, the
Company agreed to provide to Dr. Becker, the Chairman Emeritus of the Board of
Directors, and his wife, for the life of each of them, at the Company's expense
(subject to certain limitations), various health benefits.
On March 26, 1996, the Company entered into a consulting agreement with Dr.
Boskin, a director of the Company, pursuant to which the Company agreed for each
year during which he serves as a director of the Company to pay Dr. Boskin a
consulting fee of $5,000 and to grant him an option under the Company's 1995
Stock Option Plan (the "Option Plan") to purchase 3,000 shares of Common Stock.
Pursuant to this agreement, on March 26, 1996, the Company granted to Dr. Boskin
an option to purchase 3,000 shares of Common Stock at an exercise price of
$48.50 per share, the closing price of the Common Stock on the Nasdaq National
Market on such date.
See "Election of Directors--Compensation Committee Interlocks and Insider
Participation" and "--Certain Other Transactions" for information regarding
certain transactions with other directors of the Company.
9
<PAGE> 13
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE EXCHANGE ACT, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING
THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE REPORT PRESENTED BELOW AND THE
PERFORMANCE GRAPH FOLLOWING SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is responsible for reviewing
and approving the two primary elements of the Company's executive compensation
program--cash compensation (comprised of base salary and bonuses) and stock
options. The Committee carries out its responsibilities with significant input
from the Chief Executive Officer and other members of senior management. Based
on such input and on an assessment of various subjective criteria including the
overall contributions made by an individual (both on a current and a long-term
basis) and the Company's performance, the Committee makes recommendations to the
Board of Directors with respect to executive cash compensation, the
establishment and maintenance of other compensation programs and the granting of
stock options. During 1996, the Board of Directors did not modify or otherwise
alter any of the Committee's recommendations. The Company's philosophy, which
the Committee and the Board of Directors seek to implement, is to design
compensation packages which will enable the Company to attract and retain
qualified employees and encourage such persons to maximize their efforts on
behalf of the Company.
The Company currently maintains the 1995 Stock Option Plan (the "Option
Plan"). The purpose of the Option Plan is to aid the Company in securing and
retaining employees and consultants and to motivate such employees and
consultants to exert their best efforts on behalf of the Company. Option grants
are intended to encourage performance that will result in appreciation of the
market value of the Common Stock. The Committee believes that the Company's
stock option plans have historically been very helpful in attracting and
retaining skilled employees at all levels. Stock options are generally awarded
once during the year to optionees selected by the Committee based on
recommendations from the Chief Executive Officer and other members of senior
management of the Company. In recommending or making option awards, the
Committee considers various factors, including senior management's subjective
assessment of the contributions made to the Company by the proposed optionee
during the preceding year, the potential future contributions to be made by such
person, such person's current salary level and the terms of previous option
grants. In addition, the Committee considers other performance measures which
may not directly bear on short term stock performance, including, where
appropriate, sales growth, market share and improvements in relations with
customers, providers and employees.
The Company also maintains the Executive Program, the purpose of which is
to attract and retain highly qualified members of senior management and to align
the interests of such persons with the interests of the Company's stockholders.
Pursuant to the Executive Program, which is administered under and as part of
the Option Plan, key members of senior management are eligible to receive
incrementally vesting stock options. The Chief Executive Officer nominates
participants and recommends grant awards. In addition to the factors outlined
above, these recommendations are based on predetermined guidelines which take
into account a potential grantee's salary and current management position. The
recommendations are then considered and voted upon by the Committee. Stock
options are to be granted under the Executive Program upon the recommendation of
the Committee at approximately a three year interval (grants to newly hired key
employees may be made earlier) and the options vest and become exercisable over
the five years following the date of grant. By making large, infrequent grants
of options and extending the vesting of such options over a five-year period,
the Company is able to provide senior management with a significant financial
stake in the future success of the Company while also creating a strong
disincentive for such persons to leave the Company's employ before the options
fully vest. In March 1997, options covering an aggregate of 805,000 shares of
Common Stock were granted to 28 members of senior management. Such options were
granted at an exercise price of $41.125, 100% of the closing sale price of the
Common Stock on the date of grant. These options vest at a rate of 20% per year
on each of the first five annual anniversaries of the date of
10
<PAGE> 14
grant and expire ten years from the grant date. Options were previously granted
to certain members of senior management in 1994.
The Chief Executive Officer is authorized to extend an offer of employment
to, and establish the salary of, an executive officer whose annual salary is
less than $350,000. In the case of an executive officer whose annual salary will
equal or exceed $350,000, the hiring of such individual and the amount of
compensation to be paid is subject to the approval of the Board of Directors.
The Company has never extended an offer of employment requiring such approval.
After an executive officer has joined the Company, depending on the relevant
circumstances, increases in his or her salary are either as provided for in his
or her employment agreement, approved by the Chief Executive Officer, or
approved by the Committee or the Board of Directors.
Under an employment agreement with James C. Smith, the Company's Chief
Executive Officer, which expired on December 31, 1996, the Committee was
obligated to review Mr. Smith's performance at the end of the fiscal year and
recommend to the Board of Directors the amount of bonus compensation, if any, to
which he was entitled. Based on its review of Mr. Smith's performance in 1996,
the Committee recommended the payment to Mr. Smith of bonus compensation in the
amount of $375,000, which recommendation was approved by the Board of Directors
in December 1996. In reviewing Mr. Smith's performance during 1996, the
Committee considered numerous factors including his contributions with respect
to (i) the record revenues, earnings and profit margins attained by the Company
in 1996, (ii) the successful solidification of the Company's relationships with
its distribution partners and the addition of several significant new clients,
(iii) the prospective growth of the Company through the development and sale of
risk products.
In January 1997, the Company entered into a new employment agreement with
James C. Smith which expires on December 31, 1999. Pursuant to this agreement
Mr. Smith will receive an annual base salary of not less than $900,000 plus an
additional performance-based compensation payment in the event the Company's
earnings per share increase by more than 10% from the prior year. See "Approval
of Performance-Based Compensation Provision." Mr. Smith also was granted options
to purchase an aggregate of 600,000 shares of Common Stock pursuant to the
employment agreement. See "Approval of Stock Option Grants." The terms of Mr.
Smith's employment agreement were approved by the Committee and ratified by the
Board of Directors. In its deliberations, the Committee considered, among other
factors, Mr. Smith's continuing importance to the Company's future growth and
his leadership in guiding the exploration of new markets (and expanding current
markets) in order to ensure that the Company retains its preeminent position in
the managed care industry.
As one of the factors in its review of compensation matters, the Committee
considers the anticipated tax treatment to the Company and to the executives of
various payments and benefits. The deductibility of some types of compensation
payments depends on various factors beyond the Committee's control. Therefore,
not all executive compensation will be deductible under Section 162(m) of the
Internal Revenue Code of 1986, as amended. The Committee will consider various
alternatives to preserving the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
THE COMPENSATION COMMITTEE
Robert S. Colman, Chairman
Don Logan
David E. Simon
11
<PAGE> 15
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock for the five fiscal years ended December 31, 1996 with
the cumulative total return on the Nasdaq Health Services Index and the Nasdaq
Total Return Index (US) over the same period (assuming the investment of $100 in
each of the Common Stock, the Nasdaq Health Services Index and the Nasdaq Total
Return Index (US) on December 31, 1991).
NOTE: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG THE COMPANY'S COMMON STOCK, NASDAQ HEALTH SERVICES INDEX
AND TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S.)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD COMPANY COMMON NASDAQ HEALTH TOTAL RETURN INDEX
(FISCAL YEAR COVERED) STOCK SERVICES INDEX FOR THE NASDAQ
STOCK MARKET
(U.S.)
<S> <C> <C> <C>
12/31/91 100 100 100
12/31/92 76 104 116
12/31/93 62 120 134
12/31/94 88 128 131
12/31/95 110 163 185
12/31/96 107 163 227
</TABLE>
APPROVAL OF PERFORMANCE-BASED COMPENSATION PROVISION
As described under "Executive Compensation -- Employment Agreements," the
Company has entered into a new employment agreement with James C. Smith, who has
served as its President and Chief Executive Officer since 1984, providing for
Mr. Smith's continued service through December 31, 1999. Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), eliminates the
deductibility of compensation over $1,000,000 paid to certain executive officers
in any year unless, among other things, the stockholders have approved such
compensation. In order to satisfy this criteria, the Board of Directors is
submitting the performance-based compensation provision of Mr. Smith's
employment agreement for approval by the Company's stockholders.
Commencing with fiscal 1997, a portion of Mr. Smith's compensation will be
tied to the growth of the Company's earnings per share ("EPS") above an annual
threshold growth rate of 10%. After payment of Mr. Smith's base salary, Mr.
Smith's compensation for each year will be determined by multiplying (a) $36,000
by (b) each percentage point (or fraction thereof) by which EPS for such year
exceeds the
12
<PAGE> 16
threshold EPS. The threshold EPS for fiscal 1997 will be $2.46, which is 10%
above the Company's EPS of $2.24, in fiscal 1996. For each subsequent fiscal
year, the threshold EPS will be 10% more than the prior year's threshold EPS.
The full text of the performance-based compensation provision is set forth
below:
"Additional Compensation" As soon as practicable after the end
of each fiscal year of the Company during the term of this
Agreement commencing with the year ending December 31, 1997 in
which the earnings per share of Common Stock of the Company for
such fiscal year (determined in accordance with generally
accepted accounting principles) ("EPS") increases by at least
10% from the EPS for the immediately preceding fiscal year (the
"Threshold Increase"), the Employee shall receive additional
compensation in an amount equal to the product obtained by
multiplying $36,000 by each percentage point (or fraction
thereof) by which EPS for such year exceeds the Threshold
Increase. By way of example, if EPS for 1997 increases by 8%
from EPS for 1996, no additional compensation will be payable to
the Employee; if EPS for 1997 increases by 21.5% from EPS for
1996, additional compensation in the amount of $414,000 i.e.,
($36,000 X 21.5% - 10%) will be payable to the Employee. For
purposes of this Agreement, EPS shall be adjusted in an
appropriate manner in the event of any stock split, stock
dividend or similar change in the Common Stock during the term
of this Agreement."
The Board believes that the performance-based compensation provision, as a
component of the entire compensation package contained in Mr. Smith's new
employment agreement, is in the best interests of the Company and its
stockholders. In approving and ratifying the new agreement, the Board and the
Compensation Committee took into account, among other things, Mr. Smith's
substantial contributions to the Company in the course of its growth since he
first became Chief Executive Officer and the desirability of obtaining Mr.
Smith's commitment to carry out future projects of the Company beyond the term
of his prior employment agreement.
If the performance-based compensation provision is not approved by the
Company's stockholders, then no compensation will be paid to Mr. Smith under
such provision. However, the Company will negotiate with Mr. Smith to reach a
mutually acceptable alternative to such provision which would also be subject to
stockholder approval at a later date.
The Board of Directors recommends that stockholders vote FOR the approval
of the performance-based compensation provision.
APPROVAL OF STOCK OPTION GRANTS
In connection with the execution of his new employment agreement, Mr. Smith
was granted an option to purchase 200,000 shares of Common Stock at an exercise
price of $42.375 per share (the "$42.375 Option"), an option to purchase 200,000
shares of Common Stock at an exercise price of $44.49 per share (the "$44.49
Option"), and an option to purchase 200,000 shares of Common Stock at an
exercise price of $46.61 per share (the "$46.61 Option" and collectively with
the $42.375 Option and the $44.49 Option, the "Options"). See "Executive
Compensation--Employment Agreements." The exercise price of the $42.375 Option,
the $44.49 Option and the $46.61 Option equal 100%, 105% and 110%, respectively,
of the closing price of the Common Stock on the Nasdaq National Market on
December 31, 1996, the last trading day prior to the date on which such options
were granted. Mr. Smith will not receive any benefit from exercising the Options
unless subsequent to the date on which each Option becomes exercisable the
market price of the Common Stock exceeds the exercise price of such Option. The
closing sale price of the Common Stock on April 14, 1997 was $38.375 per share.
The Company believes that the retention of the services of Mr. Smith as
President and Chief Executive Officer through 1999 will provide the Company with
the opportunity to arrange for a smooth transition to new senior management once
his term is complete and will enable the Company to maintain its preeminent
position in the managed care industry. The Company further believes that the
grant of the Options is an
13
<PAGE> 17
integral part of the new employment agreement for Mr. Smith, as well as for the
Company, as the Options are a strong incentive to maximize the Company's
potential. The fact that Mr. Smith was keenly interested in receiving the
Options underlines his confidence in the future of the business of the Company
and his belief in such potential.
The $42.375 Option is exercisable, in whole or in part, beginning on
December 31, 1997 and ending on March 31, 1998. The $44.49 Option is
exercisable, in whole or in part, beginning on December 31, 1998 and ending on
March 31, 1999. The $46.61 Option is exercisable, in whole or in part, beginning
on December 31, 1999 and ending on March 31, 2000. In the event the Company
enters into any agreement providing for (i) the sale of all or substantially all
of the assets of the Company or (ii) a merger, consolidation or reorganization
which would result in the stockholders of the Company immediately prior to such
transaction owning less than 50% of the surviving corporation, or if Mr. Smith's
employment is terminated by the Company without cause, the Options will become
exercisable in full without regard to any limitations on exercise. The number of
shares to be issued under and the exercise price of the Options are subject to
adjustment, in accordance with the terms of the Options, to reflect stock
dividends, stock splits and other similar transactions effected by the Company
prior to the exercise, expiration or termination of the Options.
Upon the exercise of an Option, Mr. Smith is required to make payment in
full to the Company of the exercise therefor, (i) in cash or (ii) with
previously acquired shares of Common Stock or (iii) a combination of cash and
shares of Common Stock having an aggregate fair market value equal to the
exercise price, in each case, at Mr. Smith's option, together with any required
tax withholding payments.
The Options are not transferable or assignable by Mr. Smith other than by
will or by the laws of descent and distribution and are exercisable during his
lifetime only by Mr. Smith, except that, if an Option has vested or is scheduled
to vest within 90 days following the death of Mr. Smith, Mr. Smith or his legal
representation may for 90 days following the death (but before termination of
the exercise period), exercise such Option.
Although the Options purport to be "incentive stock options" as defined in
Section 422 of the Code, due to limitations imposed by the Code the $42.375
Option will only be afforded such treatment with respect to 2,359 shares of
Common Stock. The balance of the $42.375 Option and the entire $44.49 Option and
$46.61 Option constitute nonstatutory options. No income was recognized by Mr.
Smith for federal income tax purposes on the date the Options were granted. Upon
exercise of a nonstatutory option, Mr. Smith will be required to recognize
ordinary income, and the Company will be entitled to a corresponding deduction
as compensation paid, in an amount equal to the difference between aggregate
exercise price paid by Mr. Smith and the then current market value of the shares
acquired. Section 162(m) of the Code does not limit the amount of the deduction
to which the Company will be entitled upon the exercise of the $42.375 Option.
Similarly, if the $44.49 Option and the $46.61 Option are approved by the
Company's stockholders, such Options also will be exempt from the limitations of
Section 162(m) of the Code. No income will be recognized for federal income tax
purposes by Mr. Smith, and no deduction will be available to the Company, when
the incentive stock options are exercised. The incentive stock options will be
taxed as nonstatutory options, however, if Mr. Smith sells the shares acquired
upon exercise of the incentive stock options within one year after exercise or
two years after the date of grant.
The $42.375 Option was granted pursuant to the Option Plan, and the shares
of Common Stock underlying such Option have been registered under the Securities
Act. Because (i) no optionee may be granted options to purchase more than ten
percent of the shares of Common Stock subject to the Option Plan and (ii) the
grant of the $44.49 Option and the $46.61 Option under the Option Plan would
have resulted in Mr. Smith receiving options in excess of such limitation, the
$44.49 Option and the $46.61 Option were granted outside the Option Plan. The
Company has agreed to effect the registration under the Securities Act of the
shares of Common Stock underlying the $44.49 Option and the $46.61 Option.
The Board of Directors is submitting the $44.49 Option and the $46.61
Option for approval by the Company's stockholders in order to satisfy the
provisions of Section 162(m) of the Code and the requirements of Nasdaq. Amounts
includable in income upon the exercise of an option are excluded from the
deduction limitations on compensation paid under Code Section 162(m) if, among
other things, the material terms of the option are disclosed to and approved by
the stockholders prior to exercise of the option. The only provision
14
<PAGE> 18
of Section 162(m) of the Code which the $44.49 Option and the $46.61 Option do
not currently satisfy is the stockholder approval requirement. Accordingly, the
Board of Directors is submitting the $44.49 Option and the $46.61 Option for the
requisite approval by the Company's stockholders. In addition, under the rules
of the National Association of Securities Dealers, Inc., stockholder approval is
required to be obtained with respect to the $44.49 Option and the $46.61 Option.
The Board of Directors recommends that stockholders vote FOR the approval
of the $44.49 Option and the $46.61 Option.
AUDITORS
The Company has engaged Deloitte & Touche LLP to audit the Company's
financial statements for fiscal 1997. Deloitte & Touche LLP audited the
Company's financial statements for fiscal 1996 and the decision to retain
Deloitte & Touche LLP was approved by the Audit Committee of the Board of
Directors and the Board of Directors of the Company.
A representative of Deloitte & Touche LLP is expected to attend the Annual
Meeting of Stockholders where he will have the opportunity to make a statement,
if he so desires, and will be available to respond to appropriate questions.
1998 ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of Stockholders is presently scheduled to be held
on May 19, 1998. Any proposals of stockholders intended to be personally
presented at such meeting must be received by the Secretary of the Company for
inclusion in the Company's Proxy Statement and form of proxy no later than
December 17, 1997.
15
<PAGE> 19
<TABLE>
<S><C>
HealthCare
COMPARE
IMPORTANT
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE.
DETACH PROXY CARD HERE
- ------------------------------------------------------------------------------------------------------------------------------------
(continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE PERFORMANCE-BASED COMPENSATION PROVISION OF THE EMPLOYMENT AGREEMENT
WITH THE COMPANY'S CHIEF EXECUTIVE OFFICER AND FOR THE APPROVAL OF THE GRANT OF TWO STOCK OPTIONS TO THE COMPANY'S CHIEF EXECUTIVE
OFFICER.
Signed:
----------------------------------
----------------------------------
Dated: , 1997
----------------------------------
(Please sign proxy as name appears thereon.
Joint owners should each sign personally.
Trustees and others signing in a
representative capacity should indicate the
capacity in which they sign.)
- ------------------------------------------------------------------------------------------------------------------------------------
(Please sign and date on reverse side)
HEALTHCARE COMPARE CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
JAMES C. SMITH, RONALD H. GALOWICH and JOSEPH E. WHITTERS and each of them, are hereby constitued and appointed the lawful
attorneys and proxies of the undersigned, with full power of substitution, to vote and act as proxy with respect to all shares of
common stock, $.01 par value, of HEALTHCARE COMPARE CORP. (the "Company") standing in the name of the undersigned on the books of
the Company at the close of business on March 31, 1997, at the Annual Meeting of Stockholders to be held at the offices of the
Company, 3200 Highland Avenue, Downers Grove, Illinois 60515, at 10:00 a.m., local time, on Tuesday, May 20, 1997, and at any
postponements or adjourments thereof, as follows.
(1) ELECTION OF DIRECTORS / / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below)
Robert J. Becker, M.D., Michael J. Boskin, Ph.D., Daniel S. Brunner, Robert S. Colman,
Ronald H. Galowich, Harold S. Handelsman, Burton W. Kanter, Don Logan, Thomas J. Pritzker, David E. Simon, James C. Smith
(2) APPROVAL OF THE PERFORMANCE-BASED COMPENSATION PROVISION OF THE EMPLOYMENT AGREEMENT WITH THE
COMPANY'S CHIEF EXECUTIVE OFFICER.
/ / FOR / / AGAINST / / ABSTAIN
(3) APPROVAL OF THE GRANT OF TWO STOCK OPTIONS TO THE COMPANY'S CHIEF EXECUTIVE OFFICER.
/ / FOR / / AGAINST / / ABSTAIN
(4) In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting and
any postponements or adjournments thereof.
The Board of Directors recommends a vote FOR proposals 1,2 and 3.
</TABLE>
