<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
FIRST HEALTH GROUP CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FIRST HEALTH GROUP CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 18, 1999
Notice is hereby given that the Annual Meeting of Stockholders of First
Health Group 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 18, 1999 at 10:00 a.m., local time, for the following purposes:
(1) To elect ten directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified; and
(2) To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 29, 1999 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 19, 1999
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> 3
FIRST HEALTH GROUP CORP.
3200 HIGHLAND AVENUE
DOWNERS GROVE, ILLINOIS 60515
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 18, 1999
INTRODUCTION
The Board of Directors of First Health Group 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 29, 1999 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 19,
1999.
All information contained in this Proxy Statement has been adjusted to give
effect to a 2-for-1 stock split in the form of a 100% stock distribution on June
23, 1998, to stockholders of record on June 2, 1998.
THE MEETING
VOTING AT THE MEETING
On March 29, 1999, 51,303,453 shares of common stock, $.01 par value (the
"Common Stock"), were issued and outstanding and held by approximately 950
holders of record. Each holder of Common Stock issued and outstanding on March
29, 1999 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.
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 no directions are indicated
on such proxies, they will be voted FOR the election of each nominee named below
under "Election of Directors". 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. Each proxy
executed and returned by a stockholder may be revoked at any time before it is
voted by timely submission of written notice of revocation or by submission of a
duly executed proxy bearing a later date (in either case directed to the
Secretary of the Company) or, if a stockholder is present at the meeting, he may
elect to revoke his proxy and vote his shares personally.
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.
1
<PAGE> 4
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 $5,000. 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 29, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES APPROXIMATE
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED CLASS
---------------- ---------------- -----------
<S> <C> <C>
Richard C. Blum & Associates, L.P........................... 4,601,400 9.0%
909 Montgomery Street
Suite 400
San Francisco, California 94133
Dodge & Cox, Inc............................................ 4,128,000 8.0%
One Sansome Street
35th Floor
San Francisco, California 94104
CIBC Trust Company (Bahamas) Limited, as Trustee of
Settlement T-551(1)....................................... 4,000,000 7.8%
Post Office Box N-3933
Shirley Street
Nassau, Bahamas
Wanger Asset Management, L.P................................ 3,248,000 6.3%
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Yachtman Asset Management................................... 2,985,600 5.8%
303 West Madison Street
Chicago, Illinois 60606
Capital Research and Management Company..................... 2,792,500 5.4%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- -------------------------
(1) The beneficiaries of the trusts are the grandchildren of A.N. Pritzker,
deceased, including Thomas J. Pritzker, the Chairman of the Board of the
Company. The trustee has sole voting and investment power with respect to
such shares.
2
<PAGE> 5
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
29, 1999. 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>
Michael J. Boskin, Ph.D..................................... 64,000(1) *
Daniel S. Brunner........................................... 245,698(2) *
Robert S. Colman............................................ 102,624(3) *
Ronald H. Galowich.......................................... 194,000(4) *
Harold S. Handelsman........................................ 34,000(5) *
Burton W. Kanter............................................ 72,000(6) *
Don Logan................................................... 34,000(7) *
Thomas J. Pritzker.......................................... 1,406,400(8) 2.7%
David E. Simon.............................................. 54,000(9) *
James C. Smith.............................................. 1,109,657(10) 2.1%
Mary Anne Carpenter......................................... 154,530(11) *
Patrick G. Dills............................................ 150,036(12) *
Joseph E. Whitters.......................................... 225,989(13) *
Edward L. Wristen........................................... 234,294(14) *
All Directors and Executive Officers as a Group (14
persons).................................................. 4,081,228(15) 7.77%
</TABLE>
- -------------------------
* Less than 1%.
(1) Consists of 64,000 shares subject to immediately exercisable options held
by Dr. Boskin.
(2) Includes 30,000 shares subject to immediately exercisable options held by
Mr. Brunner and 120,000 shares held by a trust of which Mr. Brunner is a
co-trustee.
(3) Consists of 60,000 shares subject to immediately exercisable options held
by Mr. Colman, 42,252 shares held by a trust of which Mr. Colman is the
trustee and 372 shares beneficially owned by Mr. Colman's wife.
(4) Includes 56,000 shares subject to immediately exercisable options held by
Mr. Galowich.
(5) Consists of 34,000 shares subject to immediately exercisable options held
by Mr. Handelsman.
(6) Consists of 72,000 shares subject to immediately exercisable options held
by Mr. Kanter. Does not include 380,000 shares owned by Walnut Capital
Corp., of which Mr. Kanter is the Chairman of the Board, or 20,000 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.
(7) Consists of 34,000 shares subject to immediately exercisable options held
by Mr. Logan.
(8) Includes 216,000 shares subject to immediately exercisable options held by
Mr. Pritzker.
(9) Consists of 54,000 shares subject to immediately exercisable options held
by Mr. Simon.
(10) Includes 112,792 shares held by a foundation of which Mr. Smith is an
officer and director.
(11) Includes 112,000 shares subject to immediately exercisable options held by
Ms. Carpenter.
(12) Includes 100,000 shares subject to immediately exercisable options held by
Mr. Dills.
(13) Includes 164,600 shares subject to immediately exercisable options held by
Mr. Whitters.
(14) Includes 176,000 shares subject to immediately exercisable options held by
Mr. Wristen.
(15) Includes an aggregate of 1,172,600 shares subject to immediately
exercisable options.
3
<PAGE> 6
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 1998 all persons known by it to be subject to these requirements complied
with them on a timely basis except for Messrs. Logan and Brunner, each of whom
filed one untimely report.
ELECTION OF DIRECTORS
At the meeting, ten 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.
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>
Michael J. Boskin, Ph.D..................................... 53 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........................................... 55 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............................................ 57 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.
Ronald H. Galowich.......................................... 63 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 and General Counsel 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.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION YEAR FIRST
AND OTHER DIRECTORSHIPS(1) AGE ELECTED
-------------------------- --- ----------
<S> <C> <C>
Harold S. Handelsman........................................ 52 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............................................ 68 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; and Scientific
Measurement Systems, Inc., a manufacturer and retailer of
industrial tomographic machines.
Don Logan................................................... 55 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.......................................... 48 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; Chairman of the Board of
Directors and President of The Pritzker Organization, LLC, a
private investment firm; director of Royal Caribbean Cruise
Lines, an operator of cruise ships.
David E. Simon.............................................. 37 1990
President, Chief Executive Officer and director of Simon
Property 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.............................................. 58 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.
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 Ronald H. Galowich (Chairman), Burton W. Kanter, Michael J. Boskin
and Harold S. Handelsman. The current members of the Compensation Committee are
Don Logan (Chairman), Robert S. Colman, David E. Simon and Ronald H. Galowich.
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,
5
<PAGE> 8
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 1998, the Board of Directors held 5 meetings, the Audit Committee
held 1 meeting, the Compensation Committee held 3 meetings and the Committee on
Director Affairs held 1 meeting. Each director attended at least 75% of the
meetings held by the Board of Directors and the committees on which he served
during 1998, with the exception of Mr. Simon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the committee, during 1998, was an officer or
employee of the Company or any of its subsidiaries.
CERTAIN OTHER TRANSACTIONS
Trusts for the benefit of certain members of the Pritzker family
beneficially own approximately 7.8% 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 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 1998, the
aggregate fees paid to the Company by Hyatt and by subsidiaries of Marmon were
approximately $166,000 and $204,000, respectively.
David E. Simon, a director of the Company, is the Chief Executive Officer
and a director of Simon Property Group, Inc. ("Simon Property"). The Company
provides managed care services (risk products) to Simon Property. Such services
are performed pursuant to a standardized service contract, the terms of which
are no less favorable to the Company than those obtainable from unaffiliated
parties. During 1998, the aggregate fees paid to the Company by Simon Property
were approximately $972,000.
A subsidiary of the Company has invested funds in Triton Container
Investments, LLC ("TCI"), the manager of which is Triton Container International
Limited ("Triton"). One of the other investors in TCI is Rosemont Leasing, Inc.
("Rosemont"). Trimont owns intermodal cargo containers which are managed by
Triton and leased to third parties. Trusts for the benefit of certain members of
the Pritzker family and their relatives beneficially own approximately 90% of
Triton, and trusts for the benefit of members of the Pritzker family indirectly
own all of the capital stock of Rosemont. The Company has been advised that its
investments in TCI have been made on the same basis as Rosemont and other
investors unrelated to the Company and Rosemont.
Burton W. Kanter, a director of the Company, is of counsel to the law firm
of Neal, Gerber & Eisenberg which provides certain legal services to the
Company.
6
<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to all
compensation paid to the Company's Chief Executive Officer and to each of the
four other most highly paid executive officers as of December 31, 1998 during
each of the Company's last three fiscal years by the Company for services
rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING ALL OTHER
NAME AND SALARY BONUS OTHER ANNUAL OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) COMPENSATION($) SARS(#) ($)(3)
------------------ ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James C. Smith............. 1998 $920,700 $250,000 $9,600 -- $10,650
President and Chief 1997 900,000 0 9,600 1,200,000 10,635
Executive Officer 1996 684,000 375,000 9,600 -- 10,635
Edward L. Wristen.......... 1998 325,000 50,000 -- -- 8,457
Executive Vice President 1997 294,583 125,000 -- 200,000 8,326
and Chief Operating Officer 1996 259,167 40,000 -- -- 7,913
Patrick G. Dills........... 1998 263,750 150,000 -- -- 8,248
Executive Vice President, 1997 248,750 101,196 -- 160,000 7,893
Sales 1996 234,167 51,700 -- -- 7,862
Mary Anne Carpenter........ 1998 323,750 50,000 -- -- 9,084
Executive Vice President, 1997 280,000 100,000 -- 160,000 8,791
Service Products 1996 240,417 40,000 -- -- 8,579
Joseph E. Whitters......... 1998 282,917 50,000 -- -- 7,979
Vice President, Finance and 1997 257,917 100,000 -- 160,000 7,762
Chief Financial Officer 1996 234,167 50,000 -- -- 7,729
</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) Includes bonuses earned in 1998 and paid in early 1999.
(3) The amounts shown in this column for 1998 consist of payments made by the
Company on behalf of each of Messrs. or Ms. Smith, Wristen, Dills, Carpenter
and Whitters of $7,500, $7,500, $7,500, $7,500 and $7,500, respectively,
under the Company's Retirement Savings Plan, together with insurance
premiums paid by the Company in the amounts of $3,150, $957, $784, $1,584
and $479 for the benefit of Messrs. or Ms. Smith, Wristen, Dills, Carpenter
and Whitters, respectively.
7
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted in fiscal 1998
to each of the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS FOR OPTION TERM PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------------ ------------ ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
James C. Smith............ -- -- -- -- -- --
Edward L. Wristen......... -- -- -- -- -- --
Patrick G. Dills.......... -- -- -- -- -- --
Mary Anne Carpenter....... -- -- -- -- -- --
Joseph E. Whitters........ -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning option exercises in
fiscal 1998 by each of the named executive officers and the value of such
officers' unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Smith......... 850,000 $9,825,878 400,000 400,000 $ -- $ --
Edward L. Wristen...... 60,000 943,500 136,000 192,000 214,475 149,200
Patrick G. Dills....... 24,000 323,400 68,000 148,000 167,850 93,250
Mary Anne Carpenter.... -- -- 80,000 152,000 223,800 111,900
Joseph E. Whitters..... 21,648 313,822 132,600 160,000 440,023 149,200
</TABLE>
- -------------------------
(1) The closing sale price of the Common Stock on December 31, 1998 as reported
by the NASDAQ National Market System was $16.5625.
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, such amount not
to exceed $750,000 in any year. 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 July 1997, the Company entered into an employment with Edward L. Wristen
which expires on June 30, 2000 and is subject to automatic renewal for
consecutive one year terms unless terminated by either party. Pursuant to this
agreement, Mr. Wristen receives an annual base salary of $275,000, subject to
annual
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increases that are approved by the Company. Currently, Mr. Wristen's annual base
salary is fixed at $325,000. In addition, Mr. Wristen is entitled to participate
in all employee benefit programs and other policies and programs of the Company.
In April 1997, the Company entered into an employment with Patrick G. Dills
which expires on April 28, 2000 and is subject to automatic renewal for
consecutive one year terms unless terminated by either party. Pursuant to this
agreement, Mr. Dills receives an annual base salary of $250,000, subject to
annual increases that are approved by the Company. Currently, Mr. Dills' annual
base salary is fixed at $265,000. In addition, Mr. Dills is entitled to
participate in all employee benefit programs and other policies and programs of
the Company.
In July 1997, the Company entered into an employment with Mary Anne
Carpenter which expires on June 30, 2000 and is subject to automatic renewal for
consecutive one year terms unless terminated by either party. Pursuant to this
agreement, Ms. Carpenter receives an annual base salary of $260,000, subject to
annual increases that are approved by the Company. Currently, Ms. Carpenter's
annual base salary is fixed at $325,000. In addition, Ms. Carpenter is entitled
to participate in all employee benefit programs and other policies and programs
of the Company.
In July 1997, the Company entered into an employment with Joseph E.
Whitters which expires on June 30, 2000 and is subject to automatic renewal for
consecutive one year terms unless terminated by either party. Pursuant to this
agreement, Mr. Whitters receives an annual base salary of $260,000, subject to
annual increases that are approved by the Company. Currently, Mr. Whitters'
annual base salary is fixed at $285,000. In addition, Mr. Whitters is entitled
to participate in all employee benefit programs and other policies and programs
of the Company.
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.
The Company maintains the Directors' Stock 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 8,000
shares of Common Stock. The Chairman of the Board of Directors receives an
option to purchase an additional 20,000 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 2,000 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. All such options granted under
the Directors' Plan have been immediately exercisable. In 1998, pursuant to the
Directors' Plan, Mr. Pritzker was granted an option to purchase 28,000 shares of
Common Stock, each of Messrs. Kanter and Colman and Dr. Boskin was granted an
option to purchase 10,000 shares of Common Stock and each of Messrs. Galowich,
Simon, Handelsman and Logan was granted an option to purchase 8,000 shares of
Common Stock. Each of such options was granted on May 19, 1998 and has an
exercise price of $29.56, the closing price of the Common Stock on the Nasdaq
National Market on such date.
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 in consideration of his past services as General Counsel to the
Company.
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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 6,000 shares of Common Stock.
Pursuant to this agreement, on May 19, 1998, the Company granted to Dr. Boskin
an option to purchase 6,000 shares of Common Stock at an exercise price of
$29.56 per share, the closing price of the Common Stock on the Nasdaq National
Market on such date.
See "Election of Directors -- Certain Other Transactions" for information
regarding certain transactions with other directors of the Company.
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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 1998, 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 1998 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 two to three year interval (grants to newly
hired key employees may be made earlier) and the options vest and generally
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 1994, options covering an aggregate of
1,140,000 shares of Common Stock were granted to 14 members of senior
management. In 1997, options covering an aggregate of 1,610,000 shares of Common
Stock were granted to 28 members of senior management. In March 1999, options
covering an aggregate of 2,000,000 shares of Common Stock were granted to 46
members of senior management. The 1994 and 1997 options vest at a rate of 20%
per year on each of the first
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five annual anniversaries of the date of grant and expire ten years from the
grant date. The 1999 options do not begin to vest until the fourth anniversary
of the date of grant, at which time the options will vest with respect to 60% of
the shares subject thereto. These options will continue to vest at the rate of
20% per year on each of the fifth and sixth anniversaries of the date of grant.
The 1999 options expire seven years from the grant date.
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.
In January 1997, the Company entered into an employment agreement with
James C. Smith which expires on December 31, 1999. Pursuant to this agreement
Mr. Smith is paid 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, not to exceed
$750,000 in any year. Mr. Smith also was granted options to purchase an
aggregate of 1,200,000 shares of Common Stock pursuant to the employment
agreement. The terms of Mr. Smith's employment agreement were approved by the
Committee and ratified by the Board of Directors. In addition, the
performance-based element of Mr. Smith's compensation and the grant of such
options to Mr. Smith was approved by the stockholders of the Company at the 1997
Annual Meeting of Stockholders. 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 may 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
Don Logan, Chairman
Robert S. Colman
David E. Simon
Ronald H. Galowich
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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, 1998 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, 1993).
NOTE: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY'S COMMON STOCK, NASDAQ HEALTH SERVICES INDEX
AND NASDAQ TOTAL RETURN INDEX (US)
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
TOTAL RETURN
INDEX FOR THE
NASDAQ NASDAQ
COMPANY HEALTH STOCK
MEASUREMENT PERIOD COMMON SERVICES MARKET
(FISCAL YEAR COVERED) STOCK INDEX (U.S.)
<S> <C> <C> <C>
12/31/93 100 100 100
12/31/94 139 107 98
12/31/95 177 136 138
12/31/96 172 136 170
12/31/97 208 138 209
12/31/98 135 119 293
</TABLE>
AUDITORS
The Company has engaged Deloitte & Touche LLP to audit the Company's
financial statements for fiscal 1999. Deloitte & Touche LLP audited the
Company's financial statements for fiscal 1998 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.
STOCKHOLDER PROPOSALS
FOR THE 2000 ANNUAL MEETING
The Company's Bylaws provide that in order for a stockholder to nominate a
candidate for election as a director at an annual meeting of stockholders or
propose business for consideration at such meeting, notice must generally be
given in writing to the Secretary of the Company at the principal executive
office of the Company not later than the close of business on the 90th day nor
earlier than the close of business on the
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120th day prior to the first anniversary of the preceding year's annual meeting.
Accordingly, a stockholder nomination or proposal intended to be considered at
the 2000 annual meeting must be received by the Secretary of the Company after
the close of business on January 19, 2000 and on or prior to the close of
business on February 18, 2000. Proposals should be mailed to the Company's
Secretary, 3200 Highland Avenue, Downers Grove, Illinois 60515. A copy of the
Bylaws may be obtained from the Company's Secretary, by written request to the
same address.
In addition, if you wish to have your proposal considered for inclusion in
the Company's 2000 Proxy Statement, the Company must receive it on or before
December 26, 1999.
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[LOGO OF FIRST HEALTH] FIRST HEALTH(R)
IMPORTANT
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE.
<TABLE>
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<S> <C> <C>
DETACH PROXY CARD HERE
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(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. |
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Signed: |
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Dated: , 1999 |
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(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.) |
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</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
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(PLEASE SIGN AND DATE ON REVERSE SIDE) |
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FIRST HEALTH GROUP CORP. |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS |
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JAMES C. SMITH, RONALD H. GALOWICH and JOSEPH E. WHITTERS and each of them, are |
hereby constituted 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 FIRST HEALTH GROUP |
CORP. (the "Company") standing in the name of the undersigned on the books of |
the Company at the close of business on March 29, 1999, 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 18, |
1999, and at any postponements or adjournments thereof, as follows. |
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<S> <C> <C> |
(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 |
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(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's |
name in the list below) |
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 |
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(2) 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. |
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The Board of Directors recommends a vote FOR proposal 1. |
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</TABLE>
