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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___________)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth in the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
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[On Letterhead of RightCHOICE Managed Care, Inc.]
March 26, 1999
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 11, 1999, commencing at
10:00 a.m., local time. The business to be conducted at the Annual
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
Annual Meeting. Whether or not you plan to attend the Annual 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 Annual Meeting and prefer to vote in person.
Very truly yours,
John A. O'Rourke
Chairman, President and
Chief Executive Officer
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RIGHTCHOICE(R) MANAGED CARE, INC.
1831 CHESTNUT STREET
ST. LOUIS, MISSOURI 63103-2275
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TIME 10:00 a.m. local time on Tuesday, May 11, 1999
PLACE RightCHOICE Managed Care, Inc.
1831 Chestnut Street
St. Louis, Missouri 63103
ITEMS OF BUSINESS (1) To elect Ronald G. Evens, M.D., John A.
O'Rourke and Roger B. Porter, Ph.D. to Class
II of the Company's Board of Directors to
hold office for a three-year term expiring at
the 2002 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 amend the Company's Articles of
Incorporation to set the number of directors
of the Company at seven and to thereafter
permit the number of directors of the Company
to be fixed, from time to time, by or in the
manner provided in the Bylaws of the Company
(but in no event may there be fewer than
three directors);
(3) To consider and act upon approval of a
proposal to increase by 500,000 the total
number of shares of RightCHOICE Class A
Common Stock that may be issued under the
1994 Equity Incentive Plan; and
(4) To transact such other business as properly
may come before the Annual Meeting and any
postponement, continuation or adjournments
thereof.
RECORD DATE You are entitled to vote if you were a shareholder
at the close of business on March 22, 1999.
VOTING BY PROXY All shareholders are cordially invited to attend
the Annual Meeting. Whether or not you intend to
be present at the Annual Meeting, the Board of
Directors of RightCHOICE requests you to promptly
sign, date and return the enclosed proxy card. You
may revoke your proxy at any time before it is
exercised, and it will not be used if you attend
the Annual Meeting and prefer to vote in person.
Your vote is important, and all shareholders are
urged to be present at the Annual Meeting in person
or by proxy.
By Order of the Board of Directors
Angela F. Braly
March 26, 1999 Secretary
<PAGE>
<PAGE>
1999 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
<TABLE>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION 1
Proxies 1
Voting at the Meeting 1
Solicitation of Proxies 2
ITEM NO. 1--ELECTION OF DIRECTORS 2
Nominees and Directors Continuing in Office 3
Vote Required 5
Board Recommendation 5
COMPENSATION OF DIRECTORS 6
MEETINGS OF BOARD AND COMMITTEES 7
ITEM NO. II--AMENDMENT TO ARTICLES OF INCORPORATION 8
Proposed Amendment 8
Reasons for Proposed Amendment 8
Vote Required 9
Board Recommendation 9
ITEM NO. III--AMENDMENT TO THE 1994 EQUITY INCENTIVE PLAN 10
General 10
Purpose 10
Eligible Participants 10
Administration of Incentive Plan 11
Terms of Options 11
Terms of Restricted Stock 12
Shares Available for Awards 12
Dilution or Enlargement 13
Corporate Change 13
Income Tax Consequences 14
Amendment and Termination 16
Assignment 16
Plan Benefits 16
Vote Required 17
Board Recommendation 17
EXECUTIVE COMPENSATION AND OTHER INFORMATION 18
Executive Compensation 18
Option Grants 21
Option/SAR Exercises and Holdings 22
Employment Agreements 22
Executive Severance Agreements 23
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Officers' Severance Agreements 23
Pension Plans 24
Equity Incentive Plan 25
BCBSMo Supplemental Income Plan 25
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS 25
Compensation Policy 25
Compensation Program and Components 26
Compensation Committee Interlocks and Insider
Participation 28
COMPANY PERFORMANCE 28
OWNERSHIP OF RIGHTCHOICE CAPITAL STOCK 29
Ownership of Management 29
Ownership of Certain Beneficial Owners 31
CERTAIN TRANSACTIONS 32
INDEPENDENT AUDITORS 32
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 33
OTHER BUSINESS AT THE MEETING 33
ANNUAL REPORT 34
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING 34
EXHIBIT A--Current Text of Article VI Section 3 A-1
EXHIBIT B--Text of Proposed Amendment to Article VI
Section 3 B-1
</TABLE>
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RIGHTCHOICE MANAGED CARE, INC.
1831 CHESTNUT STREET
ST. LOUIS, MISSOURI 63103-2275
_____________________
PROXY STATEMENT
_____________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
_____________________
INTRODUCTION
This proxy statement ("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 for use at the Annual Meeting of
Shareholders to be held on Tuesday, May 11, 1999, and at any
postponement, continuation or adjournment thereof (the "Annual
Meeting"). The Annual Meeting will commence at 10:00 a.m., local time,
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 26, 1999.
PROXIES
You are requested to complete, date and sign the enclosed form of
proxy and promptly return it to the Company in the enclosed postage-
prepaid envelope. Shares represented by a properly executed proxy will,
unless such proxy previously has been revoked, be voted in accordance
with the shareholder's instructions indicated on the proxy. If no
instructions are indicated on the proxy, such shares will be voted (i)
in favor of the election of the nominees for director named in this
Proxy Statement; (ii) in favor of the proposed amendment to the
Company's Articles of Incorporation as described in this Proxy
Statement; and (iii) in favor of the proposed amendment to the
RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan as described
in this Proxy Statement; and (iv) 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. Any shareholder who
has given a proxy to the Company may revoke such proxy 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, a quorum
shall require the presence, in person or by proxy, of shareholders
holding (i) a majority of the total number of outstanding shares of the
Company's capital stock entitled to vote at the Annual Meeting; (ii) a
majority of the total number of outstanding shares of the Company's Class
A Common Stock, par value $0.01 per share (the "Class A Common Stock"),
entitled to vote at the Annual Meeting; and (iii) a majority of the total
number of
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outstanding shares of the Company's Class B Common Stock, par value $0.01
per share (the "Class B Common Stock"), entitled to vote at the Annual
Meeting. Only holders of record of shares of the Company's Class A Common
Stock and shares of the Company's Class B Common Stock as of the close of
business on March 22, 1999 (the "Record Date") are entitled to notice of,
and to vote at, the Annual Meeting. As of the Record Date, 3,710,426 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 vote at the Annual
Meeting. All of the outstanding shares of the Company's Class B Common
Stock are owned by Blue Cross and Blue Shield of Missouri ("BCBSMo").
Each share of Class A Common Stock is entitled to one vote on each
matter properly to come before the Annual Meeting. Each share of
Class B Common Stock is entitled to 10 votes on each matter properly to
come before the Annual Meeting. The shares of the Class A Common Stock
and the shares of the Class B Common Stock will vote together as a
single class on all matters referred to in this Proxy Statement. Shares
of capital stock represented by a proxy that directs that the shares be
voted to abstain or to withhold a vote on any matter will be counted to
determine whether a quorum is present. Shares of capital stock as to
which there is a "broker non-vote" also will be counted for quorum
purposes. A broker non-vote occurs when a broker holding shares for a
client in street name is not permitted to vote such shares because the
broker has not received specific voting instructions from such client.
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.
ITEM I
ELECTION OF DIRECTORS
The Board of Directors of RightCHOICE is divided into three
classes of directors, with the directors serving staggered terms of
three years until their respective successors are duly elected and
qualified or until their respective earlier resignation or removal.
Edward C. Gomes, Jr., a Class II Director, resigned during 1998, which
resulted in the Board of Directors having three directors in Class I,
one director in Class II and three directors in Class III. In order to
cause the number of directors in each Class to be as nearly equal in
number as possible as required by the Company's Articles of
Incorporation and applicable Missouri corporate law, the Board of
Directors has reclassified John A. O'Rourke, with his consent, from
Class III to Class II (thereby shortening his then-current term by one
year) and has reclassified Roger B. Porter, Ph.D., with his consent,
from Class I to Class II (thereby shortening his then-current term by
two years). As a result of the reclassifications, the terms of Ronald
G. Evens, M.D., John A. O'Rourke and Roger B. Porter, Ph.D., the three
current Class II directors expire at this Annual Meeting; the terms of
Earle H. Harbison, Jr. and Gloria W. White, the two remaining current
Class I directors, expire in 2000; and the terms of William H. T. Bush
and Norman J. Tice, the two remaining current Class III directors,
expire in 2001. The Board of Directors has determined not to
immediately fill the vacancy resulting from the resignation of Mr. Gomes
and instead has proposed as described in Item II below that the
shareholders of the Company approve an amendment to the Articles of
Incorporation fixing the number of directors of the Company at seven,
subject to future increase or decrease as provided in the Bylaws of the
Company.
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One of the purposes of the Annual Meeting is to elect three
directors in Class II to serve for three-year terms expiring at the
Annual Meeting of Shareholders of RightCHOICE to be held in 2002 and
until their respective successors are duly elected and qualified or
until their respective earlier resignation or removal. The Board of
Directors has nominated Ronald G. Evens, M.D., John A. O'Rourke and
Roger B. Porter, Ph.D. 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 a properly executed proxy in the form enclosed will be
voted for the election of the three nominees as directors. In the event
that one or more of the nominees should become unavailable for election,
it is intended that the shares represented by a properly executed proxy
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 the nominees or for the particular nominee who has ceased to be a
candidate has been withheld.
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 II director at the Annual Meeting and each director whose term of
office will continue after the Annual Meeting.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION DIRECTOR
---- --- WITH RIGHTCHOICE SINCE
---------------- -----
<S> <C> <C> <C>
NOMINEES
CLASS II: TERM TO EXPIRE IN 2002
Ronald G. Evens, M.D. 59 Director 1994
John A. O'Rourke<F1> 55 Chairman, President, Chief
Executive Officer and Director 1997
Roger B. Porter, Ph.D.<F1> 52 Director 1994
DIRECTORS CONTINUING IN OFFICE
CLASS III: TERM TO EXPIRE IN 2000
William H.T. Bush 60 Director 1994
Norman J. Tice 63 Director 1994
CLASS I: TERM TO EXPIRE IN 2001
Earle H. Harbison, Jr. 70 Director 1994
Gloria W. White 64 Director 1994
<FN>
___________________________________
<F1> Mr. O'Rourke and Dr. Porter have been reclassified as Class II
directors.
</TABLE>
The business experience of each of the directors of the Company
during at least the last five years is as follows:
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 BCBSMo 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 as Chairman of the department of radiology at Washington
University School of Medicine, where he is the Mallinckrodt Professor of
Radiology
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and a professor of medical economics at the Olin School of Business.
Dr. Evens also has served as radiologist-in-chief of Barnes Jewish
Hospital and St. Louis Children's Hospital since 1971. He served as the
President and Chief Executive Officer of St. Louis Children's Hospital
from 1985 until 1988 and as Vice Chancellor for Financial Affairs of
Washington University from 1988 until 1990. He currently serves on the
Boards of Directors of HMO Missouri, Inc. ("BlueCHOICE"), and
HealthLink, Inc., both wholly owned subsidiaries of the Company,
Mallinckrodt Group Inc. and the American College of Radiology.
Dr. Evens is a graduate of Washington University, where he received his
B.A. and M.D.
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. Mr. O'Rourke also has served as a
director and as President and Chief Executive Officer of BCBSMo since
March 1997. He served as President and Chief Executive Officer of
HealthLink, Inc. 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 United
States 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 B.A. in
economics and philosophy, and Brooklyn College, where he received his
M.A. in economics.
ROGER B. PORTER, PH.D., has served as a director of the Company
since April 1994 and currently serves as Chairman of the Business
Opportunities Committee. Since 1996, Dr. Porter has served as Director
of Harvard University's Center for Business and Government, and since
1993, Dr. Porter has served 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, National Life Insurance Company and Tenneco. Dr. Porter
is a graduate of Brigham Young University, where he received his B.A.,
Oxford University, where he received his BPhil, and Harvard University,
where he received his M.A. and Ph.D. Dr. Porter attended Oxford
University as a Rhodes Scholar and as a Woodrow Wilson Fellow.
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 BCBSMo Board of Directors from 1989 to 1994 and as Secretary of
the BCBSMo Board of Directors 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 The
Boatmen's National Bank of St. Louis. Mr. Bush currently serves on the
Boards of Directors of Mississippi Valley Bancshares, Inc., Maritz Inc.,
D.T. Industries, Inc., INTRAV, Inc. and LMD-ABBETT Family of Mutual
Funds. Mr. Bush is a graduate of Yale University, where he received his
B.A.
NORMAN J. TICE has served as a director since April 1994 and
served as Vice Chairman of the Company from September 1995 to October
1997. He served as Chairman of the Company from April 1994 to August
1995. He has served on the BCBSMo Board of Directors from 1986 to July
1994 and since January 1996. He served as Chairman of the BCBSMo Board
of Directors from 1990 to 1994 and has served in such capacity since
January 1996. Mr. Tice is a financial services consultant. He retired
from Boatmen's Bancshares, Inc. in May 1996 where he served in various
senior management positions. He is a member of the Mastercard
International, Inc. Global Board of Directors. He is also a director of
General Credit Forms,
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Inc. and a Commissioner for Bi-State Development Agency. Mr. Tice is a
graduate of Washington University, where he received his B.S.B.A.
EARLE H. HARBISON, JR. has served as a director of the Company
since April 1994 and currently serves as Chairman of the Compensation
Committee. Since September 1993, Mr. Harbison has served as Chairman of
Harbison Corporation, a manufacturing company located in St. Louis.
From May 1986 until his retirement in September 1993, he served as
President, Chief Operating Officer and director of Monsanto Company.
Mr. Harbison currently serves on the Boards of Directors of HealthLink,
Inc., Merrill Lynch and Company, Inc., Angelica Corporation, National
Life Insurance Co., Mutual of America, Washington University, Barnes
Hospital, Automobile Club of Missouri and the National Law Center,
George Washington University. Mr. Harbison is a graduate of Washington
University, where he received his B.A., and George Washington
University, where he received his J.D.
GLORIA W. WHITE has served as a director of the Company since
November 1994. She served on the Board of Directors of BCBSMo from 1986
to 1996 and as Chair of the BCBSMo Board of Directors from August 1994
to January 1996. Mrs. White has been Vice Chancellor Emerita of
Washington University since June 1997 and has served in various other
capacities at Washington University since 1967. She currently serves as
Chair of the American Red Cross North Central Region. Mrs. White is
also a member of the Boards of Directors of BlueCHOICE, Missouri
Goodwill Industries, United Way of Greater St. Louis, the St. Louis
Symphony, St. Louis Art Museum, the Mercantile Bank Trust Advisory
Board, and Chairman, The Sheldon Foundation, Board of Trustees. Mrs.
White also is a member of the Executive Committee of United Way of
Greater St. Louis. She served as Director Emerita of the Caring Program
for Children Board of Directors since January 1998, after having served
on the Caring Program for Children's Board since 1987 and as its Chair
from January 1996 to January 1998. Mrs. White is a graduate of Harris
Teachers College (Harris-Stowe State College), where she received her
B.A. in Education, and Washington University, where she received her
M.A. in counseling and her L.L.M.
There is no arrangement or understanding between any director and
any other person pursuant to which such director was selected as a
director.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast, in person
or by proxy, by shareholders entitled to vote at the Annual Meeting for
that purpose (in other words, the three nominees receiving the greatest
number of votes cast will be elected directors). None of the holders of
Class A Common Stock or Class B Common Stock are entitled to exercise
cumulative voting in the election of directors. Although the presence
of a quorum of the Company's Class A Common Stock is required to conduct
business at the Annual Meeting, BCBSMo, as the holder of all of the
outstanding shares of the Company's Class B Common Stock, will have the
voting power to elect all of the directors.
A shareholder entitled to vote in the election of directors may
withhold authority to vote for all nominees for directors or may
withhold authority to vote for certain nominees for directors. Votes
withheld from one or more nominees will be excluded from the vote and
will have no effect.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF RONALD G. EVENS, M.D., JOHN A. O'ROURKE AND ROGER B. PORTER, PH.D.,
AS DIRECTORS OF CLASS II.
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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
"Non-Employee Directors") receives, in addition to reimbursement of
reasonable out-of-pocket expenses incurred in conjunction with attending
Board and committee meetings, an annual retainer of $13,000 plus $800
for each meeting of the Board attended. Each Non-Employee Director
receives $700 for each separate committee meeting attended, with the
exception of the Committee chair who receives $900 for each separate
committee meeting attended. Each Non-Employee Director is also entitled
to receive additional fees for attending lengthy meetings, based upon
the duration of such meetings, although no such additional fees were
paid to directors in 1998. Directors serving on the RightCHOICE Business
Opportunities Committee also receive $275 per hour for any additional
efforts expended on matters of the Committee outside of the meetings.
DIRECTORS' STOCK OPTION PLAN. The Company has adopted the
RightCHOICE Managed Care, Inc. Non-Employee Directors' Stock Option Plan
(the "Directors' Stock Option Plan") to provide for the grant of options
to Non-Employee Directors to purchase shares of the Company's Class A
Common Stock. 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 Non-Employee Directors (currently six individuals) are
eligible to participate in the Directors' Stock Option Plan. Annually,
each Non-Employee Director is granted options to purchase 1,000 shares
of the Company's Class A Common Stock. Each person who is elected for
the first time as a Non-Employee Director is granted an option to
purchase up to 1,000 shares of Class A Common Stock which is 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. Options granted pursuant to
the Directors' Stock Option Plan are transferable, without the receipt
of consideration, to certain family members, family trusts and/or family
partnerships of the Non-Employee Directors. 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 the Company's Class A Common Stock may be purchased under an option
granted pursuant to the Directors' Stock Option Plan is equal to the
fair market value of the Class A Common Stock on the date of grant.
Currently, "fair market value" is determined by reference to the closing
price of the Class A Common Stock on the New York Stock Exchange. The
time at which an option becomes exercisable is fixed at the time the
option is granted. Each option expires 10 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
Directors' Plan Committee.
DIRECTORS' DEFERRED COMPENSATION PLAN. Non-Employee Directors may
elect to participate in the RightCHOICE Managed Care, Inc. Non-Employee
Directors' Nonqualified Deferred Compensation Plan pursuant to which the
Non-Employee Directors may make an annual election to defer a portion or
all of their directors' fees. The Plan originally provided that 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 1 percent. Effective February 1, 1998,
directors may invest their deferred directors' fees in various mutual
funds but no longer receive the deemed interest amount on their deferred
directors' fees. Alternatively, a director's deferred compensation may
be distributed in the form of shares of the Company's Class A Common
Stock.
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MEETINGS OF BOARD AND COMMITTEES
During 1998, the Board of Directors of RightCHOICE held
13 meetings, including regularly scheduled and special meetings. All
directors attended (including attendance by telephone conference) at
least 75 percent of the meetings of the Board and of the committees on
which they served that were held during 1998, except for Earle H.
Harbison, Jr., who attended 69 percent of the meetings of the Board and
of the committees on which he served that were held during 1998.
Pursuant to RightCHOICE's Bylaws, the Board of Directors has
established the following committees:
Audit Committee. 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
that 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; Roger B. Porter, Ph.D., and Gloria W.
White. The Audit Committee met three times in 1998.
Compensation Committee. The Compensation Committee has general
responsibility for recommending to the Board of Directors the
compensation and benefits of the Company's executive officers. The
Compensation Committee also has the power and authority vested in the
Board of Directors by any benefit plan of the Company. In addition, the
Compensation Committee makes recommendations to the Board of Directors
with regard to the compensation of the Board and its committees, other
than the Compensation Committee. The current members of the
Compensation Committee are Earle H. Harbison, Jr., Chairman; Ronald G.
Evens, M.D., and Gloria W. White. The Compensation Committee met four
times in 1998.
Nominating Committee. In December 1998, the Nominating Committee
was established for the purpose of making recommendations to the Board
of Directors for nominations to the Board. The Nominating Committee
consists of Ronald G. Evens, M.D., Chairman, William H.T. Bush, Earle H.
Harbison, Jr., Roger B. Porter, Ph.D., and Gloria W. White. Although
the Nominating Committee did not meet separately in 1998, by written
consent it recommended to the Board of Directors the nomination of the
three nominees for director to be elected at the Annual Meeting. The
Nominating Committee has not yet determined whether it will consider
nominees to the Board of Directors recommended by shareholders.
Shareholders may, however, nominate candidates to the Board of Directors
in accordance with the procedures set forth in the Company's Bylaws.
In addition to the RightCHOICE Committees listed above, the Board
of Directors also has established the Finance and Investment, IOS
Project Oversight, Joint Legal Affairs and RightCHOICE Business
Opportunities Committees.
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ITEM II
AMENDMENT TO ARTICLES OF INCORPORATION
The Board of Directors has unanimously adopted a resolution
setting forth a proposed amendment to the Company's Articles of
Incorporation (the "Proposed Amendment") and has directed that the
Proposed Amendment be submitted to a vote of the shareholders of the
Company at the Annual Meeting.
PROPOSED AMENDMENT
The Board of Directors has recommended that Article VI Section 3
of the Company's Articles of Incorporation be amended to set the number
of directors of the Company at seven and to thereafter permit the number
of directors of the Company to be fixed, from time to time, by or in the
manner provided in the Bylaws of the Company (but in no event may there
be fewer than three directors). The Board of Directors would continue,
as described in Item I above, to be divided into three Classes as nearly
equal in number as possible.
The current text of Article VI Section 3 of the Company's Articles
of Incorporation is attached as Exhibit A, and the text of the Proposed
Amendment is attached as Exhibit B to this Proxy Statement. The summary
of the Proposed Amendment set forth herein is qualified in its entirety
by reference to Exhibits A and B hereto.
REASONS FOR PROPOSED AMENDMENT
The Articles of Incorporation of the Company currently provide
that the initial Board of Directors of the Company would be comprised of
eight listed individuals. The Articles of Incorporation do not,
however, expressly grant to the Board of Directors the authority and
flexibility permitted to corporations under the Missouri corporate law
to increase or decrease the number of directors without shareholder
approval as may be provided in such corporation's bylaws. The reason
for the Proposed Amendment is to expressly grant the Board of Directors
the authority and flexibility permitted under the Missouri corporate law
to determine the number of directors of the Company in the manner
provided in the Bylaws of the Company.
The Bylaws of the Company provide that the number of directors to
constitute the Board of Directors will not be fewer than seven or more
than 12 and grant the Board of Directors the power to fix or change the
number of directors, within the minimum and maximum range, by resolution
adopted by a majority of the whole Board of Directors. If the Proposed
Amendment is approved by the Company's shareholders, the Board of
Directors will be comprised of seven directors and the Board of
Directors will have the authority to increase the number of directors
from seven up to a maximum of 12 without any further shareholder action
as provided in the current Bylaws of the Company. If the Proposed
Amendment is not approved by the Company's shareholders, the number of
directors will continue to be fixed at eight and may not be changed
except by an amendment to the Articles of Incorporation approved by the
Company's shareholders.
As the Company's Articles of Incorporation grant the Board of
Directors the authority, without shareholder action, to make, adopt,
alter, amend or repeal the Bylaws of the Company by the vote of a
majority of the whole Board of Directors, if the Proposed Amendment is
approved by the Company's shareholders, the Board of Directors may later
amend the Company's Bylaws without further shareholder action to
increase to more than 12 the maximum number of directors and to decrease
to no fewer than three the minimum number of directors. The
shareholders of the Company may, however, amend the Company's Bylaws,
notwithstanding any prior amendment to the Bylaws by the Board of
Directors, to, among other things, change or otherwise fix the number of
directors upon the affirmative vote of the holders of a majority of the
outstanding shares of the Company's capital stock entitled to vote on
such amendment voting together as a single class with each share
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of Class A Common Stock entitled to one vote per share and each share of
Class B Common Stock entitled to ten votes per share.
The Proposed Amendment is being proposed by the Board of Directors
for reasons other than as an "anti-takeover" device. Directors of the
Company are elected by a plurality of the votes cast as described under
Item I above. Because the Company's Articles of Incorporation do not
provide for cumulative voting in the election of directors, a change in
the number of directors generally should neither assist nor hinder
shareholders in electing any particular nominee for director at any
annual meeting or special meeting called for the election of directors.
Moreover, since the holders of the shares of Class A Common Stock and
Class B Common Stock vote together as a single class in the election of
directors, BCBSMo, as the current holder of all of the shares of Class B
Common Stock, currently has the voting power to elect all of the
directors of the Company.
The Board of Directors believes that the approval of the Proposed
Amendment is in the best interests of the Company and its shareholders.
VOTE REQUIRED
Approval of the Proposed Amendment requires the affirmative vote
of the holders of a majority of the issued and outstanding shares of the
Company's capital stock entitled to vote at the Annual Meeting voting
together as a single class. Although the presence of a quorum of the
Company's Class A Common Stock is required to conduct business at the
Annual Meeting, BCBSMo, as the holder of all of the outstanding shares
of the Company's Class B Common Stock, will have the voting power to
approve the Proposed Amendment. If approved, the Proposed Amendment
will become effective upon the requisite filing of the Proposed
Amendment with the Missouri Secretary of State's Office pursuant to
Missouri corporate law.
Abstentions from voting on the Proposed Amendment and broker
non-votes will have the effect of a vote against the Proposed Amendment
because the affirmative vote of the holders of a majority of the issued
and outstanding shares of the Company's capital stock entitled to vote
at the Annual Meeting voting together as a single class is required to
approve the Proposed Amendment. Unless otherwise specified, a properly
executed proxy in the form enclosed, that does not designate the manner
in which the proxy should be voted, will be voted "FOR" the Proposed
Amendment.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE PROPOSED
AMENDMENT TO ARTICLE VI SECTION 3 OF THE COMPANY'S ARTICLES OF
INCORPORATION AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR
THE PROPOSED AMENDMENT.
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ITEM III
AMENDMENT TO THE
1994 EQUITY INCENTIVE PLAN
GENERAL
In July 1994, the Company's shareholders approved the RightCHOICE
Managed Care, Inc. 1994 Equity Incentive Plan (the "Incentive
Plan"). The Incentive Plan is sponsored by the Company for key
employees of the Company and its subsidiaries and provides for the
granting of (a) options to purchase shares of the Company's Class A
Common Stock which qualify as "incentive stock options" ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), (b) options to purchase shares of the Company's
Class A Common Stock which do not qualify as Incentive Options
("Nonqualified Options"), and (c) awards of the Company's Class A Common
Stock ("Restricted Stock").
An amendment to the Incentive Plan that expanded the category of
persons eligible to receive awards under the Incentive Plan was adopted
by the Board of Directors of the Company on March 27, 1995, and approved
by the Company's shareholders on May 9, 1995. An amendment to the
Incentive Plan that increased the total number of shares of Class A
Common Stock of the Company that may be issued pursuant to Awards (as
defined below) granted under the Incentive Plan by 500,000 to 1,000,000
shares was adopted by the Board of Directors of the Company on February
26, 1996, and approved by the Company's shareholders on May 14, 1996.
At the Annual Meeting, shareholders are being asked to consider
and vote upon an amendment to the Incentive Plan to increase the total
number of shares of Class A Common Stock of the Company that may be
issued pursuant to Awards (as defined below) granted under the Incentive
Plan by an additional 500,000 shares to 1,500,000 shares. A summary of
the material features of the Incentive Plan is set forth below.
PURPOSE
The purpose of the Incentive Plan is to assist the Company in
attracting, retaining and motivating officers and other key employees
(including employees of the Company's parent, BCBSMo, at the level of
executive vice president and above). Accordingly, the Incentive Plan
exists to secure for the Company and its shareholders the benefits of
the incentive inherent in stock ownership by officers and other key
employees of the Company and its subsidiaries through the granting of
Incentive Options, Nonqualified Options, Restricted Stock, or any
combination thereof ("Awards"), as is best suited to the circumstances
of the particular officer or employee.
ELIGIBLE PARTICIPANTS
Awards may be made pursuant to the Incentive Plan only to
individuals who, at the time of grant, are employees of the Company or
any of its subsidiaries, at the level of vice president and above,
employees of the Company's parent, BCBSMo, at the level of executive
vice president and above, and any other employees of the Company
specifically designated by the Compensation Committee. Persons to whom
Awards may be granted under the Incentive Plan will be those employees
of RightCHOICE and its subsidiaries (and of BCBSMo) selected from time
to time by the Compensation Committee. Such persons will be selected
after taking into account factors such as the nature of the services
rendered by the employees, their present and potential contributions to
the success of the Company or any of its subsidiaries, and such other
factors as the Compensation Committee in its discretion deems relevant.
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No Incentive Option may be granted under the Incentive Plan to any
person who, at the time the Incentive Option would otherwise be granted,
owns (either directly or by application of the rules contained in
Section 424(d) of the Code, stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company, its
parent or its subsidiaries. Such stock ownership limitation will not
apply, however, if at the time the Incentive Option is granted (i) the
option exercise price is at least 110 percent of the fair market value
of the shares of the Class A Common Stock subject to the Incentive
Option, and (ii) such Incentive Option will expire by its terms no later
than five years from the date on which it is granted.
The aggregate fair market value of shares of Class A Common Stock
for which any person may be granted options under the Incentive Plan in
any calendar year has no limit. With respect to the grant of Incentive
Options, however, the aggregate fair market value (determined at the
time the Incentive Options are granted) of shares of Class A Common
Stock with respect to which Incentive Options are exercisable for the
first time by such person during any calendar year under the Incentive
Plan (and under any other incentive stock option plan of the Company,
its parent or its subsidiaries) cannot exceed $100,000. To the extent
such fair market value exceeds $100,000 during any calendar year,
options becoming first exercisable during a calendar year on stock with
a fair market value in excess of $100,000 are treated as Nonqualified
Options.
There currently are approximately 161 persons eligible to
participate in the Incentive Plan. Of the options granted under the
Incentive Plan as of March __, 1999, 971,480 options were currently
outstanding and 417,886 were exercisable with exercise prices ranging
from $9.5625 to $18 per share. No Incentive Options or Restricted Stock
awards have been granted pursuant to the Incentive Plan.
ADMINISTRATION OF INCENTIVE PLAN
The Incentive Plan is administered by the Compensation Committee,
which currently consists of Messrs. Evens and Harbison, Jr. and Mrs.
White. None of the members of the Compensation Committee are eligible
to receive Awards under the Incentive Plan. The Compensation Committee
is authorized, among other things, to construe and interpret the
Incentive Plan and the respective agreements executed thereunder, to
prescribe such rules and regulations relating to the Incentive Plan as
it may deem advisable to carry out the Incentive Plan, to determine the
terms, restrictions and provisions of each Award, and to make all other
determinations necessary or advisable for administering the Incentive
Plan. Subject to the terms, conditions and provisions of the Incentive
Plan, the Compensation Committee has exclusive authority to (i) select
the persons to whom Awards will be granted, (ii) determine the number of
shares of Class A Common Stock that may be issued under each Award,
(iii) determine the time or times when Awards will be granted, and (iv)
determine whether Awards made in the form of stock options are Incentive
Options or Nonqualified Options.
TERMS OF OPTIONS
The Compensation Committee is authorized to establish the terms
that will govern each option granted under the Incentive Plan, including
the period during which each option may be exercised, provided that such
terms are consistent with the terms, provisions and conditions of the
Incentive Plan. The exact terms established with respect to any grant
of an option under the Incentive Plan will be contained within a written
option agreement. Each option agreement with respect to options granted
under the Incentive Plan will provide that the option may not be
exercised earlier than six months from the date of grant and will
specify the effect of termination of employment on the exercisability of
the option. The Compensation Committee may prescribe in the option
agreement that an option may be exercised as to all or part of the
shares subject to the option only after the occurrence of certain events
or the passage of specified periods of time, or both. In the event of a
"Corporate Change" (as defined below), the Compensation Committee may,
among other things, accelerate the time at which any of the outstanding
options under the Incentive Plan may be exercised by the
optionee. There is no obligation to grant any two Award of options on
the same terms.
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No consideration is paid to the Company by any person in exchange
for the grant of an option under the Incentive Plan. The exercise price
at which shares of Class A Common Stock may be purchased under an option
granted pursuant to the Incentive Plan will be determined by the
Compensation Committee and specified in the option agreement. With
respect to Incentive Options, in no event will the exercise price be
less than the fair market value of the shares of Class A Common Stock
subject to the option on the date that the option is granted. The fair
market value of shares of Class A Common Stock for purposes of the
Incentive Plan currently would be determined by reference to the closing
price of Class A Common Stock on the New York Stock Exchange as of the
specified date. In the event of a change in the Company's capital
structure, the exercise price and number of shares subject to
outstanding options would be subject to adjustment as described below
under the heading "Dilution or Enlargement." An option agreement
relating to options under the Incentive Plan may provide that payment
for shares issued upon the exercise of an option may be made in cash or
in other shares of Class A Common Stock.
TERMS OF RESTRICTED STOCK
The Compensation Committee is authorized to award Restricted Stock
to eligible participants under the Incentive Plan. At the time an Award
of Restricted Stock is made, the Compensation Committee will determine
the restrictions applicable to such Restricted Stock and the period of
time during which such restrictions are applicable (the "Restriction
Period"). There is no obligation to grant any two Awards of Restricted
Stock on the same terms.
Shares of Class A Common Stock awarded pursuant to an Award of
Restricted Stock will be represented by certificates issued in the name
of the holder of the Award or, at the Company's option, in the name of a
nominee of the Company. The holder of Restricted Stock has the right
during the Restriction Period to receive dividends, to vote the shares
of Class A Common Stock subject thereto, and to enjoy all other
shareholder rights with respect thereto except that: (i) the Company
will retain possession of the stock certificates representing the
Restricted Stock until the expiration of the restricted period; (ii) the
holder may not sell, transfer, pledge, exchange, or otherwise dispose of
the shares during the restricted period; and (iii) the holder will
forfeit all rights to the Restricted Stock in the event of a breach of
the terms and conditions established by the Compensation Committee with
respect to the Restricted Stock Award. The Compensation Committee may,
in its discretion, prescribe additional terms, conditions or
restrictions applicable to an Award of Restricted Stock, including rules
pertaining to the termination of employment of a Restricted Stock holder
prior to the expiration of the Restriction Period.
No consideration is paid to the Company by any person in exchange
for the Award of Restricted Stock, except as otherwise required by
law. The Compensation Committee may, in its discretion, charge the
holder an amount in cash not to exceed the par value of the Class A
Common Stock issued under the Incentive Plan to such holder. In the
event of a change in the Company's capital structure, an Award of
Restricted Stock may be subject to adjustment as described below under
the heading "Dilution or Enlargement."
SHARES AVAILABLE FOR AWARDS
The aggregate number of shares of Class A Common Stock of the
Company that may be issued pursuant to Awards granted under the
Incentive Plan currently is limited to 1,000,000 shares, subject to
increase or decrease in the event of certain changes in the Company's
capital structure as described more fully under the heading "Dilution or
Enlargement." If the proposed amendment to the Incentive Plan is
approved by the shareholders of RightCHOICE, the aggregate number of
shares of Class A Common Stock of the Company that may be issued
pursuant to Awards granted under the Incentive Plan will be increased by
500,000 shares to 1,500,000 shares, subject to increase or decrease in
the event of certain changes in the Company's capital
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structure. The aggregate number of shares that may be issued to any
person under the Incentive Plan is limited to 20 percent of the number
of shares authorized to be issued under the Incentive Plan. The shares
of Class A Common Stock to be delivered with respect to Awards granted
under the Incentive Plan will be made available from either the
Company's authorized but unissued shares of Class A Common Stock or any
treasury shares. The per share market value of the Class A Common Stock
on March ___, 1999, computed by reference to the closing sale price of
the Class A Common Stock as reported on the New York Stock Exchange, was
$______. The Company currently intends to cause the issuance of all
additional shares of Class A Common Stock underlying Awards that may be
issued in the future if the proposed amendment to the Incentive Plan is
approved to be registered on Form S-8 under the Securities Act of 1933,
as amended, and any applicable state securities laws.
DILUTION OR ENLARGEMENT
In the event that there is any change in the capital structure of
the Company, including a change resulting from a stock dividend, stock
split, recapitalization, reorganization, merger, consolidation,
combination or exchange, all Awards and agreements evidencing such
Awards will be subject to adjustment by the Compensation Committee in
its discretion with respect to the number and price of shares of Class A
Common Stock or other consideration subject to such Awards. In the
event that the Company effects a subdivision or consolidation of shares
of Class A Common Stock or a stock dividend on Class A Common Stock
without receipt of consideration by the Company, the aggregate number of
shares of Class A Common Stock subject to the Incentive Plan or to a
Restricted Stock Award or option under the Incentive Plan which remain
unexercised will be subject to increase or decrease in order to prevent
dilution or enlargement. The option exercise price also will be
adjusted upon the occurrence of any of such events so that there will be
no change in the aggregate option exercise price payable upon the
exercise of the option. In the event the Company effects any other
recapitalization or change in its capital structure, a person's exercise
of an option under the Incentive Plan will entitle the person to receive
the same consideration as the person would have been entitled to receive
in the recapitalization had the option been exercised immediately prior
thereto.
CORPORATE CHANGE
In the event of a "Corporate Change," the Compensation Committee,
in its sole discretion, may effect one or more of the following
alternatives with respect to options under the Incentive Plan: (i)
accelerate the time at which outstanding options under the Incentive
Plan are exercisable; (ii) require selected optionees to surrender to
the Company for cancellation some or all of the outstanding options
under the Incentive Plan in exchange for a cash payment equal to the
excess, if any, of the value to be received for shares of Class A Common
Stock in the Corporate Change over the exercise price under options for
such shares; (iii) make such adjustments to options under the Incentive
Plan as the Compensation Committee, in its sole discretion, determines
to be appropriate to reflect such Corporate Change; or (iv) provide that
outstanding options will be exercisable for such consideration as the
optionee would have been entitled to receive in the Corporate Change had
the option been exercised immediately prior to such time. With respect
to any Awards of Restricted Stock outstanding at the time of a Corporate
Change, the Compensation Committee may, in its sole discretion, provide
(i) for full vesting of all Class A Common Stock awarded to persons
pursuant to such Restricted Stock as of the date of such Corporate
Change, and (ii) that all restrictions applicable to such Restricted
Stock will terminate as of such date.
A "Corporate Change" generally is defined to take place upon the
occurrence of: (a) certain mergers, consolidations or other
reorganizations of the Company involving the conversion or exchange of
the outstanding Class A Common Stock; (b) the sale, lease or exchange of
all or substantially all of the Company's assets; (c) the adoption by
the Company's shareholders of a plan of liquidation or dissolution; (d)
the acquisition by any person, entity or group of more than 30 percent
of the combined voting power of the
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Company's outstanding capital stock; or (e) the replacement of a
majority of the incumbent directors of the Company as a result of a
contested election of directors.
INCOME TAX CONSEQUENCES
The following is a brief discussion of the federal income tax
consequences of transactions under the Incentive Plan based on the
Code. The Incentive Plan is not qualified under Section 401(a) of the
Code. The following discussion is not intended to be exhaustive and
does not describe state, local or foreign tax consequences.
Incentive Options. No taxable income is realized by the optionee
with respect to the grant of an Incentive Option. If shares of Class A
Common Stock are issued to an optionee pursuant to the exercise of an
Incentive Option, and if no disposition of such shares is made by such
optionee within two years after the date of grant or within one year
after the transfer of such shares of Class A Common Stock to such
optionee pursuant to exercise of such Incentive Option, then (1) upon
sale of such shares of Class A Common Stock, any amount realized in
excess of the exercise price will be taxed to such optionee as a
long-term capital gain and any loss sustained will be a long-term
capital loss, assuming such shares are held as capital assets, and (2)
no deduction will be allowed to the Company for federal income tax
purposes.
If the shares of Class A Common Stock acquired upon the exercise
of an Incentive Option are disposed of prior to the expiration of either
holding period described above, generally (1) the optionee will realize
ordinary income, in the year of disposition, in an amount equal to the
excess (if any) of the fair market value of such shares of Class A
Common Stock at exercise (or, if less, the amount realized on the
disposition of such shares of Class A Common Stock) over the exercise
price paid for such shares of Class A Common Stock, and (2) the Company
will be entitled to deduct for federal income tax purposes the amount
included as ordinary income by the optionee, subject to applicable
income tax withholding requirements and the limitations imposed by the
Code on the deduction of such amounts. Any further gain (or loss)
realized by the optionee will be taxed as short-term or long-term
capital gain (or loss), as the case may be, assuming that the shares are
held as capital assets.
Subject to certain exceptions for disability or death, if an
Incentive Option is exercised more than three months following
termination of employment, the exercise of the option will generally be
taxed as the exercise of a Nonqualified Option.
The employer is not generally entitled to a deduction with respect
to the grant or exercise of an Incentive Option or with respect to the
sale of stock received pursuant to such exercise except, as explained
above, in connection with certain dispositions of stock received
pursuant to the exercise of an Incentive Option prior to the expiration
of one year from the date of exercise or two years from the date of
grant, and except for certain exercises more than three months after
termination of employment.
The exercise of an Incentive Option may give rise to an increase
in alternative minimum taxable income that could result in alternative
minimum tax liability for the optionee, unless the optionee engages,
within the same year of exercise, in a disqualifying disposition of the
shares of Class A Common Stock received upon exercise. In substance, a
taxpayer is required to pay the higher of his or her alternative minimum
tax liability or his or her "regular" income tax liability. As a
result, a taxpayer has to determine his or her potential liability under
the alternative minimum tax.
In general, for purposes of determining the optionee's alternative
minimum taxable income, the exercise of an Incentive Option will be
treated essentially as if it were the exercise of a Nonqualified
Option. As a result, the rules of Section 83 of the Code relating to
transfers of property, including restricted
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property, will apply in determining the optionee's alternative minimum
taxable income. Consequently, in general, an optionee exercising an
Incentive Option with respect to unrestricted shares of Class A Common
Stock will have income, for purposes of determining the optionee's
alternative minimum tax, in an amount equal to the difference between
the exercise price for the shares of Class A Common Stock and the fair
market value of the shares of Class A Common Stock on the date of
exercise. Special rules apply, however, for purposes of determining the
alternative minimum taxable income of a "corporate insider" with respect
to the exercise of an Incentive Option.
Nonqualified Options. Except as noted below for corporate
insiders (directors, officers and beneficial owners of 10 percent or
more of the Company's capital stock), with respect to Nonqualified
Options: (1) no income is realized by the optionee at the time the
option is granted; (2) generally, at exercise, ordinary income is
realized by the optionee in an amount equal to the difference between
the exercise price paid for the shares and the fair market value of the
shares of Class A Common Stock, if unrestricted, on the date of
exercise; and (3) upon sale of the shares acquired, appreciation (or
depreciation) after the date of exercise is treated as either short-term
or long-term capital gain (or loss) depending on how long the shares of
Class A Common Stock have been held, and assuming the shares were held
as capital assets.
Insiders (as with non-insiders), generally will be taxed
immediately upon the exercise of a Nonqualified Option. Insiders,
however, are subject to special rules with respect to options that are
exercised within six months from the date of grant or at a time when the
exercise price exceeds the fair market value of the stock (i.e.,
"out-of-the-money options").
The employer is generally entitled to an income tax deduction with
respect to the exercise of a Nonqualified Option equal to the amount
included as ordinary income by the optionee for the Company's taxable
year in which (or with which) ends the taxable year of the optionee
wherein the amount is included in the optionee's income, subject to
applicable income tax withholding requirements and the limitations
imposed by the Code upon the deduction of such amounts.
Restricted Stock. A recipient of Restricted Stock generally will
be subject to tax at ordinary income rates on the fair market value of
the stock at the time the stock is either transferable or is no longer
subject to forfeiture, less any amount paid for such stock. The Company
is entitled to a corresponding tax deduction for the amount of ordinary
income recognized by the recipient at the time the recipient includes
the amount in the recipient's income. A recipient, however, who so
elects under Section 83(b) of the Code will realize ordinary income on
the date of issuance equal to the fair market value of the shares of
Restricted Stock at that time (generally determined as if the shares
were unrestricted and could be sold immediately), less any amount paid
for such stock. If the shares subject to such election are forfeited,
the recipient generally will not be entitled to any deduction, refund or
loss for tax purposes with respect to the forfeited shares. Upon sale
of the shares after the forfeiture period has expired, the appreciation
or depreciation since the shares became transferable or free from risk
of forfeiture (or, if a Section 83(b) election was made, since the
shares were issued) will be treated as long-term or short-term capital
gain or loss, assuming the shares are held as capital assets. The
holding period to determine whether the recipient has long-term or
short-term capital gain or loss begins when the restriction period
expires (or upon earlier issuance of the shares, if the recipient
elected immediate recognition of income under Section 83(b)). If
Restricted Stock is received in connection with another award under the
Incentive Plan (for example, upon exercise of an option), the income and
the deduction, if any, associated with such award may be deferred in
accordance with the rules described above for Restricted Stock. A
recipient of Restricted Stock should consult with his or her personal
tax advisor as to the manner of making, and consequences of, an election
under Section 83(b) of the Code.
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AMENDMENT AND TERMINATION
Subject to the ability of the Board of Directors to terminate the
Incentive Plan as described below, the Incentive Plan will remain in
effect until all options granted thereunder have been exercised or have
expired by reason of lapse of time and all restrictions imposed upon
Awards of Restricted Stock have lapsed. No Awards may be granted under
the Incentive Plan after July 25, 2004.
The Board of Directors may amend, alter or terminate the Incentive
Plan, except that it cannot, without approval of the shareholders of the
Company, amend the Incentive Plan in a manner that requires shareholder
approval. No change in any Award previously granted may be made that
would impair the rights of the holders of such Award without the consent
of such holder.
ASSIGNMENT
Incentive Options and Restricted Stock granted pursuant to the
Incentive Plan will not be transferable or assignable by the Incentive
Plan participant other than by will or the laws of descent and
distribution, and during the lifetime of the participant the Incentive
Options and Restricted Stock will be exercisable only by the participant
and his or her guardian or other legal representative.
Nonqualified Options granted pursuant to the Incentive Plan will
be transferable, without the payment of consideration, to revocable
trusts for the benefit of immediate family members of the optionee which
qualify as grantor trusts for federal income tax purposes, to immediate
family members, and to partnerships whose only partners are immediate
family members of the optionee.
PLAN BENEFITS
The approval by the shareholders of RightCHOICE of the proposed
amendment to the Incentive Plan to increase the number of shares of
RightCHOICE Class A Common Stock that may be issued under the Incentive
Plan will have no effect upon the allocation of benefits under the
Incentive Plan to the persons currently eligible to participate in the
Incentive Plan. The following table sets forth the Incentive Plan
benefits, as of the Record Date, that have been received by or allocated
to each of the Named Executives identified below under "Executive
Compensation and Other Information," all current executive officers as a
group, and all non-executive officer and manager employees (including
all current officers who are not executive officers) as a group. The
number and dollar value of Awards that will be provided under the
Incentive Plan in the future is not determinable. The directors of the
Company who are not also executive officers of the Company are not
eligible to participate in the Incentive Plan.
16
<PAGE>
<PAGE>
<TABLE>
AMENDED PLAN BENEFITS
<CAPTION>
Incentive Plan
--------------
Number
of Shares
Dollar Underlying
Name and Position Value ($)<F1> Options
- ----------------- ------------- -------
<S> <C> <C>
John A. O'Rourke 93,397
Sandra A. Van Trease 78,966
Herbert B. Schneiderman 63,685
Edward J. Tenholder 99,962
Michael Fulk 36,345
Executive Group (including Named Executives) 521,747
Non-Executive Officer & Manager Employee Group 449,773
Total 971,480
<FN>
<F1> As of March ___, 1999, the last reported sale price of the
Company's Class A Common Stock on the New York Stock Exchange was
$______ per share. Value is calculated by determining the
difference between the per share option exercise price and
$______, multiplied by the number of shares of Class A Common
Stock underlying the options.
</TABLE>
VOTE REQUIRED
Approval of the proposed amendment to increase the total number of
shares of Class A Common Stock of the Company that may be issued
pursuant to Awards granted under the Incentive Plan by an additional
500,000 shares requires the affirmative vote of the holders of a
majority of the issued and outstanding shares of the Company's capital
stock represented in person or by proxy and entitled to vote at the
Annual Meeting voting together as a single class. Although the presence
of a quorum of the Company's Class A Common Stock is required to conduct
business at the Annual Meeting, BCBSMo, as the holder of all of the
outstanding shares of the Company's Class B Common Stock, will have the
voting power to approve the proposed amendment to the Incentive Plan.
Abstentions from voting on the proposal and broker non-votes will have
the effect of a vote against the proposal because the affirmative vote
of the holders of a majority of the issued and outstanding shares of the
Company's capital stock represented in person or by proxy and entitled
to vote at the Annual Meeting voting together as a single class is
required to approve the proposed amendment. Unless otherwise specified,
a properly executed proxy in the form enclosed, that does not designate
the manner in which the proxy should be voted, will be voted "FOR" the
amendment to the Incentive Plan.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE INCENTIVE PLAN TO INCREASE IN THE NUMBER OF
SHARES OF RIGHTCHOICE CLASS A COMMON STOCK THAT MAY BE ISSUED UNDER THE
INCENTIVE PLAN.
17
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table summarizes for the years ended December 31, 1998, 1997
and 1996, respectively, all of the compensation paid by the Company (including
amounts fully reimbursed to the Company by BCBSMo pursuant to an administrative
services agreement (the "Administrative Services Agreement") discussed in
further detail herein) to the five most highly compensated executive officers
of the Company, including the Company's Chief Executive Officer (collectively,
the "Named Executives"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------------------------
Awards Payouts
-------------------------------
Year Salary<F1> Bonus<F2> Other Restricted Securities LTIP All Other
Name and ($) ($) Annual Stock Under- Payouts Compen-
Principal Compen- Award(s) Lying ($) sation<F4>
Position sation ($) Options/ ($)
($) SARs<F3>
(#)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John A. O'Rourke<F5> 1998 $375,000 $228,552 $ 0 $ 0 34,080 $ 0 $ 53,784
Chairman, President, 1997 $322,365 $114,309 $ 0 $ 0 24,010 $ 0 $583,046<F6>
Chief Executive Officer and
Director
- -----------------------------------------------------------------------------------------------------------------
Sandra A. Van Trease<F7> 1998 $258,333 $156,195 $ 0 $ 0 20,292 $ 0 $ 19,552
Senior Executive Vice 1997 $208,750 $ 0 $ 0 $ 0 12,926 $ 0 $ 13,397
President, Chief Operating 1996 $170,000 $ 0 $25,000 $ 0 20,335 $ 0 $ 13,016
Officer and Chief Financial
Officer
- -----------------------------------------------------------------------------------------------------------------
Herbert B. Schneiderman 1998 $190,000 $83,028 $ 0 $ 0 11,048 $ 0 $ 13,941
Senior Vice President 1997 $190,000 $ 0 $ 0 $ 0 12,215 $ 0 $ 13,892
Medical Delivery Systems 1996 $190,000 $ 0 $ 0 $ 0 31,003 $ 0 $ 11,561
- -----------------------------------------------------------------------------------------------------------------
Edward J. Tenholder<F8> 1998 $250,000 $173,250 $ 0 $ 0 20,292 $ 0 $ 26,194
Executive Vice President & 1997 $220,000 $ 41,250 $ 0 $ 0 15,704 $ 0 $ 21,691
Chief Operating Officer of 1996 $210,000 $ 0 $ 0 $ 0 26,503 $ 0 $ 18,807
BCBSMo
- -----------------------------------------------------------------------------------------------------------------
Michael Fulk<F9> 1998 $205,000 $91,193 $30,000 $ 0 24,730 $ 0 $13,200
Senior Vice President and
Chief Marketing Officer
- -----------------------------------------------------------------------------------------------------------------
<FN>
__________________________
<F1> As a general matter, includes, where applicable, amounts
electively deferred by each Named Executive under the Company's
tax-favored savings program (the "401(k) Plan") and under the
Company's executive deferred compensation plan (the "Deferred
Compensation Plan"). The 401(k) Plan enables participants to
voluntarily reduce their salary from the Company up to the lesser
of 15 percent of compensation or the maximum dollar amount allowed
under the Code. The Company matches 60 percent of such
contributions up to 5 percent of a participant's compensation.
The Company's matching contribution vests over a period of years
and is 100 percent vested after five years of service. The
Deferred Compensation 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 Code.
18
<PAGE>
<PAGE>
<F2> The amount of bonus reported in the table for Mr. O'Rourke and
Mr. Tenholder consists of compensation paid under the BCBSMo
Management Incentive Plan (the "MIP") based upon BCBSMo's overall
corporate financial performance as measured by BCBSMo's operating
profit/loss excluding investment income, extraordinary
income/expense and taxes on income, and attaining certain
individual performance goals. Of the amounts reported in this
column of the table for Mr. O'Rourke, 61 percent of the amount
paid for 1998, and 100 percent of the amount paid for 1997 was
paid under the MIP. Of such amounts for Mr. Tenholder, 100
percent of the amounts for 1998 and 1997 were paid under the MIP.
Such amounts were paid to Mr. O'Rourke and Mr. Tenholder by the
Company but were fully reimbursed to the Company by BCBSMo.
Otherwise, as discussed further herein, the amount of bonus
reported in the table consists of compensation paid under the
Alliance Blue Cross Blue Shield Incentive Plan (the "AIP"). As
discussed in greater detail herein, in 1998, the AIP and MIP are
based upon the higher of the participants' base salary and prior
to that, based upon the salary range midpoint. The AIP is payable
upon the achievement of a pre-defined annual corporate operational
target -- net income less extraordinary charges such as relocation
expenses. The Company's pre-defined annual corporate target was
not met in 1997, and, therefore, the Company did not pay a bonus
to the Named Executives under the AIP in 1997. In 1998, the
Company's pre-defined annual corporate target was met, and,
therefore, the Company paid a bonus to the Named Executives under
the AIP.
<F3> The Company has not granted any stock appreciation rights.
<F4> Includes (a) RightCHOICE, and where applicable, BCBSMo, reimbursed
matching contributions that accrued during the year ended
December 31, 1998, 1997 and 1996, respectively, for the accounts
of the Named Executives under the 401(k) Plan and the Deferred
Compensation Plan, (b) the value of term life insurance assigned
to the Named Executives under split dollar universal life
insurance policies owned by the Company, attributable to both the
Company and BCBSMo, (c) earnings on amounts deferred under the
Deferred Compensation Plan for the Named Executives, attributable
to both the Company and BCBSMo, and (d) an automobile lease
arrangement or car allowance for the Named Executives,
attributable to both the Company and BCBSMo. RightCHOICE and
BCBSMo matching contributions that accrued under the 401(k) Plan
and the Deferred Compensation Plan for 1998, 1997 and 1996 were
$17,968 and $6,681 for 1998 and 1997, respectively, for Mr.
O'Rourke; $9,425, $4,800 and $4,500, respectively, for Ms. Van
Trease; $4,800, $4,800 and $2,612; respectively, for
Mr. Schneiderman; $10,425, $8,251 and $9,001, respectively, for
Mr. Tenholder; and $4,800 for 1998 for Mr. Fulk. The value of the
term life insurance attributable to the Company and BCBSMo for
1998, 1997 and 1996 was $1,662 and $1,144 for 1998 and 1997,
respectively, for Mr. O'Rourke; $198, $197 and $116, respectively,
for Ms. Van Trease; $741, $692 and $549, respectively, for
Mr. Schneiderman; $498, $465 and $438, respectively, for
Mr. Tenholder; and $0 for 1998 for Mr. Fulk. Earnings on amounts
deferred under the Deferred Compensation Plan attributable to the
Company and BCBSMo for 1998, 1997 and 1996 were $31,704, $1,162
and $0, respectively, for Mr. O'Rourke; $1,529, $0 and $0,
respectively, for Ms. Van Trease; $0, $0, and $0, respectively,
for Mr. Schneiderman; $6,871, $4,576 and $4,504, respectively, for
Mr. Tenholder; and $0 for 1998 for Mr. Fulk. The value of the
automobile lease arrangements or car allowances attributable to
the Company and BCBSMo for 1998, 1997 and 1996 was $2,450 and
$2,450 for 1998 and 1997, respectively, for Mr. O'Rourke; $8,400,
$8,400 and $8,400, respectively, for Ms. Van Trease; $8,400,
$8,400 and $8,400, respectively, for Mr. Schneiderman; $8,400,
$8,400 and $4,864, respectively, for Mr. Tenholder; and $8,400 for
1998 for Mr. Fulk.
<F5> The amount of salary reported in the table for 1997 for Mr.
O'Rourke includes $41,532 paid to Mr. O'Rourke by HealthLink,
Inc., a wholly owned subsidiary of the Company ("HealthLink"), as
salary for that portion of 1997 (January 1-February 18), in which
Mr. O'Rourke served as President and Chief Executive Officer of
HealthLink prior to becoming President and Chief Executive Officer
of the Company. Approximately 50 percent of the remaining amount
of salary reported in the table for Mr. O'Rourke in 1998 and 1997
was paid to Mr. O'Rourke as salary for services that he rendered
to BCBSMo as its President and Chief Executive Officer. The
Company initially paid such amount to Mr. O'Rourke but was
reimbursed for
19
<PAGE>
<PAGE>
such amount by BCBSMo pursuant to the Administrative Services
Agreement. The entire bonus amount for 1997 and 61 percent of the
bonus amount for 1998 reported in the table for Mr. O'Rourke was
paid to Mr. O'Rourke pursuant to the MIP. The Company initially
paid Mr. O'Rourke his MIP bonus but was reimbursed for such amount
by BCBSMo pursuant to the Administrative Services Agreement.
Compensation earned by Mr. O'Rourke for or with respect to 1996 is
not included herein because Mr. O'Rourke was not an executive
officer of the Company during that time.
<F6> Included in this amount for Mr. O'Rourke is $571,610, which was a
retention bonus (and interest thereon) payable to Mr. O'Rourke
pursuant to an employment contract between Mr. O'Rourke and
HealthLink, as amended and restated by an employment contract
between Mr. O'Rourke and RightCHOICE (as amended and restated, the
"O'Rourke Employment Agreement"). The O'Rourke Employment
Agreement, which was authorized and directed by the HealthLink
Board of Directors in connection with the sale of HealthLink,
provided for an escrow bonus arrangement paid over a two-year term
following the sale of HealthLink provided that Mr. O'Rourke was
still employed by the Company. This two-year bonus arrangement
was created to assure the purchaser of HealthLink (which was
acquired by RightCHOICE in August 1995) of the continued
employment of Mr. O'Rourke and thereby assure the full value of
HealthLink upon its sale. The O'Rourke Employment Agreement, as
amended when Mr. O'Rourke became the Chief Executive Officer of
RightCHOICE, is discussed in further detail elsewhere in this
Proxy Statement under the heading "Employment Agreements."
<F7> Ms. Van Trease received a $25,000 bonus in 1996 as a result of the
significant additional time and effort that she spent in dealing
with various litigation matters involving the Company.
<F8> For 1997, the amount of salary reported in the table for Mr.
Tenholder includes $55,000 which was paid to Mr. Tenholder as
salary for services that he rendered to BCBSMo as its Executive
Vice President and Chief Operating Officer. The Company initially
paid such amount to Mr. Tenholder but was reimbursed for such
amount by BCBSMo pursuant to the Administrative Services
Agreement. For 1997, the entire bonus amount reported in the
table for Mr. Tenholder was paid to Mr. Tenholder pursuant to the
MIP. The Company initially paid Mr. Tenholder such amounts, but
was reimbursed for such amount by BCBSMo pursuant to the
Administrative Services Agreement. Mr. Tenholder had served as
Senior Vice President Client Services and Corporate Support of the
Company until October 1, 1997. While Mr. Tenholder continues to
be an employee of the Company, Mr. Tenholder is currently the
Executive Vice President and Chief Operating Officer of BCBSMo.
<F9> Mr. Fulk joined the Company on December 29, 1997 and received a
signing bonus of $30,000.
</TABLE>
20
<PAGE>
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to each of
the Named Executives concerning grants of stock options for the year
ended December 31, 1998.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR<F1>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Individual Grants
- ------------------------------------------------------------------------------------------------
Name Number of Percent of Total Exercise or Expiration Grant Date
Securities Options/SARs Base Price Date<F2> Present Value
underlying Granted To ($/Sh) $<F3>
options/SARs Employees in Fiscal
Granted (#) Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John A. O'Rourke 34,080 12.4% $9.6250 January 1, 2008 $209,933
- --------------------------------------------------------------------------------------------------------------
Sandra A. Van Trease 20,292 7.4% $9.6250 January 1, 2008 $124,999
- --------------------------------------------------------------------------------------------------------------
Herbert B. Schneiderman 11,048 4.0% $9.6250 January 1, 2008 $ 68,056
- --------------------------------------------------------------------------------------------------------------
Edward J. Tenholder 20,292 7.4% $9.6250 January 1, 2008 $124,999
- --------------------------------------------------------------------------------------------------------------
Michael Fulk 14,730 5.3% $9.6250 January 1, 2008 $ 90,737
- --------------------------------------------------------------------------------------------------------------
<FN>
____________________________
<F1> The Company has not granted any stock appreciation rights. All
options reported in this table were granted by the Company on
January 1, 1998.
<F2> The options are subject to early termination or acceleration in
the event of a "Corporate Change" under the Incentive Plan or
certain other events identified in the Named Executive's stock
option agreement.
<F3> The dollar value of the stock options has been determined as of
January 1, 1998, using the Black-Scholes option pricing model,
based on the assumptions that (a) the options were granted on
January 1, 1998, (the "grant date"), (b) the price for the shares
of Class A Common Stock underlying the options on the grant date
was $9.6250 per share, (c) the period during which the options are
exercisable is 10 years from the grant date, (d) the option
exercise price is $9.6250 per share, (e) the dividend yield is
zero percent, (f) the "risk free" interest rate is 5.92 percent,
the yield on a United States Government Zero Coupon Bond having a
10-year maturity from the grant date, (g) the price volatilities
for the shares of Class A Common Stock underlying the options is
42.90 percent, and (h) the expected term of the options is 10
years from the grant dates.
</TABLE>
21
<PAGE>
<PAGE>
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to each
Named Executive concerning the exercise of options during 1998 and
unexercised options held as of December 31, 1998.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1998 OPTION/SAR VALUES<F1>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
At December 31, 1998 (#) at December 31, 1998 ($)<F2>
---------------------------------------------------------
Shares Value
Acquired on Realized
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John A. O'Rourke 0 $0 8,004 58,835 $2,375 $68,649
- -------------------------------------------------------------------------------------------------------------
Sandra A. Van Trease 0 $0 16,476 41,244 $8,397 $47,087
- -------------------------------------------------------------------------------------------------------------
Herbert B. Schneiderman 0 $0 12,739 41,527 $6,813 $29,465
- -------------------------------------------------------------------------------------------------------------
Edward J. Tenholder 0 $0 33,660 48,597 $15,737 $48,833
- -------------------------------------------------------------------------------------------------------------
Michael Fulk 0 $0 3,334 21,396 $6,460 $40,534
- -------------------------------------------------------------------------------------------------------------
<FN>
_____________________________
<F1> The Company has not granted any stock appreciation rights.
<F2> The last reported sale price of the Company's Class A Common Stock
reported on the New York Stock Exchange on December 31, 1998, was
$11.50 per share. Value is calculated by determining the
difference between $11.50 and the option exercise price multiplied
by the number of shares of Class A Common Stock underlying the
options.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company and Mr. O'Rourke are parties to the O'Rourke
Employment Agreement which provides that Mr. O'Rourke will serve as
Chairman and Chief Executive Officer of the Company until he is
terminated by the Company or until he resigns. Mr. O'Rourke also serves
as President and Chief Executive Officer of BCBSMo pursuant to the
O'Rourke Employment Agreement. The O'Rourke Employment Agreement
provides Mr. O'Rourke with a base salary, eligibility in the Company's
and BCBSMo's employee benefit plans and certain other benefits provided
in the same manner and to the same extent as the Company's and BCBSMo's
other senior executives.
The O'Rourke Employment Agreement also provides that Mr. O'Rourke
would receive "severance benefits" if he is the subject of an
"involuntary termination" or if he terminates his employment for "good
reason" (as such terms are defined in the O'Rourke Employment
Agreement). Mr. O'Rourke would be required to execute a complete waiver
of all claims against the Company, except for claims against the Company
to enforce the O'Rourke Employment Agreement, prior to his receipt of
any severance benefits. Any severance benefits would be reduced to the
extent necessary to ensure that such payments, when added to other
benefits provided by the Company, would not constitute an excess
parachute payment under Section 280G of the Code. The O'Rourke
Employment Agreement also contains a confidentiality agreement, a
covenant not to compete and a binding arbitration provision.
Approximately 50 percent of the salary paid to Mr. O'Rourke is
22
<PAGE>
<PAGE>
reimbursed to the Company by BCBSMo pursuant to the Administrative
Services Agreement described further herein.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has previously entered into 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 Named
Executives: Sandra A. Van Trease, Herbert B. Schneiderman and Michael
Fulk. In addition, Edward J. Tenholder as Executive Vice President and
Chief Operating Officer of BCBSMo has an Executive Severance Agreement.
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 their 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 (as defined in the Executive Severance
Agreements). 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" (as such terms are defined in the Executive Severance
Agreements) within two years after the change in control. Severance
payments will be equal to the greater of (a) three times the executive's
"base pay" and the annual premiums generally paid by the Company for
health, dental, vision and life insurance, or (b) two times the
executive's "annual compensation" (as such terms are defined in the
Severance Agreements), and, in either event, include outplacement
benefits, and will generally be payable in 24 or 36 monthly
installments. Severance payments would be reduced to the extent
necessary to ensure that such payments, when added to other benefits
provided by the Company, or BCBSMo, if applicable, would not constitute
an excess parachute payment under Section 280G of the Code. As a
non-employee executive officer of BCBSMo, the amount that Mr. Tenholder
would receive from the Company under an Executive Severance Agreement
would be partially reimbursed by BCBSMo pursuant to the Administrative
Services Agreement.
OFFICERS' SEVERANCE AGREEMENTS
The Company has previously entered into standard severance
agreements (the "Officer Severance Agreements") with certain of its
officers, including the following Named Executives: Sandra A. Van
Trease, Herbert B. Schneiderman and Michael Fulk. In addition, Edward J.
Tenholder as Executive Vice President and Chief Operating Officer of
BCBSMo has an Officer Severance Agreement. 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 their receipt of any Officer
Severance Agreement benefits. The Officer 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" (as such terms are
defined in the Officer Severance Agreements), in the event that the
Executive Severance Agreement benefits are not payable. Under the
Officer Severance Agreements, officers will receive a severance benefit
equal to either one year's "base pay" (as defined in the Officer
Severance Agreements), payable in 12 monthly installments, two year's
base pay, payable in 24 monthly installments, or three years' base pay,
payable in 36 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 12 months. Severance benefits
would be reduced to the extent necessary to ensure that such payments
when added to other benefits provided by the Company, or BCBSMo, if
applicable, would not constitute excess parachute payments under
Section 280G of the Code. As a non-employee executive officer of
BCBSMo, the amount that Mr. Tenholder would receive from the Company
under an Officer Severance Agreement would be partially reimbursed by
BCBSMo pursuant to the Administrative Services Agreement.
23
<PAGE>
<PAGE>
PENSION PLANS
Eligible employees of the Company participate in a qualified
defined benefit pension plan (the "Pension Plan"). The Pension Plan
provides for a normal retirement benefit payable in the form of a life
annuity equal to 1 percent of final average earnings up to Social
Security-covered compensation plus 1.5 percent 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 attaining age 62 with
20 years or more of credited service. Employees with 20 or more years
of service who retire between the ages of 55 and 61 may draw an
unreduced benefit if they defer receipt of the payments until age 62,
and those employees with 25 or more years of service may draw a benefit
reduced by 4 percent per year for each year that benefits are drawn
before age 62. Participants may elect to receive their pension benefits
in the form of a joint and survivor annuity, a single life annuity, a
10-year certain life annuity or other optional forms. 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 percent of final average
earnings, multiplied by years of service up to 20, offset by benefits
provided under the Pension Plan and certain other qualifying pension
plans and annuities.
The table below shows, based on various levels of final average
earnings and years of credited service, the total estimated maximum
annual benefits payable in the form of a 10-year certain single life
annuity to hypothetical participants at normal retirement age (age 65)
under the Pension Plan as supplemented by the SERP. The amounts listed
in the table below 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.
The years of service recognized under the Pension Plan and the
SERP for each of the Named Executives are as follows: Mr. O'Rourke,
3.5 years and 14 years (including Mr. O'Rourke's prior service at
HealthLink), respectively; Ms. Van Trease, 4.5 years and 4.5 years,
respectively; Mr. Schneiderman, 3.5 years and 3.5 years, respectively;
Mr. Tenholder, 23 years and 14 years, respectively; and Mr. Fulk, 1 year
and 1 year, respectively. Compensation recognized under the Pension
Plan generally includes a participant's base salary (including any
portion deferred under the Company's qualified deferred benefit plans),
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, plus amounts deferred under the
Executive Deferred Compensation Plan, 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 10 years of credited service. Under this
formula, the final average earnings under the SERP (before applying the
maximum limits under the Code) for each of the Named Executives as of
December 31, 1998, are as follows: John A. O'Rourke, $455,285; Sandra A.
Van Trease, $195,396; Herbert B. Schneiderman, $207,918; Edward J.
Tenholder, $266,935 and Michael Fulk, $237,365. The estimated annual
benefit for representative years of credited service can be determined
by reference in the table to the level of final average earnings and the
recognized years of service for each of the Named Executives.
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFIT FOR REPRESENTATIVE
YEARS OF CREDITED SERVICE
------------------------------------------------------------------
Final Average
Earnings 15 20 25 30 35
- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
EQUITY INCENTIVE PLAN
The Company's 1994 Equity Incentive Plan, described under Item III
above, provides for the grant of options to purchase, and awards of, the
Company's Class A Common Stock 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.
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 who were employed by the Company, including
Edward J. Tenholder, a Named Executive. Bonuses under the BCBSMo
Supplemental Income Plan were intended to provide incentive for these
employees to improve BCBSMo's financial and operational status and to
remain with BCBSMo. Amounts payable under the BCBSMo Supplemental
Income Plan are the responsibility of BCBSMo.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors has general
responsibility for recommending to the Board of Directors the
compensation and benefits of the Company's executive officers. The
Compensation Committee also has the power and authority vested in the
Board of Directors by any benefit plan of the Company. In addition, the
Compensation Committee makes recommendations to the Board of Directors
with regard to the compensation of the Board and its committees, other
than the Compensation Committee. The following report describes the
Company's compensation policy and program applicable to the Company's
executive officers during 1998.
COMPENSATION POLICY
The Company's executive compensation policy has three basic goals:
(1) to attract and retain qualified individuals who provide the skills
and leadership necessary to enable the Company to achieve both short-
term and long-term financial, operational and strategic objectives;
(2) to provide performance-based incentives that 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.
25
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<PAGE>
The Compensation Committee's responsibilities to the Company
include not only the design of the compensation policy, but also
periodic review of its fairness and competitiveness -- from both a
national and local perspective. In performing its duties, the
Compensation Committee periodically engages the services of a national,
independent consulting firm to provide competitive data and analysis of
the Company's executive compensation program based upon, among other
things, the level and structure of compensation paid to similarly
situated executive officers employed by comparable companies in the
managed health care industry (the "Comparable Companies"). The
Committee also considers the market conditions known as a result of
recruiting efforts for executives. The information provided by the
independent consultant, the Committee's knowledge of market conditions
as well as considerations regarding the performance of individuals in
key executive positions were used as a basis in determining the
executive officer compensation arrangements for 1998.
In establishing the compensation arrangements for the executive
officers during 1998, the Compensation Committee also was particularly
mindful of the changes in executive management that took place during
1997 and into 1998, and the challenges faced by the Company and its
executives in the short and long term.
COMPENSATION PROGRAM AND COMPONENTS
The principal components of the compensation program for executive
officers in 1998 were base salaries, annual incentive bonuses and stock
options. The separate components were designed to advance both the
short- and long-term interests of the Company's shareholders by placing
a significant portion of the executives' compensation at risk as
described below. The following discussion summarizes each component of
the executive compensation program and the review process used by the
Compensation Committee in administering the compensation program.
Base Salary. The base salaries of the Company's executive
officers, including the Named Executives, are reviewed annually. In
establishing base salaries for 1998, the salary structure created in
prior years was utilized -- which is based upon salary grades, salary
midpoints, and salary ranges. The base salary levels for executive
officers of the Company, other than the Chief Executive Officer, were
recommended by management of the Company and approved by the
Compensation Committee based upon several factors, including (i) a
review of "salary midpoints" for each of the executive officers
previously provided by the independent consultant based upon an analysis
of the salary midpoints of similarly situated executives at the
Comparable Companies (as adjusted to reflect the differing sizes of the
Comparable Companies vis-a-vis the Company) (the "Salary Midpoints"),
(ii) an analysis of the current market salary levels for similarly
situated executives at the Comparable Companies developed by the
independent consultant, (iii) market information made known to the
Committee in their recruiting efforts to fill certain key manager
positions within the Company, (iv) individual performance and
contributions, special assignments and responsibilities, levels of
responsibility, prior experience and knowledge (and, for new hires,
previous compensation levels and expected responsibilities with the
Company), and (v) challenges faced by the Company in the short and long
term.
Mr. O'Rourke was named Chairman and Chief Executive Officer of the
Company on February 19, 1997. Mr. O'Rourke had previously served as the
President and Chief Executive Officer of HealthLink. Mr. O'Rourke also
was named Chief Executive Officer of BCBSMo, which owns all of the
Company's Class B Common Stock (representing 97.6 percent of the
Company's total voting power). In connection with the assumption of his
new duties, Mr. O'Rourke, who previously had an Employment Agreement
with HealthLink, and the Company entered into an amended Employment
Agreement (the "O'Rourke Employment Agreement") described elsewhere
herein. Mr. O'Rourke's base salary (which was paid by the Company and
approximately 50 percent of which was reimbursed by BCBSMo pursuant to
the Administrative Services Agreement) was
26
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<PAGE>
established using the same methodology and criteria described in the
preceding paragraph for the other executive officers, except that the
determination was made by the Compensation Committee. At a meeting of
the Compensation Committee held on December 22, 1997, Mr. O'Rourke's
compensation was reviewed and adjusted to more closely match the
compensation paid to the Chairmen and Chief Executive Officers of the
Comparable Companies. In consideration of, among other things, the fact
that Mr. O'Rourke's base salary was approximately 20 percent below the
average base salary of the Chief Executive Officers of the Comparable
Companies (as adjusted to reflect the differing sizes of the Comparable
Companies vis-a-vis the Company) and in consideration of his dual role
as Chief Executive Officer of both the Company and BCBSMo, the
Compensation Committee determined to increase Mr. O'Rourke's base salary
by $50,000 to $375,000, effective January 1, 1998. In 1998, the
Compensation Committee further considered Mr. O'Rourke's performance and
contributions and determined to increase Mr. O'Rourke's base salary to
$400,000 effective January 1, 1999.
Annual Incentive Bonus. The Compensation Committee believes that
annual bonus opportunities allow the Company to motivate executive
officers to achieve specific corporate goals that are of primary
importance to the Company during a particular year. The Company's
executive officers, including the Named Executives, are eligible to
receive annual incentive bonus awards under the Alliance Blue Cross Blue
Shield Incentive Plan (the "AIP"). The AIP bonus levels for the
executive officers were established for 1998 based upon the bonus
levels, as a percentage of salary, paid by the Comparable Companies (as
adjusted to reflect the differing sizes of the Comparable Companies
vis-a-vis the Company) as determined by the independent consultant.
Seventy-five percent of an executive's potential bonus under the AIP is
based upon the achievement by the Company of pre-determined operating
income goals and the remaining 25 percent of an executive's potential
bonus under the AIP is based upon his or her achievement of
pre-determined individual goals. The portion of the AIP bonus
attributable to individual performance is payable only if the
pre-determined operating income goal for the Company is attained.
The Company exceeded its net income goal for 1998, and, therefore,
the senior executive officers of the Company received a bonus under
the AIP for 1998.
Mr. O'Rourke participated in the AIP and the BCBSMo Management
Incentive Plan (the "MIP") during 1998. The MIP is similar to the AIP
except that the AIP is only available to employees of the Company and is
based upon the Company's net income excluding one-time charges such as
relocation expenses, whereas the MIP is available to employees of BCBSMo
and to employees of the Company who perform duties for BCBSMo pursuant
to the Administrative Services Agreement described elsewhere herein and
is based upon BCBSMo's operating profit/loss excluding investment
income, extraordinary income/expense and taxes on income. The Company's
operating income for 1998 exceeded the 1998 AIP target, and, therefore,
the Company made a bonus payment thereunder to Mr. O'Rourke. In
addition, Mr. O'Rourke received a bonus of $139,219 in 1998 under the
MIP based upon BCBSMo's overall corporate performance as measured by
BCBSMo's 1998 operating profit/loss excluding investment income,
extraordinary income/expense and taxes on income and attaining certain
individual performance goals.
Stock Options. The Compensation Committee believes that stock
options provide executive officers the opportunity to acquire an equity
interest in the Company and to share in the appreciation of the stock's
value -- thereby aligning their interests with those of the
shareholders. The Company's executive officers, including the Named
Executives, are eligible to receive stock option grants under the
Company's 1994 Equity Incentive Plan. 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 incentive
compensation provided by the Comparable Companies to similarly situated
executive officers. The Compensation Committee, in granting stock
options, also took into
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<PAGE>
consideration each executive officer's position with the Company and his or her
overall performance and level of responsibility.
Compensation Committee:
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 recommending to
the Board of Directors the compensation and benefits of the Company's
executive officers. During 1998, the members of the Compensation
Committee were Mr. Harbison, Jr., Mrs. White and Dr. Evens. During
1998, no member of the Compensation Committee was an officer or employee
of the Company or any of its subsidiaries, and no member of the
Compensation Committee was 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, 1998.
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., United Healthcare Corporation, American Medical
Security Group, Inc. (formerly United Wisconsin Services, Inc.) and
Wellpoint Health Networks, Inc. Prior to this Proxy Statement, the
Company also included Physicians Health Services, Inc. in the peer group
index, but, because Physicians Health Services, Inc. was acquired by
another company in 1998, Physicians Health Services, Inc. has been
omitted from the peer group index for this Proxy Statement and all
points on the performance graph have been adjusted accordingly. During
1998, United Wisconsin Services, Inc. changed its name to American
Medical Security Group, Inc. ("AMSG"). In September 1998, AMSG spun off
its managed care companies and specialty business through a new
corporation now named United Wisconsin Services, Inc. ("Newco"). AMSG,
but not Newco, is not included in the peer group index. RightCHOICE
believes that the peer group index provides a representative group of
companies in the managed health care industry.
28
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COMPARISON OF CUMULATIVE TOTAL RETURNS
(RIGHTCHOISE, S&P 500 AND PEER GROUP INDEX)
[GRAPH]
<TABLE>
<CAPTION>
August 1, 1994 December 30, 1994 December 29, 1995 December 31, 1996 December 31, 1997 December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
RightCHOICE 100.00 127.27 118.18 96.59 87.50 104.54
S&P 500 Stock 100.00 101.54 139.70 171.77 229.08 294.55
Peer Group Index 100.00 107.65 140.65 113.81 105.24 110.53
</TABLE>
OWNERSHIP OF RIGHTCHOICE CAPITAL STOCK
OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of
December 31, 1998, regarding the beneficial ownership of RightCHOICE
Class A Common Stock and RightCHOICE Class B Common Stock by each
director of the Company, by each Named Executive and by all directors
and executive officers of the Company as a group. All information with
respect to beneficial ownership has been furnished by the respective
directors and officers, as the case may be.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF SHARES
NAME BENEFICIAL OWNERSHIP <F1> OUTSTANDING<F1>
---- --------------------------- ----------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earle H. Harbison, Jr. 5,500 0 <F*> 0
Roger B. Porter, Ph.D. 4,000 0 <F*> 0
Gloria W. White 4,702 0 <F*> 0
Ronald G. Evens, M.D.<F2> 8,000 0 <F*> 0
William H. T. Bush 5,000 0 <F*> 0
John A. O'Rourke 42,117 0 <F*> 0
Norman J. Tice<F3> 9,150 0 <F*> 0
Sandra A. Van Trease 39,443 0 <F*> 0
Herbert B. Schneiderman<F4> 39,996 0 <F*> 0
Edward J. Tenholder 61,161 0 <F*> 0
Michael Fulk 8,243 0 <F*> 0
All directors and executive
officers as a group
(15 persons) 289,969 0 7.3% 0
<FN>
___________________
<F*> Less than 1 percent.
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<PAGE>
<F1> Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission that generally attribute
beneficial ownership of securities to persons who possess sole or
shared voting power and/or investment power with respect to those
securities and includes, among other things, securities that an
individual has the right to acquire within 60 days through the
exercise of any option. 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
3,710,426 shares of Class A Common Stock outstanding and
14,962,500 shares of Class B Common Stock outstanding plus 262,557
shares of Class A Common Stock of which beneficial ownership may
be acquired pursuant to stock options that are exercisable or that
will become exercisable within 60 days.
The number of shares listed for each of Messrs. Harbison, Jr.,
Porter, Evens, Bush and Tice includes 4,000 shares of the
Company's Class A Common Stock that may be acquired pursuant to
vested stock options. The number of shares listed for Mrs. White
includes 4,667 shares of the Company's Class A Common Stock that
may be acquired pursuant to the vested stock options. The number
of shares listed for Messrs. O'Rourke, Schneiderman, Tenholder
and Fulk and Ms. Van Trease includes the number of shares that may
be acquired pursuant to vested stock options at December 31, 1998,
listed in the table under the heading "Option/SAR Exercises and
Holdings" and an additional 28,113 shares for Mr. O'Rourke, 19,408
shares for Ms. Van Trease, 25,758 shares for Mr. Schneiderman,
25,502 shares for Mr. Tenholder and 8,243 shares for Mr. Fulk
which are acquirable pursuant to stock options which vested on
January 1, 1999. The number of shares listed for Ms. Van Trease
includes 729 shares of common stock beneficially owned through the
Company's 401(k) Plan, and the total of all directors and
executives officers as a group includes 2,265 shares of common
stock beneficially owned through the Company's 401(k) Plan.
<F2> Includes 3,000 shares owned of record by Dr. Evens and 1,000
shares owned of record by Dr. Evens' wife. Dr. Evens and his wife
share voting and investment power with respect to these 4,000
shares.
<F3> 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. This also includes 2,000 shares beneficially owned solely
by Mr. Tice.
<F4> All shares are held by a trust for the benefit of Mr.
Schneiderman.
</TABLE>
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December
31, 1998, regarding the beneficial ownership of RightCHOICE Class A
Common Stock and RightCHOICE Class B Common Stock by each person known
by the Board of Directors to own beneficially more than 5 percent of
either class of the Company's capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP<F1> SHARES OUTSTANDING<F1>
------------------- --------------------------- ----------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Blue Cross and Blue Shield 36,740 14,962,500 <F*> 100%
of Missouri <F2>
1831 Chestnut Street
St. Louis, Missouri 63103-2775
Heartland Advisors, Inc. <F3> 1,511,450 0 40.7% 0
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Dimensional Fund Advisors, Inc. <F4> 215,700 0 5.8% 0
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
<FN>
___________________
<F*> Less than 1 percent.
<F1> 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 3,710,426 shares of
Class A Common Stock outstanding and 14,962,500 shares of Class B
Common Stock outstanding.
<F2> According to information contained in a report on Schedule 13G,
dated February 16, 1996, the shares being reported are
beneficially owned by BCBSMo.
<F3> According to information contained in a report on Schedule 13G/A,
dated February 5, 1999, the shares being reported are beneficially
owned by one or more individual and institutional investors,
including Heartland Value Fund (which owned more than 5 percent of
the outstanding shares), for which Heartland Advisors, Inc. serves
as investment advisor. Heartland Advisors, Inc. has sole voting
power with respect to 728,950 shares and sole dispositive power
with respect to 1,511,450 shares.
<F4> According to information contained in a report on Schedule 13G,
dated February 12, 1999, the shares being reported are owned by
four registered investment companies and certain other investment
vehicles for which Dimensional Fund Advisors, Inc. serves as an
investment advisor. In its role as investment advisor and
investment manager, Dimensional Fund Advisors, Inc. possess both
voting and investment power over the shares reported. Dimensional
Fund Advisors, Inc. disclaims beneficial ownership of such shares.
</TABLE>
31
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CERTAIN TRANSACTIONS
The Company and BCBSMo have entered into an Amended and Restated
Administrative Services Agreement (the "Administrative Services
Agreement") pursuant to which, among other things, the Company will,
upon BCBSMo's request, perform certain functions (as listed in the
Administrative Services Agreement) necessary or appropriate for BCBSMo
to continue to offer the "retained products" (as defined in the
Administrative Services Agreement) and conduct its other business, and
BCBSMo will, upon the Company's request, perform certain functions (as
listed in the Administrative Services Agreement) as necessary or
appropriate to enable the Company to offer its products and conduct its
other business. Under the Administrative Services Agreement, the
Company and BCBSMo have granted to each other a nonexclusive license to
use certain software programs and procedures and have agreed on a
formula by which the Company and BCBSMo will pay the cost of services
rendered to the other. The Administrative Services Agreement provides
that the Chief Executive Officer ("CEO") of BCBSMo is permitted to serve
the Company in that capacity and that the Company will pay to the CEO
his total compensation and that BCBSMo will reimburse the Company for
the portion of the CEO's total compensation, as may be agreed, for time
spent on BCBSMo's affairs. Under the Administrative Services Agreement,
the Company and BCBSMo have agreed that BCBSMo will reimburse the
Company for compensation paid to Company employees for services rendered
to BCBSMo. In addition, the Administrative Services Agreement provides
that all "confidential information" (as defined in the Administrative
Services Agreement) will be kept in confidence.
The Company and BCBSMo have also entered into an Amended and
Restated Tax Allocation Agreement (the "Tax Allocation Agreement")
pursuant to which the Company and BCBSMo have elected to file
consolidated federal income tax returns. The Tax Allocation Agreement
provides that the Company will calculate the federal income tax
liability for itself and its subsidiaries as if it were a single
taxpayer for federal income tax purposes, subject to certain provisions
contained in the Tax Allocation Agreement, and that if the Company is
subject to federal income tax liability as a result of such calculation,
it will pay such liability to BCBSMo but that if the Company is entitled
to a refund of federal income tax as a result of such calculation, the
Company will receive such refund from BCBSMo. In January 1998, the
Company and BCBSMo amended the Tax Allocation Agreement to provide for
an allocation of liability between the Company and BCBSMo for
adjustments in income tax liabilities of BCBSMo for periods prior to
August 2, 1994 to provide for an allocation of liability between the
Company and BCBSMo for adjustments in federal income tax liabilities
arising out of consolidated federal income tax returns filed by BCBSMo
for periods after August 2, 1994 and to provide for the utilization of
the tax reserve transferred by BCBSMo to the Company in August 1994.
INDEPENDENT AUDITORS
As of June 23, 1997, the Company engaged Coopers & Lybrand L.L.P.
as its independent accountants for the years ending December 31, 1998
and 1997, thereby replacing Price Waterhouse LLP, the Company's
independent accountants for the year ended December 31, 1996. The
Company's Audit Committee participated in and approved the decision to
change independent accountants.
The reports of Price Waterhouse LLP on the Company's financial
statements for the fiscal year ended December 31, 1996, did not contain
an adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. In
connection with its audit of the Company's financial statements for the
fiscal year ended December 31, 1996, and through June 23, 1997, there
have been no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Price Waterhouse LLP, would have caused Price Waterhouse
LLP to make reference thereto in its report on the financial statements
for such year. During the fiscal year ended December 31, 1996, and
through June 23,
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<PAGE>
1997, there have been no reportable events (as defined in
Item 304(a)(1)(v) of Regulation S-K) with Price Waterhouse LLP. During
the recent fiscal year ended December 31, 1996, and through June 23,
1997, neither the Company nor anyone on the Company's behalf consulted
with Coopers & Lybrand L.L.P. regarding either (i) the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the
Company's financial statements, and as such no written report was
provided to the Company and no oral advice was provided that Coopers &
Lybrand L.L.P. concluded was an important factor considered by the
Company in reaching a decision as to any accounting, auditing or
financial reporting issue; or (ii) any matter that was either the
subject of a disagreement, as that term is defined in Item 304(a)(1)(iv)
of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
During 1998, Price Waterhouse LLP and Coopers & Lybrand L.L.P.
merged to form PricewaterhouseCoopers LLP. A representative of
PricewaterhouseCoopers 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 percent of the Company's outstanding
Class A Common Stock to file with the Securities and Exchange Commission
("SEC") 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
percent 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. SEC regulations require
directors, executive officers, greater than 10 percent 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,
1998, all Section 16(a) filing requirements applicable to its directors,
executive officers, greater than 10 percent shareholders and reporting
trusts were complied with, except that annual statements of beneficial
ownership on Form 5 were filed late by Richard S. Smith with respect to
transactions involving the purchase of common stock obtained through the
Company's Employee Stock Purchase Plan for the years 1995, 1996 and
1998.
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, 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.
33
<PAGE>
<PAGE>
ANNUAL REPORT
RightCHOICE's Annual Report to Shareholders, containing financial
statements for the year ended December 31, 1998, 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 or as otherwise incorporated by reference herein.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
It is presently anticipated that the 2000 Annual Meeting of
Shareholders will be held on May 9, 2000. Shareholder proposals
intended for inclusion in the proxy statement for the 2000 Annual
Meeting of Shareholders must be received at the Company's offices,
located at 1831 Chestnut Street, St. Louis, Missouri 63103-2275,
Attention: Corporate Secretary, within a reasonable time before the
solicitation with respect to the meeting is made, but in no event later
than November 26, 1999. Such proposals must comply with the other
requirements of the proxy solicitation rules of the SEC. Under the
Company's Bylaws, other proposals that are not included in the proxy
statement for the 2000 Annual Meeting of Shareholders will be considered
untimely and will not be considered at that meeting unless they are
received at the Company's offices, located at 1831 Chestnut Street, St.
Louis, Missouri 63103-2275, Attention: Corporate Secretary, not later
than March 12, 2000. Management proxies will be authorized to exercise
discretionary voting authority with respect to any shareholder proposal
not included in the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders if (a) the Company receives the requisite notice
of such proposal on or before March 12, 2000 and after November 26,
1999, and (b) the conditions set forth in the SEC Rule 14a-4(c)(2)(i)-
(iii) are not satisfied.
By Order of the Board of Directors
Angela F. Braly
Secretary
March 26, 1999
St. Louis, Missouri
34
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<PAGE>
EXHIBIT A
CURRENT TEXT OF ARTICLE VI SECTION 3
Section 3. The members of the Board of directors, other than
those who may be elected by the holders of any Preferred Stock or series
thereof, shall be divided into three classes (to be designated as Class
I, Class II and Class III), as nearly equal in number as the then total
number of directors constituting the whole Board permits, with the terms
of office of one class expiring each year. Mr. Earle H. Harbison, Jr.,
and Mr. Roger B. Porter are hereby named as the Class I directors to
hold office for a term expiring at the annual meeting of shareholders in
1995 and until their respective successors are duly elected and
qualified or until their earlier resignation or removal; Mr. Frederic C.
Brussee, Mr. Edward C. Gomes, Jr. and Ronald Gene Evens, M.D. are hereby
named as Class II directors to hold office for a term expiring at the
annual meeting of shareholders in 1996 and until their respective
successors are duly elected and qualified or until their earlier
resignation or removal; and Mr. William H. T. Bush, Mr. Roy R.
Heimburger and Mr. Norman J. Tice are hereby named as Class III
directors to hold for a term expiring at the annual meeting of
shareholders in 1997 and until their respective successors are duly
elected and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more
directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual
meeting of shareholders. Subject to the foregoing, at each annual
meeting of shareholders the successors to the class of directors whose
term shall then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting and until their
respective successors shall be duly elected and qualified or until their
earlier resignation or removal.
A-1
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<PAGE>
EXHIBIT B
TEXT OF PROPOSED AMENDMENT TO ARTICLE VI SECTION 3
Section 3. The number of directors to constitute the Board of
Directors, other than those who may be elected by the holders of any
Preferred Stock or series thereof, shall be seven (7); provided,
however, that such number may be fixed, from time to time, by, or in the
manner provided in, the Bylaws of the Corporation, but shall not be less
than three (3), and any such change shall be reported to the Secretary
of State of the State of Missouri within thirty (30) calendar days of
such change. The directors shall be divided into three classes, to be
designated as Class I, Class II and Class III, with the number of
directors in each class to be as nearly equal in number as the then
total number of directors constituting the whole Board permits and with
the terms of office of one class expiring each year. The term of office
of the current Class I Directors shall expire at the annual meeting of
shareholders in 2001 and when their respective successors are elected
and qualified or upon their earlier resignation or removal. The term of
office of the current Class II Directors shall expire at the annual
meeting of shareholders in 2002 and when their respective successors are
elected and qualified or upon their earlier resignation or removal. The
term of office of the current Class III Directors shall expire at the
annual meeting of shareholders in 2000 and when their respective
successors are elected and qualified or upon their earlier resignation
or removal. Notwithstanding the forgoing, and except as otherwise
required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to
elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of shareholders. Subject to the foregoing, at
each annual meeting of shareholders the successors of the class of
directors whose term shall then expire shall be elected to hold office
for a term expiring at the third succeeding annual meeting and until
their respective successors shall be duly elected and qualified or until
their earlier resignation or removal.
B-1
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<PAGE>
RIGHTCHOICE MANAGED CARE, INC.
1994 EQUITY INCENTIVE PLAN
SECTION 1
PURPOSE
-------
The purpose of the RightCHOICE Managed Care, Inc., ("RightCHOICE")
1994 Equity Incentive Plan (the "Plan") is to provide a means whereby
RightCHOICE, a Missouri corporation, may attract able persons to remain
in or to enter the employ of the Corporation or a Subsidiary and to
provide a means whereby those key employees upon whom the
responsibilities of the successful administration and management rest,
and whose present and potential contributions to the welfare of the
Corporation or a Subsidiary are of importance, can acquire and maintain
stock ownership, thereby strengthening their concern for the long-term
welfare of the Corporation. A further purpose of the Plan is to provide
such key employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Corporation over the
long term. Accordingly, the Plan provides for granting Incentive Stock
Options, options which do not constitute Incentive Stock Options,
Restricted Stock Awards, or any combination of the foregoing, as is
best suited to the circumstances of the particular employees as provided
herein.
SECTION 2
DEFINITIONS
-----------
The following definitions shall be applicable during the term of the
Plan unless specifically modified by any paragraph:
(a) Award means, individually or collectively, any Option, or
-----
Restricted Stock Award.
(b) Board means the board of directors of RightCHOICE.
-----
(c) Change of Control Value means the amount determined in
-----------------------
Clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the
per share price offered to stockholders of the Corporation in any
merger, consolidation, sale of assets or dissolution transaction, (ii)
the price per share offered to stockholders of the Corporation in any
tender offer or exchange offer whereby a Corporate Change takes place or
(iii) if a Corporate Change occurs other than as described in Clause (i)
or Clause (ii), the fair market value per share determined by the
Committee as of the date determined by the Committee to be the date of
cancellation and surrender of an Option. If the consideration offered
to stockholders of the Corporation in any transaction described in this
Paragraph or Paragraphs (d) and (e) of Section 9 consists of anything
other than cash, the Committee shall determine the fair cash equivalent
of the portion or the consideration offered which is other than cash.
1
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<PAGE>
(d) Code means the Internal Revenue Code of 1986, as amended.
----
Reference in the Plan to any Section of the Code shall be deemed to
include any amendments or successor provisions to such Section and any
regulations under such Section.
(e) Committee means the Compensation Committee of the
---------
Corporation.
(f) Common Stock means the class A common stock, $.01 per share
------------
par value, of RightCHOICE.
(g) Corporation means RightCHOICE.
-----------
(h) Corporate Change means one of the following events: (i) the
----------------
merger; consolidation or other reorganization of the Corporation in
which the outstanding Common Stock is converted into or exchanged for a
different class of securities of the Corporation, a class of securities
of any other issuer (except a Subsidiary or Parent Corporation), cash or
other property; (ii) the sale, lease or exchange of all or substantially
all of the assets of the Corporation to any other corporation or entity
(except a Subsidiary or Parent Corporation); (iii) the adoption by the
stockholders of the Corporation of a plan of liquidation and
dissolution; (iv) the acquisition (other than acquisition pursuant to
any other clause of this definition) by any person or entity, including
without limitation a "group" as contemplated by Section 13(d)(3) of the
Exchange Act, of beneficial ownership, as contemplated by such Section,
of more than thirty (30) percent (based on voting power) of the
Corporation's outstanding capital stock; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Corporation before such election shall cease to
constitute a majority of the Board. Notwithstanding the provisions of
clause (iv) above, a Corporate Change shall not be considered to have
occurred upon the acquisition (other than acquisition pursuant to any
other clause of the preceding sentence) by any person or entity,
including without limitation a "group" as contemplated by Section
13(d)(3) or the Exchange Act, of beneficial ownership, as contemplated
by such Section, of more than thirty (30) percent (based on voting
power) of the Corporation's outstanding capital stock resulting from a
public offering of securities of the Corporation under the Securities
Act of 1933, as amended.
(i) Exchange Act means the Securities Exchange Act of 1934, as
------------
amended.
(j) Fair Market Value means, as of any specified date, the
-----------------
closing price of the Common Stock on the New York Stock Exchange (or, if
the Common Stock is not listed on such exchange, such other national
securities exchange on which the Common Stock is then listed) on that
date, or if no prices are reported on that date, on the last preceding
date on which such prices of the Common Stock are so reported. If the
Common Stock is not then listed on any national securities exchange but
is traded over the counter at the time a determination of its Fair
Market Value is required to be made hereunder, its Fair Market Value
shall be deemed to be equal to the average between the reported high and
low sales prices of Common Stock on the most recent date on which Common
Stock was
2
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<PAGE>
publicly traded. If the Common Stock is not publicly traded at the time
a determination of its value is required to be made hereunder, the
determination of its Fair Marker Value shall be made by the Committee in
such manner as it deems appropriate (such determination may be based on
the advice of an independent investment banker or appraiser recognized
to be expert in making such valuations).
(k) Holder means an employee who has been granted an Award.
------
(l) Incentive Stock Option means an Option within the meaning of
----------------------
Section 422 of the Code.
(m) Option means an Award granted under Section 7 of the Plan
------
and includes both Incentive Stock Options to purchase Common Stock and
Options which do not constitute Incentive Stock Options to purchase
Common Stock.
(n) Option Agreement means a written agreement between the
----------------
Corporation and an employee with respect to an Option.
(o) Optionee means an employee who has been granted an Option.
--------
(p) Parent Corporation shall have the meaning set forth in
------------------
Section 424(e) of the Code.
(q) Plan means this RightCHOICE Managed Care, Inc. 1994 Equity
----
Incentive Plan.
(r) Restricted Stock Award means an Award granted under Section
----------------------
8 of the Plan.
(s) Rule 16b-3 means Rule 16b-3 of the general Rules and
----------
Regulations of the Securities and Exchange Commission under the Exchange
Act, as such rule is currently in effect or as hereafter modified or
amended.
(t) Subsidiary means a company (whether a corporation, partnership,
----------
joint venture or other form of entity) in which the Corporation, or a
corporation in which the Corporation owns a majority of the shares of
capital stock, directly or indirectly, owns an equity interest of fifty
(50) percent or more, except solely with respect to the issuance of
Incentive Stock Options the term "Subsidiary" shall have the same meaning
as the term "subsidiary corporation" as defined in Section 424(f) of
the Code.
3
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<PAGE>
SECTION 3
EFFECTIVE DATE AND DURATION OF THE PLAN
---------------------------------------
The Plan shall be effective upon the date of its adoption by the
Board, provided the Plan is timely approved by the stockholders of the
Corporation. Notwithstanding any provision of the Plan or of any Option
Agreement, no Option shall be exercisable prior to such stockholder
approval. No further Awards may be granted under the Plan after ten (10)
years from the date the Plan is adopted by the Board. Subject to the
provisions of Section 10, the Plan shall remain in effect until all
Options granted under the Plan have been exercised or have expired by
reason of lapse of time and all restrictions imposed upon Restricted
Stock Awards have lapsed.
SECTION 4
ADMINISTRATION
--------------
(a) Administration of Plan. The Plan shall be administered by
----------------------
the Compensation Committee.
(b) Powers. The Committee shall have sole authority, in its
------
discretion, to determine which employees of the Corporation and any
Subsidiary of the Corporation shall receive an Award, the time or times
when such Award shall be made, whether an Incentive Stock Option or
nonqualified Option shall be granted, and the number of shares of Common
Stock which may be issued under each Option and Restricted Stock Award.
In making such determinations, the Committee may take into account the
nature of the services rendered by the respective employees, their
present and potential contribution to the success of the Corporation or
a Subsidiary and such other factors as the Committee in its discretion
shall deem relevant.
(c) Additional Powers. The Committee shall have such additional
-----------------
powers as are delegated to it by the other provisions of the Plan.
Subject to the express provisions of the Plan, the Committee is
authorized in its sole discretion, exercised in a nondiscriminatory
manner, to construe and interpret the Plan and the respective agreements
executed thereunder, to prescribe such rules and regulations relating to
the Plan as it may deem advisable to carry out the Plan, and to
determine the terms, restrictions and provisions of each Award,
including such terms, restrictions and provisions as shall be requisite
in the judgment of the Committee to cause designated Options to qualify
as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency
in any agreement relating to an Award in the manner and to the extent it
shall deem expedient to carry it into effect. The determinations of the
Committee on the matters referred to in this Section 4 shall be
conclusive.
4
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<PAGE>
SECTION 5
GRANT OF OPTIONS AND RESTRICTED STOCK AWARDS
--------------------------------------------
SUBJECT TO THE PLAN
-------------------
(a) Award Limits. The Committee may from time to time grant
------------
Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Section
6. The aggregate number of shares of Common Stock that may be issued
under the Plan shall not exceed 1,500,000 shares, plus any additional
shares of Common Stock hereafter authorized by the stockholders of the
Corporation. The aggregate number of shares of Common Stock that may be
issued to any Holder under the Plan shall not exceed twenty percent
(20%) of the aggregate authorized number of shares referred to in the
preceding sentence. Any of such shares which remain unissued and which
are not subject to outstanding Options or Awards at the termination of
the Plan shall cease to be subject to the Plan but, until termination of
the Plan, the Corporation shall at all times reserve a sufficient number
of shares to meet the requirements of the Plan. Shares shall be deemed
to have been issued under the Plan only to the extent actually issued
and delivered pursuant to an Award. To the extent that an Award lapses
or the rights of its Holder terminate, any shares of Common Stock
subject to such Award shall again be available for the grant of an
Award. The aggregate number of shares which may be issued under the Plan
shall be subject to adjustment in the same manner as provided in Section
9 with respect to shares of Common Stock subject to Options then
outstanding. Separate stock certificates shall be issued by the
Corporation for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the
exercise of any Option which does not constitute an Incentive Stock
Option.
(b) Stock Offered. The stock to be offered pursuant to the grant
-------------
of an Award may be authorized but unissued Common Stock or Common Stock
previously issued and outstanding and reacquired by the Corporation.
SECTION 6
ELIGIBILITY
-----------
Awards made pursuant to the Plan may be granted only to individuals who,
at the time of grant, are employees of the Corporation or a Subsidiary, in
each case at the level of vice president and above, any other employees of
the Corporation or a Subsidiary as specifically designated by the Committee,
and any employees of the Corporation's Parent Corporation, at the level of
executive vice president and above. Awards may not be granted to any member
of the Board who is not an employee of the Corporation or a Subsidiary, its
Parent Corporation or a Subsidiary or to any member of the Committee. An
Award made pursuant to the Plan may be granted on more than one occasion to
the same person, and such Award may include an Incentive Stock Option, an
Option which is not an Incentive Stock Option, a Restricted Stock Award, or
any combination thereof. Each Award shall be evidenced by a written instrument
duly executed by or on behalf of the Corporation.
5
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<PAGE>
SECTION 7
STOCK OPTION
------------
(a) Stock Option Agreement. Each Option shall be evidenced by an
----------------------
Option Agreement between the Corporation and the Optionee which shall
contain such terms and conditions as may be approved by the Committee.
The terms and conditions of the respective Option Agreements need not be
identical. Notwithstanding the foregoing, each Option Agreement shall
provide that the Option may not be exercised earlier than six months
from the date of grant and shall specify the effect of termination of
employment on the exercisability of the Option. An Option Agreement may
provide for the payment of the exercise price, in whole or in part, by
the delivery of a number of shares of Common Stock (plus cash if
necessary) having a Fair Market Value equal to such exercise price.
Pursuant to the terms of an Option Agreement, a Holder shall have the
right to appoint any individual or legal entity in writing as his
beneficiary under the Plan in the event of his death. In the absence of
such appointment, the beneficiary shall be the legal representative of
the Holder's estate.
(b) Option Period. The term of each Option shall be as specified
-------------
by the Committee at the date of grant and shall be stated in the Option
Agreement.
(c) Limitations on Exercise of Option. An Option shall be
---------------------------------
exercisable in whole or in such installments and at such times as
determined by the Committee and the applicable term relating to the
exercise of the Option shall be stated in the Option Agreement.
(d) Special Limitations on Incentive Stock Options. To the
----------------------------------------------
extent that the aggregate Fair Market Value (determined at the time the
respective Incentive Stock Option is granted) of Common Stock with
respect to which Incentive Stock Options are exercisable for the first
time by an individual during any calendar year under all incentive stock
option plans of the Corporation (and any Parent Corporation or
Subsidiary) exceeds one hundred thousand dollars ($100,000), such excess
Incentive Stock Options shall be treated as Options which do not
constitute Incentive Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations
and other administrative pronouncements, which of an Optionee's
Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such
determination as soon as practicable after such determination. No
Incentive Stock Option shall be granted to an individual if at the time
the Option is granted, such individual owns stock possessing more than
ten (10) percent of the total combined voting power of all classes of
stock of the Corporation or of its Parent Corporation or a Subsidiary,
within the meaning of Section 422(b)(6) of the Code, unless (i) at the
time such Option is granted the exercise price is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock subject
to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
6
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(e) Option Price. The purchase price of Common Stock issued
------------
under each Option shall be determined by the Committee and shall be
stated in the Option Agreement, but such purchase price shall, in the
case of Incentive Stock Options, not be less than the Fair Market Value
of Common Stock subject to the Option on the date the Option is granted.
(f) Options in Substitution for Stock Options Granted by Other
----------------------------------------------------------
Corporations. Options may be granted under the Plan from time to time in
- ------------
substitution for stock options held by employees of corporations who
become, or who became prior to the effective date of the Plan, key
employees of the Corporation or of any Subsidiary as a result of a
merger or consolidation of the employing corporation with the
Corporation, a Parent Corporation or such Subsidiary, or the acquisition
by the Corporation, a Parent Corporation or a Subsidiary of all or a
portion of the assets of the employing corporation, or the acquisition
by the Corporation, a Parent Corporation or a Subsidiary of stock of the
employing corporation with the result that such employing corporation
becomes a Subsidiary.
SECTION 8
RESTRICTED STOCK AWARDS
-----------------------
(a) Restricted Period to be Established by the Committee. At the
----------------------------------------------------
time a Restricted Stock Award is made, the Committee shall establish a
period of time (the "Restriction Period") applicable to such Award. Each
Restricted Stock Award may have a different Restriction Period, in the
discretion of the Committee. The Restriction Period applicable to a
particular Restricted Stock Award shall not be changed except as
permitted by Paragraph (b) of this Section 8 or by Section 9.
(b) Other Terms and Conditions. Common Stock awarded pursuant to
--------------------------
a Restricted Stock Award shall be represented by a stock certificate
registered in the name of the Holder of such Restricted Stock Award or,
at the option of the Corporation, in the name of a nominee of the
Corporation. The Holder shall have the right to receive dividends during
the Restriction Period, to vote the Common Stock subject thereto and to
enjoy all other stockholder rights, except that: (i) the Holder shall
not be entitled to possession of the stock certificate until the
Restriction Period shall have expired; (ii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the
stock during the Restriction Period; and (iii) a breach of the terms and
conditions established by the Committee pursuant to the Restricted Stock
Award shall cause a forfeiture of the Restricted Stock Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to Restricted
Stock Awards, including, but not limited to, rules pertaining to the
termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Restriction Period.
7
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(c) Payment for Restricted Stock. A Holder shall not be required
----------------------------
to make any payment for Common Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law and except
that the Committee may, in its discretion, charge the Holder an amount
in cash not in excess of the par value of the shares of Common Stock
issued under the Plan to the Holder.
(d) Miscellaneous. Nothing in this Section 8 shall prohibit the
-------------
exchange of shares issued under the Plan (whether or not then subject to
a Restricted Stock Award) pursuant to a plan of reorganization for stock
or securities in the Corporation or another corporation a party to the
reorganization, but the stock or securities so received for shares then
subject to the restrictions of a Restricted Stock Award shall become
subject to the restrictions of the Restricted Stock Award. Any shares of
stock received as a result of a stock split or stock dividend with
respect to shares then subject to a Restricted Stock Award shall also
become subject to the restrictions of the Restricted Stock Award.
SECTION 9
RECAPITALIZATION OR REORGANIZATION
----------------------------------
(a) Except as hereinafter otherwise provided Options, Restricted
Stock Awards, and any agreements evidencing such Awards shall be subject
to adjustment by the Committee at its discretion as to the number and
price of shares of Common Stock or other consideration subject to such
Awards in the event of changes in the outstanding Common Stock by reason
of stock dividends, stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant
changes in capitalization occurring after the date of the grant of any
such Awards.
(b) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the
stockholders of the Corporation to make or authorize any adjustment,
recapitalization, reorganization or other change in the capital
structure of the Corporation, a Parent Corporation or a Subsidiary or
their business, any merger or consolidation of the Corporation, a Parent
Corporation or a Subsidiary, any issue of debt or equity securities
having any priority or preference with respect to or affecting Common
Stock or the rights thereof, the dissolution or liquidation of the
Corporation, a Parent Corporation or a Subsidiary, or any sale, lease,
exchange or other disposition of all or any part of their assets or
business or any other corporate act or proceeding.
(c) The shares with respect to which Options may be granted are
shares of Common Stock as presently constituted but if, and whenever,
prior to the expiration of an Option theretofore granted, the
Corporation shall effect a subdivision or consolidation of shares of
Common Stock or the payment of a stock dividend on Common Stock without
receipt of consideration by the Corporation, the number of shares of
Common Stock with respect to which such Option may thereafter be
exercised: (i) in the event of an increase in the number of outstanding
shares, shall be proportionately increased and the purchase price per
share shall be proportionately reduced; and (ii) in the event of a
8
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<PAGE>
reduction in the number of outstanding shares, shall be proportionately
reduced and the purchase price per share shall be proportionately
increased.
(d) If the Corporation recapitalizes or otherwise changes its
capital structure, thereafter, upon any exercise of an Option
theretofore granted, the Optionee shall be entitled to purchase under
such Option, in lieu of the number of shares of Common Stock as to which
such Option shall then be exercisable, the number and class of shares of
stock and securities and the cash and other property to which the
Optionee would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to such recapitalization, the
Optionee had been the holder of such record of the number of shares of
Common Stock then covered by such Option.
(e) In the event of a Corporate Change, unless otherwise deemed
to be impractical by the Committee, then no later than: (i) two business
days prior to any Corporate Change referenced in Clause (i), (ii), (iii)
or (v) of the definition thereof; or (ii) ten business days after any
Corporate Change referenced in Clause (iv) of the definition thereof,
the Committee, acting in its sole discretion without the consent or
approval of any Optionee, shall act to effect one or more alternatives
with respect to outstanding Options which acts may vary among individual
Optionee and, with respect to acts taken pursuant to Clause (i) above,
may be contingent upon effectuation of the Corporate Change.
Such alternatives shall be: (A) accelerate the time at which
Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified
date (before or after such Corporate Change) fixed by the Committee,
after which specified date all unexercised Options and all rights of
Optionee thereunder shall terminate; (B) require the mandatory surrender
to the Corporation by selected Optionee of some or all of the
outstanding Options held by such Optionee (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a
date (before or after such Corporate Change) specified by the Committee,
in which event the Committee shall thereupon cancel such Options and pay
to each Optionee an amount of cash per share equal to the excess, if
any, of the Change of Control Value of the shares subject to such Option
over the exercise price(s) under such Options for such shares; (C) make
such adjustments to Options then outstanding as the Committee deems
appropriate to reflect such Corporate Change (provided, however, that
the Committee may determine in its sole discretion that no adjustment is
necessary to Options then outstanding); or (D) provide that thereafter
upon any exercise of an Option theretofore granted, the Optionee shall
be entitled to purchase under such Option, in lieu of the number of
shares of Common Stock as to which such Option shall then be exercisable
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have
been entitled pursuant to the terms of the agreement of merger,
consolidation or sale of assets or plan of liquidation and dissolution
if, immediately prior to such merger, consolidation or sale of assets or
any distribution in liquidation and dissolution of the Corporation, the
9
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<PAGE>
Optionee had been the holder of record of the number of shares of Common
Stock then covered by such Option.
(f) Except as hereinbefore expressly provided, the issuance by
the Corporation of shares of stock of any class or securities
convertible into shares of stock of any class, for cash, property, labor
or services, upon direct sale, upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of
the Corporation convertible into such shares or other securities, and in
any case whether or not for fair value, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number
of shares of Common Stock subject to Options theretofore granted or the
exercise price per share of Common Stock subject to Options.
(g) Plan provisions to the contrary notwithstanding, with
respect to any Restricted Stock Awards outstanding at the time a
Corporate Change occurs, the Committee may, in its sole discretion,
provide: (i) for full vesting of all Common Stock awarded to the Holders
pursuant to such Restricted Stock Awards as of the date of such
Corporate Change; and (ii) that all restrictions applicable to such
Restricted Stock Award shall terminate as of such date.
SECTION 10
AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
The Board in its discretion may terminate the Plan or alter or
amend the Plan or any part thereof from time to time; provided that no
change in any Award previously granted may be made which would impair
the rights of the Holder without the consent of the Holder, and provided
further, that the Board may not, without approval of the stockholders of
the Corporation, amend the Plan in a manner that requires stockholder
approval.
SECTION 11
OTHER
-----
(a) No Right to an Award. Neither the adoption of the Plan nor
--------------------
any action of the Board or of the Committee shall be deemed to give an
employee any right to be granted an Option to purchase Common Stock or a
right to a Restricted Stock Award or any other rights hereunder except
as may be evidenced by an Award or by an Option Agreement duly executed
on behalf of the Corporation, and then only to the extent of and on the
terms and conditions expressly set forth therein. The Plan shall be
unfunded. The Corporation shall not be required to establish any special
or separate fund or to make any other segregation of funds or assets to
assure the payment of any Award.
(b) No Employment Rights Conferred. Nothing contained in the
------------------------------
Plan or in any Award made hereunder shall: (i) confer upon any employee
any right with respect to continuation of employment with the
Corporation or any Subsidiary; or (ii) interfere in
10
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<PAGE>
any way with the right of the Corporation or Subsidiary to terminate his
or her employment at any time including but not limited to its ability
to exercise its right to terminate the employee "at will".
(c) Other Laws; Withholding. The Corporation shall not be
-----------------------
obligated to issue any Common Stock pursuant to any Award granted under
the Plan at any time when the offering of the shares covered by such
Award has not been registered under the Securities Act of 1933 and such
other state and federal laws, rules or regulations as the Corporation or
the Committee deems applicable and, in the opinion of legal counsel for
the Corporation, there is no exemption from the registration
requirements of such laws, rules or regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock
shall be delivered, nor shall any cash in lieu of fractional shares be
paid. The Corporation shall have the right to deduct in connection with
all Awards any taxes required by law to be withheld and to require any
payments necessary to enable it to satisfy its withholding obligations.
The Committee may permit the Holder of an Award to elect to surrender,
or authorize the Corporation to withhold, shares of Common Stock (valued
at their Fair Market Value on the date of surrender or withholding of
such shares) in satisfaction of the Corporation's withholding
obligation, subject to such restrictions as the Committee deems
necessary to satisfy the requirements of Rule 16b-3.
(d) No Restriction of Corporate Action. Nothing contained in the
----------------------------------
Plan shall be construed to prevent the Corporation or any Parent
Corporation or Subsidiary from taking any corporate action which is
deemed by the Corporation or such Parent Corporation or Subsidiary to be
appropriate or in its best interest, whether or not such action would
have an adverse effect on the Plan or any Award made under the Plan. No
employee, beneficiary or other person shall have any claim against the
Corporation or any Parent Corporation or Subsidiary as a result of such
action.
(e) Restrictions on Transfer. Awards may not be sold, pledged,
------------------------
assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution, or in the case
of Options which do not constitute Incentive Stock Options, pursuant to
the terms of a "qualified domestic relations order" (within the meaning
of Section 414(p) of the Code and the regulations and rulings
thereunder); provided, however, that the Committee may grant Options
which do not constitute Incentive Stock Options that are transferable,
without payment of consideration, to (i) revocable trusts for the
benefit of immediate family members which qualify as grantor trusts for
federal income tax purposes, (ii) immediate family members, (iii)
partnerships whose only partners are immediate family members and/or
organizations described in Section 170(c) of the Code, or (iv) an
intermediary that by written agreement is required to exercise the
Options which do not constitute Incentive Stock Options on behalf of
organizations described in Section 170(c) of the Code. The transferee
of transferable Options which do not constitute Incentive Stock Options
is subject to all conditions applicable to the transferable Options
which do not constitute Incentive Stock Options prior to their transfer.
The term "immediate family" shall mean the Optionee's spouse, parents,
children, stepchildren, adoptive children, sisters, brothers and
grandchildren
11
<PAGE>
<PAGE>
(and, for this purposes, shall also include the Optionee). The Option
Agreement or other written instrument evidencing an Award shall specify
the effect of the death of the Holder on the Award."
(f) Rule 16b-3. It is intended that the Plan and any grant of
----------
an Award made to a person subject to Section 16 of the Exchange Act meet
all of the requirements of Rule 16b-3. If any provisions of the Plan or
any such Award would disqualify the Plan or such Award hereunder, or
would otherwise not comply with Rule 16b-3, such provision or Award
shall be construed or deemed amended to conform to Rule 16b-3.
(g) Governing Law. This Plan shall be construed in accordance
-------------
with the laws of the State of Missouri and all applicable federal law.
12
<PAGE>
<PAGE>
=========================================================================
RIGHTCHOICE MANAGED CARE, INC.
DRAFT PROXY CARD (8 1/2 X 11 STOCK) FOR MAY 1999 ANNUAL MEETING
=========================================================================
SIDE 1
(INSERT MAP)
If you are planning to attend the RightCHOICE Managed Care, Inc.
Annual Meeting, please bring this ticket with you as your admittance.
(DETACH PROXY FORM HERE)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
1999 ANNUAL MEETING OF SHAREHOLDERS OF RIGHTCHOICE MANAGED CARE, INC.
The undersigned hereby appoints Annette Range and Judi Givens, 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 1999 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 11, 1999, 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 26, 1999:
THE BOARD OF DIRECTORS OF RIGHTCHOICE RECOMMENDS A VOTE "FOR" EACH ITEM.
Item 1: Election of three Class II directors to hold office for a term
expiring at the 2002 annual meeting of shareholders.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to
(except as marked to the contrary) vote for all nominees
listed below
NOMINEES: Ronald G. Evens, M.D.; John A. O'Rourke;
Roger B. Porter, Ph.D.
Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in this space:
_______________________________________________________________________
Item 2: Proposal to amend Article VI Section 3 of RightCHOICE's
Articles of Incorporation, as described in the accompanying Proxy
Statement.
/ / FOR / / AGAINST / / ABSTAIN
Item 3: Proposal to amend RightCHOICE's 1994 Equity Incentive Plan to
increase by 500,000 the total number of shares of RightCHOICE Class A
Common Stock that may be issued under the Plan, as described in the
accompanying Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting.
<PAGE>
<PAGE>
=========================================================================
RIGHTCHOICE MANAGED CARE, INC.
DRAFT PROXY CARD (8 1/2 X 11 STOCK) FOR MAY 1999 ANNUAL MEETING
=========================================================================
SIDE 2
(DETACH PROXY FORM HERE)
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, ITEM 2 AND ITEM 3.
Date:________________________________, 1999
___________________________________________
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 partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE>
<PAGE>
APPENDIX
Page 29 of the printed proxy statement contains a
Comparison of Cumulative Total Returns Graph. The information
plotted in the graph has been presented in a tabular format that
may be processed by the EDGAR system.
