<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
HEALTH POWER, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
[HEALTH POWER LOGO]
HEALTH POWER, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1997
To the Stockholders of
HEALTH POWER, INC:
Notice is hereby given that the Annual Meeting of Stockholders of Health
Power, Inc. (the "Company") will be held at the Hyatt On Capitol Square, 75 East
State Street, Columbus, Ohio 43215, on Wednesday, May 28, 1997, at 3:00 p.m.,
local time, for the following purposes:
1. To elect four Class II directors, each to hold office for a
three-year term and until a successor is elected and qualified.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on April 17, 1997, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
meeting and any adjournment thereof.
In order that your shares may be represented at this meeting and to assure
a quorum, please sign and return the enclosed proxy promptly. A return addressed
envelope, which requires no postage, is enclosed. In the event you are able to
attend and wish to vote in person, at your request we will cancel your proxy.
By Order of the Board of Directors
DR. ELLIOTT P. FELDMAN
Secretary
Dated: April 28, 1997
<PAGE> 3
HEALTH POWER, INC.
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
PROXY STATEMENT
GENERAL
This Proxy Statement is being furnished to the holders of shares of common
stock, $0.01 par value (the "Shares"), of Health Power, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board") to be used at the Company's
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the Hyatt On
Capitol Square, 75 East State Street, Columbus, Ohio 43215, on Wednesday, May
28, 1997, at 3:00 p.m., local time, for the purposes set forth on the
accompanying Notice of Annual Meeting. The approximate date on which this Proxy
Statement and the form of proxy will be first sent to stockholders is April 28,
1997.
Shares represented by properly executed proxies will be voted at the Annual
Meeting in accordance with the choices indicated on the proxy. If no choices are
indicated, the Shares will be voted to elect as directors of the Company the
nominees named in this Proxy Statement. Any proxy may be revoked at any time
prior to its exercise by delivery to the Company of a subsequently dated proxy
or by giving notice of revocation to the Company in writing or in open meeting.
A stockholder's presence at the Annual Meeting does not by itself revoke the
proxy.
The close of business on April 17, 1997, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. On the record date, there were
outstanding and entitled to vote 3,819,115 Shares. Each Share is entitled to one
vote.
ELECTION OF DIRECTORS
The number of directors currently is fixed at ten. The Board is divided
into three classes, Class I, Class II, and Class III, with three directors in
both Class I and Class III and four directors in Class II. Directors in each
class are elected to three-year terms. The terms of office of one class of
directors expire each year at the annual meeting of stockholders and at such
time as their successors are duly elected and qualified. The term of office of
the Class II directors expires concurrently with the holding of the Annual
Meeting, and the four incumbent directors in such Class have been nominated for
re-election. There is no cumulative voting in the election of directors, and
those nominees receiving the highest number of votes will be elected.
Abstentions and broker non-votes will not be counted in determining the votes
cast in the elections of directors and will not have a positive or negative
effect on the election.
At the Annual Meeting, Shares represented by proxies, unless otherwise
specified, will be voted to elect the nominees named below as Class II directors
for a three-year term expiring in 2000. In the event that any nominee named
below as a Class II director is unable to serve (which is not anticipated), the
persons named in the proxy may vote it for another nominee of their choice.
1
<PAGE> 4
CLASS II DIRECTORS
(NOMINEES FOR ELECTION)
<TABLE>
<CAPTION>
NAME OF
NOMINEE/DIRECTOR DIRECTOR OF SHARES
AND POSITION(S) PRINCIPAL OCCUPATION(S) THE BENEFICIALLY % OF
WITH COMPANY AGE DURING THE PAST FIVE YEARS COMPANY SINCE OWNED (1) CLASS
- ----------------------------- --- -------------------------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Robert S. Garek, 58 Partner in Feibel-Garek 1986 18,360 *
Director Realtors, a real estate
development firm, since
1965.
Frank R. Nutis, 75 President of Nutis Press, 1986 24,365 *
Director Inc., a printing and
lithograph company, since
1949.
Dr. Burt E. Shear, 74 Retired physician.(2) 1991 71,888 1.9%
Director
Robert J. Bossart, 45 Chief Executive Officer of 1995 293,581 7.7%
Director CompManagement, Inc., a
wholly owned subsidiary of
the Company
("CompManagement"), a
workers' and unemployment
compensation consulting
firm, since September
1996, and prior to that,
the President of
CompManagement since its
formation in 1984. Chief
Executive Officer of
CompManagement Health
Systems, Inc., a wholly
owned subsidiary of
CompManagement
("CompManagement Health
Systems"), since it
initiated operations in
September 1996.
CompManagement was
acquired by the Company in
July 1995.
</TABLE>
2
<PAGE> 5
Set forth below is information relating to Class III and Class I directors,
whose terms of office will continue after the Annual Meeting.
CLASS III DIRECTORS
(TERMS EXPIRING IN 1998)
<TABLE>
<CAPTION>
NAME OF DIRECTOR DIRECTOR OF SHARES
AND POSITION(S) PRINCIPAL OCCUPATION(S) THE BENEFICIALLY % OF
WITH COMPANY AGE DURING THE PAST FIVE YEARS COMPANY SINCE OWNED (1) CLASS
- ----------------------------- --- -------------------------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Thomas E. Beaty, Jr., 59 President and Chief 1990 93,479(3) 2.4%
President, Chief Operating Operating Officer of the
Officer, and Director Company since May 1990.
Dr. Elliott P. Feldman, 58 Secretary of the Company 1985 88,793 2.3%
Secretary and Director since its formation in
March 1985. Practicing
physician since 1965.(4)
Dr. Bernard F. Master, 55 Chairman of the Board and 1985 1,249,292(6) 32.6%
Chairman of the Board, Chief Executive Officer of
Chief Executive Officer, the Company since its
and Director formation in March
1985.(5)
</TABLE>
CLASS I DIRECTORS(7)
(TERMS EXPIRING IN 1999)
<TABLE>
<CAPTION>
NAME OF DIRECTOR DIRECTOR OF SHARES
AND POSITION(S) PRINCIPAL OCCUPATION(S) THE BENEFICIALLY % OF
WITH COMPANY AGE DURING THE PAST FIVE YEARS COMPANY SINCE OWNED (1) CLASS
- ----------------------------- --- -------------------------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Crystal A. Kuykendall, Ph.D., 47 President of Kreative & 1995 3,280 *
J.D., Director Innovative Resources for
Kids, Inc., a company that
provides products and
serves to advance the
technical development of
youths, since 1990.
</TABLE>
- ---------------
*Less than 1%
(1) Beneficial ownership as of April 14, 1997. Except as otherwise indicated in
the notes to this table, the persons named in the table and their spouses
have sole voting and investment power with respect to all Shares owned by
them. This table does not include options for Shares which are not currently
exercisable or not exercisable within 60 days of April 14, 1997. For each of
the directors, this table includes the following number of Shares which may
be acquired upon the exercise of currently exercisable options: Mr.
Garek--12,880 Shares; Mr. Nutis--14,325 Shares; Dr. Schear--8,663 Shares;
Mr. Bossart--2,000 Shares; Mr. Beaty--15,488 Shares; Dr. Feldman--16,614
Shares; Dr. Master--13,556 Shares; and Dr. Kuykendall--2,000 Shares.
(2) Dr. Burt E. Schear is a 50% stockholder and president of Burt E. Schear,
M.D. & Associates, Inc. The medical clinics operated by this corporation are
providers for the Company's HMO. See "Executive Compensation -- Certain
Relationships and Related Transactions."
(3) Includes 100 Shares held by Mr. Beaty as custodian for his grandchild.
(4) Dr. Feldman is the sole stockholder of two corporations which each operate a
medical clinic which are providers for the Company's HMO. See "Executive
Compensation -- Certain Relationships and Related Transactions."
3
<PAGE> 6
(5) Dr. Master is the sole stockholder of a corporation which operates medical
clinics which are providers for the Company's HMOs. See "Executive
Compensation -- Certain Relationships and Related Transactions."
(6) Includes 1,400 Shares owned by a trust of which Dr. Master is the trustee.
(7) There are currently two vacancies in the Class I directors.
In addition to the Shares beneficially owned by Dr. Master and Messrs.
Beaty and Bossart, as set forth above, Jonathan R. Wagner and Richard T. Kurth,
the other named executive officers in the Summary Compensation Table set forth
below, beneficially owned 293,581 Shares (7.7%) and 58,716 Shares (1.5%),
respectively, of the Company as of April 14, 1997, and these persons have sole
voting and investment power with respect to all Shares owned by them. The
foregoing amounts do not include options for Shares which are not currently
exercisable or not exercisable within 60 days of April 14, 1997. The foregoing
amounts include 2,000 Shares, in the case of Mr. Wagner, and 1,000 Shares, in
the case of Mr. Kurth, which may be acquired upon the exercise of currently
exercisable options. As of April 14, 1997, all directors and executive officers
of the Company, as a group (11 persons), beneficially owned 2,197,098 (57.5%)
Shares. The foregoing amount includes 88,526 Shares which may be acquired by the
directors and executive officers, as a group, upon the exercise of currently
exercisable options.
4
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is summary information regarding the annual and long-term
compensation of the Company's chief executive officer and its four most highly
compensated executive officers, other than the chief executive officer, at the
end of 1996:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
--------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY(2) BONUS OPTIONS GRANTED COMPENSATION(3)
- ---------------------------------- ---- --------- -------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Dr. Bernard F. Master, 1996 $ 182,450 $ -0- 11,452 $ 1,382
Chairman of the Board and Chief 1995 $ 161,829 $ -0- 10,274 $ 1,357
Executive Officer of the Company 1994 $ 160,000 $ 12,000 19,508 $ 1,570
Thomas E. Beaty, Jr., 1996 $ 150,400 $ -0- 16,894 $ 1,223
President and Chief Operating 1995 $ 128,000 $ -0- 6,764 $ 1,500
Officer of the Company 1994 $ 120,000 $172,837 19,608 $ 2,301
Robert J. Bossart, 1996 $ 260,036 $ -0- 4,642 $ 1,687
Chief Executive Officer of 1995 $ 211,708 $ -0- 8,000 $ 2,250
CompManagement and 1994 $ 215,828 $140,000 $ 1,732
CompManagement Health
Systems(4)(5)
Jonathan R. Wagner, 1996 $ 306,106 $ -0- 4,286 $ 1,781
President of CompManagement(4)(6) 1995 $ 259,287 $ -0- 8,000 $ 2,250
1994 $ 231,431 $140,000 $ 1,739
Richard T. Kurth, 1996 $ 176,516 $ -0- 3,214 $ 1,714
Executive Vice President of 1995 $ 155,089 $ -0- 4,000 $ 2,250
CompManagement(4)(7) 1994 $ 105,445 $ 70,000 $ 1,549
</TABLE>
- ---------------
(1) Each of the named executive officers has an employment agreement with one of
the Company's subsidiaries. See "-- Employment Agreements."
(2) Includes amounts contributed by the named executive officer to 401(k)
retirement plans.
(3) Represents amounts contributed as matching contributions to 401(k)
retirement plans.
(4) The Company acquired CompManagement in July 1995. The acquisition was
accounted for as a pooling of interests.
(5) Salary includes sales commissions of $96,581, $57,707, and $113,768 for Mr.
Bossart for 1996, 1995, and 1994, respectively.
(6) Salary includes sales commissions of $154,331, $116,301, and $136,801 for
Mr. Wagner for 1996, 1995, and 1994, respectively.
(7) Salary includes sales commissions of $54,056, $39,714, and $28,915 for Mr.
Kurth for 1996, 1995, and 1994, respectively.
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all grants of stock options to the executive
officers named in the Summary Compensation Table during 1996:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
------------------------------------------------------------------------- RATES OF STOCK
NUMBER OF SECURITIES PRICE APPRECIATION
UNDERLYING % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM(2)
OPTIONS GRANTED GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------
NAME (#) IN FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
- --------------------- -------------------- -------------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Dr. Bernard F. Master 11,452 15.3% $9.00 04/30/06 $64,819 $164,264
Thomas E. Beaty, Jr. 16,894 22.5% $9.00 04/30/06 $95,621 $242,322
Robert J. Bossart 4,642 6.2% $7.00 07/20/06 $20,435 $ 51,787
Jonathan R. Wagner 4,286 5.7% $7.00 07/20/06 $18,868 $ 47,815
Richard T. Kurth 3,214 4.3% $7.00 07/20/06 $14,149 $ 35,856
</TABLE>
- ---------------
(1) The per share exercise price is equal to the fair market value of the Shares
on the date of grant.
(2) The dollar amounts under the 5% and 10% columns in the table are the result
of calculations required by the rules of the Securities and Exchange
Commission.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
The following table sets forth stock option exercises during 1996 by the
executive officers named in the Summary Compensation Table and the value of
in-the-money stock options held by those individuals as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
12/31/96(#) AT 12/31/96 ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ----------------------- ---------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Dr. Bernard F. Master -0- -0- 13,556/27,778 $0/$0
Thomas E. Beaty, Jr. -0- -0- 15,488/27,778 $0/$0
Robert J. Bossart -0- -0- 2,000/10,642 $0/$0
Jonathan R. Wagner -0- -0- 2,000/10,286 $0/$0
Richard T. Kurth -0- -0- 1,000/6,214 $0/$0
</TABLE>
- ---------------
(1) Aggregate market value of the Shares covered by the option less the
aggregate price paid by the executive officer.
(2) The value of in-the-money options was determined by subtracting the exercise
price from the closing price of the Shares as of December 31, 1996.
6
<PAGE> 9
PERFORMANCE GRAPH
The line graph below provides a comparison of the cumulative total return
on $100 invested on March 3, 1994, in shares of common stock of the Company, the
Nasdaq Stock Market -- United States Index ("Nasdaq Index"), and the Dow Jones
Health Care Providers Index ("DJ Health Care Index"), with dividends reinvested.
The shares of the Company were first available to the public on March 3, 1994.
[GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DJ HEALTH CARE
(FISCAL YEAR COVERED) HEALTH POWER, INC NASDAQ INDEX INDEX
<S> <C> <C> <C>
3/03/94 $100 $100 $100
12/31/94 $129 $ 97 $ 94
12/31/95 $ 68 $137 $121
12/31/96 $ 22 $168 $136
</TABLE>
EMPLOYMENT AGREEMENTS
Dr. Bernard F. Master, the Company's Chairman and Chief Executive Officer,
has had successive one-year employment agreements with Health Power Management
Corporation, the Company's wholly owned management company subsidiary ("HPMC"),
since May 1991. The term of his current agreement expires in May 1998. Dr.
Master's annual base salary under his current employment agreement is $192,000.
Dr. Master's employment agreement provides him with disability insurance
benefits in addition to those benefits provided to all of the Company's
personnel and a discretionary cash bonus in an amount determined by the
Company's Compensation Committee. Under his employment agreement, Dr. Master
receives "Formula Vesting Options" under the Health Power, Inc. 1994 Executive
Performance Stock Option Plan, as amended (the "Executive Plan"), exercisable
for a number of Shares determined to be appropriate by the Company's
Compensation Committee, which Shares vest in accordance with the formula
calculations set forth in the Executive Plan.
Thomas E. Beaty, Jr., the Company's President and Chief Operating Officer,
has had successive employment agreements with HPMC since May 1990. Mr. Beaty's
current employment agreement expires in May 1997, but has been extended until
May 1998. Mr. Beaty's annual base salary under his current employment agreement
is $160,000. Mr. Beaty has also agreed to abide by certain noncompetition and
confidentiality provisions in the agreement. If Mr. Beaty's employment is
terminated because of a change in control of the Company, Mr. Beaty will be
entitled to receive severance pay in the amount of his then-current base salary,
fringe benefits otherwise receivable under the agreement for up to one year, and
the reimbursement of certain expenses related to obtaining new employment.
Mr. Beaty's employment agreement also provides for cash and stock incentive
bonuses. Mr. Beaty is entitled to receive a cash incentive bonus for a given
year if the Company's consolidated after-tax net income ("net income") for that
year exceeds the prior year's net income. The amount of the cash incentive bonus
is
7
<PAGE> 10
limited to a maximum amount which is established each year by the Company's
Compensation Committee. The Compensation Committee also establishes a targeted
net income amount for each year which serves as a challenging but achievable net
income goal for the Company for that year. If the net income for a year equals
or exceeds the targeted net income amount for that year, Mr. Beaty receives the
maximum cash bonus, which is $125,000 for 1997. If net income is less than the
targeted net income amount but greater than the prior year's net income, the
amount of the cash incentive bonus is prorated based on the difference between
the net income in excess of the prior year's net income and the targeted net
income amount. Additionally, under his employment agreement, Mr. Beaty receives
Formula Vesting Options and "Discretionary Vesting Options" under the Executive
Plan. The number of Shares subject to Formula Vesting Options and Discretionary
Vesting Options granted each year depends on (a) the maximum cash bonus
established for that year and (b) the number of such Options which received
accelerated vesting treatment from prior years. The Shares subject to the
Formula Vesting Options and the Discretionary Vesting Options vest in the manner
set forth in the Executive Plan.
Robert J. Bossart, the Chief Executive Officer of CompManagement and
CompManagement Health Systems, has a five-year employment agreement with
CompManagement which expires in July 2000. Mr. Bossart's employment agreement
provides for the payment of an annual salary of $156,168 plus sales commissions.
Mr. Bossart has also agreed to abide by certain noncompetition and
confidentiality provisions in the agreement. Mr. Bossart is also entitled to
receive certain severance benefits. If Mr. Bossart's employment is terminated
for any reason other than just cause, or is terminated at the end of the
five-year term of the agreement, then Mr. Bossart will receive one of the
following amounts: (a) if prior to such termination there has been a change in
control of the Company, an amount equal to two times his base salary plus two
times the commissions earned by him for the last full performance year of his
employment; or (b) in any other event, an amount equal to two times his base
salary plus the commissions earned by him during the one-year period immediately
prior to such termination. Severance benefits also include the receipt of fringe
benefits otherwise receivable under the agreement until the earlier of two years
after the date of termination or the date any such benefit is provided by
another employer.
Under his employment agreement, Mr. Bossart receives Formula Vesting
Options and Discretionary Vesting Options under the Executive Plan. The number
of Shares subject to Formula Vesting Options and Discretionary Vesting Options
granted each year is based upon (a) a percentage of the maximum cash bonus
established for that year for the president of HPMC and (b) the number of such
Options previously granted to Mr. Bossart which received accelerated vesting
treatment from prior years. The Shares subject to the Formula Vesting Options
and the Discretionary Vesting Options vest in the manner set forth in the
Executive Plan. Mr. Bossart is also entitled to participate in cash bonus
arrangements generally made available to all of the Company's personnel.
Jonathan R. Wagner, the President of CompManagement, has a five-year
employment agreement with CompManagement which expires in July 2000. Mr.
Wagner's employment agreement provides for the payment of an annual salary of
$145,008 plus sales commissions. Mr. Wagner has also agreed to abide by certain
noncompetition and confidentiality provisions in the agreement. Mr. Wagner is
also entitled to receive certain severance benefits. If Mr. Wagner's employment
is terminated for any reason other than just cause, or is terminated at the end
of the five-year term of the agreement, then Mr. Wagner is to receive one of the
following amounts: (a) if prior to such termination there has been a change in
control of the Company, an amount equal to two times his base salary plus two
times the commissions earned by him for the last full performance year of his
employment; or (b) in any other event, an amount equal to two times his base
salary plus the commissions earned by him during the one-year period immediately
prior to such termination. Severance benefits also include the receipt of fringe
benefits otherwise receivable under the agreement until the earlier of two years
after the date of termination or the date any such benefit is provided by
another employer.
Under his employment agreement, Mr. Wagner receives Formula Vesting Options
and Discretionary Vesting Options under the Executive Plan. The number of Shares
subject to Formula Vesting Options and Discretionary Vesting Options granted
each year is based upon (a) a percentage of the maximum cash bonus established
for that year for the president of HPMC and (b) the number of such Options
previously granted to
8
<PAGE> 11
Mr. Wagner which received accelerated vesting treatment from prior years. The
Shares subject to the Formula Vesting Options and the Discretionary Vesting
Options vest in the manner set forth in the Executive Plan. Mr. Wagner also is
entitled to participate in cash bonus arrangements generally made available to
all of the Company's employees.
Richard T. Kurth, the Executive Vice President of CompManagement, has a
five-year employment agreement with CompManagement which expires in July 2000.
Mr. Kurth's employment agreement provides for the payment of an annual salary of
$117,000 plus sales commissions. Mr. Kurth has also agreed to abide by certain
noncompetition and confidentiality provisions in the agreement. Mr. Kurth is
also entitled to receive certain severance benefits. If Mr. Kurth's employment
is terminated for any reason other than just cause, or is terminated at the end
of the five-year term of the agreement, then Mr. Kurth is to receive one of the
following amounts: (a) if prior to such termination there has been a change in
control of the Company, an amount equal to two times his base salary plus two
times the commissions earned by him for the last full performance year of his
employment; or (b) in any other event, an amount equal to two times his base
salary plus the commissions earned by him during the one-year period immediately
prior to such termination. Severance benefits also include the receipt of fringe
benefits otherwise receivable under the agreement until the earlier of two years
after the date of termination or the date any such benefit is provided by
another employer.
Under his employment agreement, Mr. Kurth receives Formula Vesting Options
and Discretionary Vesting Options under the Executive Plan. The number of Shares
subject to Formula Vesting Options and Discretionary Vesting Options granted
each year is based upon (a) a percentage of the maximum cash bonus established
for that year for the president of HPMC and (b) the number of such Options
previously granted to Mr. Kurth which received accelerated vesting treatment
from prior years. The Shares subject to the Formula Vesting Options and the
Discretionary Vesting Options vest in the manner set forth in the Executive
Plan. Mr. Kurth also is entitled to participate in cash bonus arrangements
generally made available to all of the Company's employees.
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
The Board has established an Executive Committee, a Compensation Committee,
an Audit and Finance Committee, a 1994 Stock Option Plan Committee, and a 1994
Executive Performance Stock Option Plan Committee. The Board has no standing
nominating committee or other committee performing similar functions.
The Executive Committee, whose current members are Drs. Master and Feldman
and Messrs. Beaty, Garek, and Nutis, has the same authority, subject to certain
limitations, as the Board during intervals between meetings of the Board. The
Executive Committee did not meet during 1996.
The Compensation Committee, whose current members are Dr. Kuykendall and
Messrs. Garek and Nutis, is responsible for evaluating the compensation, fringe
benefits, and perquisites provided to the Company's officers and adopting
compensation policies applicable to the Company's executive officers, including
the specific relationship, if any, of corporate performance to executive
compensation and the factors and criteria upon which the compensation of the
Company's chief executive officer should be based. In 1996, the Compensation
Committee held one meeting and took action one time by written consent.
The Audit and Finance Committee, whose current members are Drs. Master and
Feldman and Mr. Garek, is responsible for recommending the appointment of the
Company's auditors to the Board, reviewing with such auditors the scope and
results of their audit, reviewing the Company's accounting functions,
operations, and management, and considering the adequacy and effectiveness of
the internal auditing controls and internal auditing methods and procedures of
the Company. In 1996, the Audit and Finance Committee held one meeting.
The 1994 Stock Option Plan Committee, whose current members are Dr.
Kuykendall and Messrs. Garek and Nutis, is responsible for administering the
1994 Stock Option Plan. The 1994 Stock Option Plan Committee held one meeting
and took action one time by written consent during 1996.
9
<PAGE> 12
The Compensation Committee has been designated to act as the 1994 Executive
Performance Stock Option Committee and is responsible for administering the
Executive Plan. The Compensation Committee held one meeting during 1996 with
respect to matters pertaining to the Executive Plan.
The Board held seven meetings and took action two times by written consent
in 1996. Each director attended at least 75% of the meetings held by the Board
and the committees on which he or she served during 1996, except for Crystal A.
Kuykendall, who attended 71% of such meetings.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company or any of its
subsidiaries receive an annual retainer fee of $3,000, $500 for each Board or
committee meeting attended, and the reimbursement of travel expenses. Directors
who are employees receive no separate compensation for their services as a
director. In addition, directors of the Company who are not employees receive
stock options under the Company's 1993 Directors' Stock Option Plan. Under this
plan, promptly following each annual meeting of stockholders of the Company,
each eligible director is granted an option to purchase 1,000 Shares at the fair
market value of such Shares on the last trading day prior to the annual meeting
preceding the date of grant. Options are immediately exercisable in whole or in
part and must be exercised within ten years of the grant date.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons owning more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors, and
greater than 10% stockholders are required by the Securities and Exchange
Commission's regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished
to the Company, the Company believes that during 1996 all Section 16(a) filing
requirements applicable to its officers, directors, and greater than 10%
stockholders were complied with by such persons.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert S. Garek, Crystal A. Kuykendall, and Frank R. Nutis serve as members
of the Compensation Committee. No executive officer of the Company served during
1996 as a member of a compensation committee or as a director of any entity of
which any of the Company's directors served as an executive officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report of the Company's Compensation Committee, whose
members are identified below, with respect to compensation reported for 1996 as
reflected in the Summary Compensation Table set forth above.
The Compensation Committee regularly reviews executive compensation
policies and levels and evaluates the performance of management in the context
of the Company's performance. The Compensation Committee is composed entirely of
independent outside directors. The Compensation Committee believes that
executive compensation for senior management must reward management for
successful performance, provide management with incentives to accomplish the
Company's goals and objectives, encourage correlation between management's
performance and enhancement of stockholder value, and be sufficiently
competitive to attract and retain key management personnel.
In February 1996, the Compensation Committee met to review the performance
of and to establish the 1996 compensation arrangements for Dr. Bernard F.
Master, the Company's Chairman of the Board and Chief Executive Officer, and
Thomas E. Beaty, Jr., the Company's President and Chief Operating Officer.
Chairman of the Board and Chief Executive Officer. Dr. Master is the
founder of the Company, its largest stockholder, and has been employed by the
Company since its inception. Since May 1991, Dr. Master
10
<PAGE> 13
has served as Chairman of the Board and Chief Executive Officer of the Company
pursuant to successive one-year employment agreements with HPMC. See "--
Employment Agreements."
The Compensation Committee established a 1996 compensation package for Dr.
Master which consisted of three components, an annual base salary, a
discretionary cash bonus, and stock options. These components were reflected in
a one-year employment agreement between Dr. Master and HPMC which was effective
May 1, 1996. Under this agreement, Dr. Master's annual base salary was increased
by $27,000 to $192,000. This was the first base salary increase for Dr. Master
since May 1, 1994, and was done to bring his base salary more in-line with base
salaries for chief executive officers of other similarly-sized HMOs. Because no
bonuses were awarded to any of the Company's other employees in 1996 due to the
Company's financial results, the Compensation Committee did not award any
discretionary cash bonus to Dr. Master in 1996. Under his employment agreement,
Dr. Master was also awarded a Formula Vesting Option to purchase 11,452 Shares
at a price of $9.00 per share (the then current market price of the Shares)
pursuant to the Executive Plan. These Shares will vest pursuant to the formula
calculations set forth in the Executive Plan. The purpose of these options was
to provide Dr. Master with an incentive to assist the Company to increase its
net income from year-to-year, to maximize earnings, and to work toward
increasing the market value of the Shares.
President and Chief Operating Officer. Since May 1990, Thomas E. Beaty, Jr.
has served as President and Chief Operating Officer of the Company pursuant to
successive employment agreements with HPMC. In May 1994, Mr. Beaty entered into
a three-year employment with HPMC which will be in effect until May 1, 1997. The
Company and Mr. Beaty have agreed to extend this employment agreement for an
additional one-year term. See "-- Employment Agreements."
Mr. Beaty's employment agreement was structured with the following
objectives: (a) to provide Mr. Beaty with an incentive to assist the Company to
increase its net income from year-to-year, to maximize earnings, and to work
toward increasing the market value of the Shares; (b) to provide him with an
incentive to meet other Company goals not necessarily tied to financial
performance; and (c) to provide him with stock-based compensation to more
closely align his interests in the long-term appreciation of the Shares with
those of the other stockholders. These objectives were met through the three
compensation components of his employment agreement, an annual base salary, a
cash incentive bonus tied to increases in the Company's net income from
year-to-year, and stock options. Under this agreement, Mr. Beaty's annual base
salary was increased by $28,000 to $160,000 for 1996. This was the first base
salary increase for Mr. Beaty since May 1, 1994, and was done to bring his base
salary more in-line with base salaries for chief operating officers of other
similarly-sized HMOs. No cash incentive bonus was earned by Mr. Beaty for 1996
because of the Company's 1996 financial results. Under the terms of his
employment agreement, Mr. Beaty was awarded a Formula Vesting Option to purchase
5,726 Shares at a price of $9.00 per share (the then current market price of the
Shares) and a Discretionary Vesting Option to purchase 11,168 Shares at a price
of $9.00, both of which were granted pursuant to the Executive Plan. These
Shares will vest in the manner set forth in the Executive Plan.
Other Executive Officers. The Compensation Committee believes the chief
executive officer and chief operating officer should establish the compensation
of senior management personnel, including the other named executive officers, to
ensure that these individuals are responsive to the programs and directives of
the chief executive officer and chief operating officer. Substantially all of
the Company's other executive officers have entered into employment agreements
for varying lengths of terms. These employment agreements are structured with
the same objectives as Mr. Beaty's agreement and generally consist of three
compensation components, an annual base salary, an incentive cash bonus, and
stock options. The employment agreements with Robert J. Bossart, Jonathan R.
Wagner, and Richard T. Kurth, the named executive officers other than Dr. Master
and Mr. Beaty, were negotiated and entered into in connection with the Company's
acquisition of CompManagement in 1995.
Robert S. Garek
Crystal A. Kuykendall, Ph.D, J.D.
Frank R. Nutis
11
<PAGE> 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Health Power has entered into provider agreements with a number of
physician groups affiliated with the Company's medical director and certain of
its officers and directors. Except as otherwise provided below, these provider
agreements are on the same terms and conditions as Health Power's provider
agreements with unaffiliated physicians or physician groups. Affiliation with
these providers by members of management of the Company may result in certain
conflicts of interest between the Company and such individuals, such as with
respect to the annual adjustment of provider fees or the retention or
distribution of withholds by Health Power HMO, Inc. Such affiliated physician
groups are Over-The-Rhine Family Practice and Fairmont Family Practice, both of
which are owned by Affiliated Medical Practices, Inc., a corporation in which
Dr. Bernard F. Master is the sole stockholder; Parsons Avenue Medical Clinic,
Inc. and Westland Family Practice, Inc., both of which Dr. Elliott P. Feldman is
the sole stockholder; Burt E. Schear & Associates, Inc., of which Dr. Burt E.
Schear is a 50% stockholder; and Child Care Consultants, Inc., of which Dr.
James E. Foy, the medical director of Health Power HMO, Inc., is a 50%
stockholder. In addition, prior to March 1997, Affiliated Medical Practices,
Inc. also owned Master Family Practice and Main Street MedCenter. For the fiscal
year ended December 31, 1996, payments under provider agreements to affiliated
physician groups amounted to $2,854,159. During such period, physician groups
affiliated with the following members of management of the Company received the
following amounts under their provider agreements: Dr. Bernard F. Master,
$2,107,488; Dr. Elliott P. Feldman, $151,915; Dr. Burt E. Schear, $308,944; and
Dr. James E. Foy, $28,582.
Under its provider agreement with Health Power HMO, Inc., Affiliated
Medical Practices, Inc., a corporation in which Dr. Bernard F. Master is the
sole stockholder, has agreed to provide medical services exclusively to members
of Health Power HMO, Inc. In exchange for such exclusivity arrangement,
Affiliated Medical Practices, Inc. receives additional capitation payments from
Health Power HMO, Inc. During the fiscal year ended December 31, 1996, such
additional capitation payments amounted to $305,385. This exclusivity
arrangement was offered to all of Health Power HMO, Inc's. other primary care
physicians or physician groups.
The Company has entered into contracts to provide health care services to
the employees and their dependents of physician groups affiliated with the
Company's medical director and certain of its officers and directors. These
contracts are substantially on the same terms as contracts with other employer
groups. The commercial premiums from such physician groups amounted to $142,937
for 1996.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information with respect to the only
persons known by the Company to be beneficial owners of 5% or more of the
Shares:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF OWNERSHIP
-------------------------------------- -------------------- --------------------
<S> <C> <C>
Dr. Bernard F. Master 1,249,292(2) 32.6%
560 East Town Street
Columbus, Ohio 43215
Heartland Advisors, Inc. 681,500 17.9%
790 North Milwaukee St.
Milwaukee, Wisconsin 53202
Robert J. Bossart 293,581 7.7%
5777 Frantz Road
Dublin, Ohio 43017
Jonathan R. Wagner 293,581 7.7%
5777 Frantz Road
Dublin, Ohio 43017
</TABLE>
- ---------------
(1) Beneficial ownership as of April 14, 1997, except in the case of Heartland
Advisors, Inc., which is as of December 31, 1996. Except as otherwise
indicated in the notes to this table, the persons named in the
12
<PAGE> 15
table and their spouses have sole voting and investment power with respect
to all Shares owned by them. This table does not include options for Shares
which are not currently exercisable or not exercisable within 60 days
of April 14, 1997. For the following persons, this table includes the
following number of Shares which may be acquired upon the exercise of
currently exercisable options: Dr. Master--13,556 Shares; Mr.
Bossart--2,000 Shares; and Mr. Wagner--2,000 Shares.
(2) Includes 1,400 shares owned by a trust of which Dr. Master is the trustee.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. has been retained by the Board as the independent
public accountants for the Company for its fiscal year ending December 31, 1997.
It is expected that a representative of Coopers & Lybrand L.L.P. will be
present at the Annual Meeting and will be given an opportunity to make a
statement if desired and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 annual
meeting of stockholders must be received by the Company for inclusion in the
proxy statement and form of proxy on or prior to 120 days in advance of the
first anniversary of the date of this Proxy Statement.
OTHER MATTERS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited by officers, directors, and
regular employees, personally or by telephone or telegraph, and the Company will
reimburse banks, brokers, and nominees for their out-of-pocket expenses incurred
in sending proxy materials to the beneficial owners of Shares held by them. If
there are follow-up requests for proxies, the Company may employ other persons
for such purpose.
DR. ELLIOTT P. FELDMAN
Secretary
13
<PAGE> 16
HEALTH POWER, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. Bernard F. Master and Thomas E.
Beaty, Jr., and each of them, with full power of substitution, proxies to
vote and act with respect to all shares of common stock, $0.01 par value
(the "Shares"), of Health Power, Inc., a Delaware corporation (the
"Company"), which the undersigned is entitled to vote at the Company's
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Hyatt On Capitol Square, 75 East State Street, Columbus, Ohio 43215, on
Wednesday, May 28, 1997, at 3:00 p.m., local time, and at any and all
adjournments thereof, with all the powers the undersigned would possess
if present in person, on the following proposals and any other matters
that may properly come before the Annual Meeting.
1. WITH [ ] OR WITHOUT [ ] AUTHORITY TO ELECT ALL NOMINEES LISTED BELOW
AS CLASS II DIRECTORS (EXCEPT AS MARKED TO THE CONTRARY BELOW):
Robert S. Garek Frank R. Nutis Dr. Burt E. Schear Robert J. Bossart
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH HIS NAME.
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
2.IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY
ADJOURNMENT THEREOF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED UPON THE PROPOSALS
LISTED ABOVE IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN BY THE
UNDERSIGNED, BUT IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED
TO ELECT ALL OF THE NOMINEES FOR DIRECTORS AS SET FORTH IN ITEM 1, ABOVE,
AND IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER WHICH PROPERLY
COMES BEFORE THE ANNUAL MEETING.
Dated: , 1997
-------------
-----------------------------
(Signature of Stockholder)
-----------------------------
(Signature of Stockholder)
(Please sign legibly exactly
as the name is printed on the
left.)
If the registration is as
attorney, executor,
administrator, trustee or
guardian, please sign full
title as such.
PLEASE DATE, SIGN AND MAIL PROXY PROMPTLY
