<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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)
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(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 transactions:
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(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:
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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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<PAGE> 2
MEDICALCONTROL, INC.
8625 KING GEORGE, DR., SUITE 300
DALLAS, TEXAS 75235
TELEPHONE: (214) 630-6368
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held Wednesday, May 12, 1999
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 Wednesday,
May 12, 1999, at 9:30 a.m., local time, for the following purposes:
1. To elect five directors to hold office for the term specified in the Proxy
Statement or until their successors are elected and qualified;
2. To approve an amendment to the 1993 Stock Compensation Plan to increase the
authorized number of shares of common stock of the Company available under
the plan from 1,000,000 to 2,000,000;
3. To approve an amendment to the Outside Directors Stock Option Plan to
increase the authorized number of shares of common stock of the Company
available under the plan from 100,000 to 200,000; and
4. 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,
1999, 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
Dallas, Texas
April 14, 1999
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> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information.............................................................................. 2
Voting at Annual Meeting......................................................................... 3
Principal Shareholders and Ownership of Management............................................... 4
Proposal 1 - Election of Directors............................................................... 5
Board of Directors............................................................................... 6
Management....................................................................................... 7
Executive Compensation........................................................................... 9
Certain Relationships and Related Transactions................................................... 11
Proposal 2 - Amendment to 1993 Stock Compensation Plan........................................... 13
Proposal 3 - Amendment to Outside Directors Stock Option Plan.................................... 15
Selection of Auditors............................................................................ 16
Proposals of Shareholders for Presentation at Next Annual Meeting of Shareholders................ 16
Annual Report on Form 10-KSB..................................................................... 16
Other Business................................................................................... 16
Exhibit A - Amendment to 1993 Stock Compensation Plan............................................ A-1
Exhibit B - Amendment to the Outside Directors Stock Option Plan ................................ B-1
</TABLE>
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MEDICALCONTROL, INC.
8625 KING GEORGE DR., SUITE 300
DALLAS, TEXAS 75235
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 12, 1999
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders by the Board of
Directors of MedicalControl, Inc. (the "Company") for solicitation of proxies by
the Company's Board of Directors for use at the Annual Meeting of Shareholders
of the Company (the "Annual Meeting") on Wednesday, May 12, 1999, 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 Annual 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 and enclosed Proxy Statement on or about April 14, 1999.
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 and the other named
proposals.
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.
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VOTING AT ANNUAL 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, 1999 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 4,165,984 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. Shareholders do not have the right to cumulate their
votes. The proposals to amend the 1993 Stock Compensation Plan and the Outside
Directors Stock Option Plan require a majority vote of the shares represented at
the Annual Meeting either in person or by Proxy. The election of directors
requires a plurality vote in the event of more nominees then positions (i.e.,
the five 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 entitled to vote for the 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 AND FOR THE OTHER NAMED PROPOSALS. IT IS
INTENDED THAT PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR EACH
NOMINEE AND FOR SUCH OTHER PROPOSALS, UNLESS OTHERWISE DIRECTED BY THE
SHAREHOLDER SUBMITTING THE PROXY.
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PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 1, 1999, 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 director of the Company, (iii) each
executive officer of the Company listed in the Summary Compensation Table set
forth under the caption "Executive Compensation" and (iv) all directors and
executive officers as a group. Except pursuant to applicable community property
laws and except as otherwise indicated, each shareholder identified in the table
possesses sole voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
Name Share Beneficially Owned (1) Percent of Shares
---- ---------------------------- -----------------
<S> <C> <C>
William L. Amos, Jr. 16,000 (2) *
David C. Bramer 46,500 (3) *
Robert O. Brooks 31,000 (4) *
Frank M. Burke, Jr. 10,000 (4) *
David Samuel Coats 13,000 (4) *
John Ward Hunt (5)
and The Answer Partnership, Ltd. 3,445,000 (6) 63.2%
Donald Richard Huntington 189,569 (7) 3.5%
All Executive Officers and 3,945,638 (8) 72.4%
Directors as a Group (10 persons)
</TABLE>
- -------------------------------------
* Less than one percent.
(1) Includes shares issuable upon exercise of stock options which are vested or
will be vested prior to May 31, 1999.
(2) Includes 12,000 shares with respect to which Dr. Amos has the right to
acquire by virtue of outstanding vested options.
(3) Includes 36,500 shares with respect to which Mr. Bramer has the right to
acquire by virtue of outstanding vested options.
(4) All of which represent shares with respect to which the officer or director
have the right to acquire by virtue of outstanding vested options.
(5) 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.
(6) Includes 283,500 shares with respect to which The Answer Partnership, Ltd.
has the right to acquire by virtue of outstanding vested options and
500,000 shares with respect to which J. Ward Hunt has the right to acquire
by virtue of outstanding vested options.
(7) Includes 73,469 shares of Common Stock issuable upon conversion of a note
issued by the Company in connection with the acquisition of Business Health
Companies, Inc. ("BHC") by the Company in September 1998.
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(8) Includes options to purchase 891,000 shares of Common Stock and 146,938
shares of Common Stock issuable upon conversion of notes issued by the
Company in connection with the acquisition of BHC by the Company in
September 1998.
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 five (5). Each director will be elected for a one-year term
expiring upon the election of his successors at the next annual meeting. The
five persons designated by the Board of Directors as nominees for election as
directors at the Annual Meeting are J. Ward Hunt, William L. Amos, Jr., M.D.,
Frank M. Burke, Jr., David Samuel Coats and Donald Richard Huntington. Messrs.
Hunt, Amos, Coats and Burke are currently members of the Board of Directors. Mr.
Huntington is being nominated for the first time to the Company's 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 Messrs. Hunt
and Huntington, who are employees 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".
FRANK M. BURKE, JR. was appointed to the Board of Directors on March
22, 1999. Mr. Burke has served as Chairman, Chief Executive Officer and Managing
General Partner of Burke, Mayborn Company, Ltd., a private investment and
consulting company located in Dallas, Texas, since 1984. Burke, Mayborn Company
Ltd. provides strategic and financial consulting to selected individuals and
entities. From 1960 to 1984, Mr. Burke was associated with Peat, Marwick,
Mitchell & Co., an international firm of certified public accountants now known
as KPMG, L.L.P. Mr. Burke was elected partner in 1968, and served as a member of
the Peat Marwick Board of Directors from 1978 to 1984. During the same period
Mr. Burke served as Chairman, Energy Group for Peat Marwick International and
National Director of Energy and Natural Resources for Peat Marwick in the United
States. Mr. Burke presently serves as a director of Kaneb Services, Inc. (NYSE).
Kaneb Pipe Line Partners, L.P. (NYSE) and CMS NOMECO Oil & Gas Co., a wholly
owned
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<PAGE> 8
subsidiary of CMS Energy Corporation (NYSE). In addition, Mr. Burke serves on
the board of directors of numerous private corporations.
DAVID SAMUEL COATS has served as a director of the Company since April
1996. Mr. Coats is a self-employed business consultant and private investor.
From January 1993 until December 1998, he was President and Chief Executive
Officer of PROS Strategic Solutions, Inc. PROS is the world's leading provider
of airline revenue management systems. From 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. Mr. Coats received his Bachelor of Arts
degree in 1964 and Law Degree in 1965 from the University of Texas in Austin.
None of the nominees has any family relationship with each other or any
officer or director of the Company. Mr. Huntington was a former shareholder of
BHC which was acquired by the Company in September 1998. Mr. Huntington, Mr.
Ralph T. Smith, Jr. (also a former BHC shareholder) and The Answer Partnership,
Ltd. entered into a Voting Agreement in September 1998 pursuant to which The
Answer Partnership, Ltd., subject to fiduciary duties, agreed to vote for the
election of a designee of Messrs. Huntington and Smith to the Company's Board of
Directors. Mr. Huntington is the designee of Messrs. Huntington and Smith. Other
than the foregoing arrangement, 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 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 eight
times.
The Board of Directors has established Audit, Compensation and Stock
Option 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.
In 1998, the Audit Committee consisted of Mr. Robert W. Philip, who
resigned from the Company's Board of Directors in March 1999, and Mr. 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.
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In 1998, the Compensation Committee consisted 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 (the "Stock Option Plan"). 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 Plan. The Compensation Committee met twice during the last
fiscal 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.
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. In addition, outside directors receive
options under the Outside Directors Plan to purchase 10,000 shares of Common
Stock at fair market value upon initial election to the Board and 1,000
additional options upon their re-election for subsequent terms.
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>
William L. Amos, Jr., M.D. 53 Director
David C. Bramer 52 President, Chief Executive Officer and Director of Diversified Group
Administrators, Inc., a wholly-owned subsidiary of the Company
("DGA")
Robert O. Brooks 52 Executive Vice President and Chief Operating Officer
Bob E. Buddendorf 61 Senior Vice President and Chief Financial Officer
Frank M. Burke, Jr. 59 Director
David Samuel Coats 58 Director
John Ward Hunt 52 President, Chief Executive Officer and Chairman of the Board of
Directors
Donald Richard Huntington 43 Director and President of BHC
Stephanie L. McVay 35 General Counsel and Secretary
Ralph T. Smith, Jr. 52 Chairman of the Board of BHC
</TABLE>
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
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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" and
"Executive Compensation -- Employment Agreements."
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 software, Internet data center and claims
administration 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.
BOB E. BUDDENDORF was elected Senior Vice President and Chief Financial
Officer of the Company in April 1999. From July 1988 until March 1999, Mr.
Buddendorf served in various capacities (most recently as assistant treasurer)
in the Treasury organization of Electronic Data Systems Corporation, a Plano,
Texas computer services firm. He has over eight years of experience with
Deloitte & Touche, an international accounting and consulting firm, and 20 years
experience as chief financial officer of three publicly held corporations. Mr.
Buddendorf received his Bachelor of Business Administration and Master of
Business Administration degrees from Southern Methodist University in 1959 and
1961, respectively, and is a Certified Public Accountant.
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."
DONALD RICHARD HUNTINGTON has served as President and Chief Executive
Officer of BHC since June 1994. BHC was acquired by the Company in September
1998. Mr. Huntington is an employee benefits professional with 20 years of
experience in the design, funding and administration of employee health care
benefit plans. His experience includes senior management in the group benefits
department of The Prudential Insurance Company of America and senior level
benefits consulting for Coopers & Lybrand and Towers Perrin. Mr. Huntington
graduated from St. John's University with a Bachelor of Science in Economics in
1978. See "Executive Compensation -- Employment Agreements."
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.
RALPH T. SMITH, JR. has served as Chairman of the Board of BHC since
June 1994. BHC was acquired by the Company in September 1998. Prior to joining
BHC, Mr. Smith held senior management positions with Mitchell Energy &
Development Corp. and BJ Hughes. Mr. Smith is a graduate of University of
Massachusetts and his background includes 25 years of experience in human
resources, compensation and benefits administration. See "Executive Compensation
- -- Employment Agreements."
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<PAGE> 11
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, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Long Term All Other
Name and Fiscal Other Annual(1) Compensation Compen-
Principal Position Year Salary Bonus Compensation Options Granted sation(2)
- ------------------- ------- ----------- ------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Ward Hunt 1998 $ 262,500 $ 100,000(3) $ 4,379 -0- $ 32,610
President and Chief 1997 $ 250,000 -0- $ 3,317 -0- $ 32,610
Executive Officer 1996 $ 250,000 $ 30,000 -0- -0- $ 32,610
Robert O. Brooks 1998 $ 162,750 $ 25,000(3) $ 3,423 -0- -0-
Executive Vice 1997 $ 150,000 -0- $ 3,759 25,000(4) -0-
President and Chief 1996 $ 130,892 -0- $ 1,708 20,000(5) -0-
Operating Officer
David C. Bramer 1998 $ 150,126 -0- $ 3,425 -0- -0-
President and Chief 1997 $ 150,000 -0- $ 3,753 10,000(6) -0-
Executive Officer 1996 $ 150,110 -0- $ 3,753 -0- -0-
of DGA
</TABLE>
- ----------
(1) Except as otherwise indicated, the amounts indicated reflect the Company's
contributions on behalf of the persons indicated to the 401(k) Plan.
(2) 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.
(3) In connection with the BHC Acquisition, Messrs. Hunt and Brooks were
awarded bonuses; however, other than $22,000 paid to Mr. Hunt, the payment
of the bonuses has been deferred.
(4) 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.
(5) 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, 2006. 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 February 26,
1997.
(6) 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.
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<PAGE> 12
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.
STOCK OPTION PLAN
As of April 1, 1999, the Company had outstanding an aggregate of 12,727
qualified options to a total of 16 employees at an exercise price of $4.46.
No options were granted during the year ended December 31, 1998 to
executive officers of the Company listed in the Summary Compensation Table set
forth under the caption "Executive Compensation."
The following table sets forth certain information with respect to the
options exercised by the executive officers named above during the year ended
December 31, 1998 or held by such persons at December 31, 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired Value Options at Dec. 31, 1998 at Dec. 31, 1998 (1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Hunt -0- -0- 700,000 100,000 $ 1,162,500 -0-
Mr. Brooks -0- -0- 31,000 44,000 $ 117,955 $ 181,900
Mr. Bramer -0- -0- 39,500 28,000 $ 145,428 $ 110,460
</TABLE>
(1) Based upon the closing price of the common stock of the Company on December
31, 1998, which was $8.125 per share.
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 Employment Agreement
provides for six months severance in certain circumstances and has a covenant
not to solicit clients for one year if Mr. Bramer resigns.
In connection with the acquisition of BHC in 1998, Messrs. Huntington
and Smith entered into employment agreements with a subsidiary of the Company.
Under the provisions of these agreements, a subsidiary of the Company agreed to
employ Messrs. Huntington and Smith until September 1, 2003, subject to certain
exceptions, and to pay them each a base salary of at least $200,000 and to
provide to them certain perquisites. These employment agreements also contain
non-competition covenants which would restrict Messrs. Huntington and Smith from
competing with the Company in the States of Texas, Louisiana, New Mexico,
Arkansas, Oklahoma, Mississippi, Alabama and Tennessee for three years after
their employment terminates.
10
<PAGE> 13
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, 1998, except each
of Dr. Amos, Mr. Coats and Mr. Philip 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing similar functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served as a director of the
Company.
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, 1999 was approximately $427,684.
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 a
promissory note dated November 1, 1997 (the "Note") in the amount of
11
<PAGE> 14
$1,400,000. The Note bears interest at a variable rate equal to one percent over
prime. The Partnership is required to pay accrued interest on the principal of
the Note on a monthly basis with a final payment of unpaid principal and accrued
interest due and payable on May 15, 1999. All interest payments are current, and
he outstanding principal balance of the Note as of April 1, 1999 was
approximately $1,400,000. The Note is 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 Note is also secured by a Commercial
Continuing 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 Note or the Pledge Agreement. The Partnership is
currently in compliance with the terms of the Note and the Pledge Agreement.
Although the Partnership intends to comply with the terms of the Note, any
inability or failure by the Partnership to comply with the terms of the Note 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. Mr. Bramer had a conversion option to allow him to convert the principal
amount of the debt for up to 25,000 shares of Common Stock at $4.00 per share.
Effective April 1, 1998, Mr. Bramer converted $40,000 of the principal amount of
the debt owed to him by the Company into 10,000 shares of Common Stock. The
remaining balance of $60,000 has been paid to Mr. Bramer.
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. and Value Check, Inc., indirect wholly owned subsidiaries 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 plus expenses. For any hours worked in excess of 35 hours per
month, the Company pays MedStrategies $225 per hour for PPO related services and
$150 per hour for utilization review related services. For the year ended
December 31, 1998, the Company paid MedStrategies of Georgia, Inc. $65,847.
Messrs. Huntington and Smith are former shareholders of BHC which was
acquired in September 1998 by the Company. In consideration of their shares of
BHC common stock, the Company paid to each of Messrs. Huntington and Smith
approximately $921,000 in cash and issued 199,467 shares of Common Stock to each
of them. In addition, the Company issued convertible subordinated promissory
notes to each of them in the original principal amount of $428,571.43. These
notes bear interest at the rate of 8.5% per year, provide for quarterly payments
of principal and accrued interest and mature on October 1, 2003. The notes are
convertible into Common Stock at an effective conversion price of $5.25 per
share. In addition, Messrs. Huntington and Smith also entered into employment
agreements with a subsidiary of the Company as described under the caption
"Executive Compensation."
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.
12
<PAGE> 15
PROPOSAL 2
AMENDMENT TO 1993 STOCK COMPENSATION PLAN
On October 29, 1993 and May 25, 1994, the Board of Directors and the
shareholders, respectively, adopted and approved the 1993 Stock Compensation
Plan (the "1993 Plan"). The 1993 Plan authorizes the grant of options for up to
300,000 shares of Common Stock. On December 10, 1994 and May 24, 1995, the Board
of Directors and the shareholders, respectively, adopted and approved an
amendment to the 1993 Plan to increase the number of authorized shares of Common
Stock subject to the 1993 Plan from 300,000 to 1,000,000. On August 20, 1996 and
May 14, 1997, the Board of Directors and the shareholders amended the 1993 Plan
to allow the Board of Directors to decrease the exercise price of the options
outstanding under the 1993 Plan. The Company has outstanding options to purchase
518,500 shares under the 1993 Plan. In March 1999, the Board of Directors
approved an amendment to the 1993 Plan to increase the number of authorized
shares of Common Stock subject to the 1993 Plan to 2,000,000. The shareholders
of the Company are being asked to approve this amendment.
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. At December 31, 1998, a
total of approximately 230 employees were eligible to receive options under the
1993 Plan. 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
(or, in the absence of a compensation Committee, the entire Board of Directors)
and has the sole authority to interpret the 1993 Plan and to make all
determinations necessary or advisable for administering the 1993 Plan.
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.
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.
The purpose of the 1993 Plan is to encourage ownership of the Common
Stock of the Company by certain officers, directors, employees and advisors of
the Company or any subsidiary of the Company in order to provide additional
incentive for such persons to promote the success and the business of the
Company or its subsidiary and to encourage them to remain in the employ of the
Company or its subsidiary by providing such persons an opportunity to benefit
from any appreciation of the Common Stock through the issuance of stock options
to such person in accordance with the terms of the 1993 Plan.
As of December 31, 1998, options to purchase an aggregate of 590,950
shares of Common Stock (net of options canceled) had been granted pursuant to
the 1993 Plan, options to purchase 72,450 shares had been exercised, options to
purchase 518,500 shares remained outstanding, and only 409,050 shares remained
13
<PAGE> 16
available for future grant. As of December 31, 1998, the market value of all
shares of Common Stock subject to outstanding options was approximately
$4,212,813 (based upon the closing sale price of the common stock as reported on
The Nasdaq National Market on December 31, 1998).
As of December 31, 1998, the following current executive officers named
in the Compensation Table appearing elsewhere in this Proxy Statement have been
granted options under the 1993 Plan in the amount indicated: Robert O. Brooks,
Executive Vice President and Chief Operating Officer, 75,000 shares, and David
C. Bramer, President and Chief Executive Officer of DGA, 67,500 shares. Since
adoption of the 1993 Plan, all current executive officers, as a group, have been
granted options covering 157,500 shares of Common Stock, and all employees,
including all current officers who are not executive officers, as a group, have
been granted options covering 433,450 shares of Common Stock. The following
employees have received 5% or more of the options granted under the 1993 Plan
(net of options cancelled): David Bramer, Robert O. Brooks, David Riston, John
Weymer and Patrick Kennedy.
FEDERAL INCOME TAX INFORMATION WITH RESPECT TO THE 1993 PLAN
The Company has been advised that the federal income tax consequences
of the 1993 Plan to the Company and the optionees, and possible exercise of
options granted under the 1993 Plan, will depend upon future circumstances and
possible changes in the tax laws. The following summary discussion addresses
certain federal income tax consequences of the 1993 Plan. THIS DISCUSSION DOES
NOT PURPORT TO ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY BE APPLICABLE TO ANY
PARTICULAR EMPLOYEE OR TO THE COMPANY. IN ADDITION, THIS DISCUSSION DOES NOT
ADDRESS FOREIGN, STATE OR LOCAL TAXES, NOR DOES IT ADDRESS FEDERAL TAXES OTHER
THAN FEDERAL INCOME TAX. THIS DISCUSSION IS BASED UPON APPLICABLE STATUTES,
REGULATIONS, CASE LAW, ADMINISTRATIVE INTERPRETATIONS AND JUDICIAL DECISION IN
EFFECT AS OF THE DATE OF THIS PROXY STATEMENT.
The grantee of a non-qualified option pursuant to the 1993 Plan
recognizes no income for federal income tax purposes on the grant thereof. On
the exercise of an option pursuant to the 1993 Plan, the difference between the
fair market value of the underlying shares of Common Stock on the exercise date
and the option exercise price is treated as compensation to the holder of the
option taxable as ordinary income in the year of exercise, and such fair market
value becomes the basis for the underlying shares which will be used in
computing any capital gain or loss upon disposition of such shares. Subject to
certain limitations the Company may deduct for the year of exercise an amount
equal to the amount recognized by the option holder as ordinary income upon
exercise of an option granted pursuant to the 1993 Plan.
The grantee of an incentive option pursuant to the 1993 Plan recognizes
no income for federal income tax purposes on the grant thereof. Except as
provided below with respect to the alternative minimum tax, there is no tax upon
exercise of the incentive option. If no disposition of shares acquired upon
exercise of the incentive option is made by the option holder within two years
after date of the grant of the incentive option or within one year after
exercise of the incentive option, any gain realized by the option holder on the
subsequent sale of such shares is treated as a long-term capital gain for
federal income tax purposes. If the shares are sold prior to the expiration of
such periods, the difference between the lesser of the value of the shares at
the date of exercise or at the date of sale and the exercise price of the
incentive option is treated as compensation to the employee taxable as ordinary
income and the excess gain, if any, is treated as capital gain (which will be
long-term capital gain if the shares are held for more than one year).
The excess of the fair market value of the underlying shares over the
option price at the time of exercise of an incentive option will constitute an
item of tax preference for purposes of the alternative minimum tax. Taxpayers
who incur the alternative minimum tax are allowed a credit against the regular
tax liability in a later year; however, the minimum tax credit cannot reduce the
regular tax below the alternative minimum tax for that carryover year.
14
<PAGE> 17
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
AMEND THE 1993 PLAN
The full text of the amendment to the 1993 Stock Compensation Plan is
printed as Exhibit A, beginning on page A-1.
PROPOSAL 3
AMENDMENT TO OUTSIDE DIRECTORS STOCK OPTION PLAN
On December 3, 1992, the Board of Directors and the then sole
shareholder adopted and approved the Outside Directors Stock Option Plan (the
"Directors 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 100,000
shares of Common Stock have been authorized and reserved for issuance under the
Directors Plan. The Company has outstanding options to purchase 35,000 shares
under the Directors Plan.
On March 22, 1999, the Board of Directors approved an amendment to the
Directors Plan to increase the number of authorized shares subject to the
Directors Plan from 100,000 to 200,000. The shareholders of the Company are
being asked to approve this amendment.
The purpose of the Directors Plan is to increase the Company's ability
to secure and retain highly qualified and experienced individuals to serve as
directors of the Company by affording them the opportunity to acquire an equity
interest in the Company.
Pursuant to the Outside Directors Stock Option 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. The Company has granted Dr. Amos, Mr. Coats and Mr. Burke options to
purchase an aggregate of 12,000, 13,000 and 10,000 shares of Common Stock
pursuant to the Directors Plan, respectively.
FEDERAL INCOME TAX INFORMATION WITH RESPECT TO THE DIRECTORS PLAN
The Company has been advised that the federal income tax consequences
of the Directors Plan to the Company and the optionees, and possible exercise of
options granted under the Directors Plan, will depend upon future circumstances
and possible changes in the tax laws. The following summary discussion addresses
certain federal income tax consequences of the Directors Plan. THIS DISCUSSION
DOES NOT PURPORT TO ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY BE APPLICABLE
TO ANY PARTICULAR EMPLOYEE OR TO THE COMPANY. IN ADDITION, THIS DISCUSSION DOES
NOT ADDRESS FOREIGN, STATE OR LOCAL TAXES, NOR DOES IT ADDRESS FEDERAL TAXES
OTHER THAN FEDERAL INCOME TAX. THIS DISCUSSION IS BASED UPON APPLICABLE
STATUTES, REGULATIONS, CASE LAW, ADMINISTRATIVE INTERPRETATIONS AND JUDICIAL
DECISION IN EFFECT AS OF THE DATE OF THIS PROXY STATEMENT.
All options granted under the Directors Plan are non-qualified options.
The grantee of a non-qualified option pursuant to the Directors Plan recognizes
no income for federal income tax purposes on the grant thereof. On the exercise
of an option pursuant to the Directors Plan, the difference between the fair
market value of the underlying shares of Common Stock on the exercise date and
the option exercise price is treated as compensation to the holder of the option
taxable as ordinary income in the year of exercise, and
15
<PAGE> 18
such fair market value becomes the basis for the underlying shares which will be
used in computing any capital gain or loss upon disposition of such shares.
Subject to certain limitations the Company may deduct for the year of exercise
an amount equal to the amount recognized by the option holder as ordinary income
upon exercise of an option granted pursuant to the Directors Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO
AMEND THE OUTSIDE DIRECTORS STOCK OPTION PLAN.
The full text of the amendment to the Outside Directors Stock Option
Plan is printed as Exhibit B, beginning on page B-1.
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 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 13, 1999. 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 ON FORM 10-KSB
The Company's Annual Report on Form 10-KSB has been distributed to all
record holders as of the record date. The Annual Report on Form 10-KSB 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.
The above notice and Proxy Statement are sent by order of the Board of
Directors.
Stephanie L. McVay
Secretary
April 14, 1999
16
<PAGE> 19
Exhibit A
AMENDMENT TO 1993 STOCK COMPENSATION PLAN
of
MEDICALCONTROL, INC.
The 1993 Stock Compensation Plan of MedicalControl, Inc. (the "1993
Plan") is amended to change the words "One Million (1,000,000)" to "Two Million
(2,000,000)" in Section 2 of the 1993 Plan.
This Amendment to the 1993 Stock Compensation Plan of MedicalControl,
Inc. (this "Amendment") shall become effective on the date of execution hereof,
which date is the date the Board of Directors approved and adopted the Amendment
(the "Effective Date"); provided, however, if the shareholders of the Company
shall not have approved the Amendment by the requisite vote of the shareholders
within twelve (12) months after the Effective Date, then this Amendment shall
terminate and all amendments to Options theretofore granted under the 1993 Plan
pursuant to the terms of this Amendment shall terminate and be null and void.
EXECUTED as of March 22, 1999 MEDICALCONTROL, INC.
By:
---------------------------
J. Ward Hunt, President and
Chief Executive Officer
A-1
<PAGE> 20
Exhibit B
AMENDMENT TO OUTSIDE DIRECTORS STOCK OPTION PLAN
of
MEDICALCONTROL, INC.
The Outside Directors Stock Option Plan of MedicalControl, Inc. (the
"Directors Plan") is amended to change the words "One Hundred Thousand
(100,000)" to "Two Hundred Thousand (200,000)" in Section 2 of the Directors
Plan.
This Amendment to the Outside Directors Stock Option Plan of
MedicalControl, Inc. (this "Amendment") shall become effective on the date of
execution hereof, which date is the date the Board of Directors approved and
adopted the Amendment (the "Effective Date"); provided, however, if the
shareholders of the Company shall not have approved the Amendment by the
requisite vote of the shareholders within twelve (12) months after the Effective
Date, then this Amendment shall terminate and all amendments to Options
theretofore granted under the Directors Plan pursuant to the terms of this
Amendment shall terminate and be null and void.
EXECUTED as of March 22, 1999 MEDICALCONTROL, INC.
By:
----------------------------
J. Ward Hunt, President and
Chief Executive Officer
B-1
<PAGE> 21
[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, 1999
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Shareholders of MedicalControl, Inc. (the "Company") to be held on
May 12, 1999, at 9:30 a.m., local time, at the Company's offices at 8625 King
George Drive, Suite 300, Dallas, Texas 75235 and the Proxy Statement in
connection therewith, and 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, 1999, at the
Annual Meeting of Shareholders or any adjournment or postponement thereof.
1. ELECTION OF DIRECTORS
_____ FOR all nominees listed below (except as marked to the contrary
below)
_____ WITHHOLD authority to vote for all nominees listed below
J. Ward Hunt, Donald Richard Huntington, William L. Amos, Jr.,
Frank M. Burke, Jr., David Samuel Coats
(INSTRUCTION: To withhold authority to vote for any nominee, write the nominees'
names on the space provided below.)
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE 1993 STOCK COMPENSATION PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. PROPOSAL TO APPROVE THE AMENDMENT TO OUTSIDE DIRECTORS STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In his discretion, the Proxy is authorized to vote upon any matters which may
properly come before the Annual Meeting, or any adjournment or postponement
thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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 NAMED PROPOSALS.
B-2
<PAGE> 22
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY.
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: , 1999
---------------
---------------------------------
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 ANNUAL MEETING.
