<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HEALTHCARE RECOVERIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(HEALTHCARE RECOVERIES LETERHEAD)
April 3, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Healthcare Recoveries, Inc. to be held on May 4, 1998 at 1400 Watterson Tower,
Louisville, Kentucky 40218. The meeting will begin promptly at 10:00 a.m., local
time.
The items of business are listed in the following Notice of Annual Meeting
and are more fully addressed in the Proxy Statement provided herewith.
Please date, sign and return your proxy card in the enclosed envelope at
your convenience to assure that your shares will be represented and voted at the
Annual Meeting even if you cannot attend. If you attend the Annual Meeting, you
may vote your shares in person even though you have previously signed and
returned your proxy.
On behalf of your Board of Directors, thank you for your continued support
and interest in Healthcare Recoveries, Inc.
Sincerely,
/s/ PATRICK B. MCGINNIS
Patrick B. McGinnis
Chairman of the Board and
Chief Executive Officer
(HEALTHCARE RECOVERIES ADDRESS)
<PAGE> 3
(HRI LOGO)
HEALTHCARE RECOVERIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 1998
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Healthcare Recoveries, Inc. (the "Company") will be held at 1400
Watterson Tower, Louisville, Kentucky 40218, on Monday, May 4, 1998, at 10:00
a.m., local time, for the following purposes:
(i) To elect two (2) Class A directors to three-year terms expiring at
the 2001 annual meeting of stockholders;
(ii) To ratify the appointment of Coopers & Lybrand L.L.P. as
independent accountants of the Company to serve for 1998; and
(iii) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 18, 1998 as
the record date for determination of stockholders entitled to receive notice of,
and to vote at, the meeting and any adjournment thereof. A list of stockholders
as of the close of business on March 18, 1998 will be available at the Company's
offices for examination during normal business hours by any stockholder during
the period from April 20, 1998 through the Annual Meeting.
Your attention is directed to the Proxy Statement provided with this
Notice.
By Order of the Board of Directors,
/s/ Douglas R. Sharps
Douglas R. Sharps
Executive Vice President --
Finance and Administration,
Chief Financial Officer and Secretary
Louisville, Kentucky
April 3, 1998
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 4
HEALTHCARE RECOVERIES, INC.
1400 WATTERSON TOWER
LOUISVILLE, KENTUCKY 40218
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 1998
APRIL 3, 1998
The enclosed form of proxy is solicited by the Board of Directors of
Healthcare Recoveries, Inc. (the "Company") for use at the annual meeting of
stockholders to be held on May 4, 1998 (the "Annual Meeting"), and any
adjournment thereof. When such proxy is properly executed and returned, the
shares it represents will be voted as directed at the meeting and any
adjournment thereof or, if no direction is indicated, such shares will be voted
in favor of the proposals set forth in the notice attached hereto. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted. Revocation of a proxy is effective upon receipt by the Secretary of the
Company of either (i) an instrument revoking such proxy or (ii) a duly executed
proxy bearing a later date. Furthermore, if a stockholder attends the meeting
and elects to vote in person, any previously executed proxy is thereby revoked.
Only stockholders of record as of the close of business on March 18, 1998
will be entitled to vote at the Annual Meeting. As of that date, the Company had
outstanding 11,470,000 shares of common stock, $.001 par value (the "Common
Stock"). Each share of Common Stock is entitled to one vote. No cumulative
voting rights are authorized and appraisal rights for dissenting stockholders
are not applicable to the matters being proposed. It is anticipated that this
Proxy Statement and the accompanying proxy will first be mailed to stockholders
of record on or about April 3, 1998.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of election appointed for the meeting who will also determine
whether a quorum is present for the transaction of business. The presence in
person or by proxy of holders of a majority of the shares of Common Stock
outstanding on the record date will constitute a quorum for the transaction of
business at the Annual Meeting or any adjournment thereof. Abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. Shares held by nominees for beneficial
owners will be counted for purposes of determining whether a quorum is present
if the nominee has the discretion to vote on at least one of the matters
presented even if the nominee may not exercise discretionary voting power with
respect to other matters and voting instructions have not been received from the
beneficial owner (a "broker non-vote").
The affirmative vote of a plurality of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors is required to elect the directors. The affirmative vote of a majority
of the shares present in person or by proxy and entitled to vote is required
with respect to the ratification of the appointment of Coopers & Lybrand L.L.P.
as the Company's independent accountants. With respect to any other matter that
may properly come before the meeting for stockholder consideration, abstentions
will be counted in determining the minimum number of affirmative votes required
for approval of any matter presented for stockholder consideration and
accordingly, will have the effect of a vote against any such matter. Broker
non-votes will not be counted as votes for or against matters presented for
stockholder consideration.
ELECTION OF DIRECTORS
The Company's Board of Directors (the "Board") is divided into three
classes designated as Class A, Class B and Class C, serving staggered,
three-year terms. Of the current six directors, two will continue to serve for
terms expiring in 1999 and two will continue to serve for terms expiring in 2000
(the "Continuing Directors"). Management of the Company and the Board recommend
the election of John H. Newman and Chris B. Van Arsdel for the office of Class A
director to hold office for a three-year term and until their successors are
duly elected and qualified.
<PAGE> 5
The Board has no reason to believe that either of the nominees for the
office of director will be unavailable for election as a director. However, if
at the time of the Annual Meeting either of the nominees should be unable or
decline to serve, the persons named in the proxy will vote for such substitute
nominees, vote to allow the vacancy created thereby to remain open until filled
by the Board, or vote to reduce the number of directors for the ensuing year, as
the Board recommends. In no event, however, can the proxy be voted to elect more
than two directors. The election of the nominees to the Board requires the
affirmative vote of a plurality of the shares held by stockholders present at
the Annual Meeting in person or by proxy.
MANAGEMENT OF THE COMPANY
DIRECTORS
Set forth below are the Continuing Directors and the nominees for election
to the Board. Also set forth below as to each Continuing Director and nominee is
his or her age, the year in which he or she was first elected a director, a
brief description of his or her principal occupation and business experience
during the past five years, directorships of certain companies presently held by
him or her, and certain other information, which information has been furnished
by the respective individuals.
NOMINEES
CLASS A DIRECTORS -- TERM EXPIRING 2001
MR. JOHN H. NEWMAN
Age 53
Director Since 1997
Mr. Newman, based in New York City, has been a partner in the international
law firm of Brown & Wood LPP since 1980.
MR. CHRIS B. VAN ARSDEL
Age 54
Director Since 1997
Mr. Van Arsdel currently serves as Divisional Vice President of Technical
Infrastructure at EDS Corporation ("EDS"). From November 1970 to the present Mr.
Van Arsdel has held various positions at EDS, including Divisional Vice
President of the Resellers Division, Director of Corporate Quality and Director
of Operations.
CONTINUING DIRECTORS
CLASS B DIRECTORS -- TERM EXPIRING 1999
MR. WILLIAM C. BALLARD, JR.
Age 57
Director Since 1997
Mr. Ballard is of counsel to the law firm, Greenebaum, Doll & McDonald in
Louisville, Kentucky. He retired in 1992 after 22 years as the Chief Financial
Officer and a director of Humana Inc. Mr. Ballard serves on the boards of
directors of American Safety Razor Co., Atria Communities, Inc. (a national
provider of assisted and independent living communities for the elderly), Health
Care REIT, Inc., LG&E Energy Corp., Mid-America Bancorp, and United HealthCare
Corporation.
MS. ELAINE J. ROBINSON
Age 49
Director Since 1997
Ms. Robinson served as Vice President and Treasurer of Providian
Corporation from December 1991 until October 1997. Providian Corporation was
acquired by AEGON N.V. in June 1997.
2
<PAGE> 6
CLASS C DIRECTORS -- TERM EXPIRING 2000
MS. JILL L. FORCE
Age 45
Director Since 1997
Ms. Force serves as Senior Vice President, General Counsel and Corporate
Secretary of Vencor, Inc. Ms. Force has been General Counsel of Vencor, Inc.
since 1989.
MR. PATRICK B. MCGINNIS
Age 50
Director Since 1997
In 1988, Mr. McGinnis left Humana Inc., where he served as Vice
President -- Finance & Planning, to co-found the Company. He served as the
Company's Chief Executive Officer until August 1996, when he left the Company to
become President of the Medaphis Healthcare Information Technology Company,
which provides a variety of sophisticated software solutions to healthcare
enterprises throughout the United States. He rejoined the Company in January
1997 as its Chairman and Chief Executive Officer. Mr. McGinnis serves on the
board of directors of Carefinders Health Corp.
OPERATION OF THE BOARD OF DIRECTORS
The Company has an Audit Committee of the Board which is composed of John
H. Newman, Chairman, Jill L. Force, and Chris B. Van Arsdel. The Audit Committee
is responsible for, among other things, recommending to the Board of Directors
the accounting firm that will serve as independent auditors for the Company and
reviewing the Company's internal accounting controls. The Audit Committee may
exercise such additional authority as may be prescribed from time to time by
resolution of the Board.
The Company has a Compensation Committee of the Board which is composed of
William C. Ballard, Jr., Chairman, Jill L. Force, and Elaine J. Robinson. The
Compensation Committee shall, among other things, approve base salaries of
executive officers, approve the terms of annual incentive or bonus plans in
which executive officers participate and review and make recommendations to the
Board concerning approval and adoption of and amendments to stock-based
compensation plans. The Compensation Committee may exercise such additional
authority as may be prescribed from time to time by resolution of the Board.
The Company does not have a nominating committee.
During 1997, the Board met four times, the Audit Committee met two times
and the Compensation Committee met three times. All of the directors attended
75% or more of the aggregate number of meetings of the Board and all committees
on which they served during 1997.
DIRECTORS' COMPENSATION
The Company pays its non-employee directors $1,500 for attendance (in
person or by telephone) at each regular meeting of the Board. In addition, the
Company provides for the grant of options to purchase Common Stock to each
non-employee director of the Company under the Company's Directors' Stock Option
Plan (the "Directors' Plan"). In 1997, each non-employee director was awarded
options to purchase 10,000 shares of Common Stock at an exercise price equal to
the initial public offering price per share upon consummation of the Company's
initial public offering in May 1997. The Directors' Plan provides that beginning
on the date of the Annual Meeting and on the date of each subsequent annual
meeting for so long as shares are available under the Directors' Plan, each
eligible director will receive options to purchase 2,000 shares of Common Stock.
One-third of the shares of Common Stock covered by an option grant will vest on
the March 1st next following the date of grant and on each succeeding February
1st until fully vested. Subject to readjustment in accordance with the
provisions of the Directors' Plan, the total amount of Common Stock for which
options may be granted to directors under the Directors' Plan shall not exceed
in the aggregate 150,000 shares. As of December 31, 1997, options to purchase
50,000 shares had been granted under the Directors' Plan. The Directors' Plan,
with respect to the granting of options, shall terminate at midnight on March
31, 2002.
3
<PAGE> 7
MANAGEMENT COMMON STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of March 18, 1998 by (i) each of the
Company's directors, (ii) the Company's named executive officers (as hereinafter
defined) and (iii) such directors and all executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
NAME OWNED(1) PERCENT OF CLASS(2)
- ---- ------------ -------------------
<S> <C> <C>
Patrick B. McGinnis......................................... 176,667(3) 1.5
Dennis K. Burge............................................. 48,750(4) *
Debra M. Murphy............................................. 37,367(5) *
Douglas R. Sharps........................................... 46,250(6) *
Bobby T. Tokuuke............................................ 38,667(7) *
Kathleen K. Harreld......................................... 36,000 *
William C. Ballard, Jr...................................... 13,334(8) *
Jill L. Force............................................... 5,834(9) *
John H. Newman.............................................. 4,334(10) *
Elaine J. Robinson.......................................... 3,834(11) *
Chris B. Van Arsdel......................................... 3,834(12) *
All executive officers and directors as a group (11
persons).................................................. 414,871 3.6
</TABLE>
- ---------------
* Beneficial ownership represents less than 1% of the Company's outstanding
common stock.
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or
shares "voting power", which includes the power to vote or to direct the
voting of such security, or "investment power", which includes the power to
dispose of or to direct the disposition of such security. A person also is
deemed to be a beneficial owner of any securities which that person has the
right to acquire within sixty (60) days. Under these rules, more than one
person may be deemed to be a beneficial owner of the same securities and a
person may be deemed to be a beneficial owner of securities as of which he
has no economic or pecuniary interest. Except as set forth in the footnotes
below, the persons named below have sole voting and investment power with
respect to all shares of Common Stock shown as being beneficially owned by
them.
(2) Based on an aggregate of 11,470,000 shares of Common Stock issued and
outstanding as of December 31, 1997.
(3) Includes 5,000 shares held by Mr. McGinnis' spouse. Also includes 66,667
shares that are not currently outstanding, but that may be acquired within
sixty (60) days upon the exercise of stock options granted under the
Healthcare Recoveries, Inc. Non-Qualified Stock Option Plan for Eligible
Employees (the "Stock Option Plan").
(4) Includes 26,250 shares that are not currently outstanding, but that may be
acquired within sixty (60) days upon the exercise of stock options granted
under the Stock Option Plan.
(5) Includes 700 shares which are held by Ms. Murphy as trustee for a minor
child. Also includes 21,667 shares that are not currently outstanding, but
that may be acquired within sixty (60) days upon the exercise of stock
options granted under the Stock Option Plan.
(6) Includes 26,250 shares that are not currently outstanding, but that may be
acquired within sixty (60) days upon the exercise of stock options granted
under the Stock Option Plan.
(7) Includes 21,667 shares that are not currently outstanding, but that may be
acquired within sixty (60) days upon the exercise of stock options granted
under the Stock Option Plan.
(8) Represents 2,500 shares held by Mr. Ballard in a charitable remainder trust
for the benefit of his son, 2,500 shares held by Mr. Ballard in a
charitable remainder trust for the benefit of his daughter and 5,000 shares
held by Mr. Ballard in a charitable remainder trust for the benefit of his
spouse. Mr. Ballard has sole voting power over the shares. Also, includes
3,334 shares that are not currently outstanding, but that may be acquired
upon the exercise of stock options under the Directors' Plan.
4
<PAGE> 8
(9) Includes 3,334 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options under the Directors' Plan.
(10) Represents 1,000 shares owned by Mr. Newman's spouse. Also includes 3,334
shares that are not currently outstanding, but that may be acquired upon
the exercise of stock options under the Directors' Plan.
(11) Includes 3,334 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options under the Directors' Plan.
(12) Includes 3,334 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options under the Directors' Plan.
EMPLOYMENT AGREEMENTS
In May 1997, the Company entered into an employment agreement pursuant to
which Mr. McGinnis serves as Chairman and Chief Executive Officer of the
Company. The employment agreement is for a term of three years, with automatic
two year renewals, unless a notice of termination is delivered by either party
within not less than sixty (60) days prior to the end of a term or a renewal
term. Under the terms of the agreement, Mr. McGinnis receives a salary at an
annual rate of $200,000. The Company may terminate the employment agreement and
all of its obligations thereunder if Mr. McGinnis (i) materially breaches any
term of the employment agreement, (ii) commits any other act in bad faith
materially detrimental to the business or reputation of the Company, (iii)
engages in illegal activities or is convicted of any crime involving fraud,
deceit, or moral turpitude, or (iv) dies or becomes mentally or physically
incapacitated or disabled and is materially unable to perform his obligation
under the employment agreement. The Company's obligations under the employment
agreement to pay salary, to provide for the continued vesting of stock option
awards and to provide for health insurance benefits shall continue for the
greater of the remainder of the term (or the renewal term) or two years if the
Company terminates the employment agreement for any reason other then (i)-(iv)
above, or if Mr. McGinnis terminates the agreement for one of the following
reasons (i) the Company materially breaches any term of the employment
agreement, (ii) the Company assigns Mr. McGinnis duties, or significantly
reduces his assigned duties, in a manner inconsistent with his position with the
Company (without his consent), (iii) the Company requires Mr. McGinnis's
relocation outside of the metropolitan Louisville, Kentucky area (without his
consent), (iv) the Company fails to obtain the assumption of the employment
agreement by any successors to the Company, or (v) a Change in Control Event (as
defined in the employment agreement) occurs, and Mr. McGinnis's employment is
terminated by Mr. McGinnis within 120 days thereafter (in this latter event, Mr.
McGinnis may also be entitled to receive a certain Gross-Up Payment (as defined
in the employment agreement)). The employment agreement contains certain
confidentiality and noncompete provisions in favor of the Company.
In May 1997, the Company entered into employment agreements with Messrs.
Burge, Sharps and Tokuuke, and Ms. Murphy, each with a term of three years.
Under the terms of the agreements, Messrs. Burge and Sharps receive a salary at
an annual rate of $125,000, and Mr. Tokuuke and Ms. Murphy receives a salary at
an annual rate of $110,000. The Company may terminate the employment agreements
with Messrs. Burge, Sharps, and Tokuuke, and Ms. Murphy for cause in the
following circumstances: (i) material breach of any term of the employment
agreement, (ii) commission of any other act materially detrimental to the
business or reputation of the Company, (iii) intentional engagement in illegal
or dishonest activities or commitment or conviction of any crime involving
fraud, deceit, or moral turpitude or (iv) death or mental or physical
incapacitation or disability resulting in an inability to perform one's
obligations under the employment agreement. Each employment agreement contains
certain confidentiality and noncompete provisions in favor of the Company.
5
<PAGE> 9
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of December 31, 1997
concerning persons known to the Board to be a "beneficial owner," as such term
is defined by the rules of the Securities and Exchange Commission, of more than
5% of the outstanding shares of the Common Stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED(1) CLASS
- ---------------- ------------------ ----------
<S> <C> <C>
The Kaufmann Fund, Inc...................................... 1,622,500(2) 14.1%
140 E. 45th Street
43rd Floor
New York, New York 10017
Dresdner RCM Global Investors LLC........................... 1,033,400(3) 9.0%
Four Embarcadero Center
Suite 3000
San Francisco, California 94111
Franklin Advisers, Inc...................................... 904,460(4) 7.9%
777 Mariners Island Boulevard
San Mateo, California 94404
Putnam Investments, Inc..................................... 876,900(5) 7.6%
One Post Office Square
Boston, Massachusetts 02109
The TCW Group, Inc.......................................... 841,300(6) 7.3%
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
HLM Management Co., Inc..................................... 702,000(7) 6.1%
222 Berkeley Street
Boston, Massachusetts 02116
Berger Associates, Inc...................................... 591,175(8) 5.2%
210 University Boulevard
Suite 900
Denver, Colorado 80206
</TABLE>
- ---------------
(1) See Note (1) under "Management Common Stock Ownership" elsewhere herein.
(2) The information regarding The Kaufman Fund, Inc. ("Kaufman") is given in
reliance upon a Schedule 13G filed by such stockholder on or about February
18, 1998 with the Securities and Exchange Commission (the "Commission"). The
Schedule 13G indicated that Kaufman has sole voting power and sole
dispositive power over 1,622,500 shares.
(3) The information regarding Dresdner RGM Global Investors LLC ("Dresdner RGM")
is given in reliance upon a Schedule 13G filed by such stockholder, RCM
Limited L.P. ("RCM Limited"), the managing agent of Dresdner RGM, and RCM
General Corporation ("RCM General"), the general partner of RCM Limited, and
a Schedule 13G filed by the parent corporation of Dresdner RCM, Dresdner
Bank AG ("Dresdner"), each on or about February 6, 1998 with the Commission.
The Schedule 13Gs indicated that Dresdner RGM, RCM Limited and RCM General
have sole voting power over 890,300 shares and sole dispositive power over
1,033,400 shares. The Schedule 13Gs state that RCM Limited, RCM General and
Dresdner have beneficial ownership of the securities reported on these
Schedule 13G's only to the extent that they may be deemed to have beneficial
ownership of securities beneficially owned by Dresdner RCM.
(4) The information regarding Franklin Resources, Inc. ("FRI") and Franklin
Advisers, Inc. ("FAI") is given in reliance upon a Schedule 13G filed by
such stockholders and the principle shareholders of FRI, Charles B. Johnson
("Johnson") and Rupert H. Johnson, Jr. ("R. Johnson") on or about February
4, 1998. The Schedule 13G indicated that FAI has sole voting and sole
dispositive power over 900,100 shares and Franklin Management, Inc. has sole
dispositive power over 4,360 shares. The Schedule 13G states that the shares
are owned by one or more open or closed-end investment companies or other
managed accounts which are advised by direct and indirect advisory
subsidiaries (the "Advisor
6
<PAGE> 10
Subsidiaries") of FRI. Johnson, R. Johnson, FRI and the Advisor Subsidiaries
disclaim any economic interest or beneficial ownership in any of the
securities covered by this statement.
(5) The information regarding Putnam Investments, Inc. ("PI") is given in
reliance upon a Schedule 13G filed by such stockholder, its parent
corporation, Marsh & McLennan Companies, Inc. ("MMC"), two wholly owned
registered investment advisors of PI, Putnam Investment Management, Inc.
("PIM") and The Putnam Advisory Company, Inc. ("PAC") on or about January
21, 1998 with the Commission. The Schedule 13G stated that neither MMC or PI
have any power to vote or dispose of, or direct the voting or disposition
of, any of the securities covered by the Schedule 13G. The Schedule 13G
indicated that PIM had shared dispositive power over 452,400 shares; and
that PAC had shared voting power over 401,900 shares and shared dispositive
power over 424,500 shares.
(6) The information regarding The TCW Group, Inc. ("TCW Group") is given in
reliance upon a Schedule 13G filed by such stockholder and Robert Day
("Day"), an individual who may be deemed to control the TCW Group on or
about February 12, 1998. The Schedule 13G indicated that the TCW Group and
Robert Day have sole voting and sole dispositive power over 841,300 shares.
The Schedule 13G states that the TCW Group holds 0 shares directly, and Day
holds 0 shares directly or indirectly, other than the indirect holding of
the TCW Group. The Schedule 13G indicated that the following subsidiaries of
the TCW Group acquired the 841,300 shares: Trust Company of the West, TCW
Asset Management Company and TCW Funds Management, Inc.
(7) The information regarding HLM Management Co., Inc. ("HLM") is given in
reliance upon a Schedule 13G filed by such stockholder on or about February
13, 1998 with the Commission. The Schedule 13G indicated that HLM has sole
voting power and sole dispositive power over 702,000 shares.
(8) The information regarding Berger Associates, Inc. ("Berger") is given in
reliance upon a Schedule 13G filed by such stockholder and its parent
holding company, Kansas City Southern Industries, Inc. on or about February
17, 1998 ("KCSI"). The Schedule 13G indicated that Berger has shared voting
and shared dispositive power over 591,175 shares. The Schedule 13G states
that KCSI does not exercise any voting or dispositive power over the shares
and specifically disclaims beneficial ownership over the shares.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company (determined as of December 31, 1997) (referred to herein
as the "named executive officers") for the year ended December 31, 1997. On
August 28, 1995, the Company became a wholly-owned subsidiary of Medaphis
Corporation ("Medaphis"). Medaphis sold its interest in the Company to the
public on May 21, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- AWARDS
OTHER ------------
ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) $(1) OPTIONS (#) COMPENSATION ($)
- ------------------------------- ---- ---------- --------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Patrick B. McGinnis............ 1997 $163,132 $137,061 $1,120,000 200,000 $49,944(2)
Chairman, Chief Executive 1996 110,996 80,664 -- -- 89,301(3)
Officer, Director
Kathleen K. Harreld(4)......... 1997 59,472 -- 504,000 -- 114,583(5)
Executive Vice President -- 1996 120,004 90,166 -- -- 3,747(6)
Business Development
Douglas R. Sharps.............. 1997 121,689 74,401 280,000 78,750 1,018(7)
Executive Vice President -- 1996 107,152 95,176 -- -- 265(8)
Finance and Administration,
Chief Financial Officer and
Secretary
Bobby T. Tokuuke............... 1997 107,491 50,513 210,000 65,000 5,903(9)
Senior Vice President -- 1996 92,424 50,714 -- -- 3,460(10)
Systems
Debra M. Murphy................ 1997 106,802 74,324 210,000 65,000 5,566(11)
Senior Vice President -- 1996 83,071 45,960 -- -- 3,080(12)
Sales & Marketing
Dennis K. Burge................ 1997 91,041 74,324 280,000 78,750 28,874(13)
Executive Vice
President --................. 1996 $ 38,187 $ 28,032 -- -- 105,377(14)
Operations
</TABLE>
- ---------------
(1) This column reflects the dollar value of a stock bonus representing 186,000
shares of the Company's Common Stock that was awarded in connection with
the Company's initial public offering on May 21, 1997, as calculated based
upon $14.00, the initial public offering price of the Company's Common
Stock. The aggregate stock holdings as of December 31, 1997 for Messrs.
McGinnis, Sharps, Tokuuke and Burge and Ms. Harreld and Ms. Murphy were
110,000, 20,000, 17,000, 22,500, 36,000 and 15,700 respectively, having a
value of $2,447,500, $445,000, $378,250, $500,625, $801,000 and $349,325
respectively, based upon the closing price of the Common Stock on The
Nasdaq National Market on December 31, 1997.
(2) Includes $36,923 paid to Mr. McGinnis for his services as President of
Medaphis Healthcare Information Technology Company, a subsidiary of
Medaphis ("HIT") and $8,285 of matching contributions to the Medaphis
Deferred Compensation Plan (the "Medaphis Deferred Plan"). All other
compensation for 1997 includes amounts paid by the Company on behalf of Mr.
McGinnis for matching 401(k) plan contributions and insurance premiums.
(3) Includes $83,301 paid to Mr. McGinnis for his services as President of HIT,
$4,500 of matching contributions to the Medaphis Plan (the "Medaphis
Savings Plan") and $1,500 of matching contributions to the Medaphis
Deferred Plan.
(4) Resigned from the Company in May 1997.
8
<PAGE> 12
(5) Includes $114,154 paid to Ms. Harreld by Medaphis in connection with her
resignation. All other compensation for 1997 includes amounts paid by the
Company on behalf of Ms. Harreld for matching 401(k) plan contributions and
insurance premiums.
(6) Includes $3,535 of matching contributions to the Medaphis Savings Plan. All
other compensation for 1997 includes amounts paid by the Company on behalf
of Ms. Harreld for matching 401(k) plan contributions and insurance
premiums.
(7) All other compensation for 1997 includes amounts paid by the Company on
behalf of Mr. Sharps for matching 401(k) plan contributions and insurance
premiums.
(8) Includes amounts paid by the Company on behalf of Mr. Sharps for insurance
premiums.
(9) All other compensation for 1997 includes amounts paid by the Company on
behalf of Mr. Tokuuke for matching 401(k) plan contributions and insurance
premiums.
(10) Includes $2,151 of matching contributions to the Medaphis Savings Plan and
$1,076 of matching contributions to the Medaphis Deferred Plan. All other
compensation for 1997 includes amounts paid by the Company on behalf of Mr.
Tokuuke for matching 401(k) plan contributions and insurance premiums.
(11) All other compensation for 1997 includes amounts paid by the Company on
behalf of Ms. Murphy for matching 401(k) plan contributions and insurance
premiums.
(12) Includes $1,785 of matching contributions to the Medaphis Savings Plan. All
other compensation for 1997 includes amounts paid by the Company on behalf
of Ms. Murphy for matching 401(k) contributions and insurance premiums.
(13) Includes $22,723 received as base salary from Gottlieb Financial Services
(a Medaphis subsidiary) ("Gottlieb") during the first part of 1997. All
other compensation for 1997 included amounts paid by the Company on behalf
of Mr. Burge for matching 401(k) contributions and insurance premiums.
(14) Includes $98,077 received as base salary and $3,089 received as relocation
expense from Gottlieb. All other compensation for 1997 includes amounts
paid by the Company on behalf of Mr. Burge for matching 401(k)
contributions and insurance premiums.
9
<PAGE> 13
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION SINCE
- ---- --- -------- -----------------
<S> <C> <C> <C>
Patrick B. McGinnis................. 50 Chairman of the Board, Chief 1996
Executive Officer & Director
Robert G. Bader, Jr................. 41 Senior Vice President -- Business 1998
Development
Dennis K. Burge..................... 51 Executive Vice 1997
President -- Operations
Debra M. Murphy..................... 42 Senior Vice President -- Sales & 1997
Marketing
Douglas R. Sharps................... 44 Executive Vice President -- Finance 1997
and Administration, Chief Financial
Officer & Secretary
Bobby T. Tokuuke.................... 52 Senior Vice President -- Systems 1997
</TABLE>
PATRICK B. MCGINNIS serves as Chairman, Chief Executive Officer and a
director of the Company. In 1988, Mr. McGinnis left Humana Inc., where he served
as Vice President -- Finance & Planning, to co-found the Company. He served as
the Company's Chief Executive Officer until August 1996, when he left to become
President of Medaphis Healthcare Information Technology Company. He rejoined the
Company and assumed his current responsibilities in January 1997.
ROBERT G. BADER, JR. serves as Senior Vice President--Business Development
of the Company. He assumed his current responsibilities in January 1998. From
1992 until 1994 Mr. Bader served as Vice President of Strategic Planning of Blue
Cross Blue Shield of Kentucky. In 1994, he assumed the positions of Chief
Operating and Chief Financial Officer of Acordia of Louisville, one of the
operating companies of Acordia, Inc., a publicly traded insurance brokerage and
health administrative services company that was acquired by Anthem, Inc. in
1997.
DENNIS K. BURGE serves as Executive Vice President -- Operations of the
Company. Mr. Burge joined the Company in 1991 as Vice President -- Operations.
He was promoted to Senior Vice President -- Operations in October 1994. In May
1996, he joined Gottlieb Financial Services (a Medaphis subsidiary) as Chief
Operations Officer, where he served until February 1997, when he rejoined the
Company. He assumed his current responsibilities in February 1997.
DEBRA M. MURPHY serves as Senior Vice President -- Sales and Marketing. Ms.
Murphy joined the Company in 1991 as Sales and Marketing Manager. She was
promoted to Director of Sales in October 1994 and to Vice President -- Sales in
February 1996. She assumed her current responsibilities in November 1996.
DOUGLAS R. SHARPS serves as Executive Vice President--Finance and
Administration, Chief Financial Officer and Secretary. Mr. Sharps joined the
Company in January 1990 as Vice President and General Counsel. He served as
Senior Vice President--Finance and General Counsel from October 1994 to August
1995. He is also the principal of Sharps & Associates, PSC, a law firm that
provides support to HRI and handles litigated recoveries in California,
Illinois, Kentucky and Texas. He assumed his current responsibilities in January
1997.
BOBBY T. TOKUUKE serves as Senior Vice President--Systems. Mr. Tokuuke
joined the Company at its inception in 1988 and was part of the team that
developed the SubroSystem. From October 1994 he served as Vice
President--Systems and assumed his present position in April 1996.
10
<PAGE> 14
STOCK OPTION GRANTS
The following table sets forth information with respect to options granted
under the Stock Option Plan to each of the named executive officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AND
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING TOTAL GRANTED TO OPTION TERM
OPTIONS GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION ------------------------------
NAME IN 1997 IN 1997 PER SHARE DATE 5% 10%
- ---- ---------------- ------------ -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patrick B. McGinnis... 200,000 29.5% $14.00 5/28/07 $1,760,905 $4,462,479
Kathleen K. Harreld... -- -- -- -- -- --
Dennis K. Burge....... 78,750 11.6% $14.00 5/28/07 693,356 1,757,101
Debra M. Murphy....... 65,000 9.6% $14.00 5/28/07 572,294 1,450,306
Douglas R. Sharps..... 78,750 11.6% $14.00 5/28/07 693,356 1,757,101
Bobby T. Tokuuke...... 65,000 9.6% $14.00 5/28/07 572,294 1,450,306
</TABLE>
STOCK OPTION EXERCISES
None of the named executive officers exercised any stock options during
1997. The table below shows the number of shares of Common Stock covered by both
exercisable and unexercisable stock options held by the named executive officers
as of December 31, 1997. The table also reflects the value for in-the-money
options based on the positive spread between the exercise price of such options
and the last reported sale price of the Common Stock on December 31, 1997, the
last trading date in 1997 for the Common Stock.
AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES*
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick B. McGinnis........................ 66,667 133,333 $550,003 $1,099,997
Kathleen K. Harreld........................ -- -- -- --
Dennis K. Burge............................ 26,250 52,500 216,563 433,125
Debra M. Murphy............................ 21,667 43,333 178,753 357,497
Douglas R. Sharps.......................... 26,250 52,500 216,563 433,125
Bobby T. Tokuuke........................... 21,667 43,333 178,753 357,497
</TABLE>
- ---------------
* The table above does not reflect the exercises by certain named executive
officers of Medaphis stock options in 1997. The value realized on such
exercises for Ms. Harreld, Mr. Sharps, Mr. Tokuuke and Mr. Burge was $143,141,
$68,616, $33,623 and $234,463, respectively.
11
<PAGE> 15
STOCK PRICE PERFORMANCE GRAPH
The graph below reflects the cumulative stockholder return (assuming
reinvestment of dividends) on the Common Stock compared to the return of the
Center for Research in Security Price Total Return Index for The Nasdaq Stock
Market, U.S. Companies (the "Nasdaq Composite, U.S.") and the Company's peer
group index for the periods indicated. This graph reflects the investment of
$100.00 on May 22, 1997 (the date the Company's intial public offering was
completed by Medaphis) in the Common Stock, the Nasdaq Composite, U.S., and the
Company's peer group. The Company's peer group consists of the following
companies: Access Health, Inc., Concentra Managed Care, Inc., Health Management
Systems, Inc., Medaphis Corporation, and Transcend Services, Inc.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) HRI Nasdaq, U.S. Peer Group
<S> <C> <C> <C>
5/22/97 100.00 100.00 100.00
5/30/97 103.39 102.23 98.51
6/30/97 131.36 105.46 105.58
7/31/97 123.73 116.59 107.91
8/29/97 119.83 116.42 124.01
9/30/97 152.54 123.3 133.41
10/31/97 125.42 116.89 123.93
11/28/97 137.29 117.47 115.69
12/31/97 150.85 115.64 116.83
</TABLE>
The stock price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended (together, the "Acts"), except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In 1997, the Compensation Committee consisted of the three disinterested
members of the Board (the "Compensation Committee") whose names appear below.
None of the members of the Compensation Committee had, during 1997, any
interlocking or other relationships with the Company that would call into
question their independence with respect to executive compensation matters
involving the Company. The Compensation Committee receives input regarding
compensation for the executive officers from the Chief Executive Officer.
Currently, the Chief Executive Officer and the named executive officers (other
than Ms. Harreld) are parties to employment agreements that set forth each
individual's base salary and contemplate the participation by each employee in
the Management Group Incentive Compensation Plan.
12
<PAGE> 16
Compensation Components. The components of the Company's executive
compensation program consist of base salaries, cash bonuses and stock options.
The Company's compensation program is designed to provide competitive base
salaries for the Company's executive officers, and incentive compensation and
long-term incentives that retain the executive officers and motivate them to
achieve the Company's business objectives over the long-term.
Base Salary. The Chief Executive Officer and each named executive officer
(other than Ms. Harreld) is a party to a three-year employment agreement with
the Company that sets forth each officer's base salary. See "Employment
Agreements."
Management Group Incentive Compensation Plan. The Company has adopted an
annual performance-based bonus plan in which the named executive officers (other
than Ms. Harreld) participate. The plan is divided into a nondiscretionary bonus
pool and a discretionary bonus pool that provides for cash bonuses to its
participants based on certain performance-based thresholds set forth in the
plan. The Company estimates that the maximum bonus for the named executive
officers will be between 95% and 120% of their respective annual base salaries.
Based on its evaluation of the Chief Executive Officer's performance in
attaining the Company's financial results, the Compensation Committee will grant
Mr. McGinnis an annual bonus from the discretionary bonus pool. Mr. McGinnis
will recommend to the Compensation Committee, the discretionary annual bonus for
the executive officers based on each executive officer's performance in
attaining the Company's financial results.
Stock Option Plans. The Company maintains stock option plans designed to
align executives' and stockholders' interests in the enhancement of stockholder
value. Stock options are granted under these plans to certain officers and key
employees and consultants of the Company by the Compensation Committee. Stock
options are generally granted annually if available and if supported by the
Company's growth and profitability. To foster long-term commitments, executives'
options typically vest over a three-year period and remain outstanding for ten
years. In accordance with United States Treasury Department regulations, in the
event the value realized upon the exercise of options by any "covered" employee
(the difference between the per share exercise price and the market price on the
date of exercise multiplied by the number of options exercised) when combined
with such employee's other "covered" compensation in the year of exercise
exceeds $1.0 million, the Company will be unable to deduct the amount of such
excess compensation.
Supplemental Retirement Savings Plan. The Company has adopted a
non-qualified deferred compensation plan under which certain key employees of
the Company may defer up to 16% of their compensation (reduced by the amount
they could have deferred under the Company's 401(k) Plan). The Company will
match employee contributions equal to the contributions that would have been
made under the Company's 401(k) Plan but for certain tax restrictions.
Participants will be entitled to receive distributions upon termination of
employment. The Company may fund all or part of its obligations under this plan
in a trust reachable by the Company's general creditors.
Deductibility of Certain Compensation. Section 162(m) of the Internal
Revenue Code of 1986, as amended, generally disallows a tax deduction to
publicly held corporations for compensation in excess of $1 million per employee
in any taxable year that is paid to the corporation's chief executive officer or
to its four other most highly compensated executive officers. With the exception
of Mr. McGinnis, no executive officer received more than $1 million in
compensation in 1997 that will be subject to the Section 162(m) limitation on
deductibility.
Chief Executive Officer Compensation. As discussed earlier in this Proxy
Statement, the Company entered into an employment agreement with the Chief
Executive Officer in May 1997. The employment agreement is for an initial term
of three years and contains certain confidentiality and noncompete provisions
(the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. McGinnis
receives a base salary of $200,000 and is eligible to participate in the
Management Incentive Compensation Plan. See "Employment Agreements." The
Compensation Committee determines the amount of discretionary bonuses that Mr.
McGinnis receives under the Management Incentive Compensation plan, based on his
performance with respect to achieving financial results.
13
<PAGE> 17
In addition, to augment Mr. McGinnis' long-term incentive for continued
employment with the Company, Mr. McGinnis was granted options to acquire 200,000
shares of the Common Stock under the Company's Stock Option Plan:
COMPENSATION COMMITTEE
William C. Ballard, Jr., Chairman
Jill L. Force
Elaine J. Robinson
April 3, 1998
The foregoing report should not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Acts, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the first part of 1997, the Company was a wholly-owned subsidiary of
Medaphis and, as such, all compensation decisions were made by Medaphis'
management. On May 21, 1997, Medaphis sold its interest in the Company to the
public.
CERTAIN TRANSACTIONS
MEDAPHIS CORPORATION. Medaphis sold its interest in the Company to the
public on May 21, 1997 (the "Offering") as part of its restructuring plan to
divest non-core businesses and was required to use the net proceeds of the
Offering to retire bank debt. Since August 1995, the Company had been a
wholly-owned subsidiary of Medaphis. From August 1995 through May 1997, certain
corporate functions that had been performed by the Company internally were
performed by Medaphis. These functions consisted primarily of payroll and
benefits administration. Prior to May 21, 1997, the Company began performing for
itself certain functions previously performed for the Company by Medaphis. These
functions included such items as payroll, processing of accounts payable,
employee health plan administration and the Company's workers' compensation and
other business insurance coverages.
Messrs. McGinnis, Burge, Sharps and Tokuuke, and Ms. Harreld and Ms. Murphy
possessed options to purchase shares of Medaphis common stock that automatically
vested, pursuant to the terms of such options, in connection with the Offering.
In connection with the acquisition of the Company by Medaphis, Messrs.
McGinnis, Burge, Sharps and Tokuuke, and Ms. Harreld and Ms. Murphy received
273,456, 40,160, 51,948, 43,016, 56,943 and 6,693 shares, respectively, of
Medaphis common stock in exchange for their holding of Common Stock.
In connection with the closing of the Offering, the Company and Medaphis
entered into a separation agreement, negotiated at arms-length between Medaphis
management and the Company management, pursuant to which certain insurance, tax
and other administrative matters were addressed. Effective May 21, 1997, the
Company and Medaphis entered into such separation agreement (the "Separation
Agreement") that provided for the separation of the Company from Medaphis. The
Separation Agreement provided that on the date of the Offering (i) the Company
would (assuming none of the underwriters' over-allotment option had been
exercised) have a nominal amount of unrestricted cash, and would not owe any
amount to Medaphis (except as discussed below with respect to purchased goods
and services, certain employee benefit plan payments and a distribution to be
made to Medaphis to reduce the Company's stockholder's equity to $4,110,000) and
(ii) Medaphis would not owe any amount to the Company.
The Separation Agreement also provided that (i) the Company would owe
(without markup or markdown) Medaphis after the consummation of the Offering for
any goods or services purchased from or through Medaphis prior to consummation
but not paid for prior to such consummation; (ii) Medaphis would
14
<PAGE> 18
cause its bank lenders to release in connection with the Offering the Company
guaranty of Medaphis' bank debt, all liens on the Company's assets and the
Common Stock to be sold by Medaphis pursuant to the Offering; (iii) the Company
would upon consummation of the Offering assume responsibility for providing
health insurance or coverage to former Company employees (and their eligible
dependents) who have exercised their right under federal law to obtain such
insurance or coverage in accordance with applicable federal law; (iv) assets and
liabilities under the Medaphis "cafeteria" employee benefit plan relating to the
Company employees would be transferred to a new Company "cafeteria" benefit
plan, together with an adjusting payment to or from the Company to reflect any
difference between plan assets and liabilities; (v) after consummation of the
Offering, Medaphis would transfer assets in the Medaphis 401(k) retirement plan
that relate to the Company employees to a new Company 401(k) retirement plan in
a manner that would satisfy legal requirements for interplan asset transfers;
(vi) all stock options held by the Company employees as of the consummation of
the Offering would, in accordance with the particular option plan under which
such options were granted, become immediately vested as of such date and any
such optionees would be entitled to exercise their options in accordance with
the terms of the particular option agreements relating to the granting of such
options; (vii) effective as of the consummation of the Offering, the Company
would have in place certain insured and self-funded welfare benefit plans and
arrangements to cover those Company employees who were covered by such types of
plans prior to such date; and (viii) Medaphis would pay, in one lump sum, the
account balances under the Medaphis Executive Deferred Compensation Plan due to
those plan participants who would be continuing employment with the Company
after consummation of the Offering.
With respect to indemnification, the Separation Agreement provides that (i)
the Company will indemnify Medaphis for federal, state and local income and
other tax liability relating to the Company for all periods ending on or prior
to August 28, 1995, the date Medaphis acquired the Company and for all periods
after the consummation of the Offering; (ii) Medaphis will indemnify the Company
for federal income tax liability relating to Medaphis or any subsidiary
(including the Company), and for state and local income and other tax liability
relating to Medaphis or any subsidiary other than the Company, from August 29,
1995, to the date of consummation of the Offering; (iii) the Company will
indemnify Medaphis from liability due to or arising out of acts or failures to
act of the Company in the periods described in clause (i); (iv) Medaphis will
indemnify the Company from liability due to or arising out of the acts or
failures to act of Medaphis or any subsidiary (other than the Company) for all
periods described in (i) and (ii); and (v) Medaphis will indemnify the
non-employee directors of the Company from certain liabilities arising out of
the Offering, including liabilities under the Securities Act.
SHARPS & ASSOCIATES. As part of its obligations under client contracts,
the Company generally pays for the legal representation of clients, as required
in the recovery process. A portion of those payments is made in the form of a
retainer to Sharps & Associates PSC, a law firm solely owned by Douglas R.
Sharps, the Company's Executive Vice President -- Finance and Administration,
Chief Financial Officer and Secretary. This law firm employs thirteen attorneys
and five paralegals at its offices in Louisville, Kentucky; Oakland, California;
Chicago, Illinois; and Dallas, Texas. The Company paid $1,001,000 to such
related party during the period ended December 31, 1997 for legal services.
However, Mr. Sharps receives no personal benefit from his ownership of the firm.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and persons who own
more than ten percent (10%) of the Common Stock to file certain reports with
respect to each such person's beneficial ownership of the Common Stock,
including statements of changes in beneficial ownership on Form 4. In addition,
Item 405 of Regulation S-K requires the Company to identify in its Proxy
Statement each reporting person that failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent fiscal year
or prior fiscal years. Based solely upon a review of Forms 3 and 4 and
amendments thereto, all such persons complied with the applicable reporting
requirements.
15
<PAGE> 19
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected the firm of Coopers & Lybrand L.L.P. to serve as
independent accountants of the Company for 1998. Coopers & Lybrand L.L.P. has
served as independent accountants of the Company since 1997. One or more
representatives of Coopers & Lybrand L.L.P. will be present at the meeting, will
have an opportunity to make a statement if he or she so desires and will be
available to respond to appropriate questions.
ANNUAL REPORT TO STOCKHOLDERS
The annual report of the Company for the year ended December 31, 1997
accompanies this Proxy Statement.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, including the financial
statements and financial statement schedules, as filed with the Securities and
Exchange Commission, except exhibits thereto accompanies this Proxy Statement.
The Company will provide copies of the exhibits, should they be requested by
eligible stockholders, and the Company may impose a reasonable fee for providing
such exhibits. Requests for copies of the Company's Annual Report on Form 10-K
should be mailed to:
Healthcare Recoveries, Inc.
1400 Watterson Tower
Louisville, Kentucky 40218
Attention: Douglas R. Sharps
Executive Vice President --
Finance and Administration,
Chief Financial Officer and
Secretary
STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at the Company's 1999
annual meeting of stockholders must be received by the Company no later than
December 4, 1998 in order to be considered for inclusion in the Proxy Statement
and form of proxy to be distributed by the Board of Directors in connection with
such meeting.
OTHER MATTERS
The Board knows of no other matters to be brought before the meeting.
However, if any other matters should come before the meeting, the person named
in the proxy will vote such proxy in accordance with their judgment.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, facsimile or mail by one or more employees of the Company. The
Company also will reimburse brokers, banks, nominees and other fiduciaries for
postage and reasonable clerical expenses of forwarding the proxy material to
their principals who are beneficial owners of the Company's Common Stock. In
addition, the Company has retained Corporate Investor Communications, Inc.
("CIC") to assist in the solicitation of proxies with respect to shares of the
Company's Common Stock held of record by brokers, nominees and institutions and,
in certain cases, by other holders. Such solicitation may be made through the
use of mail, by telephone or by personal calls. The anticipated cost of the
services of CIC is a fee of $4,000 plus expenses.
By Order of the Board of Directors,
Douglas R. Sharps
Executive Vice President --
Finance and Administration,
Chief Financial Officer
and Secretary
Louisville, Kentucky
April 3, 1998
16
<PAGE> 20
APPENDIX
PROXY HEALTHCARE RECOVERIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON MAY 4, 1998
The undersigned hereby appoints PATRICK B. McGINNIS and DOUGLAS R. SHARPS,
and each of them, proxies, with full power of substitution and resubstitution,
for and in the name of the undersigned, to vote all shares of stock of
Healthcare Recoveries, Inc., which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held on Monday,
May 4, 1998 at 10:00 a.m., local time, at 1400 Watterson Tower, Louisville,
Kentucky 40218, and at any adjournment thereof, upon the matters described in
the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement,
receipt of which is hereby acknowledged, and upon any other business that may
properly come before the meeting or any adjournment thereof. Said proxies are
directed to vote on the matters described in the Notice of Annual Meeting and
Proxy Statement as follows, and otherwise in their discretion upon such other
business as may properly come before the meeting or any adjournment thereof.
(1) To elect two (2) Class A directors to three-year terms expiring at the 2001
annual meeting of stockholders:
<TABLE>
<S> <C>
[ ] FOR all nominees listed (except as marked [ ] WITHHOLD AUTHORITY to vote for
below to the contrary) all nominees listed
John H. Newman
Chris B. Van Arsdel
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST ABOVE.)
(2) To ratify the appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company to serve for 1998:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be signed, on the other side)
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ON THE OTHER SIDE OF THIS PROXY.
Date , 1998
--------------------
--------------------------
--------------------------
Please sign exactly as
your name or names appear
hereon. Where more than
one owner is shown above,
each should sign. When
signing in a fiduciary or
representative capacity,
please give full title. If
this proxy is submitted by
a corporation, it should
be executed in the full
corporate name by a duly
authorized officer. If a
partnership, please sign
in partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU ATTEND
THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.
