SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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
RightCHOICE Managed Care, Inc.
(Name of Registrant as Specified In Its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
_________________________________________________________________
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:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________
3) Filing Party:
______________________________________________________________
4) Date Filed:
_________________________________________________________________
<PAGE>
March 27, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of RightCHOICE Managed Care, Inc., to be held at the
principal executive offices of the Company, located at 1831
Chestnut Street, St. Louis, Missouri, on Tuesday, May 13, 1997,
commencing at 10:00 a.m., CDT. The business to be conducted at
the meeting is described in the attached Notice of Annual Meeting
and Proxy Statement. In addition, there will be an opportunity
to meet with members of senior management and review the business
and operations of the Company.
Your Board of Directors joins with me in urging you to
attend the meeting. Whether or not you plan to attend the
meeting, however, please sign, date and return the enclosed proxy
card promptly. A prepaid return envelope is provided for this
purpose. You may revoke your proxy at any time before it is
exercised and it will not be used if you attend the meeting and
prefer to vote in person.
Very truly yours,
John A. O'Rourke
Chairman, President and
Chief Executive Officer
<PAGE>
RIGHTCHOICE MANAGED CARE, INC.
1831 CHESTNUT STREET
ST. LOUIS, MISSOURI 63103-2275
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the
Shareholders of RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), will be held at the principal
executive offices of RightCHOICE, located at 1831 Chestnut
Street, St. Louis, Missouri, on Tuesday, May 13, 1997, commencing
at 10:00 a.m., CDT, and thereafter as it may from time to time be
adjourned, for the following purposes:
1. To elect three Class III directors to hold office for a
term expiring at the 2000 Annual Meeting of the
Shareholders of RightCHOICE and until their respective
successors are duly elected and qualified or until
their respective earlier resignation or removal;
2. To transact such other business as properly may come
before the meeting and any adjournment or adjournments
thereof.
The Board of Directors of RightCHOICE has fixed the close of
business on March 24, 1997, as the record date for determination
of the shareholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournment or adjournments thereof.
All shareholders are cordially invited to attend the
meeting. Whether or not you intend to be present at the meeting,
the Board of Directors of RightCHOICE solicits you to sign, date
and return the enclosed proxy card promptly. A prepaid return
envelope is provided for this purpose. You may revoke your proxy
at any time before it is exercised and it will not be used if you
attend the meeting and prefer to vote in person. Your vote is
important and all shareholders are urged to be present in person
or by proxy.
By Order of the Board of Directors
Janice C. Forsyth
Secretary
March 27, 1997
St. Louis, Missouri
<PAGE>
RIGHTCHOICE MANAGED CARE, INC.
1831 CHESTNUT STREET
ST. LOUIS, MISSOURI 63103-2275
__________________
PROXY STATEMENT
__________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1997
__________________
INTRODUCTION
This Proxy Statement is being furnished to the shareholders
of RightCHOICE Managed Care, Inc., a Missouri corporation
("RightCHOICE" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of RightCHOICE
for use at the Annual Meeting of Shareholders to be held on
Tuesday, May 13, 1997, and at any adjournment or adjournments
thereof (the "Annual Meeting"). The Annual Meeting will commence
at 10:00 a.m., CDT, and will be held at the principal executive
offices of the Company, located at 1831 Chestnut Street, St.
Louis, Missouri 63103-2275.
This Proxy Statement and the enclosed form of proxy were
first mailed to the Company's shareholders on or about March 27,
1997.
PROXIES
You are requested to complete, date and sign the enclosed
form of proxy and return it promptly to the Company in the
enclosed postage prepaid envelope. Shares represented by
properly executed proxies will, unless such proxies previously
have been revoked, be voted in accordance with the shareholders'
instructions indicated in the proxies. If no instructions are
indicated, such shares will be voted in favor of the election of
the nominees for director named in this Proxy Statement, and, as
to any other matter that properly may be brought before the
Annual Meeting, in accordance with the discretion and judgment of
the appointed proxies. A shareholder who has given a proxy may
revoke it at any time before it is exercised at the Annual
Meeting by filing written notice of revocation with the Secretary
of the Company, by executing and delivering to the Secretary of
the Company a proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person.
VOTING AT THE MEETING
For purposes of voting on the proposals described herein,
the presence in person or by proxy of shareholders holding (i) a
majority of the total outstanding shares of the Company's capital
stock entitled to vote at the Annual Meeting, and (ii) a majority
of the total outstanding shares of each of the Company's Class A
Common Stock, $0.01 par value, and the Company's Class B Common
Stock, $0.01 par value, entitled to vote at the Annual Meeting,
shall constitute a quorum at the Annual Meeting. Only holders of
record of shares of the Company's Class A Common Stock and Class
B Common Stock as of the close of business on March 24, 1997 (the
"Record Date"), are entitled to notice of, and to vote at, the
Annual Meeting or any adjournment or adjournments thereof. As of
the Record Date, 3,709,000 shares of the Company's Class A Common
Stock and 14,962,500 shares of the Company's Class B Common Stock
were outstanding and entitled to be voted at the Annual Meeting.
Each share of Class A Common Stock is entitled to one vote, and
each share of Class B Common Stock is entitled to ten votes, on
each matter properly to come before the Annual Meeting. Shares
of capital stock represented by a proxy which directs that the
shares be voted to abstain or to withhold a vote on any matter
will be counted in determining whether a quorum is present.
Shares of capital stock as to which <PAGE> there is a broker non-vote
(i.e., when a broker holding shares for clients in street name is
not permitted to vote on certain matters without instruction)
also will be counted for quorum purposes.
Directors are elected by a plurality (a number greater than
those cast for any other candidates) of the votes cast, in person
or by proxy, of shareholders entitled to vote, at the Annual
Meeting for that purpose. The affirmative vote of a majority of
the total voting power of the shares of the Company's Class A
Common Stock and Class B Common Stock, represented in person or
by proxy and entitled to vote at the Annual Meeting, is required
for the approval of such other matters as properly may come
before the Annual Meeting or any adjournment thereof.
A shareholder entitled to vote in the election of directors
can withhold authority to vote for all nominees for directors or
can withhold authority to vote for certain nominees for
directors. In addition, a shareholder entitled to vote with
respect to any other matters at the Annual Meeting may abstain
from voting on such matters. With respect to the election of
directors, votes withheld from one or more nominees will be
excluded from the vote and will have no effect. Abstentions from
all other proposals being considered and voted upon at the Annual
Meeting are treated as votes against the particular proposal.
Broker non-votes on any proposal to be voted on at the Annual
Meeting are treated as shares of RightCHOICE capital stock as to
which voting power has been withheld by the respective beneficial
holders and, therefore, as shares not entitled to vote on the
proposal as to which there is the broker non-vote.
SOLICITATION OF PROXIES
This solicitation of proxies for the Annual Meeting is being
made by the Company's Board of Directors. The Company will bear
all costs of such solicitation, including the cost of preparing
and mailing this Proxy Statement and the enclosed form of proxy.
After the initial mailing of this Proxy Statement, proxies may be
solicited by mail, telephone, telegram, facsimile transmission or
personally by directors, officers, employees or agents of the
Company. Brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward soliciting materials to
beneficial owners of shares held of record by them, and their
reasonable out-of-pocket expenses, together with those of
RightCHOICE's transfer agent, will be paid by RightCHOICE.
A list of shareholders entitled to vote at the Annual
Meeting will be available for examination at least ten days prior
to the date of the Annual Meeting during normal business hours at
the principal executive offices of RightCHOICE located at 1831
Chestnut Street, St. Louis, Missouri. The list also will be
available at the Annual Meeting.
ITEM 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of ten
directors, but is being reduced to nine directors effective upon
the expiration of present terms of the four Class III directors
at this Annual Meeting. In this regard, the number of Class III
directors is being reduced from four to three directors. The
Articles of Incorporation of RightCHOICE divides the Board of
Directors into three classes of directors, with the directors
serving staggered terms of three years and until their respective
successors are duly elected and qualified or until their
respective earlier resignation or removal. The present terms of
William H. T. Bush, Roy R. Heimburger, John A. O'Rourke and
Norman J. Tice, the four directors in Class III, expire at this
Annual Meeting. Directors in Class I (Earle H. Harbison, Jr.,
Roger B. Porter, Ph.D. and Gloria W. White) and Class II
(Frederic C. Brussee, Ronald G. Evens, M.D. and Edward C. Gomes,
Jr.) have been elected to terms expiring at the time of the
annual meetings of shareholders in 1998 and 1999, respectively.
The Company's Board of Directors has requested Mr. Brussee's
resignation as a Class II director.
One of the purposes of this Annual Meeting is to elect three
directors in Class III to serve for a three-year term expiring at
the Annual Meeting of Shareholders in 2000 and until their
respective successors <PAGE> are duly elected and qualified or until
their respective earlier resignation or removal. The Board of
Directors has designated William H. T. Bush, John A. O'Rourke and
Norman J. Tice as the three nominees proposed for election at the
Annual Meeting. Unless authority to vote for the nominees or a
particular nominee is withheld, it is intended that the shares
represented by properly executed proxies in the form enclosed
will be voted for the election as directors of the three
nominees. In the event that one or more of the nominees should
become unavailable for election, it is intended that the shares
represented by the proxies will be voted for the election of such
substitute nominee or nominees as may be designated by the Board
of Directors, unless the authority to vote for both nominees or
for the particular nominee who has ceased to be a candidate has
been withheld. Each of the nominees has indicated his
willingness to serve as a director if elected, and the Board of
Directors has no reason to believe that any nominee will be
unavailable for election.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF WILLIAM H. T. BUSH, JOHN A. O'ROURKE AND NORMAN J.
TICE AS DIRECTORS OF CLASS III.
RightCHOICE's Articles of Incorporation and Bylaws provide
that advance notice of shareholder nominations for the election
of directors must be given. With respect to this Annual Meeting,
written notice of the shareholder's intent to make a nomination
at the meeting must be received by RightCHOICE's Secretary at the
Company's principal executive offices not later than the close of
business on April 14, 1997. At future meetings of shareholders,
notice of nominations or other business to be brought before the
meeting must be delivered to RightCHOICE's Secretary at the
Company's principal executive offices not less than 60 days (30
days in the case of nominations for the election of directors)
prior to the first anniversary of the previous year's annual
meeting. In the event that the date of the annual meeting of
shareholders is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, however, notice by the
shareholder to be timely must be so delivered not later than the
close of business on the later of (i) the 60th day (in the case
of nominations, the 30th day) prior to such annual meeting or
(ii) the tenth day following the date on which public
announcement of the date of such meeting is first made.
The shareholder's notice of nomination must contain (i) the
name and address of the nominating shareholder, of each person to
be nominated and of the beneficial owner (as defined in the
Articles of Incorporation), if any, on whose behalf the
nomination is made, (ii) a representation that the nominating
shareholder is the holder of record of RightCHOICE capital stock
entitled to vote in the election of directors at the meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (iii) the
class and number of shares of RightCHOICE capital stock owned
beneficially and of record by the nominating shareholder and by
each person to be nominated, (iv) a description of all
arrangements or understandings between the nominating shareholder
and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder, (v) the consent of
each nominee to serve as a director if so elected, and (vi) such
other information regarding each nominee proposed by the
nominating shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission if RightCHOICE were soliciting
proxies for the election of such nominees. If no such notice has
been received, the chairman of the Annual Meeting is entitled to
refuse to acknowledge the nomination of any person which is not
made in compliance with the foregoing procedure. The Board of
Directors does not know if, and has no reason to believe that,
anyone will attempt to nominate another candidate for director at
this Annual Meeting.
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The following table sets forth certain information with
respect to each person nominated by the Board of Directors for
election as a Class III director at the Annual Meeting and each
director whose term of office will continue after the Annual
Meeting.
<PAGE>
Present
Position
With Director
Name Age RightCHOICE Since
NOMINEES
CLASS III: TERM TO EXPIRE IN 2000
William H. T. Bush 58 Director 1994
John A. O'Rourke 53 Chairman, President and 1997
Chief Executive Officer
and Director
Norman J. Tice 61 Vice Chairman and 1994
Director
DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 1998
Earle H. Harbison, Jr. 68 Director 1994
Roger B. Porter, Ph.D. 50 Director 1994
Gloria W. White 62 Director 1994
CLASS II: TERM TO EXPIRE IN 1999
Frederic C. Brussee 41 Director 1994
Ronald G. Evens, M.D. 57 Director 1994
Edward C. Gomes, Jr. 63 Director 1994
The business experience of each of the directors of the
Company identified above during the last five years is as
follows:
WILLIAM H. T. BUSH has served as a director of the Company
since April 1994, and as Chairman of the Audit Committee since
1994. He served on the Blue Cross and Blue Shield of Missouri
Board of Directors from 1989 to 1994 and as Secretary of the
Board from 1990 to 1994. Mr. Bush is the Chairman of Bush-
O'Donnell & Company, Inc. of St. Louis, an investment management
and financial advisory firm founded by Mr. Bush in 1986. Prior
to 1986, Mr. Bush served as President and director of Boatmen's
National Bank of St. Louis. Mr. Bush currently serves on the
Boards of Directors of Mississippi Bancshares, Inc., Maritz Inc.,
Southwest Bank, National Elevator Inspection Services, D.T.
Industries, Inc., Search Capital Corp., Inc. and INTRAV, Inc.
Mr. Bush is a graduate of Yale University, where he received his
BA.
JOHN A. O'ROURKE has served as a director and Chairman and
Chief Executive Officer of the Company since February 1997, and
as President of the Company since March 1997. He served as
President and Chief Executive Officer of HealthLink, Inc., a
wholly owned subsidiary of the Company, from January 1985 to
February 1997. Prior to joining HealthLink, Inc., Mr. O'Rourke
was a member of the Federal Senior Executive Service and served
for approximately 15 years in the U.S. Department of Health and
Human Services in several capacities, including Deputy Director
of the Office of Health Maintenance Organizations, Deputy
Director of the Office of Health Practice Assessment and Senior
Policy Analyst in the Office of the Surgeon General. Prior to
serving in the Department of Health and Human Services, Mr.
O'Rourke was the Director of the Department of Economic Research
for the American Medical Association. Mr. O'Rourke is a graduate
of Saint Francis College, where he received his BA degree in
economics and philosophy, and of Brooklyn College, where he
received his MA degree in economics.
NORMAN J. TICE became Vice Chairman of the Company in
September 1995, and has served as a director since April 1994.
He served as Chairman of the Company from April 1994 to August
1995. He has served on the BCBSMo Board of Directors since 1986,
was Chairman from 1990 to 1994, and has served as Chairman from
January 1996 to the present. Mr. Tice retired from Boatmen's
Bancshares in May 1996 where he served in various senior
management positions, including, most recently, Executive Vice
President of The Boatmen's National Bank of St. Louis and
Chairman and Chief Executive Officer of Boatmen's Credit Card
<PAGE>
Bank. He is a member of the MasterCard International Inc. Global
Board of Directors. He is also a Director of General Credit
Forms, Inc. Mr. Tice is a graduate of Washington University
where he received his BSBA degree.
EARLE H. HARBISON, JR. has served as a director of the
Company since April 1994, and currently serves as Chairman of the
Compensation Committee. Mr. Harbison has served since September
1993 as Chairman of Harbison Corporation, a manufacturing company
in St. Louis. He served as President, Chief Operating Officer
and director of Monsanto Company from May 1986 until his
retirement in September 1993. He currently serves on the Boards
of Directors of HealthLink, Inc., Merrill Lynch and Company,
Inc., Angelica Corporation, National Life Insurance Co., Mutual
of America, Harbor Group, Ltd., Washington University, Barnes
Hospital and the National Law Center, George Washington
University. Mr. Harbison is a graduate of Washington University,
where he received his BA, and is a graduate of George Washington
University, where he received his JD.
ROGER B. PORTER, PH.D. has served as a director of the
Company since April 1994. Dr. Porter has served since 1993 as
IBM Professor of Business and Government at the John F. Kennedy
School of Government at Harvard University. From 1989 to 1993,
Dr. Porter served as Assistant to the President of the United
States for Economic and Domestic Policy. From 1985 to 1989, Dr.
Porter was Professor of Business and Government at Harvard
University and Faculty Chairman of the Program for Senior
Managers in Government. He currently serves on the Boards of
Directors of Zions Bancorporation and National Life of Vermont.
Dr. Porter is a graduate of Brigham Young University, where he
received his BA, Oxford University where he received his BPhil
and Harvard University where he received his MA and PhD. Dr.
Porter attended Oxford University as a Rhodes Scholar and Woodrow
Wilson Fellow.
GLORIA W. WHITE has served as a director of the Company
since November 1994. She has served on the Blue Cross and Blue
Shield of Missouri Board of Directors from 1986 to 1996 and as
Chairman of the Board from August 1994 to January 1996. Ms.
White has served as Vice Chancellor of Washington University
since 1988 and has been associated with that institution in
various other capacities since 1967. She currently serves as
Chair of the Caring Program for Children and the Chair of the
American Red Cross North Central Region Board. She is also a
member of the Boards of Directors of Missouri Goodwill
Industries, BlueCHOICE, United Way of Greater St. Louis and the
St. Louis Symphony, and the Mark Twain Bank Not-for-Profit Board
of Directors. Ms. White is also a member of the Executive
Committee of United Way of Greater St. Louis. Ms. White is a
graduate of Harris-Stowe State College where she received her BA
in Education, and of Washington University where she received her
MA in counseling and her LLM.
FREDERIC C. BRUSSEE has served as a director of the Company
since April 1994, although the Company's Board of Directors has
requested his resignation. Mr. Brussee served as President and
Chief Operating Officer of the Company from September 1995 until
March 5, 1997. He served as Executive Vice President and Chief
Operating Officer from April 1994 to August 1995. Mr. Brussee
joined BCBSMo in October 1993 as Senior Vice President, Market
Strategy and Corporate Development. Prior to joining BCBSMo,
Mr. Brussee managed a number of strategy consulting engagements
with BCBSMo while serving as a Managing Partner of the Price
Waterhouse Strategic Consulting Group. Mr. Brussee also has held
positions with Bain & Company, Corporate Decisions and Warner
Lambert. Mr. Brussee currently serves as Chairman and as a
member of the Board of Directors of BlueCHOICE. He also serves
as a board member of the Mark Twain Bank Health Services Board.
Mr. Brussee is a graduate of Miami University, where he received
his degree in marketing, and Michigan State University, where he
received his MBA.
RONALD G. EVENS, M.D. has served as a director of the
Company since April 1994. He served on the BCBSMo Board of
Directors from 1992 to 1994, as a member of the Executive
Committee from 1993 to 1994, and as a member of BCBSMo's Medical
Committee from 1986 to 1994. Since 1971, Dr. Evens has served as
director of the Mallinckrodt Institute of Radiology and head of
the department of radiology at Washington University School of
Medicine where he is the Mallinckrodt Professor of Radiology and
a professor of medical economics at the Olin School of Business.
Dr. Evens also has served since 1971 as radiologist-in-chief of
Barnes Hospital and Children's Hospital in St. Louis. He has
served as the President and Chief Executive <PAGE> Officer of Children's
Hospital in St. Louis (1985-1988) and as Vice Chancellor for
Financial Affairs of Washington University (1988-1990). He
currently serves on the Boards of Directors of BlueCHOICE,
HealthLink, Inc., Boatmen's Bank of St. Louis, Mallinckrodt
Group Inc. and the American College of Radiology. Dr. Evens is a
graduate of Washington University, where he received his BA and
MD.
EDWARD C. GOMES, JR. has served as a director of the Company
since April 1994, and as Chairman of the Finance and Investment
Committee since 1994. He served on the BCBSMo Board of Directors
from 1991 to 1994, as a member of the Executive Committee from
1992 to 1994, and as Chairman of the Finance and Investment
Committee from 1993 to 1994. Mr. Gomes has served as the
President and Chief Executive Officer of Lionmark Construction
Companies in St. Louis since 1980. Mr. Gomes currently serves on
the Board of Directors of HealthLink, Inc. He served on the
International Board of Directors (1976-1981) and as Chairman of
Worldwide Strategic Planning (1980-1981) for the Young
President's Organization. He served on the International Board
of Directors (1990-1993) of the Chief Executives Organization.
Mr. Gomes is a graduate of Washington University, where he
received his BS and MBA.
There is no arrangement or understanding between any
director and any other person pursuant to which such director was
selected as a director.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. Each of the Company's directors who is not
otherwise an employee of the Company, its parent or subsidiaries
(the "Nonemployee Directors") receives an annual retainer of
$13,000 plus $800 for each meeting of the Board attended, with
the exception of the Vice Chairman of the Board who receives an
annual retainer of $17,000 plus $1,000 for each meeting attended.
Each Nonemployee Director receives $700 for each separate
committee meeting attended with the exception of the Committee
chair who receives $900. Each director also receives
reimbursement of reasonable out-of-pocket expenses for attending
meetings.
DIRECTORS' STOCK OPTION PLAN. The Company has adopted the
RightCHOICE Managed Care, Inc. Nonemployee Directors' Stock
Option Plan (the "Directors' Stock Option Plan") to provide for
the grant of options to purchase shares of Class A Common Stock,
$0.01 par value, to Nonemployee Directors. The purpose of the
Directors' Stock Option Plan is to attract and retain qualified
outside directors of the Company and to provide additional
incentive for such directors to promote the success of the
Company's business through sharing in the future growth of such
business. Only Nonemployee Directors (currently seven persons)
are eligible to participate in the Directors' Stock Option Plan.
Annually, each Nonemployee Director will be granted options
to purchase 1,000 shares of Class A Common Stock. Each person
who is elected for the first time as a Nonemployee Director will
be granted an option to purchase up to 1,000 shares of Class A
Common Stock which will be prorated based upon the number of
months until the next annual grant. The aggregate number of
shares of Class A Common Stock that may be issued pursuant to
options granted under the Directors' Stock Option Plan is limited
to 60,000 shares, subject to adjustment in the event of certain
changes in the Company's capital structure. No option granted
pursuant to the Directors' Stock Option Plan shall be
transferable or assignable by the optionee other than by will or
the laws of descent and distribution, and during the lifetime of
the optionee the option shall be exercisable only by the optionee
and his or her guardian or other legal representative. The
Directors' Stock Option Plan is administered by a committee (the
"Directors' Plan Committee") designated by the Board of Directors
of the Company and composed of members of the Board of Directors
who are not otherwise eligible to be participants in the
Directors' Plan.
The exercise price at which shares of Class A Common Stock
may be purchased under an option granted pursuant to the
Directors' Stock Option Plan will be equal to the fair market
value of shares of Class A Common Stock on the date of grant.
Currently "fair market value" would be determined by reference to
the closing price of Class A Common Stock on the New York Stock
Exchange. In the event of a change in the Company's capital
structure, including a change resulting from a stock dividend,
stock split, recapitalization, reorganization, merger,
consolidation, combination or exchange, the exercise price and
number of shares <PAGE> subject to outstanding options would be subject
to adjustment. The time at which an option becomes exercisable
is fixed at the time the option is granted. Each option expires
ten years from the date of grant. In the event of a change in
control of the Company, the time at which any outstanding options
under the Directors' Stock Option Plan may be exercised may be
accelerated and the exercise terms of the outstanding options may
be adjusted among other alternative actions available to the
Director's Plan Committee.
DIRECTORS' DEFERRED COMPENSATION PLAN. Nonemployee
Directors may elect to participate in the Company's Nonemployee
Directors' Nonqualified Deferred Compensation Plan. Under this
plan, Nonemployee Directors can make an annual election to defer
a portion or all of their director's fees. Upon the termination
of a director's services, the director will be entitled to
receive a lump sum payment of the aggregate amount deferred plus
a deemed interest amount compounded quarterly at a rate equal to
the prime rate (determined quarterly) plus one percent.
Alternatively, director's deferred compensation may be
distributed in the form of shares of RightCHOICE Class A Common
Stock.
MEETINGS OF THE BOARD AND COMMITTEES
During 1996 the Board of Directors of RightCHOICE held 11
meetings. All directors attended (including attendance by
telephone conference) at least 75% of the meetings of the Board
of Directors and the committees of the Board of Directors on
which they served which were held during 1996.
Pursuant to RightCHOICE's Bylaws, the Board of Directors has
established Audit and Compensation Committees of the Board of
Directors. There currently is not a Nominating Committee or a
committee performing similar functions of the Board of Directors.
The Audit Committee assists the Board of Directors in
fulfilling its responsibilities with respect to RightCHOICE's
internal control structure and financial reporting practices by
reviewing the audited financial information which is provided to
the shareholders and others, the system of internal controls
which management and the Board of Directors have established, and
the internal and external audit processes. The Audit Committee
is responsible for recommending the appointment of RightCHOICE's
independent auditors and reviewing the terms of their engagement,
reviewing RightCHOICE's policies and procedures with respect to
internal auditing, corporate compliance, accounting and financial
controls and reviewing the scope and results of audits and any
auditor recommendations. The current members of the Audit
Committee are William H. T. Bush, Chairman; Edward C. Gomes, Jr.;
Roger B. Porter, Ph.D. and Gloria W. White. The Audit Committee
met four times in 1996.
The Compensation Committee makes recommendations to the
Board of Directors, and takes certain actions without the
necessity of Board of Director involvement, regarding the
compensation and benefits of RightCHOICE's executive officers,
the members of the Board of Directors and the members of the
Audit Committee. The Compensation Committee also administers the
Company's 1994 Equity Incentive Plan. The members of the
Compensation Committee as of December 31, 1996, were Earle H.
Harbison, Jr., Chairman; William H. T. Bush; Ronald G. Evens,
M.D. and Gloria W. White. Mr. Bush resigned from the
Compensation Committee in February 1997. The Compensation
Committee met three times in 1996.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table summarizes for the years ended December
31, 1994, 1995 and 1996, respectively, the compensation of the
Company's chief executive officer and the four other most highly
compensated executive officers of the Company whose remuneration
for 1996 was in excess of $100,000 for services to the Company in
all capacities (the "Named Executives"):
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Name Other Under-
and Annual Restricted lying LTIP All Other
Principal Compen- Stock Options/ Pay- Compen-
Position Year Salary/1/ Bonus/2/ sation/3/ Award(s) SARs Outs sation/4/
Roy R.
Heimburger /5/ 1996 $380,000 $0 $0 -- 55,769 $0 $46,630
Chairman,
Chief Executive 1995 $382,475 $ 97,824 $0 -- 8,215 $0 $43,753
Officer and
Director 1994 $360,300 $358,342 $0 -- 34,133 $0 $37,992
Frederic C.
Brussee /5/ 1996 $290,000 $0 $0 -- 44,044 $0 $13,394
President, Chief 1995 $250,000 $ 77,656 $0 -- 5,591 $0 $12,132
Operating Officer 1994 $200,000 $168,000 $0 -- 23,243 $0 $12,406
and Director
Edward J.
Tenholder 1996 $210,000 $0 $0 -- 26,503 $0 $18,807
Senior Vice 1995 $185,000 $ 48,788 $0 -- 3,945 $0 $18,258
President--
Client Services 1994 $174,000 $120,818 $0 -- 15,813 $0 $22,134
and Operations
Officer
Kenneth M. Evelyn 1996 $134,438 $ 66,667 $0 -- 31,000 $0 $10,240
Senior Vice
President--
Marketing, Sales
and Product
Management
Joseph R.
Huguenard, M.D. 1996 $200,000 $0 $0 -- 23,502 $0 $81,785
Senior Vice
President-- 1995 $34,871 $ 40,000 $0 -- 0 $0 $ 7,680
Medical Management
and Corporate
Medical Director
______________________
/1/ Includes, where applicable, amounts electively deferred by each Named Executive under the Company's
tax-favored savings program (the "401(k) Plan") and executive deferred compensation plan (the "401(k)
Excess Plan"). The 401(k) Excess Plan permits additional elective deferrals and additional matching
contributions and restores benefits that cannot be contributed to and provided by the Company because
of limits imposed by the Internal Revenue Code of 1986 as from time to time amended (the "Code").
/2/ Consists of compensation paid under (a) the Company's management incentive program, and (b) for 1994
only, the Company's short-term initial public offering (IPO) bonus arrangement. The management
incentive program is based upon the higher of the participants' base salary or salary range midpoint,
and is payable upon the achievement of pre-defined annual corporate operational targets. Reflects
compensation earned for the years ended December 31, 1994, 1995 and 1996, respectively. The earnings
under the management incentive program for 1994, 1995 and 1996 were $106,412, $97,824 and $0,
respectively, for Mr. Heimburger; $70,000, $77,656 and $0, respectively, for Mr. Brussee; $50,318,
$48,788 and $0, respectively, for Mr. Tenholder; $0, $0 and $66,667, respectively, for Mr. Evelyn, and
$0, $40,000 and $0, respectively, for Dr. Huguenard. Mr. Evelyn joined the Company on May 6, 1996,
and his bonus for 1996 was guaranteed at the time of his employment. The earnings under the short-
term IPO bonus arrangement in 1994 were $251,930 for Mr. Heimburger; $98,000 for Mr. Brussee; $70,500
for Mr. Tenholder; $0 for Mr. Evelyn; and $0 for Dr. Huguenard.
/3/ Excludes perquisites and other benefits, unless the aggregate amount of such compensation is the
lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the named
executive officer.
/4/ All Other Compensation includes (a) RightCHOICE matching contributions which accrued during the year
ended December 31, 1994, 1995 and 1996, respectively, for the accounts of the Named Executives under
the 401(k) Plan and 401(k) Excess Plan, (b) the value of term life insurance assigned to the Named
Executives under split dollar universal life insurance policies owned by the Company, (c) earnings on
amounts deferred under the 401(k) Excess Plan for the Named Executives, (d) an automobile lease
arrangement for the Named Executives, and (e) relocation expenses associated with Dr. Huguenard's move
to St. Louis. RightCHOICE matching contributions which accrued under the 401(k) Plan and the 401(k)
Excess Plan for 1994, 1995 and 1996 were $13,770, $15,937 and $13,050, respectively, for Mr.
Heimburger; $4,945, $4,500 and $4,500, respectively, for Mr. Brussee; $11,760, $7,503 and $9,001,
respectively, for Mr. Tenholder; $0, $0 and $3,000, respectively, for Mr. Evelyn; and $0, $1,016 and
$6,290, respectively for Dr. Huguenard. The value of the term life insurance for 1994, 1995 and 1996
was $1,650, $1,782 and $2,044, respectively, for Mr. Heimburger; $261, $332 and $494, respectively,
for Mr. Brussee; $252, $252 and $438, respectively, for Mr. Tenholder; $0, $0 and $446, respectively,
for Mr. Evelyn; and $0, $204 and $602, respectively, for Dr. Huguenard. Earnings on amounts deferred
under the 40l(k) Excess Plan for 1994, 1995 and 1996 were $15,372, $23,934 and $23,136, respectively,
for Mr. Heimburger; $0, $0 and $0, respectively, for Mr. Brussee; $2,563, $5,153 and $4,504,
respectively, for Mr. Tenholder; $0, $0 and $1,194, respectively, for Mr. Evelyn; and $0, $0 and $544,
respectively, for Dr. Huguenard. The value of the automobile lease arrangements for 1994, 1995 and
<PAGE>
1996 was $7,200, $2,100 and $8,400, respectively, for Mr. Heimburger; $7,200, $7,300 and $8,400,
respectively, for Mr. Brussee; $7,559, $5,350 and $4,864, respectively, for Mr. Tenholder; $0, $0 and
$5,600, respectively, for Mr. Evelyn; and $0, $1,400 and $8,400, respectively, for Dr. Huguenard.
Relocation expenses paid in 1995 and 1996 for Dr. Huguenard were $4,970 and $65,948, respectively.
/5/ Effective March 5, 1997, Mr. Heimburger and Mr. Brussee each ceased to be executive officers of the
Company. The Company is in the process of negotiating with these former officers regarding what, if
any, severance payments will be made to them.
</TABLE>
Option Grants
The following table sets forth information with respect to
each of the Named Executives concerning grants of stock options
and stock appreciation rights ("SARs") during 1996.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR /1/
<CAPTION> Grant
Date
Individual Grants Value
(a) (b) (c) (d) (e) (f)
<S> <C> <C> <C> <C> <C>
Number of % of Total
Securities Options/SARs
Underlying Granted to Grant
Options/ Employees in Exercise or Date
SARs Fiscal Base Price Expiration Present
Name Granted(#)/3/ Year ($/Share Date Value ($)
Roy R.
Heimburger /5/
27,769 6.9% $13.000 January 1, 2006 $191,606/2/
28,000 7.0% $11.125 December 12, 2006 $170,240/2/
Frederic C.
Brussee /5/
22,044 5.5% $13.000 January 1, 2006 $152,104/2/
22,000 5.5% $11.125 December 12, 2006 $133,760/2/
Edward J.
Tenholder
13,503 3.4% $13.000 January 1, 2006 $93,171/2/
13,000 3.2% $11.125 December 12, 2006 $79,040/2/
Kenneth M.
Evelyn
20,000 5.0% $16.625 January 1, 2006 $188,000/4/
11,000 2.7% $11.125 December 12, 2006 $66,880/2/
Joseph R.
Huguenard, M.D.
10,502 2.6% $13.000 January 1, 2006 $72,464/2/
13,000 3.2% $11.125 December 12, 2006 $79,040/2/
___________________
/1/ No stock appreciation rights have been granted by the Company.
/2/ The dollar value of the stock options has been determined as of January 1, 1996, and December 12,
1996, respectively, using the Black-Scholes option pricing model, based on the assumptions that
(a) the options were granted January 1, 1996, and December 12, 1996, respectively ("grant dates"),
(b) the prices for the shares of Class A Common Stock underlying the options on the grant dates were
$13.00 per share and $11.125 per share, respectively, (c) the period during which the options are
exercisable is ten years from the respective grant date, (d) the option exercise prices are $13.00 per
share and $11.125 per share, respectively, (e) the dividend yield is 0%, (f) the "risk free" interest
rate is 5.53% and 6.32%, respectively, the yield on a U.S. Government Zero Coupon Bond having a ten-year
maturity from the grant dates, (g) the price volatilities for the shares of Class A Common Stock
underlying the options are 41.62% and 41.62%, respectively, and (h) the expected term of the options
is seven years from the respective grant dates.
<PAGE>
/3/ The options granted on January 1, 1996, and May 6, 1996, first become exercisable on January 1, 1999.
Options granted on December 12, 1996, become exercisable in three equal installments as of December
12, 1997, 1998 and 1999. The options are subject to early termination or acceleration in the event of
a "Corporate Change" (as defined in the 1994 Equity Incentive Plan) or certain other events identified
in the Named Executive's stock option agreement.
/4/ Mr. Evelyn's initial grant of stock options was granted on May 6, 1996, and has been valued using the
Black-Scholes option pricing model, based on the same assumptions referred to in (2), above, except
(a) the grant date was May 6, 1996; (b) the price of the stock underlying the options on the grant
date was $16.625 per share; (c) the option exercise price is $16.625 per share; (d) the "risk-free"
interest rate is 6.85%; and (e) the volatility of the stock underlying the options is 41.62%.
/5/ Effective March 5, 1997, Mr. Heimburger and Mr. Brussee each ceased to be executive officers of the
Company. Neither of these former officers were vested in any of their options identified in this
table at the time of their termination of employment. As a result, these options have been forfeited
and are no longer outstanding.
</TABLE>
<TABLE>
OPTION/SAR EXERCISES AND HOLDINGS
<CAPTION>
The following table sets forth information with respect to each of the Named
Executives concerning the exercise of options and stock appreciation rights ("SARs")
during 1996 and unexercised options and SARs held as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1996 OPTION/SAR
VALUES /1/
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Acquired Value December 31, 1996(#) December 31, 1996($)/2/
Name On Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
Roy R. Heimburger (3) 0 $0 0 98,117 $0 $0
Frederic C. Brussee (3) 0 0 0 72,878 0 0
Edward J. Tenholder 0 0 0 46,261 0 0
Kenneth M. Evelyn 0 0 0 31,000 0 0
Joseph R. Huguenard, M.D. 0 0 0 23,502 0 0
/1/ No stock appreciation rights have been granted by the Company.
/2/ As of December 31, 1996, the last reported sale price of the Company's Class A Common Stock, which was
reported on the New York Stock Exchange on December 31, 1996, was $10.625 per share. Value is
calculated by determining the difference between the option exercise price and $10.625 multiplied by
the number of shares of Class A Common Stock underlying the options.
/3/ Effective March 5, 1997, Mr. Heimburger and Mr. Brussee each ceased to be executive officers of the
Company. Neither of these former officers were vested in any of their options identified in this
table at the time of their termination of employment. As a result, these options have been forfeited
and are no longer outstanding.
</TABLE>
EXECUTIVE SEVERANCE AGREEMENTS
The Company has previously entered into, and subsequent to
the end of the last fiscal year has revised, severance agreements
for severance benefits in the event of a termination following a
change in control (the "Executive Severance Agreements") with
each of its Senior Vice Presidents and senior executives,
including the following persons: Roy R. Heimburger; Frederic C.
Brussee; Edward J. Tenholder; Kenneth M. <PAGE> Evelyn and Joseph R.
Huguenard, M.D. Each Executive Severance Agreement contains a
confidentiality agreement and a covenant not to compete.
Executives are required to enter into a complete waiver of any
claim against the Company prior to the receipt of any Executive
Severance Agreement benefits.
The Executive Severance Agreements provide for severance
benefits in the event of a change in control of the Company. A
"change in control" is generally defined as: (1) certain
mergers, consolidations or reorganizations of the Company
involving the conversion or exchange of any class of the
Company's outstanding stock; (2) the sale, lease or exchange of
substantially all of the Company's or of the Company's parent's
assets; (3) the final adoption of a plan of complete liquidation
of the Company or of the Company's parent; (4) the privatization
of the Company; (5) the acquisition by a person or group of more
than 50% of the total voting power of the Company's or of the
Company's parent's outstanding stock; or (6) a change in the
majority of the Board of Directors or the board of directors of
the Company's parent as the result of a contested election. Upon
a change in control, severance payments generally will be made if
the Company terminates the executive without cause or if the
executive terminates employment with the Company for good reason
within two years after the change in control. The Executive
Severance Agreements generally define "good reason" as the
occurrence of any of the following circumstances without the
prior written consent of the executive: (1) the assignment of
duties to the executive that are inconsistent with the
executive's position or a substantial adverse alteration in the
nature or status of the executive's job, title or position; (2) a
reduction by the Company in the executive's annual base salary or
bonus formula; (3) the relocation of the executive's principal
place of performing business; (4) the material reduction of
fringe benefits paid to the executive; or (5) the Company's
termination of the Executive Severance Agreement in violation of
its terms. Severance payments will be equal to the greater of
(1) three times the executive's annual base salary, the annual
premiums generally paid by the Company for health, dental and
life insurance, and outplacement benefits, or (2) two times the
executive's highest annual compensation (including base salary,
bonus payments and certain long-term incentive payments) during
the immediate five calendar years prior to the change in control,
and will generally be payable in twenty-four or thirty-six
monthly installments. Severance payments will be reduced to the
extent necessary to ensure that such payments when added to other
benefits provided by the Company do not constitute an excess
parachute payment under Section 280G of the Code.
OFFICERS' SEVERANCE AGREEMENTS
The Company has previously entered into, and subsequent to
the end of the last fiscal year has revised, standard severance
agreements (the "Officer Severance Agreements") with each of its
officers, including the following: Roy R. Heimburger; Frederic
C. Brussee; Edward J. Tenholder; Kenneth M. Evelyn and Joseph R.
Huguenard, M.D. Each Officer Severance Agreement contains a
covenant not to compete and a confidentiality agreement.
Officers are required to enter into a complete waiver of all
claims against the Company prior to receipt of any Officer
Severance Agreement benefits.
The Officers' Severance Agreements provide for severance
benefits to officers who are involuntarily terminated for reasons
other than cause, death or disability, or who voluntarily
terminate their employment for proper reason, in the event that
Executive Severance Agreement benefits are not payable. "Proper
reason" is defined under the Officers' Severance Agreements as a
reduction of 20% or more in the officer's base salary or bonus
formula (except for reductions similarly affecting all officers
of the Company). Under the Officers' Severance Agreements, Vice
Presidents will receive a severance benefit equal to one year's
base salary, payable in twelve monthly installments; Senior Vice
Presidents will receive a severance benefit equal to two years'
base salary, payable in twenty-four monthly installments; and the
Chief Executive Officer and President will receive a severance
benefit equal to three years' base salary, payable in thirty-six
monthly installments. If the officer finds other employment
prior to the payment of the last monthly installment, the
remaining severance benefit may be paid in a lump sum. In
addition, health, dental and life insurance premiums and
outplacement services will be provided by the Company for up to
twelve months. Severance benefits will be reduced to the extent
necessary to ensure that such payments when added to other
benefits provided by the Company do not constitute excess
parachute payments under Section 280G of the Code.
<PAGE>
PENSION PLANS
Eligible employees of the Company participate in a qualified
defined benefit pension plan (the "Pension Plan"). The Pension
Plan provides for an annual normal retirement benefit of a life
annuity equal to 1% of final average earnings up to Social
Security covered compensation plus 1.5% of final average earnings
in excess of Social Security covered compensation, multiplied by
years of credited service up to 30. Credited service for this
purpose includes service with other organizations licensed by
Blue Cross and Blue Shield Association ("BCBSA") and pension
benefits are offset by pension benefits payable by such other
organizations. Normal retirement benefits are payable upon
reaching age 65. The Pension Plan provides for subsidized early
retirement benefits for employees who terminate their employment
with the Company after having obtained age 55 and completion of
five or more years of credited service. The subsidies are
increased for participants who retire on or after attainment of
age 62 with 20 years or more of credited service. Participants
may elect to receive their pension benefits in the form of a
joint and survivor annuity, a single life annuity, a ten-year
certain life annuity or other optional forms. During 1996, the
Company offered a limited early retirement option to a group of
non-highly compensated employees who were displaced when the
Company relocated a client service division outside the St. Louis
area.
The Company also maintains a supplemental executive
retirement plan (the "SERP" ) for certain executives, including
the Named Executives. The SERP provides for an annual retirement
benefit equal to 2.5% of final average earnings, multiplied by
years of service up to 20, and offset by benefits provided under
the Pension Plan and certain other qualifying pension plans and
annuities.
The following table shows the total estimated maximum annual
benefits payable under the Pension Plan, as supplemented by the
SERP, in the form of a ten-year certain single life annuity to
hypothetical participants at normal retirement age (age 65),
based on various levels of final average earnings and years of
credited service. The amounts listed in the following table are
not subject to any reduction for Social Security benefits, but
are subject to offset by any pensions payable under the pension
plans of other organizations licensed by BCBSA.
Estimated Annual Benefit for Representative
Final Average Years of Credited Service
Earnings 15 20 25 30 35
$150,000 $ 52,065 $ 69,420 $ 69 420 $ 69,420 $ 69,420
$200,000 $ 69,420 $ 92,560 $ 92,560 92,560 $ 92,560
$225,000 $ 78,098 $104,130 $104,130 $104,130 $104,130
$250,000 $ 86,775 $115,700 $115,700 $115,700 $115,700
$300,000 $104,130 $138,840 $138,840 $138,840 $138,840
$400,000 $138,840 $185,120 $185,120 $185,120 $185,120
$450,000 $156,195 $208,260 $208,260 $208,260 $208,260
$500,000 $173,550 $231,400 $231,400 $231,400 $231,400
$550,000 $190,905 $254,540 $254,540 $254,540 $254,540
$600,000 $208,260 $277,680 $277,680 $277,680 $277,680
The years of service recognized under the Pension Plan for
each of the Named Executives are as follows: Mr. Heimburger, 21
years (including 4 years of service with another organization
licensed by BCBSA); Mr. Brussee, 3 years; Mr. Tenholder, 21
years; Mr. Evelyn, 3 years (including 2 years of service with
another organization licensed by BCBSA), and Dr. Huguenard, 5
years (including 4 years of service with another organization
licensed by BCBSA). Compensation recognized under the Pension
Plan generally includes a participant's base salary (including
any portion deferred), annual bonus compensation and payouts
received under the Company's long-term incentive plans, subject
to maximum limits on compensation imposed under the Code. The
same compensation is recognized under the SERP, but without such
maximum limits. Retirement benefits are calculated based upon
the average of a participant's five highest consecutive years of
compensation of the most recent ten years of credited service.
Under this formula the compensation under <PAGE> the Pension Plan
(before applying the maximum limits under the Code) and the
compensation under the SERP for each of the Named Executives as
of December 31, 1996 is as follows: Mr. Heimburger, $589,313;
Mr. Brussee, $287,692; Mr. Tenholder, $267,641; Mr. Evelyn,
$216,026, and Dr. Huguenard, $203,390.
401(K) PLAN
Eligible employees of the Company participate in the Tax-
Favored Savings Program (the "401(k) Plan"). Participants may
make contributions to the plan by voluntarily reducing their
salary from the Company up to the lesser of 10% of compensation
or the maximum dollar amount allowed under the Code ($9,500 for
1996), and the Company matches 60% of such contributions up to 5%
of the participant's compensation. The Company may make
additional contributions on a discretionary basis which will be
allocated to the accounts of participants in proportion to their
compensation. The Company's matching contributions and
discretionary contributions vest 33 % after three years of
service, 66 % after four years of service and 100% after five
years of service. Among the investment options available to
participants under the 401(k) Plan is the investment in shares of
RightCHOICE Class A Common Stock.
EQUITY INCENTIVE PLAN
The Company has adopted an equity incentive plan (the
"Equity Incentive Plan") to provide for the grant of options to
purchase and awards of Class A Common Stock of the Company to
officers and certain other employees of the Company. The purpose
of the Equity Incentive Plan is to assist the Company in
attracting, retaining and motivating officers and other key
employees.
The Equity Incentive Plan is administered by the
Compensation Committee of the Board of Directors, none of the
members of which are currently eligible to receive options or
stock awards under the Equity Incentive Plan. The Compensation
Committee may grant employees non-qualified options and options
which qualify as incentive stock options under Section 422 of the
Internal Revenue Code. The option price of each option is
determined by the Compensation Committee, but in the case of an
incentive stock option the price can be no less than the fair
market value of the stock on the date of grant. To exercise an
option, an employee may pay the option price in cash or by
delivering other shares of Class A Common Stock. The term of
each option is fixed by the Compensation Committee but may not
exceed ten years from the date of grant. The Compensation
Committee will determine the terms and conditions of each option,
including the times when each option may be exercised. In the
event of a change in control of the Company, the Compensation
Committee may: (1) accelerate the time at which outstanding
options are exercisable and provide that such options must be
exercised in full on or before a specified date fixed by the
Compensation Committee; (2) cash out the options held by selected
employees for an amount determined under the Equity Incentive
Plan; (3) make adjustments to outstanding options to reflect such
change; or (4) provide that outstanding options shall be
exercisable for the number and class of share of stock or other
securities or property to which the employee would have been
entitled if, immediately prior to the change, the employee had
been the holder of record of the stock then covered by the
option. No options granted are transferable except by descent in
accordance with the provisions of the Equity Incentive Plan.
The Compensation Committee may award eligible employees with
shares of stock subject to restrictions of such type and duration
as the Compensation Committee shall determine at the time of
award. Dividends will be paid on each share of restricted stock
during the restricted period. An employee holding a share of
restricted stock will be entitled to enjoy all other rights of a
stockholder with regard to such share, except: (1) the Company
shall retain possession of the stock during the restricted
period; (2) the employee may not transfer the stock during the
restricted period; and (3) a breach of the conditions established
by the Compensation Committee for the restricted stock will cause
a forfeiture of the stock.
The maximum number of shares subject to options, or awarded
as restricted stock, that may be outstanding at any time under
the Equity Incentive Plan is 1,000,000. The aggregate number of
shares of stock that may be issued to any employee shall not
exceed 200,000. The shares may be unissued shares or treasury
shares. If there is a stock split, stock dividend,
recapitalization, merger, or other relevant change affecting the
<PAGE>
Company's stock, appropriate adjustments will be made by the
Compensation Committee in the stock issued or stock options
awarded under the Equity Incentive Plan. As of March 14, 1997,
options to purchase a total of 616,592 shares of Class A Common
Stock are outstanding or have been exercised under the Equity
Incentive Plan as of this date.
BCBSMO SUPPLEMENTAL INCOME PLAN
In 1991, BCBSMo adopted a supplemental income plan (the
"BCBSMo Supplemental Income Plan") covering certain former
executives and other employees of BCBSMo that were employed by
the Company, including: Roy R. Heimburger, Frederic C. Brussee
and Edward J. Tenholder. Bonuses under the BCBSMo Supplemental
Income Plan were intended to provide incentive for these
employees to grow BCBSMo and remain with the Company. Amounts
payable under the BCBSMo Supplemental Income Plan are the
responsibility of BCBSMo.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
This report has been prepared by the Compensation Committee
of the Board of Directors which has general responsibility for
the establishment, direction and administration of all aspects of
the compensation policies and programs for the Company's
executive officers. It describes the Company's policies and
programs applicable to the Company's executive officers in 1996,
many of which were designed and established by the compensation
committee of the board of directors of the Company's parent
before the Company was organized.
COMPENSATION POLICY. The Company's executive compensation
policies for 1996 were premised upon three basic goals: (1) to
attract and retain qualified individuals who provide the skills
and leadership necessary to enable the Company to achieve both
its short- and long-term financial, operational and strategic
objectives; (2) to provide performance-based incentives which
motivate executive officers to achieve Company and individual
performance objectives; and (3) to create a mutuality of interest
between the Company's executive officers and shareholders through
a compensation structure that directly links executive
compensation and shareholder return. In determining the
structure and levels of each of the components of executive
compensation needed to achieve these goals, the Compensation
Committee engaged the services of independent consultants. The
consultants utilized survey information reflecting a large group
of comparable companies of similar size and geographic markets in
the managed health care industry (the "Comparable Companies") and
reviewed the levels and structures of compensation paid to
similar positions at such companies. In addition, the
compensation disclosed by other publicly traded managed care
organizations was reviewed.
COMPENSATION COMPONENTS. The principal components of the
compensation program for executive officers in 1996 were base
salary, annual incentive bonuses, and stock options. These
components were intended to advance both the short- and long-term
interests of the Company's shareholders by placing a significant
portion of executive compensation at risk: the annual incentive
bonus (which permits individual performance to be recognized
annually based on an evaluation of the Company's performance and
the executive officer's contribution to that performance) and the
grant of stock options (which directly ties the executive
officer's long-term remuneration to stock price appreciation
realized by the Company's shareholders). Each of the components
of the compensation program is addressed separately below.
Base Salary. In establishing 1996 base salaries, the
Company validated the salary structure that had been created in
prior years. This was accomplished by having consultants
calculate salary midpoints for each of the executive officers
(the "Salary Midpoints") by applying regression analysis to
appropriately adjust the salary midpoints of similar positions at
the Comparable Companies to reflect the Company's relative size.
Using the Salary Midpoints as a frame of reference, actual base
salaries were determined by the Compensation Committee based upon
each executive officer's specific responsibilities, effectiveness
in the performance of his or her duties, and personal
contributions to the Company's business.
<PAGE>
Annual Incentive Bonus. The Company's executive officers
are eligible to receive annual incentive bonus awards under the
Company's Alliance Blue Cross Blue Shield Incentive Plan ("AIP").
Annual bonus opportunities allow the Company to motivate
executive officers to achieve specific corporate goals that are
of primary importance during the coming year. Executive officer
AIP bonus levels were established based upon the average bonus,
as a percentage of total compensation, provided by the Comparable
Companies. Potential payouts were dependent on the level of the
Company's operating income (the "Income") and the amount actually
paid was based upon the level of the achievement of stated
corporate and budgetary goals.
The following four corporate goals were established in 1996:
management of medical care costs (25%); achievement of client
service goals (20%); achievement of specific business growth and
retention goals (40%); and implementation of key corporate
initiatives (15%). For the CEO and President/COO, this last goal
was replaced with a goal that the Company attain specific net
income levels. The percentages above represent the weightings
that were assigned for each of the corporate goals. In addition,
individual goals, which included a budgetary goal, were
established for 1996, with a specific percentage of the total
payout under the AIP based on the extent to which these goals
were achieved.
Achievement of the corporate goals represented 80% of the
total weighting between corporate and individual goals for Senior
Vice Presidents and 100% for the CEO and President/COO. For
1996, other than a few limited exceptions (e.g., the bonus for
Mr. Evelyn was guaranteed at the time of his initial hire and
several other executives received minimum bonuses for exceptional
individual performance), the level of the Company's Income was
insufficient to result in any payouts under the AIP for the Named
Executives or other executive officers.
Stock Options. The Company's Compensation Committee
believes that stock option grants advance the long-term interests
of the Company and its shareholders by rewarding executive
officers for increasing shareholder value. Stock options only
produce value to the executive officers if the price of the
Company's Class A Common Stock appreciates, thereby directly
linking the interests of the executive officers with those of the
Company's shareholders.
In establishing the appropriate proportion of total
compensation to be provided by long-term incentives and thus the
number of shares to be covered by stock option grants, the
Compensation Committee used a percentage of the Salary Midpoint
for particular executive levels as the principal determining
factor. Individual grant sizes were determined using the Black-
Scholes pricing model and were designed to compare with the level
of long-term incentives provided by the Comparable Companies. In
addition, the executive officer's level, as well as his or her
overall performance and level of responsibility, were taken into
consideration. In addition to the standard annual grant of
options provided in January, 1996, the Compensation Committee
decided it was appropriate to issue certain executive officers,
including the Named Executives, an additional set of options as
of December 12, 1996, as an additional method of motivating
executive officers to maximize shareholder value in the long term
as well as in the context of any business combinations or
alliances that might be pursued in the near or long term.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Heimburger's
total compensation for 1996 was reviewed and adjusted to reflect
compensation paid to the Chairmen and CEOs of Comparable
Companies. His 1996 base compensation (50% of which was paid by
the Company and 50% of which was paid by the Company's parent)
was established using the same methodology and criteria as
described above for all company executive officers.
During 1996, his base salary was basically unchanged from
the previous year. Mr. Heimburger's AIP bonus payment was $0 for
the reasons referred to above. In addition, he was granted
27,769 stock options on January 1, 1996, at an exercise price of
$13.00 per share and 28,000 stock options on December 12, 1996,
at $11.125 per share. The award of the stock options on January
1, 1996, was determined using the methodology referred to above
for other executive officers and took into consideration his
specific responsibilities, effectiveness in the performance of
his duties, role in achieving corporate and financial goals of
the Company, and personal contribution to the Company's
performance. The award on December 12, 1996, <PAGE> for Mr. Heimburger
was specifically targeted to motivate him to achieve the highest
value possible for the Company in connection with potential
merger and acquisition opportunities then being explored by the
Company.
Company Compensation Committee:
William H. T. Bush Ronald G. Evens, M.D.
Earle H. Harbison, Jr. Gloria W. White
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above under "Compensation Committee Report",
the Compensation Committee has general responsibility for the
establishment, direction and administration of all aspects of the
compensation policies and programs for the Company's executive
officers. During 1996, the members of the Compensation Committee
were Messrs. Bush and Harbison, Jr., Ms. White and Dr. Evens.
None of the members of the Compensation Committee were, during
1996, an officer or employee of the Company or any of its
subsidiaries, or otherwise were formerly an officer of the
Company or any of its subsidiaries.
COMPANY PERFORMANCE
The following performance graph shows a comparison of
cumulative total returns for the Company, the Standard & Poor's
500 Stock Index and an index of companies selected by the Company
for the period from August 1, 1994 (the date that RightCHOICE's
Class A Common Stock began trading on the New York Stock
Exchange), through December 31, 1996.
The cumulative total return on investment for the Company,
the Standard & Poor's 500 Stock Index and an index of peer
companies is based on the stock price or index at August 1, 1994.
The performance graph assumes that the value of an investment in
the Company's Class A Common Stock and each index was $100 at
August 1, 1994, and that all dividends were reinvested. The
information presented in the performance graph is historical in
nature and is not intended to represent or guarantee future
returns.
The performance graph compares the performance of the
Company with that of the Standard & Poor's 500 Stock Index and an
index of peer companies. Companies in the peer group index
include Coventry Corporation, Humana, Inc., Mid-Atlantic Medical
Services, Inc., Oxford Health Plans, Inc., Physicians Health
Services, Inc., United Healthcare Corporation, U.S. Healthcare,
Inc. (acquired by another company in August 1996), United
Wisconsin Services, Inc. and Wellpoint Health Networks, Inc. The
Company believes that the peer group index provides a
representative group of companies in the managed health care
provider industry.
The comparison of cumulative total returns presented in the
above graph was plotted using the following index values and
Class A Common Stock price values:
August 1, December 30, December 29, December 31,
1994 1994 1995 1996
RightCHOICE Managed
Care, Inc. $100.00 $127.27 $118.18 $96.59
Standard & Poor's
500 Stock Index $100.00 $101.54 $139.69 $171.77
Peer Group Index $100.00 $107.62 $136.38 $111.38
OWNERSHIP OF RIGHTCHOICE CAPITAL STOCK
The following table sets forth certain information as of
January 31, 1997 (as of December 31, 1996, with respect to
Heartland Advisors, Inc.) regarding the beneficial ownership of
RightCHOICE Class A Common Stock and Class B Common Stock by each
person known to the Board of Directors to own beneficially 5% or
more of the Company's stock, by each director of the Company, by
each Named Executive and by all directors and officers of the
Company as a group. With respect to all matters submitted to a
vote of the shareholders, the holders of Class A Common Stock are
entitled to one vote per share and the holders of Class B Common
Stock are entitled to ten votes per share. Each share of Class B
Common Stock is convertible into one share of Class A Common
Stock at the option of the holder at any time. All information
with respect to beneficial ownership has been furnished by the
respective directors, officers or 5% or more shareholders, as the
case may be.
Amount and Nature of Percentage of
Name Beneficial Ownership(1) Shares Outstanding(1)
Class A Class B Class A Class B
Blue Cross and Blue
Shield of Missouri /2/ 36,740 14,962,500 * 100.0%
Heartland Advisors,
Inc. /3/ 1,635,000 -- 44.0% --
Earle H. Harbison, Jr. 1,500 -- * --
Roger B. Porter, Ph.D. -- -- * --
Gloria W. White 35 -- * --
Frederic C. Brussee 3,000 -- * --
Ronald G. Evens, M.D. /4/ 4,000 -- * --
Edward C. Gomes, Jr. /5/ 10,341 -- * --
William H. T. Bush 5,000 -- * --
Roy R. Heimburger /6/ 3,500 -- * --
John A. O'Rourke -- -- * --
Norman J. Tice /7/ 3,150 -- * --
Edward J. Tenholder /8/ 2,050 -- * --
Kenneth M. Evelyn 2,000 -- * --
Joseph R.
Huguenard, M.D. /9/ 500 -- * --
All directors and officers as
a group (21 persons) 43,535 -- 1.2% --
___________
* Less than one percent
<PAGE>
/1/ Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities. Unless
otherwise indicated, the persons or entities identified in this table
have sole voting and investment power with respect to all shares shown
as beneficially owned by them. Percentage ownership calculations are
based on 3,714,400 shares of Class A Common Stock outstanding and
14,962,500 shares of Class B Common Stock outstanding.
/2/ According to information contained in a report on Schedule 13G dated
February 16, 1996, the shares being reported are beneficially owned by
Blue Cross and Blue Shield of Missouri. The address for Blue Cross and
Blue Shield of Missouri is 1831 Chestnut Street, St. Louis, Missouri
63103-2275.
/3/ According to information contained in a report on Schedule 13G dated
February 12, 1997, the shares being reported are beneficially owned by
one or more individual and institutional investors, including Heartland
Value Fund (which owned more than 5% of the outstanding shares as of
December 31, 1996), for which Heartland Advisors, Inc. ("Heartland
Advisors") serves as investment advisor. Heartland Advisors has sole
voting power with respect to 1,480,700 shares and sole investment power
with respect to 1,635,000 shares. The address or Heartland Advisors is
790 North Milwaukee Street, Milwaukee, Wisconsin 53202.
/4/ Includes 3,000 shares directly beneficially owned by Dr. Evens and 1,000
shares owned of record by Dr. Evens' wife. Mr. Evens and his wife share
voting and investment power with respect to these 4,000 shares.
/5/ Includes 5,000 shares directly beneficially owned by Mr. Gomes, Jr.,
5,000 shares indirectly beneficially owned by Lionmark, Inc., of which
corporation Mr. Gomes, Jr. is the controlling shareholder, and 341
shares indirectly beneficially owned by FamVest Associates, of which
partnership Mr. Gomes, Jr. is a managing partner.
/6/ Includes 3,500 shares owned of record by Mr. Heimburger as trustee of
trusts established for the benefit of Mr. Heimburger and his wife.
/7/ Includes 2,150 shares owned of record by Mr. Tice's wife as trustee of a
trust established for her benefit. Mr. Tice and his wife share voting
and investment power with respect to 2,150 shares.
/8/ Includes 50 shares owned of record by Mr. Tenholder's son.
/9/ Includes 500 shares owned of record by Dr. Huguenard jointly with his
wife. Dr. Huguenard and his wife share voting and investment power with
respect thereto.
CERTAIN TRANSACTIONS
William H. T. Bush, a director of the Company, is the
Chairman of Bush-O'Donnell & Company, Inc., a St. Louis
investment management and financial advisory firm. During 1996
and continuing into January 1997, Bush-O'Donnell & Company, Inc.
provided investment advisory services to the Company with respect
to securities held by the Company for investment purposes. The
total fees paid by the Company to Bush-O'Donnell & Company, Inc.
for such services during 1996 was approximately $84,093.45.
Under a standard form of indemnification agreement for
officers of the Company and under the Articles of Incorporation
of BCBSMo, the Company and BCBSMo currently are advancing to Roy
R. Heimburger payment of his legal fees incurred in connection
with a pending government investigation. Since January 1, 1996,
the Company's share of such advancements was approximately
$69,000. It is anticipated at present that such advances will
continue to be made for Mr. Heimburger.
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has not yet completed its
deliberations concerning the selection of an independent
certified public accounting firm to audit the books, records and
accounts of the Company for the year ending December 31, 1997.
Accordingly, shareholders are not being asked to consider and
vote upon the selection of the Company's independent auditors for
the current year. It is anticipated, however, that the Board of
Directors will receive the recommendation of its Audit Committee
in the third quarter of 1997 and promptly thereafter will select
an independent auditor.
Price Waterhouse LLP was retained as the Company's
independent auditors in 1994 and served as such for the years
ended December 31, 1995 and 1996. A representative of Price
Waterhouse LLP is expected to be present at the Annual Meeting.
Such representative will have an opportunity to make a statement
if he or she desires to do so and will be available to respond to
appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") requires RightCHOICE's directors and executive
officers, and persons who own more than 10% of the Company's
outstanding Class A Common Stock, to file with the Securities and
Exchange Commission initial reports of ownership and reports of
changes in ownership in RightCHOICE Class A Common Stock and
other equity securities. In addition, under Section 16(a), a
director, executive officer or 10% shareholder who is a trustee
and has a pecuniary interest (such interest includes situations
where a member of the trustee's immediate family is a beneficiary
of the trust) in any holding or transaction in the Company's
securities held by the trust, must report the holding or
transaction on the trustee's individual form. Securities and
Exchange Commission regulations require directors, executive
officers, greater than 10% shareholders and reporting trusts to
furnish RightCHOICE with copies of all Section 16(a) reports they
file.
To RightCHOICE's knowledge, based solely on review of the
copies of such reports furnished to RightCHOICE and written
representations that no other reports were required, during the
year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its directors, executive officers,
greater than 10% shareholders and reporting trusts were complied
with, except that Stuart K. Campbell, an executive officer of
RightCHOICE, failed to file a statement of changes in beneficial
ownership on Form 4 with respect to one transaction, which
failure to file was reported late by Mr. Campbell on an annual
statement of beneficial ownership on Form 5.
OTHER BUSINESS OF THE MEETING
The Board of Directors is not aware of, and does not intend
to present, any matter for action at the Annual Meeting other
than those referred to in this Proxy Statement. If, however, any
other matter properly comes before the Annual Meeting or any
adjournment, it is intended that the holders of the proxies
solicited by the Board of Directors will vote on such matters in
their discretion in accordance with their best judgment.
ANNUAL REPORT
RightCHOICE's Annual Report to Shareholders, containing
financial statements for the year ended December 31, 1996, is
being mailed with this Proxy Statement to all shareholders
entitled to vote at the Annual Meeting. Such Annual Report is
not to be regarded as proxy solicitation material.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
It is presently anticipated that the 1998 Annual Meeting of
Shareholders will be held on May 12, 1998. Shareholder proposals
intended for inclusion in the proxy statement for the 1998 Annual
Meeting of Shareholders must be received at the Company's
offices, located at 1831 Chestnut Street, St. Louis, Missouri
63103-2275, within a reasonable time before the solicitation with
respect to the meeting is made, but in no event <PAGE> later than
November 27, 1997. Such proposals must also comply with the
other requirements of the proxy "solicitation rules of the
Securities and Exchange Commission. Shareholder proposals should
be addressed to the attention of the Secretary of RightCHOICE.
By Order of the Board of Directors
Janice C. Forsyth
Secretary
March 27, 1997
St. Louis, Missouri
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
1997 ANNUAL MEETING OF SHAREHOLDERS OF RIGHTCHOICE MANAGED CARE,
INC.
The undersigned hereby appoints Annette Range and Marilyn
Geile, and each of them, each with the power to act alone and
with full power of substitution and revocation, as attorneys and
proxies of the undersigned to attend the 1997 Annual Meeting of
Shareholders of RightCHOICE Managed Care, Inc ("RightCHOICE") to
be held at the principal executive offices of RightCHOICE,
located at 1831 Chestnut Street, St. Louis, Missouri, on Tuesday,
May 13, 1997, commencing at 10:00 a.m.,CDT, and at all
adjournments thereof, and to vote all shares of capital stock of
RightCHOICE which the undersigned is entitled to vote with
respect to the following matters, all as set forth in the Notice
of Annual Meeting of Shareholders and Proxy Statement, dated
March 27, 1997:
THE BOARD OF DIRECTORS OF RIGHTCHOICE RECOMMENDS A VOTE "FOR"
EACH ITEM.
ITEM 1:
Election of three Class III directors to hold office for a
term expiring at the 2000 annual meeting of shareholders.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below
NOMINEES: William H. T. Bush; John A. O'Rourke; Norman J. Tice
Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name in this space:
_____________________________________________
In their discretion, the proxies are authorized to vote upon
such other business as properly may come before the Annual
Meeting.
<PAGE>
This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder(s). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1.
Dated: ____________________, 1997
_________________________________
Signature
_________________________________
Signature (if held jointly)
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as an 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.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE PREPAID ENVELOPE
