<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MedicalControl, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MEDICALCONTROL, INC.
8625 KING GEORGE, DR., SUITE 300
DALLAS, TEXAS 75235
TELEPHONE: (214) 630-6368
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held Tuesday, May 12, 1998
To the Shareholders:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders (the "Annual
Meeting") of MedicalControl, Inc. (the "Company") will be held at the Company's
offices at 8625 King George Dr., Suite 300, Dallas, Texas 75235, on Tuesday, May
12, 1998, at 9:30 a.m., local time, for the following purposes:
1. To elect four directors to hold office for the term specified in the
Proxy Statement or until their successors are elected and qualified; and
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 1, 1998,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting and at any adjournment or adjournments
thereof.
A Proxy Statement that describes the foregoing proposals and a form of
proxy accompany this notice.
By Order of the Board of Directors
Stephanie L. McVay
Secretary
Dated: April 13, 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
EXECUTE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED REPLY
ENVELOPE, WHICH REQUIRES NO POSTAGE. ANY SHAREHOLDER GRANTING A PROXY MAY
REVOKE THE SAME AT ANY TIME PRIOR TO ITS EXERCISE. ALSO, WHETHER OR NOT YOU
GRANT A PROXY, YOU MAY VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
<PAGE>
TABLE OF CONTENTS
General Information......................................................... 1
Voting at Annual Meeting.................................................... 2
Principal Shareholder and Ownership of Management........................... 3
Proposal 1 - Election of Directors.......................................... 4
Board of Directors.......................................................... 5
Management.................................................................. 7
Executive Compensation...................................................... 8
Certain Relationships and Related Transactions.............................. 11
Selection of Auditors....................................................... 12
Proposals of Shareholders for Presentation at Next
Annual Meeting of Shareholders............................................ 13
Annual Report............................................................... 13
Other Business.............................................................. 13
Availability of Annual Report on Form 10-KSB................................ 13
<PAGE>
MEDICALCONTROL, INC.
8625 KING GEORGE DR., SUITE 300
DALLAS, TEXAS 75235
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 12, 1998
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders by the Board of Directors
of MedicalControl, Inc. (the "Company") for solicitation of proxies for use at
the Annual Meeting of Shareholders of the Company (the "Annual Meeting") on
Tuesday, May 12, 1998, to be held at the Company's offices at 8625 King George
Dr., Dallas, Texas 75235, at 9:30 a.m., and at all adjournments thereof for the
purposes set forth in the attached Notice of Annual Meeting of Shareholders. The
Board of Directors is not currently aware of any other matters that will come
before the meeting.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone or telegraph by officers, directors and other employees of
the Company, who will not receive additional compensation for such services. The
Company may also request brokerage houses, nominees, custodians and fiduciaries
to forward the soliciting material to the beneficial owners of stock held of
record and will reimburse such persons for forwarding such material at the rates
suggested by the New York Stock Exchange. The Company will bear the cost of this
solicitation of proxies. Such costs are expected to be nominal. Proxy
solicitation will commence with the mailing of this Proxy Statement on or about
April 13, 1998.
Execution and return of the enclosed proxy will not affect a shareholder's
right to attend the Annual Meeting and to vote in person. Any shareholder
executing a proxy retains the right to revoke it at any time prior to exercise
at the Annual Meeting. A proxy may be revoked by delivery of written notice of
revocation to the Secretary of the Company, by execution and delivery of a later
proxy or by voting the shares in person at the Annual Meeting. A proxy, when
executed and not revoked, will be voted in accordance with the instructions
thereon. In the absence of specific instructions, proxies will be voted by the
person or persons named in the proxy "FOR" the election as directors of those
nominees named in the Proxy Statement.
The enclosed form of proxy provides a method for shareholders to withhold
authority to vote for any one or more of the nominees for director while
granting authority to vote for the remaining nominees. The names of all nominees
are listed on the proxy. If you wish to grant authority to vote for all
nominees, check the box marked "FOR." If you wish to withhold authority to vote
for some nominees and not for one or more of the others, check the box marked
"FOR" and indicate the name(s) of the nominee(s) for whom you are withholding
the authority to vote by writing the name(s) of such nominee(s) on the proxy in
the space provided.
<PAGE>
VOTING AT MEETING
The voting securities of the Company consist solely of common stock, $.01
par value per share (the "Common Stock"). The Board of Directors has fixed April
1, 1998 as the record date for the determination of shareholders entitled to
vote at the Annual Meeting. As of close of business on the record date, there
were 3,966,010 shares of Common Stock outstanding. Shareholders are entitled to
one vote, in person or by proxy, for each share of Common Stock held in their
name on the record date. As provided in the Company's Certificate of
Incorporation, there is no right of cumulative voting. All matters being voted
upon by the shareholders require a majority vote of the shares represented at
the Annual Meeting either in person or by proxy, except for the election of
directors, which require a plurality vote in the event of more nominees then
positions (i.e., the four nominees receiving the highest number of votes would
be elected).
The presence at the Annual Meeting in person or by proxy of the holders of
a majority of the outstanding shares of Common Stock entitled to vote
constitutes a quorum for the transaction of business. Shares voted as abstention
and broker non-votes on any matter (or a "withheld authority" vote as to
directors) will be counted as present and entitled to vote for purposes of
determining a quorum and for the purposes of calculating the vote with respect
to such matter, but will not be deemed to have been voted in favor of such
matter. "Broker non-votes" are shares held by brokers or nominees which are
present in person or represented by proxy, but which are not voted on a
particular matter because instructions have not been received from the
beneficial owner. The effect of broker non-votes on a particular matter depends
on whether the matter is one as to which the broker or nominee has discretionary
voting authority. If a broker submits a proxy that indicates the broker does not
have discretionary authority to vote certain shares on a particular matter,
those shares will be counted as present for purposes of determining a quorum,
but will not be considered present and entitle to vote for purpose of
calculating the vote with respect to such matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE
FOR DIRECTOR NAMED HEREIN. IT IS INTENDED THAT PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE VOTED FOR EACH NOMINEE AND FOR SUCH OTHER PROPOSALS, IF ANY,
UNLESS OTHERWISE DIRECTED BY THE SHAREHOLDER SUBMITTING THE PROXY.
2
<PAGE>
PRINCIPAL SHAREHOLDER AND OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 1, 1998, by (i) all persons known by
the Company to be the owner of record or beneficially, of more than five percent
of the outstanding Common Stock, (ii) each executive officer and director of the
Company and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name Share Beneficially Owned Percent of Shares
---- ------------------------ -----------------
<S> <C> <C>
John Ward Hunt (1)
and 3,345,000 (2) 71.7%
The Answer Partnership, Ltd. (1)
William L. Amos, Jr. 15,000 (3) .3%
David Samuel Coats 12,000 (4) .3%
Robert W. Philip 24,000 (5) .5%
Robert O. Brooks 20,000 (4) .4%
David A. Hanson 2,000 (4) --
Stephanie L. McVay 2,000 (4) --
David C. Bramer 56,397 (6) 1.2%
All Executive Officers and 3,476,397 74.1%
Directors as a Group (8 persons)
</TABLE>
___________________________
(1) The business address of Mr. Hunt and The Answer Partnership, Ltd. is 8625
King George Dr., Suite 300, Dallas, Texas 75235. Such shares are held of record
and beneficially by The Answer Partnership, Ltd. but may also be deemed to be
beneficially owned by Mr. Hunt (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) since, as managing partner of such
partnership, Mr. Hunt has the power to direct the voting and disposition of such
shares. See "Certain Relationships and Related Transactions" for further
information concerning The Answer Partnership, Ltd.
(2) Includes 300,000 shares with respect to which The Answer Partnership, Ltd.
has the right to acquire by virtue of outstanding vested options and 400,000
shares with respect to which J. Ward Hunt has the right to acquire by virtue of
outstanding vested options.
(3) Includes 11,000 shares with respect to which Dr. Amos has the right to
acquire by virtue of outstanding vested options.
(4) All of which are shares with the officer or director has the right to
acquire by virtue of outstanding vested options.
(5) Includes 23,000 shares with respect to which Mr. Philip has the right to
acquire by virtue of outstanding vested options.
(6) Includes 29,500 shares with respect to which Mr. Bramer has the right to
acquire by virtue of outstanding vested options, 25,000 shares with respect to
which Mr. Bramer has the right to acquire by
3
<PAGE>
exercising a right to convert $100,000 of the principal amount of a note owed to
Mr. Bramer by the Company and 1,278 shares with respect to which Mrs. Bramer has
the right to acquire by virtue of vested qualified options.
STOCK REPURCHASE PROGRAM
On December 17, 1996, the Board of Directors authorized the Company to buy
back up to $500,000 of Common Stock over a 24-month period. The stock
repurchases may be made from time to time in both open market and private
transactions and will be dependent on market conditions and availability.
Repurchased shares will be added to the Company's treasury shares and may be
used to satisfy employee stock options and for other corporate purposes. On
April 29, 1997, pursuant to the stock repurchase plan, the Company purchased
50,000 shares of its Common Stock for $250,000. On March 30, 1998, the Company
purchased 40,000 shares of its Common Stock for $205,000.
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall
be as fixed from time to time by resolution of the shareholders subject to
increase by the Board of Directors. The current number of members of the Board
of Directors is four (4). Each director will be elected for a one-year term
expiring upon the election of his successors at the next Annual Meeting. The
four persons designated by the Board of Directors as nominees for election as
directors at the Annual Meeting are William L. Amos, Jr., M.D., David Samuel
Coats, J. Ward Hunt and Robert W. Philip. Each nominee is currently a member of
the Board of Directors.
In the event any nominee should be unavailable to stand for election
at the time of the Annual Meeting, the proxies may be voted for a substitute
nominee selected by the Board of Directors. Management of the Company knows of
no reason why any nominee would be unable to serve.
See "Management" for biographical information concerning Mr. J. Ward Hunt,
who is an employee of the Company. The following biographical information is
furnished with respect to each of the other nominees.
WILLIAM L. AMOS, JR., M.D. has served as a director of the Company since
May 1996. Dr. Amos has served as the Company's Medical Director since 1993. In
1988, Dr. Amos founded MedStrategies of Georgia, Inc., which collaborated with
MedStrategies of Virginia, Inc. to form MedStrategies, Inc. MedStrategies offers
a wide range of consulting services to managed care organizations, providers and
healthcare purchasers. Prior to founding MedStrategies, Inc., Dr. Amos was
engaged in the private practice of obstetrics and gynecology for twelve (12)
years and served as Director, Senior Vice President and Medical Director of
AFLAC. Dr. Amos was a founding director and first President of the American
Association of Preferred Provider Organizations (now known as the Association of
Managed Healthcare Organizations) and continues to serve on the PSO Council.
Dr. Amos also serves as a director of the Utilization Review Accreditation
Commission. Dr. Amos received his Bachelors of Science degree from the Georgia
Institute of Technology in 1966 and his Medical Doctorate from the Medical
College of Georgia in 1970. Dr. Amos completed his internship and residency in
obstetrics and gynecology at Baylor University Medical Center in 1974. Dr. Amos
is certified by the American Board of Obstetricians and Gynecologists and a
Fellow of the American College of Obstetricians and Gynecologists. See "Certain
Relationships and Related Transactions".
DAVID SAMUEL COATS has served as a director of the Company since April
1996. He is President and Chief Executive Officer of PROS Strategic Solutions,
Inc. PROS is the world's leading provider of airline revenue management
systems, with more than forty airline customers around the world. From
4
<PAGE>
January 1996 until November 1996, Mr. Coats was a self-employed business
consultant and private investor. From 1993 to 1995, Mr. Coats served as a Senior
Vice President at Continental Airlines, Inc., where he was a member of the
management team that brought Continental out of bankruptcy and assisted in
establishment of its business after bankruptcy. At various periods during his
tenure at Continental, Mr. Coats was over in-flight services, reservations,
customer relations and the short haul system of Continental and Continental
Express. He also served as a member of the airline's senior management
committee. Before joining Continental, Mr. Coats served as Chief Executive
Officer of Southern Cross Airline Holdings Ltd., d.b.a. Compass Airlines, an
Australian airline placed in receivership and liquidated in April 1993. Mr.
Coats received his Bachelor of Arts degree in 1964 and Law Degree in 1965 from
the University of Texas in Austin.
ROBERT W. PHILIP has served as a director of the Company since October
1992. He was Executive In Residence and Lecturer at the University of North
Texas, Denton, Texas from September 1989 until May 1994. Effective July 31,
1989, Mr. Philip retired from Arthur Andersen LLP, an international audit and
business advisory firm, of which he was a partner since 1971. His experience
with the Andersen Worldwide Organization included assignments in the United
States and Europe, working with both very large, publicly owned clients and
smaller entrepreneurial enterprises.
None of the nominees has any family relationship with each other or any
officer or director of the Company. None of the nominees is being proposed for
election pursuant to any arrangement of understanding between such nominees and
any other person except only the directors and executive officers of the Company
acting solely as such.
THE BOARD OF DIRECTORS RECOMMENDS TO THE SHAREHOLDERS THAT THEY VOTE "FOR"
THE ELECTION OF EACH NOMINEE.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing corporate
policies and for the overall performance of the Company, although it is not
involved in day-to-day operations. The Board meets regularly throughout the year
to review significant developments affecting the Company and to act upon matters
requiring Board approval. The Board holds its annual organization meeting
following the Annual Meeting of Shareholders. It also holds special meetings as
required from time to time when important matters arise requiring Board action
between scheduled meetings. During the last fiscal year, the Board met five
times.
The Board of Directors has established Audit, Compensation, Stock Option
and Acquisition Committees to devote attention to specific subjects and to
assist it in the discharge of its responsibilities. The functions of these
committees, their current members and the number of meetings held during the
last fiscal year are described below.
The Audit Committee consists of Messrs. Philip and Coats. The functions of
the Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, discuss and
review the scope and the fees of the prospective annual audit and review the
results thereof with the independent public accountants, review and approve non-
audit services of the independent public accountants, review compliance with
existing accounting and financial policies of the Company, review the adequacy
of the financial organization of the Company and review management's procedures
and policies relative to the adequacy of the Company's internal accounting
controls and compliance with federal and state laws relating to financial
reporting. The Audit Committee met twice during the last fiscal year.
5
<PAGE>
The Compensation Committee consists of Messrs. Philip and Coats. Its
functions are to review and approve annual salaries and bonuses for all
executive officers and review, approve and recommend to the Board of Directors
the terms and conditions of all employee benefits or changes thereto. The
Compensation Committee also administers the Company's 1993 Stock Compensation
Plan for the benefit of certain officers, directors, employees and advisors of
the Company and the Company's Qualified Employee Stock Purchase Plan (the "Stock
Option Plans"). The Compensation Committee is authorized, among other powers, to
determine from time to time the individuals to whom options shall be granted,
the number of shares to be covered by each option and the time or times at which
the option shall be granted pursuant to the Stock Option Plans. The Compensation
Committee did not meet during the last fiscal year. The entire Board performed
the functions of the Compensation Committee during the year.
The Stock Option Committee consists of the Board of Directors. The function
of the Stock Option Committee is to manage and administer the Company's Outside
Directors Stock Option Plan. The Stock Option Committee did not meet during the
last fiscal year.
On March 18, 1997, the Board established an Acquisition Committee comprised
of Messrs. Philip and Coats. The function of the Acquisition Committee is to
evaluate potential acquisition candidates and report status of acquisition
activities to the Board. The Acquisition Committee met informally periodically
during the year.
The Company does not have a nominating committee. The functions customarily
attributable to a nominating committee are performed by the Board of Directors
as a whole.
During the last fiscal year, no director attended fewer than 75 percent of
the aggregate of the total number of meetings of the Board of Directors and the
total number of meetings held by all committees of the Board on which he served.
DIRECTOR COMPENSATION
Each non-employee director of the Company receives $1,750 for each meeting
of the Board of Directors attended, as well as reimbursement of reasonable
expenses, and $500 for each telephonic meeting of the Board of Directors in
which he participates. During 1998, the Company paid Mr. Philip $28,771 for
other board services rendered to the Company in connection with chairing the
Acquisition Committee.
OUTSIDE DIRECTORS STOCK OPTION PLAN
The Outside Directors Stock Option Plan (the "Directors Plan") was adopted
in order to enhance the Company's ability to secure and retain highly qualified
and experienced individuals who are not regularly salaried employees of the
Company to serve as directors of the Company. The Directors Plan provides
generally that (i) the purchase price of the Common Stock under each option
granted shall not be less than the fair market value of the Common Stock on the
date of grant; (ii) no director may be granted during any calendar year options
to purchase more than 10,000 shares of Common Stock; (iii) no option may be
granted for a period of greater than ten years from the date of grant; and (iv)
a maximum of 50,000 shares of Common Stock have been authorized and reserved for
issuance under the Directors Plan.
Pursuant to the Directors Plan, the Company issues each director options to
purchase 10,000 shares of Common Stock at fair market value upon initial
election to the Board. The Company also issues each director 1,000 additional
options upon their re-election to the Board for subsequent terms. On September
1, 1994, the Company granted Mr. Philip additional options to purchase 10,000
shares of Common Stock at $5.00 at any time before September 1, 2004 for other
services rendered to Company. The Company has granted Dr. Amos, Mr. Coats and
Mr. Philip options to purchase an aggregate of
6
<PAGE>
11,000, 12,000 and 23,000 shares of Common Stock pursuant to the Directors Plan,
respectively. As of August 20, 1996, the exercise price of all outstanding
options granted under the Directors Plan was reduced to $4.50. Immediately prior
to August 20, 1996, the Company had 43,000 options outstanding under the
Directors Plan with exercise prices ranging from $5.00 to $8.71.
MANAGEMENT
The following tables set forth certain information with respect to each of
the directors and executive officers of the Company. The executive officers and
directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John Ward Hunt 51 President, Chief Executive Officer and Chairman of the Board of
Directors
William L. Amos, Jr., M.D. 53 Director
David Samuel Coats 57 Director
Robert W. Philip 62 Director
Robert O. Brooks 51 Executive Vice President and Chief Operating Officer
David C. Bramer 51 President, Chief Executive Officer and Director of Diversified Group
Administrators, Inc., a wholly-owned subsidiary of the Company
("DGA")
David A. Hanson 35 Vice President, Finance and Accounting
Stephanie L. McVay 34 General Counsel and Secretary
</TABLE>
JOHN WARD HUNT has served as President of the Company since January 1989
and as Chief Executive Officer and Chairman of the Board since December 1989.
Mr. Hunt is Chairman of the Board of the Company's operating subsidiaries. From
1970 until joining the Company in 1989, Mr. Hunt was self-employed as an
investor in various operating businesses. Mr. Hunt is the managing general
partner of the principal shareholder of the Company. He received his Bachelor
of Arts degree in history from Washington and Lee University in 1969. See
"Certain Relationships and Related Transactions."
ROBERT O. BROOKS has served as Executive Vice President and Chief Operating
Officer of the Company since February 1996. Effective January 1, 1998, Mr.
Brooks became the President and Chief Executive Officer of the Company's PPO
subsidiary and PPO management and administrative services business subsidiary.
From March 1995 until January 1996, Mr. Brooks was Vice President, Operations of
the Company. From 1992 to 1994, Mr. Brooks was Executive Vice President and
General Manager of PayFlex Systems USA, Inc., an Omaha, Nebraska third party
administrator ("TPA"). From 1990 to 1992, he was Vice President - Insurance
Operations for R.E. Harrington, Inc., a national TPA based in Westerville, Ohio.
Mr. Brooks has been a director of the Association of Managed Healthcare
Organizations and currently serves on its PPO Council. Mr. Brooks received his
Bachelor of Science degree in social science/education from Wayne State
University in 1969 and his Masters of Business Administration degree from the
University of Dayton in 1981.
DAVID A. HANSON has served as the Vice President, Finance and Accounting of
the Company since February 1997. From January 1996 until February 1997, he
served as Principal Accounting Officer and Controller of the Company. He has
over eight years of experience with Arthur Andersen LLP, an international audit
and business advisory firm, where he served as an audit manager since 1993. He
also has two years of internal audit experience with Centex Corporation, a
national general construction and home-building company. He received Bachelor
of Arts degrees in Accounting and Financial Management/Economics from the
University of Northern Iowa in 1985 and 1984, respectively.
7
<PAGE>
STEPHANIE L. MCVAY has served as General Counsel of the Company since July
1996. She is also General Counsel for the Company's PPO subsidiary. Prior to
joining the Company, Ms. McVay practiced corporate and securities law for eight
years with the law firm of Gardere & Wynne, L.L.P. She received her Bachelors
of Business Administration degree in Accounting from Texas A&M University in
1984 and a Juris Doctor degree from Southern Methodist University School of Law
in 1988.
DAVID C. BRAMER has served as President and Chief Executive Officer of DGA
since the corporation was organized in August 1989. From 1969 to 1982, Mr.
Bramer held various financial management positions in the Pittsburgh area. In
August 1982, he founded Simplified Employee Claims, Inc., the predecessor of
DGA. Mr. Bramer received his Bachelor of Arts in Economics from the University
of Pittsburgh in 1969 and his Master of Business Administration from the Katz
School of Business - University of Pittsburgh in 1976. See "Certain
Relationships and Related Transactions".
EXECUTIVE COMPENSATION
The following table, and the accompanying explanatory footnotes, includes
annual and long-term compensation information on (i) the Company's Chief
Executive Officer and (ii) each executive officer who received total annual
salary and bonus in excess of $ 100,000, for services rendered in all capacities
during the fiscal years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
| | | | Long Term | |
| | | Annual Compensation | Compensation | |
| | | | | All Other |
| Name and | Fiscal | -----------------------------------------------------------------| Compen- |
| Principal Position | Year | Salary | Bonus | Other Annual | Options Granted | sation(1) |
| | | | | Compensation | | |
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John Ward Hunt 1997 $250,000 -0- -0- -0- $32,610
President and Chief 1996 $250,000 $30,000 -0- -0- $32,610
Executive Officer 1995 $249,577 -0- -0- -0- $32,610
Robert O. Brooks 1997 $150,000 -0- -0- 25,000 (2) -0-
Executive Vice 1996 $130,892 -0- -0- 20,000 (3) -0-
President and Chief 1995 $ 76,460 -0- -0- 30,000 (4) -0-
Operating Officer
David C. Bramer 1997 $150,000 -0- -0- 10,000 (5) -0-
President and Chief 1996 $150,110 -0- -0- -0- -0-
Executive Officer 1995 $150,650 -0- -0- 57,500 (6), (7) -0-
of DGA
</TABLE>
________________________________
(1) This amount reflects the amount paid by the Company for certain split
dollar insurance and/or deferred compensation/salary continuation for the
benefit of J. Ward Hunt.
(2) On August 15, 1997, the Company granted Robert O. Brooks an option to
purchase 25,000 shares at $3.38 per share expiring August 15, 2007. Subject to
certain terms and conditions, the options vest and may be exercised 20% per year
on a cumulative basis commencing August 15, 1998.
(3) On February 26, 1996, the Company granted Robert O. Brooks an option to
purchase 20,000 shares at $5.63 per share expiring February 26, 2004. As of
August 20, 1996, the exercise price of these
8
<PAGE>
options was decreased $4.50. Subject to certain terms and conditions, the
options vest and may be exercised 20% per year on a cumulative basis commencing
February 26, 1997.
(4) On July 25, 1995, the Company granted Robert O. Brooks 30,000 options to
purchase 30,000 shares at $6.75 per share expiring July 25, 2005. As of August
20, 1996, the exercise price of these options was decreased to $4.50. Subject to
certain terms and conditions, the options vest and may be exercised 20% per year
on a cumulative basis commencing July 25, 1996.
(5) On August 15, 1997, the Company granted David C. Bramer an option to
purchase 10,000 shares at $3.38 per share expiring August 15, 2007. Subject to
certain terms and conditions, the options vest and may be exercised 20% per year
on a cumulative basis commencing August 15, 1998.
(6) On November 6, 1995, the Company granted David C. Bramer an option to
convert up to $100,000 of principal amount of debt owed to him by the Company,
in connection with the Company's purchase of DGA to 20,000 shares of Common
Stock at $5.00 per share. On August 20, 1996, the Company amended the conversion
option to allow for up to 25,000 shares at $4.00 per share. See "Certain
Relationships and Related Transactions" for further information regarding this
transaction.
(7) On July 25, 1995, the Company granted David C. Bramer options to purchase
7,500 shares and 50,000 shares at $6.75 per share expiring July 25, 2000 and
July 25, 2005, respectively. As of August 20, 1996, the exercise price of these
options was decreased to $4.50. Subject to certain terms and conditions, 7,500
options vested immediately and 50,000 options vest 20% per year on a cumulative
basis commencing July 25, 1996.
401(K) PLAN
Effective January 1, 1991, as amended April 1, 1992, the Company adopted a
401(k) Profit Sharing Plan (the "401(k) Plan") that is qualified under Section
401(k) of the Internal Revenue Code of 1986 (the "Code"). The 401(k) Plan is
available to each Company employee who meets certain eligibility requirements.
Employees may begin participation in the 401(k) Plan in January, April, July and
October of each year any time after one year of employment. Participating
employees may contribute a portion of their compensation not exceeding a limit
set annually by the Internal Revenue Service. The Company may make matching
contributions for eligible employees in an amount of 50% of the first 5% of the
employee's contribution.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and the shareholders have adopted and approved a
Qualified Employee Stock Purchase Plan (the "Qualified Plan") established under
Section 423 of the Code. The Qualified Plan authorizes the issuance of 200,000
shares of Common Stock to employees of the Company who (i) have been employed
for at least two years, (ii) have customary employment of a minimum of 20 hours
per week or customary employment of at least five months in any calendar year
and (iii) who are not considered a highly compensated employee, defined by the
Plan as having relieved compensation in excess of $75,000 for the plan year for
which options are granted. The Qualified Plan basically provides that qualified
options may be granted to participating employees to purchase shares of Common
Stock at a purchase price equal to 85% of the fair market value of the shares as
of the date of grant of the qualified option. The term of the qualified option
shall be for a period of 27 months and will be exercisable at any time
commencing after one year from the date of grant and prior to the termination of
the option.
As of April 1, 1998, the Company had outstanding an aggregate of 25,178
qualified options to a total of approximately 31 employees at an exercise prices
of $4.36 and 67,995 qualified options to a total of approximately 103 employee
at an exercise price of $4.46.
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<PAGE>
1993 STOCK COMPENSATION PLAN
The Board of Directors and the shareholders have adopted and approved the
1993 Stock Compensation Plan, as amended. Options granted pursuant to the 1993
Plan constitute either incentive stock options within the meaning of Section 422
of the Code, or options that constitute non-qualified options at the time of
issuance of such options. The 1993 Plan provides that incentive stock options,
non-qualified stock options, and/or stock appreciation rights would be granted
to certain officers, directors (other than outside directors), employees and
advisors of the Company or its subsidiaries selected by the Compensation
Committee. A total of 1,000,000 shares of Common Stock are authorized and
reserved for issuance under the 1993 Plan, subject to adjustment to reflect
changes in the Company's capitalization in the case of a stock split, stock
dividend or similar event. The Compensation Committee administers the 1993 Plan
and has the sole authority to interpret the 1993 Plan and to make all
determinations necessary or advisable for administering the 1993 Plan. The
exercise price for any incentive option must be at least equal to the fair
market value of the shares covered thereby as of the date of grant of such
option. Except in the case of disability or death, no option shall be
exercisable after an optionee who is an employee of the Company ceases to be
employed by the Company; provided, however, the Compensation Committee has the
right to extend the exercise period for not more than three months following the
date of termination of such optionee's employment. If an optionee's employment
is terminated by reason of death or disability, the Compensation Committee may
extend the option term for a period not to exceed one year following the date of
termination of the optionee's employment. Upon the exercise of the option, the
exercise price thereof must be paid in full either in cash, shares of stock of
the Company or a combination thereof. During 1997, the Company granted 55,000
options to executive officers (34.0% of total options issued in 1997) and
107,000 options to other employees.
If and to the extent that any option to purchase reserved shares shall not
be exercised by an optionee for any reason or if such option to purchase shall
terminate as provided by the 1993 Plan, such shares which have not been so
purchased thereunder shall again become available for the purposes of the 1993
Plan unless the 1993 Plan shall have been terminated.
As of August 20, 1996, the exercise price of all outstanding options
granted under the 1993 Plan was decreased to $4.50. As of April 1, 1998, there
were outstanding options to purchase an aggregate of 353,500 shares under the
1993 Plan with exercise prices ranging from $3.38 to $5.13, granted to a total
of 18 employees, including the following executive officers:
<TABLE>
<CAPTION>
Exercise Price
Number of on Current
Name Options Date of Grant Exercise Price Expiration Date
---- --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
David C. Bramer 10,000 3.38 3.38 August 15, 2007
7,500 6.75 4.50 July 27, 2,000
50,000 6.75 4.50 July 27, 2005
Robert O. Brooks 25,000 3.38 3.38 August 15, 2007
30,000 6.75 4.50 July 27, 2005
20,000 5.63 4.50 February 21, 2006
David A. Hanson 5,000 3.38 3.38 August 15, 2007
5,000 5.25 4.50 July 1, 2006
5,000 5.125 5.125 March 18, 2007
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stephanie L. McVay 5,000 3.38 3.38 August 15, 2007
5,000 5.25 5.25 July 1, 2006
5,000 5.125 4.50 March 18, 2007
</TABLE>
EMPLOYMENT AGREEMENTS
The Company and David C. Bramer have entered into an Employment Agreement
that provides for Mr. Bramer's salary of $150,000 per year, a stock bonus if
certain conditions are met, payment of disability benefits, a car allowance and
reimbursement of certain club dues. The Agreement provides for six months
severance in certain circumstances and has a covenant not to solicit clients for
one year if Mr. Bramer resigns.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Common Stock, to file initial reports of ownership (Form 3) and
reports of changes in ownership (Form 4) with the Securities and Exchange
Commission (the "SEC"). Executive officers, directors and greater than ten
percent beneficial owners are required by the SEC to furnish the Company with
copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to the Company,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent beneficial owners
were met during the year ended December 31, 1997, except each of Dr. Amos, Mr.
Coats and Mr. Philip each of which had one late Form 4 filing relating to their
annual grant of options pursuant to the Directors Plan and Mr. Bramer had one
late Form 4.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Answer Partnership, Ltd. (the "Partnership") is a Texas limited
partnership that is owned 62.5% by J. Ward Hunt and 37.5% by The Essential
Endowment Trust (the "Trust"). Each of them owns a 1% general partnership
interest in the Partnership, with the balance of their respective interests
being held as limited partnership interests. The Partnership was organized
effective as of July 3, 1992, for purposes of acquiring all of the then-issued
and outstanding Common Stock. Mr. Hunt, President and Chief Executive Officer
of the Company, is the Managing Partner of the Partnership and controls the day-
to-day management of the Partnership. The Trust is a Texas irrevocable trust
that was formed effective as of July 2, 1992, for purposes of acquiring an
interest in the Partnership for the primary benefit of three children of Mr.
Hunt. In the event that Mr. Hunt should withdraw, or cease to serve, as
Managing Partner, the successor Managing Partner under the terms of the
partnership agreement for the Partnership would be Hilre Lucille Hunt and Thomas
R. Corbett, as Co-Trustees of the Trust. The Partnership is authorized to
invest generally in any type of property and to hold or develop and to sell,
exchange or otherwise dispose of all or any part of the Partnership property and
carry on any other business or businesses and exercise any and all powers as may
be permitted by law.
On October 2, 1994, the Company approved a five-year loan to Mr. Hunt of up
to $300,000. On March 24, 1998, the Company extended the loan for two
additional years. The loan is secured by the pledge of 70,000 shares of the
Company's Common Stock by the Partnership and is guaranteed by the Partnership.
The loan accrues interest at the variable rate of prime plus one percent per
annum. The principal and any unpaid accrued interest are due in its entirety by
November 2000. The outstanding principal and accrued interest on the loan as of
April 1, 1998 was approximately $393,000.
11
<PAGE>
On March 18, 1998, the Partnership entered into a $1,400,000 revolving line
of credit transaction with Inwood National Bank (the "Bank"). Under the terms
of the Partnership's agreement with the Bank, the Partnership executed
promissory notes dated March 18, 1998 (the "Notes") in the amount of $1,400,000.
The Notes bear interest at a variable rate equal to one percent over prime. The
Partnership is required to pay accrued interest on the principal of the Notes on
a monthly basis with a final payment of unpaid principal and accrued interest
due and payable on May 15, 1998. All interest payments are current, and the
outstanding principal balance of the Notes as of April 1, 1998 was approximately
$1,135,000. The Notes are secured by a Pledge Agreement dated March 18, 1998,
wherein the Partnership pledged 700,000 registered shares of Common Stock as
security for the Bank. The Notes are also secured by a guaranty entered into
between Mr. Hunt, as guarantor, and the Bank. The Partnership retains the right
to vote the Common Stock for so long as no default has occurred under the Notes
or the Pledge Agreement. The Partnership is currently in compliance with the
terms of the Notes and the Pledge Agreement. Although the Partnership intends
to comply with the terms of the Notes, any inability or failure by the
Partnership to comply with the terms of the Notes and Pledge Agreement may
result in the Bank's owning the Common Stock, which it would probably be
required by banking laws to sell.
In August 1994, the Company purchased all of the issued and outstanding
shares of capital stock of DGA and Diversified Group Insurance Agency of
Pennsylvania, Inc. from David C. Bramer and Robert Soleau for $500,000 in cash,
a promissory note payable to Mr. Soleau in the principal amount of $1,558,000
and a promissory note payable to Mr. Bramer in the principal amount of $342,000
payable in semi-annual installments through June 30, 1997. On July 8, 1997, the
Company paid all amounts due to Mr. Soleau and $242,000 of the amount due to Mr.
Bramer. The Company owes Mr. Bramer $100,000 due July 1, 1998. On November 6,
1995, the Company agreed to permit David C. Bramer the option to convert up to
$100,000 of principal amount of this debt to 20,000 shares of Common Stock at
$5.00 per share. On August 20, 1996, the Company amended the conversion option
to allow Mr. Bramer to convert $100,000 of the principal amount of the debt for
up to 25,000 shares of Common Stock at $4.00 per share.
DGA leases approximately 5,000 square feet in a building owned by David C.
Bramer and his wife for approximately $2,750 per month. DGA is responsible for
all maintenance and repairs of the building.
Dr. Amos serves as the Medical Director for MedicalControl Network
Solutions, Inc., an indirect wholly owned subsidiary of the Company on a
consultant basis. For such services, the Company pays MedStrategies of Georgia,
Inc., a corporation in which Dr. Amos is the sole shareholder, $5,250 per month
and $225 per hour for any hours worked in excess of 35 hours a month plus
expenses. For the year ended December 31, 1997, the Company paid MedStrategies
of Georgia, Inc. $71,025.
The Company does not currently intend to engage in future transactions with
Mr. Hunt or any affiliated persons in the future other than the lease of the
building from Mr. and Mrs. Bramer and the consulting arrangement with Dr. Amos.
All ongoing and any future transactions with affiliates are and will be on terms
no less favorable to the Company than could have been or could be obtained by
the Company from unaffiliated parties. The Company may seek competitive bids
and related market data prior to any such transaction. Further, any loans to
officers, affiliates or shareholders of the Company will be subject to review
and approval by a majority of the disinterested directors of the Company.
SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent certified public accountants, to serve as the Company's independent
auditors for the fiscal year ended December 31, 1998. Arthur Andersen LLP has
audited the Company's financial statements since its 1993 fiscal year. A
representative of Arthur Andersen LLP will attend the Annual Meeting and will
have the
12
<PAGE>
opportunity to make a statement if he or she so desires. This representative
will be available to respond to appropriate shareholder questions at that time.
PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS
Any shareholder of record of the Company, who desires to submit a proper
proposal for inclusion in the proxy materials relating to the next Annual
Meeting of Shareholders, must do so in writing and it must be received at the
Company's principal executive offices by December 21, 1998. The proponent must
be a record or beneficial owner entitled to vote at the next Annual Meeting on
his or her proposal and must continue to own such security entitling him or her
to vote through the date on which the meeting is held.
ANNUAL REPORT
The Annual Report to Shareholders concerning the operations of the Company
during the fiscal year ended December 31, 1997, including audited financial
statements for the year then ended, has been distributed to all record holders
as of the record date. The Annual Report is not incorporated in the Proxy
Statement and is not to be considered a part of the soliciting material.
OTHER BUSINESS
Management of the Company is not aware of any other matters that are to be
presented at the Annual Meeting and has not been advised that other persons will
present any such matters. However, if other matters properly come before the
Annual Meeting, the individual named in the accompanying proxy shall vote on
such matters in accordance with his best judgment.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB
UPON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, TO
EACH SHAREHOLDER OF RECORD OR TO EACH SHAREHOLDER WHO OWNED COMMON STOCK OF THE
COMPANY LISTED IN THE NAME OF A BANK OR BROKER, AS NOMINEE, AT THE CLOSE OF
BUSINESS ON APRIL 1, 1998. ANY REQUEST BY A SHAREHOLDER FOR THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB SHOULD BE MAILED TO THE COMPANY'S SECRETARY,
MEDICALCONTROL, INC., P. O. BOX 549005, DALLAS, TEXAS 75354-9005.
The above notice and Proxy Statement are sent by order of the Board of
Directors.
Stephanie L. McVay
Secretary
April 13, 1998
13
<PAGE>
[Form of Proxy]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF MEDICALCONTROL, INC.
TO BE HELD MAY 12, 1998
The undersigned hereby appoints John Ward Hunt and Robert O. Brooks, and
each of them, as the lawful agents and proxies of the undersigned (with all
powers the undersigned would possess if personally present, including full power
of substitution), and hereby authorizes them to represent and to vote, as
designated below, all the shares of Common Stock of MedicalControl, Inc. held of
record by the undersigned as of the close of business on April 1, 1998, at the
Annual Meeting of Shareholders to be held on Tuesday, May 12, 1998, or any
adjournment or postponement thereof.
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
J.W. Hunt, R. Phillip, D.S. Coats, W. Amos
(INSTRUCTION: To withhold authority to vote for any nominee, write the nominees'
names on the space provided below.)
- --------------------------------------------------------------------------------
2. In his or their discretion, the Proxy is authorized to vote upon any
matters which may properly come before the Annual Meeting, or any adjournment or
postponement thereof.
It is understood that when properly executed, this Proxy will be voted in
the manner directed herein by the undersigned shareholder. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER, THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS PROPOSED IN ITEM (1).
The undersigned hereby revokes all previous proxies related to the shares
covered hereby and confirms all that said Proxy and his substitutes may do by
virtue hereof.
Please sign exactly as names appear
below. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
Dated:______________, 1998
-------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
[ ] PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE MEETING.
