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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:
Preliminary proxy statement
[x] Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CORVEL CORPORATION
(Name of Registrant as Specified in Its Charter)
Registrant
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transactions applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1) N/A
(4) Proposed maximum aggregate value of transaction: N/A
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: N/A
(2) Form, schedule or registration statement no.: N/A
(3) Filing party: N/A
(4) Date filed: N/A
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
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[LOGO]
July 1, 1996
Dear CorVel Stockholder:
We are pleased to invite you to our 1996 Annual Meeting which will be
held at the offices of the Company, 600 City Parkway West, Suite 200,
Orange, California, on Thursday, August 1, 1996, at 9:00 a.m. Pacific
Daylight Time. The Annual Meeting will begin with a report on the
Company's progress, followed by a discussion and stockholder
questions. Voting on election of directors and other matters is also
scheduled. The items to be voted on are addressed in the enclosed
Notice of Annual Meeting of Stockholders and Proxy Statement.
Several significant milestones reached in fiscal 1996 deserve special
mention:
o CorVel reported record revenues of $109.1 million for the fiscal
year ended March 31, 1996, representing an increase of approximately
14% over the $95.8 million in revenues in fiscal 1995.
o CorVel continued its expansion into the accident and health
marketplace with increased sales of "24 Hour" managed care programs
focused on disability management.
o CorVel continued to expand its line of Managed Care Organizations,
the state regulated entities providing managed care services in
workers compensation.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, please complete and mail the enclosed proxy card to ensure
that your shares will be represented. A postage pre-paid envelope has
been provided for your convenience.
We look forward to seeing you at our meeting.
Sincerely,
[SIG]
V. Gordon Clemons,
Chairman of the Board, Chief Executive Officer
and President
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CorVel Corporation
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
AUGUST 1, 1996
To the Stockholders of CorVel Corporation:
Notice is hereby given that the 1996 Annual Meeting of Stockholders of CorVel
Corporation, will be held at the Company's offices, 600 City Parkway West, Suite
200, Orange, California, on Thursday, August 1, 1996, at 9:00 a.m. Pacific Time
for the following purposes:
1. To elect five (5) directors to serve until the 1997 Annual Meeting;
2. To approve amendments to the Company's Restated 1988 Executive Stock
Option Plan (the "Option Plan") to (a) increase by 200,000 the number
of shares of Common Stock which may be granted under the Option Plan
from 1,335,000 to 1,535,000 shares and (b) to extend the expiration
date of the Option Plan from August 1, 1998 to June 30, 2006;
3. To approve the appointment of Ernst & Young LLP as independent auditors
of the Company for fiscal 1997; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The close of business on June 14, 1996 has been fixed as the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting and any adjournment thereof. Only stockholders of record at such time
will be so entitled to vote.
You are cordially invited to attend the Annual Meeting in person. Even if you
plan to attend the Annual Meeting, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD in the enclosed, self-addressed, postage pre-paid
envelope. It will assist us in keeping down the expenses of the Annual Meeting
if all stockholders return their signed proxies promptly, whether they own a few
shares or many shares.
A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK MUST BE REPRESENTED AT THE
ANNUAL MEETING IN ORDER TO CONSTITUTE A QUORUM. PLEASE RETURN YOUR PROXY CARD IN
ORDER TO ENSURE THAT A QUORUM IS OBTAINED AND TO AVOID THE ADDITIONAL COST TO
THE COMPANY OF ADJOURNING THE ANNUAL MEETING AND RESOLICITING PROXIES.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors,
RICHARD J. SCHWEPPE
Secretary
Irvine, California
July 1, 1996
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CORVEL CORPORATION
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card are furnished in
connection with the 1996 Annual Meeting of Stockholders (the "Annual Meeting")
of CorVel Corporation (the "Company") which will be held at the Company's
offices located at 600 City Parkway West, Suite 200, Orange, California, on
Thursday, August 1, 1996, at 9:00 a.m. Pacific Time. Stockholders of record at
the close of business on June 14, 1996, are entitled to notice of and to vote at
the Annual Meeting and any adjournment thereof.
On June 14, 1996, there were 4,645,996 shares of Common Stock, $.0001 par
value per share (the "Common Stock") outstanding. Each share of Common Stock is
entitled to one vote on all matters brought before the Annual Meeting.
A majority of the outstanding shares of Common Stock entitled to vote at
the Annual Meeting will constitute a quorum. The Company's inspector of
elections for the Annual Meeting will count abstentions and so-called "broker
non-votes" (i.e., shares held by a broker or other nominee having discretionary
power to vote on some matters but not others) for purposes of determining
whether a quorum exists for the transaction of business at the Annual Meeting.
Abstentions are also counted in tabulating the total number of votes cast on
matters voted on by the stockholders at the Annual Meeting. Broker non-votes are
not counted for purposes of determining either the number of votes cast on any
matter voted on by the stockholders or whether such matter has been approved.
The enclosed proxy is being solicited by the Company's Board of Directors
and is revocable at any time prior to its exercise. A proxy may be revoked by
delivery of a written revocation to the Secretary of the Company, by
presentation of a subsequent proxy, properly signed, or by attendance at the
Annual Meeting and voting in person.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report for the fiscal year ended March 31, 1996, are scheduled to be mailed
commencing on or about July 1, 1996 to stockholders of record on June 14, 1996.
The principal executive offices of the Company are located at 1920 Main
Street, Suite 1090, Irvine, California 92614.
PROPOSAL 1
ELECTION OF DIRECTORS
A Board of five directors is to be elected at the Annual Meeting. The
Company's Certificate of Incorporation provides that each director will serve
for a term ending on the date of the Company's next annual meeting. The
foregoing notwithstanding, directors will serve until their successors have been
duly elected and qualified or until they resign, become disqualified or
disabled, or are otherwise removed.
The enclosed proxy will be voted, unless authority is withheld or the
proxy is revoked, only for the election of each of the nominees for election
named below to hold office until the date of the Company's 1997 Annual Meeting
of Stockholders or until his successor has been duly elected and qualified or
until he resigns, becomes disqualified or disabled, or is otherwise removed.
Each such nominee is currently serving as a director and has indicated his
willingness to continue to serve as a director if elected. In the unanticipated
event that any such nominee becomes unable or declines to serve at the time of
the Annual Meeting, the proxies will be voted for a substitute person nominated
by the Board of Directors.
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DIRECTORS AND NOMINEES
The names and certain information about the nominees for director are
set forth below:
NAME AGE POSITION
---- --- --------
Thomas R. Brown(1)(2) 58 Director
V. Gordon Clemons 52 Chairman of the Board, Chief
Executive Officer and President
Peter E. Flynn (1) 36 Director
Steven J. Hamerslag(1)(2) 40 Director
Jeffrey J. Michael (2) 39 Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Brown has served as a director of the Company since May 1991. Mr.
Brown has been the Chairman of the Board and Chief Executive Officer of
California Casualty Management Company, a property and casualty insurer, and
Chairman of the Board of California Casualty Indemnity Exchange since May 1978.
From May 1978 until September 1995, Mr. Brown served as Chairman of the Board of
California Casualty Insurance Group, California Casualty Insurance Co.,
California Casualty & Fire Insurance Co., California Casualty General Insurance
Co. and California Casualty Compensation Insurance Co. Mr. Brown also served as
a director and Vice President of California Casualty & Life Insurance Company
from May 1978 to September 1995. Mr. Brown has served as a director of Pillar
Point Capital Management, Incorporated, an investment company, since July 1993
and as a director of Calco Insurance Brokers & Agents, Inc. since 1994.
Mr. Clemons joined the Company as President and Chief Executive Officer
in January 1988 and became Chairman of the Board in April 1991. Mr. Clemons was
President of Caremark, Inc. the then-largest home intravenous therapy company in
the United States, from May 1985 to September 1987, at which time the company
was purchased by Baxter International, Inc. From 1981 to 1985, Mr. Clemons was
President of INTRACORP, a subsidiary of CIGNA Corporation and the largest
managed care provider to the workers compensation market in the United States.
Mr. Clemons has 21 years of experience in the health care and insurance
industries. Mr. Clemons has served on the board of Omnicell Technologies, Inc.,
a provider of hospital supply and pharmaceutical systems, since December 1995
and Oacis Healthcare Systems, Inc., a company that sells community health
information systems and database repositories, since March 1996.
Mr. Flynn has served as a director of the Company since May 1991. Mr.
Flynn has been the Executive Vice President, Chief Financial Officer and
Secretary of North Star Universal, Inc. ("North Star") since December 1990. In
December 1992, Mr. Flynn also became the President and Chief Operating Officer
of Transition Engineering, Inc. an indirect, wholly-owned subsidiary of North
Star. From April 1989 to December 1990 Mr. Flynn was the Treasurer of North
Star. Mr. Flynn has been a director of North Star since July 1991.
Mr. Hamerslag has served as a director of the Company since May 1991. Mr.
Hamerslag has been the Vice-Chairman of MTI Technology Corporation, a
manufacturer of computer peripherals and network management software, since
April 1996. From 1987 to April 1996 Mr. Hamerslag was the President and Chief
Executive Officer of MTI.
Mr. Michael has served as a director of the Company since September 1990.
Mr. Michael has been the President and Chief Executive Officer of North Star
since December 1990. From April 1989 to December 1990 Mr. Michael was the Vice
President-Finance of North Star. Mr. Michael has been a director of North Star
since May 1987, a director of Michael Foods, Inc., a food processing and
distribution company affiliated with North Star, since April 1990, and a
director of Michael-Curry Companies, Inc. since 1993.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present or represented at the Annual Meeting is required
for approval of the election of each of the nominees as a director of the
Company.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED
ABOVE OR HIS SUBSTITUTE AS DESCRIBED ABOVE.
BOARD MEETINGS AND COMMITTEES
During fiscal 1996, the Board of Directors held four meetings. Each of
the nominees for election at the Annual Meeting attended at least 75% of the
meetings of the Board of Directors and the committees of the Board of Directors
of which they are members.
The Committees of the Board of Directors include the Audit Committee and
the Compensation Committee. The Board of Directors does not have a nominating
committee.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing the Company's
accounting practices and system of internal accounting controls. The Audit
Committee currently consists of Messrs. Brown, Flynn and Hamerslag. The Audit
Committee met once during fiscal 1996.
The Compensation Committee is responsible for recommending and reviewing
the compensation, including perquisites, of the Company's employees and for
administering the Company's employee stock option and stock purchase plans. The
Compensation Committee consists of Messrs. Brown, Hamerslag and Michael. The
Compensation Committee met four times during fiscal 1996.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director an amount equal to $1,250
plus travel expenses for each Board meeting attended. The directors do not
receive fees for telephonic meetings.
Each individual who first becomes a non-employee member of the Board of
Directors at any time on or after August 5, 1993 and who has not previously been
in the employ of the Company, will receive an automatic option grant for 5,000
shares of Common Stock under the Company's Restated 1988 Executive Stock Option
Plan, as amended (the "Option Plan"). In addition, each non-employee director
who is to continue to serve as a non-employee Board member after the date of
each Annual Meeting of Stockholders will be granted at that meeting, whether or
not such individual is standing for re-election as a Board member and whether or
not such individual has been in the prior employ of the Company, an option to
purchase 1,500 shares of Common Stock, provided such individual has been a
member of the Board for at least six months. Accordingly, as a non-employee
director who was re-elected at the 1995 Annual Meeting each of Messrs. Brown,
Flynn, Hamerslag, and Michael received an option to purchase 1,500 shares of
Common Stock on August 3, 1995 (the date of the 1995 Annual meeting) with an
exercise price of $25.50 (the fair market value of the Common Stock on such
date). In addition, each of Messrs. Brown, Flynn, Hamerslag and Michael will be
granted an automatic option to purchase an additional 1,500 shares of Common
Stock on the date of the 1996 Annual Meeting at an exercise price equal to the
fair market value of the stock on such date, provided such individual is
re-elected as a director at the time of the Meeting. See Proposal 2 for a
description of the automatic option grant program.
PROPOSAL 2
AMENDMENTS TO RESTATED 1988 EXECUTIVE STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve
amendments to the Company's Restated 1988 Executive Stock Option Plan (the
"Option Plan") in order to (i) increase by 200,000 the number of shares of
Common Stock available for issuance under the Option Plan from 1,335,000 to
1,535,000 shares, and (ii) extend the expiration date of the Option Plan from
August 1, 1998 to June 30, 2006. The Board of Directors approved the amendments
on June 21, 1996, subject to stockholder approval at the 1996 Annual Meeting.
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The Board of Directors believes it necessary to increase the number of
shares available for issuance under the Option Plan and extend the term of the
Option Plan in order to allow the Company to continue to use equity incentives
to attract and retain the services of key individuals essential to the Company's
long-term success.
The Option Plan was adopted by the Board on August 1, 1988 and approved
by the Company's sole stockholder on the same date. It was subsequently amended
and restated on several occasions. Each amendment was subsequently approved by
the Company's stockholders.
The following is a summary of the principal features of the Option Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Option Plan. Any stockholder who wishes to obtain a copy of
the actual plan document may do so by written request to the Corporate Secretary
at the Company's executive offices in Irvine, California.
STRUCTURE OF THE OPTION PLAN
The Option Plan is divided into two separate components: the
Discretionary Option Grant Program and the Automatic Option Grant Program. Under
the Discretionary Option Grant Program, options may be issued to key employees
(including officers and directors), consultants and independent contractors of
the Company (or its parent or subsidiary companies) who contribute to the
management, growth and financial success of the Company (or its parent or
subsidiary companies). Under the Automatic Option Grant Program, option grants
will automatically be made to non-employee members of the Company's Board of
Directors (the "Board") at periodic intervals.
The Discretionary Option Grant Program is administered by the Company's
Compensation Committee (the "Committee"). The Committee has complete discretion
(subject to the provisions of the Option Plan) to authorize option grants under
the Option Plan.
Administration of the Automatic Option Grant Program is self-executing in
accordance with the terms of the Option Plan. The Committee has no discretionary
authority with respect to that program.
As of June 1, 1996, approximately 117 employees (including 4 executive
officers) were eligible to participate in the Discretionary Option Grant
Program. All of the 4 non-employee Board members are eligible to participate in
the Automatic Option Grant Program.
SHARES SUBJECT TO OPTION PLAN
Assuming stockholder approval of this Proposal 2, the total number of
shares of Common Stock issuable over the term of the Option Plan may not exceed
1,535,000 shares. However, not more than 614,807 shares of Common Stock may be
issued after June 1, 1996. Such shares will be made available either from
authorized but unissued Common Stock or from Common Stock reacquired by the
Company.
In no event may any one individual participating in the Option Plan be
granted stock options or separately-exercisable stock appreciation rights for
more than 800,000 shares of Common Stock in the aggregate over the term of the
Option Plan. For purposes of such limitation, any stock options or stock
appreciation rights granted prior to January 1, 1994 will not be taken into
account.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the Option Plan and to each outstanding option.
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OPTIONS GRANTED
The table below shows, as to the Company's Chief Executive Officer and
each of the other executive officers named in the Summary Compensation Table
under "Executive Compensation and Related Information" below and the other
indicated persons and groups, the number of shares of Common Stock subject to
options granted under the Option Plan during the period from April 1, 1995 to
June 1, 1996.
NAME AND POSITION NUMBER OF OPTION
----------------- SHARES GRANTED WEIGHTED AVERAGE
4/1/95 - 6/1/96 EXERCISE PRICE
V. Gordon Clemons, Chairman of the Board,
Chief Executive Officer & President -0- $0.0
Daniel H. Davis,
V.P. Marketing & New Business Development 11,000 $26.994
Richard J. Schweppe,
Chief Financial Officer 3,300 $26.72
Louis E. Silverman,
V.P. Operations 10,000 $27.525
Thomas R. Brown,
Director 1,500 $25.50
Peter E. Flynn,
Director 1,500 $25.50
Steven J. Hamerslag,
Director 1,500 $25.50
Jeffrey J. Michael,
Director 1,500 $25.50
All current executive officers as a group
(4 persons) 24,300 $27.175
All current directors (other than
executive officers) as a group (4 persons) 6,000 $25.50
All other employees, including current officers
who are not executive officers, as a group 84,550 $26.619
(117 persons)
NEW PLAN BENEFITS
No options will be granted prior to the Annual Meeting on the basis of
the 200,000-share increase to the Option Plan. However, on the date of the
Annual Meeting each of Messrs. Brown, Flynn, Hamerslag and Michael, if
re-elected at the Annual Meeting, will receive an additional grant of 1,500
shares of Common Stock under the Automatic Option Grant Program at an exercise
price equal to the fair market value on such date.
PRICE AND EXERCISABILITY
The exercise price per share for options issued under the Discretionary
Option Grant Program may not be less than 85% of the fair market value of the
Company's Common Stock on the grant date and no option may be outstanding for
more than a ten (10)-year term.
The Committee may assist any optionee (including an officer) in the
exercise of outstanding options under the Option Plan by (a) authorizing a loan
(with or without security or collateral) from the Company, (b) permitting the
optionee to pay the exercise price in installments over a period of years or (c)
authorizing a guarantee by the Company of a third-party loan to the optionee.
The terms and conditions of any such loan or installment payment will be
established by the Committee in its sole discretion, but in no event may the
maximum credit extended to the optionee exceed the aggregate exercise price
payable for the purchased shares (less the par value), plus any Federal and
state income or employment taxes incurred in connection with the purchase.
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VALUATION
For purposes of establishing the option exercise price and for all other
valuation purposes under the Option Plan, the fair market value per share of
Common Stock on any relevant date will be the closing selling price per share on
such date, as quoted on the Nasdaq National Market. If there is no reported
selling price for such date, then the closing selling price for the last
previous date for which such quotation exists will be determinative of fair
market value. The closing selling price of the Common Stock on May 31, 1996 was
$33.00 per share.
TERMINATION OF SERVICE
All options granted under the Discretionary Option Grant Program must
be exercised within twelve (12) months (or such shorter period as the Committee
may establish at the time of grant) after the optionee ceases for any reason to
be in the employ or service of the Company or its parent or subsidiary
corporations. In the event of the optionee's death, the option may be exercised
within twelve (12) months of the optionee's death by the personal representative
of the optionee's estate or by the person inheriting the option. The Committee
will, however, have complete discretion to extend the period of time for which
any option granted under the Discretionary Option Grant Program is to remain
exercisable following the optionee's cessation of employment or service, but
under no circumstances may an option be exercised after the specified expiration
date of the option term.
Each option granted under the Discretionary Option Grant Program will be
exercisable only to the extent of the number of shares for which such option is
exercisable at the time of the optionee's cessation of employment or service,
unless the Committee determines at such time to accelerate the exercisability of
the option in whole or in part.
ACCELERATION OF OPTIONS
In the event of an acquisition of the Company by merger or asset sale
("Corporate Transactions"), each option outstanding under the Discretionary
Option Grant Program at the time will automatically become exercisable as to all
of the option shares immediately prior to the effective date of the Corporate
Transaction. However, no acceleration will occur if and to the extent: (i) such
option is either to be assumed by the successor corporation or parent thereof or
replaced by a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (ii) such option is to be replaced with
a cash incentive program of the successor corporation designed to preserve the
option spread existing at the time of the Corporate Transaction and
incorporating the same vesting schedule applicable to the option or (iii)
acceleration of such option is subject to other applicable limitations imposed
by the Committee at the time of grant. Upon the consummation of any Corporate
Transaction, all outstanding options will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be outstanding.
The Committee will have the discretion, exercisable at any time, to
provide for the automatic acceleration of one or more assumed or replaced
options which are not otherwise accelerated in connection with the Corporate
Transaction, or to provide for automatic vesting of the optionee's interest in
any cash incentive program implemented in replacement of his or her options
under the Discretionary Option Grant Program, should the optionee's employment
with the successor entity terminate within a designated period following the
Corporate Transaction.
The acceleration of options in the event of a Corporate Transaction may
be seen as an anti-take-over provision and may have the effect of discouraging a
merger proposal, a take-over attempt or other efforts to gain control of the
Company.
STOCK APPRECIATION RIGHTS
At the Committee's discretion, options granted under the Discretionary
Option Grant Program may be granted with stock appreciation rights. Two types of
stock appreciation rights are authorized for issuance: (i) tandem rights which
require the option holder to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of such option for an appreciation
distribution and (ii) limited rights which are automatically exercised upon the
occurrence of a Hostile Take-Over.
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Tandem stock appreciation rights provide the holders with the right to
surrender their option for an appreciation distribution from the Company equal
in amount to the excess of (i) the fair market value (on the date of exercise)
of the shares of Common Stock in which the optionee is at the time vested under
the surrendered option over (ii) the aggregate exercise price payable for such
shares. Such appreciation distribution may, at the Committee's discretion, be
made in shares of Common Stock valued at fair market value on the date of
exercise, in cash or in a combination of cash and Common Stock.
One or more officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, in the Committee's discretion,
be granted a limited stock appreciation right as part of any stock option grant
made to such officers. Any option with such a limited stock appreciation right
in effect for at least six (6) months will automatically be canceled upon the
occurrence of a Hostile Take-Over, to the extent the option is at such time
exercisable for vested shares. In return, the optionee will be entitled to a
cash distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock in which the optionee is vested
under the canceled option (or canceled portion) over (ii) the aggregate exercise
price payable for such shares.
For purposes of such option cancellation provisions, the following
definitions are in effect under the Option Plan:
HOSTILE TAKE-OVER: The acquisition by any person or related group of
persons (other than the Company or its affiliates) of securities possessing more
than 50% of the combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to accept,
provided more than 50% of the securities so acquired in such tender or exchange
offer are obtained from holders other than the officers and directors of the
Company subject to the short-swing profit restrictions of the Federal securities
laws.
TAKE-OVER PRICE: The greater of (A) the fair market value of the shares
subject to the canceled option, measured on the cancellation date in accordance
with the valuation provisions of the Option Plan, or (B) the highest reported
price per share paid by the acquiring entity in effecting the Hostile Take-Over.
Outstanding options granted to executive officers under the Option Plan
prior to June 15, 1992 provide such individuals with a different form of limited
stock appreciation right. This latter right will provide the holder, if he or
she is an officer at the time a hostile tender offer for 50% or more of the
Company's outstanding voting securities is successfully completed, with a thirty
(30)-day period in which to surrender the underlying stock option in return for
a cash distribution from the Company equal to the excess of the Take-Over Price
of the shares subject to the surrendered option over the exercise price payable
for such shares.
SPECIAL TAX WITHHOLDING ELECTION
The Committee may, in its discretion and upon such terms and conditions
as it may deem appropriate, provide one or more participants in the
Discretionary Option Grant Program with the election to have the Company
withhold, from the shares of Common Stock purchased under the Option Plan upon
the exercise of non-statutory options, that number of shares with an aggregate
fair market value equal to the designated percentage (any multiple of 5% as
specified by the participant) of the Federal and state income tax liability
incurred by the optionee in connection with the acquisition of such shares. Any
election so made will be subject to the approval of the Committee and no shares
will be accepted in satisfaction of such tax liability except to the extent the
Committee approves the election. One or more participants in the Discretionary
Option Grant Program may also be granted the alternative right, subject to
Committee approval, to deliver previously issued shares of Common Stock in
satisfaction of such tax liability. The withheld delivered shares will be valued
at fair market value on the determination date for the tax liability applicable
to the shares acquired under the Option Plan.
CANCELLATION AND NEW GRANT OF OPTIONS
The Committee has the authority to effect, at any time and from time to
time, with the consent of the affected optionees, the cancellation of any or all
options outstanding under the Discretionary Option Grant Program and to grant in
substitution therefor new options covering the same or a different number of
shares of Common Stock but having an exercise price per share not less than 85%
of the fair market value per share of the Company's Common Stock on the new
grant date, in the case of a grant of a non-statutory option and 100% of such
fair market value in the case of the grant of an Incentive Option. It is
anticipated that the exercise price in effect under the new grant will in all
instances be less than the exercise price in effect under the terminated
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option.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member on or after the date of the 1993 Annual
Meeting, whether through election by the Company's stockholders or appointment
by the Board, will receive, at the time of such initial election or appointment,
an automatic option grant for 5,000 shares of Common Stock, provided such
individual has not been in the prior employ of the Company. In addition, each
individual who continues to serve as a non-employee Board member after one or
more annual stockholder meetings, commencing with the 1993 Annual Meeting,
including individuals who joined the Board prior to such time, will
automatically be granted at each such stockholder meeting, whether or not he or
she has been in the prior employ of the Company, a stock option to purchase
1,500 shares of Common Stock. However, an individual will be eligible to receive
such an annual grant only if he or she has served as a non-employee Board member
for at least six (6) months prior to the date of such stockholder meeting. There
will be no limit on the number of such 1,500-share options any one non-employee
Board member may receive over his or her period of Board service.
Each option granted under the Automatic Option Grant Program will have an
exercise price per share equal to 100% of the fair market value of the option
shares on the automatic grant date and a maximum term of ten (10) years measured
from the grant date. Each automatic grant will become exercisable in a series of
four (4) equal and successive annual installments over the optionee's period of
Board service, with the first such installment to become exercisable twelve (12)
months after the automatic grant date.
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability or upon certain changes in the
ownership or control of the Company. In addition, upon the successful completion
of a Hostile Take-Over (as defined above), each automatic option grant which has
been outstanding for at least six months may be surrendered to the Company for a
cash distribution per surrendered option share in an amount equal to the excess
of (a) the Take-Over Price per share over (b) the exercise price payable for
such share.
AMENDMENT AND TERMINATION OF OPTION PLAN
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval.
The Board may terminate the Option Plan at any time, but the Option Plan
will in all events terminate on June 30, 2006 assuming approval of this Proposal
2 or (if earlier) on the date all shares available for issuance under the Option
Plan are issued or canceled pursuant to the exercise or surrender of options
granted under the Option Plan. Any options outstanding at the time of
termination of the Option Plan will remain in force in accordance with the
provisions of the instruments evidencing such grants.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either Incentive Options
which satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-statutory options which do not satisfy
such requirements. The Federal income tax treatment for the two types of options
differs as follows:
(i) Incentive Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. However, the difference between
the fair market value of the purchased shares at the time of exercise and the
exercise price is generally included as alternative minimum taxable income for
purposes of the alternative minimum tax. The optionee will recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
For Federal tax purposes, dispositions are divided into two categories:
(A) qualifying and (B) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.
8
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Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (A) the amount
realized upon the sale or other disposition less (B) the exercise price paid for
the shares. If there is a disqualifying disposition of the shares, then the
excess of (A) the fair market value of those shares at the date of exercise less
(B) the exercise price paid therefor will be taxable as ordinary income. Any
additional gain recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the amount by which the fair
market value of such shares on the date the options is exercised exceeds the
exercise price. In no other instance will the Company be allowed a deduction
with respect to the optionee's disposition of the purchased shares.
(ii) Non-Statutory Options. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income in the year in which the option is exercised equal to
(A) the excess of the fair market value of the purchased shares at the date of
exercise over (B) the exercise price, and the optionee will be required to
satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the event
of the optionee's termination of employment or service prior to vesting, the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the difference between (1) the fair market value of
the shares on the date the Company's repurchase right lapses and (2) the
exercise price paid for the shares. The optionee may, however, elect under
Section 83(b) of the Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the difference between (1) the
fair market value of the purchased shares on the date of exercise (determined as
if the shares were not subject to the Company's repurchase right) and (2) the
exercise price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the Company's
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the employer corporation in which ordinary income is recognized
by the optionee in connection with the exercise of the options.
ACCOUNTING TREATMENT
The grant of stock options with an exercise price equal to the fair market
value of the option shares on the grant date will not result in any compensation
expense to the Company, but the Company must disclose, in pro-forma statements
to the Company's financial statements, the impact those options would have upon
the Company's reported earnings were the value of those options at the time of
grant treated as compensation expense. To the extent the option exercise price
is less than the fair market value, a compensation expense will arise which will
have to be amortized against the Company's earnings over the vesting period in
effect for the option grant. Outstanding options will in all events be taken
into account in the calculation of earnings per share on a fully diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares present or represented at
the Annual Meeting and entitled to vote on Proposal 2 is required for approval
of the amendments to the Option Plan. If stockholder approval of the amendments
to the Option Plan is not obtained, the Option Plan will terminate once the
balance of the share reserve as last approved by the stockholders has been
issued pursuant to outstanding option grants under the Option Plan, or if
earlier, August 1, 1998.
9
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THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENTS TO THE OPTION PLAN ARE
NECESSARY IN ORDER TO ASSURE THAT THE COMPANY WILL CONTINUE TO HAVE A SUFFICIENT
SHARE RESERVE FOR AN EXTENDED PERIOD OF TIME TO CONTINUE TO PROVIDE EQUITY
INCENTIVES TO ATTRACT AND RETAIN THE SERVICES OF KEY EMPLOYEES, CONSULTANTS AND
NON-EMPLOYEE BOARD MEMBERS. FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR PROPOSAL 2.
PROPOSAL 3
SELECTION OF AUDITORS
The accounting firm of Ernst & Young LLP served as the independent auditors
for the Company for the fiscal year ended March 31, 1996. Subject to stockholder
approval at the Annual Meeting, the Board of Directors has selected Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending March
31, 1997. The affirmative vote of a majority of the shares of the Company's
voting stock represented and voted at the Annual Meeting is required for
approval of the appointment of Ernst & Young LLP as the Company's independent
auditors.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make statements and will be
available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Annual Meeting. If any other matter is properly presented for consideration at
the Annual Meeting, it is intended that the proxies will be voted by the persons
named therein in accordance with their judgment on such matters.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company as
of May 31, 1996 with respect to beneficial ownership of the Company's Common
Stock by (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each director and nominee for director, (iii) the Chief Executive
Officer and each other Named Executive Officer of CorVel (as such term is
defined below under the caption "Summary of Cash and Certain Other
Compensation"), and (iv) all current directors and executive officers as a
group, together with the approximate percentages of outstanding Common Stock
owned by each of them. The following table is based upon information supplied by
directors, executive officers and principal stockholders, and Schedule 13Gs
filed with the Securities and Exchange Commission. Except as otherwise noted,
the persons named in the following table have sole voting and investment power
with respect to all shares shown as beneficially owned by them, subject to
community property laws where applicable.
NAME AND ADDRESS OF AMOUNT OF COMMON PERCENTAGE OF COMMON
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED (1)
---------------- ------------------------ ----------------------------
NORTH STAR UNIVERSAL, INC. 1,236,671 (2) 26.62%
Jeffrey J. Michael
5353 Wayzata Blvd.
Minneapolis, MN 55416
GEOCAPITAL CORPORATION 406,800 (3) 8.76%
Irwin Lieber
767 Fifth Avenue
New York, NY 10153
V. GORDON CLEMONS 394,742 (4) 8.39%
1920 Main Street, Suite 1090
Irvine, CA 92614
MELLON BANK CORPORATION 394,000 (5) 8.48%
MELLON BANK, N.A.
THE DREYFUS CORPORATION
One Mellon Bank Center
Pittsburgh, PA 15258
WASATCH ADVISORS, INC. 234,900 (6) 5.06%
68 South Main Street, Suite 400
Salt Lake City, UT 84101
DANIEL H. DAVIS 81,176 (7) 1.74%
1210 Northbrook Drive, Suite 410
Trevose, PA 19053
LOUIS E. SILVERMAN 24,271 (8) *
1920 Main St., Suite 1090
Irvine, CA 92614
PETER E. FLYNN 8,925 (9) *
5353 Wayzata Blvd.
Minneapolis, MN 55416
STEVEN J. HAMERSLAG 8,625 (10) *
4905 East LaPalma Avenue
Anaheim, CA 92807
THOMAS R. BROWN 7,125 (11) *
1900 Alameda de las Pulgas
San Mateo, CA 94403
All executive officers and directors 1,772,497 (12) 37.32%
as a group (8 individuals)
*Less than 1%
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(1) Applicable percentage ownership is based on 4,645,026 shares of Common
Stock outstanding as of May 31, 1996. Any securities not outstanding but which
are subject to options exercisable within 60 days of May 31, 1996, are deemed
outstanding for the purpose of computing the percentage of outstanding Common
Stock beneficially owned by any person holding such options but are not deemed
outstanding for the purpose of computing the percentage of Common Stock
beneficially owned by any other person.
(2) Includes 1,225,000 shares owned by North Star Universal, Inc. ("North
Star"), 10,546 shares owned directly by Mr. Michael, a director of North Star
and the Company and 1,125 shares subject to options held by Mr. Michael that are
exercisable within 60 days of May 31, 1996. Excludes 3,375 shares subject to
options held by Mr. Michael that are exercisable after July 31, 1996. Also
excludes (i) 300 shares owned indirectly by Mr. Flynn, a director of North Star
and the Company, as custodian for his minor children, (ii) 1,125 shares subject
to options held by Mr. Flynn that are exercisable within 60 days of May 31,
1996, and (iii) 3,375 options held by Mr. Flynn that are exercisable after July
31, 1996. Mr. Michael is the President and Chief Executive Officer and a
shareholder of North Star. In addition, Mr. Michael is the managing general
partner of the 3J2R Limited Partnership, a shareholder of North Star. Based on
the foregoing, Mr. Michael may be deemed to share beneficial ownership of the
shares of the Company's Common Stock held by North Star. Mr. Michael disclaims
such beneficial ownership except to the extent of any indirect pecuniary
interest therein. North Star's common and voting preferred stock are traded on
the over-the-counter market under the symbol NSRU. North Star files periodic
reports, proxy statements and other information with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, relating to
its business, financial condition and other matters. Also excludes 3,000 shares
issuable upon the exercise of options to be granted to Messrs. Michael and Flynn
at the Annual Meeting (provided they are re-elected) as non-employee directors
of the Company under the Automatic Option Grant Program.
(3) Includes 1,000 shares owned directly by Mr. Irwin Lieber, a principal
stockholder of GeoCapital Corporation ("GeoCapital"). According to the Schedule
13G of GeoCapital dated February 15, 1996, GeoCapital is an Investment Advisor
registered under Section 203 of the Investment Advisors Act of 1940 and shares
investment power, along with its clients, with respect to the shares. By reason
of his principal ownership interest in GeoCapital, Mr. Lieber may be deemed to
share beneficial ownership of the shares (excluding those he owns directly).
(4) Includes 333,742 shares owned by Mr. Clemons directly, 1,000 shares
owned indirectly by Mr. Clemons as custodian for his children, and 60,000 shares
subject to options that are currently exercisable with a nominal exercise price.
(5) According to the Schedule 13G of Mellon Bank Corporation, Mellon Bank,
N.A., and The Dreyfus Corporation dated January 24, 1996, these entities hold
all of these securities in their various fiduciary capacities. As such, these
entities have sole dispositive power with respect to some of the shares and
shared dispositive power with respect to the remaining shares. These entities
have sole voting power with respect to all of the shares.
(6) According to the Schedule 13G of Wasatch Advisors, Inc. ("Wasatch")
dated February 12, 1996, Wasatch is an Investment Advisor registered under
Section 203 of the Investment Advisors Act of 1940 with sole investment power
with respect to the shares.
(7) Includes 70,000 shares owned directly by Mr. Davis and 11,176 shares
subject to options that are exercisable within 60 days of May 31, 1996. Excludes
16,324 shares issuable upon exercise of options exercisable after July 31, 1996.
(8) Consists of 24,271 shares subject to options held by Mr. Silverman that
are exercisable within 60 days of May 31, 1996. Excludes 18,729 shares issuable
upon exercise of options exercisable after July 31, 1996.
(9) Includes 7,500 shares owned directly by Mr. Flynn, 300 shares owned
indirectly by Mr. Flynn as custodian for his children, and 1,125 shares subject
to options that are exercisable within 60 days of May 31, 1996. Excludes 3,375
shares issuable upon exercise of options exercisable after July 31, 1996. Also
excludes 1,500 shares issuable upon the exercise of options to be granted to Mr.
Flynn at the Annual Meeting (provided he is re-elected) as a non-employee
director of the Company under the Automatic Option Grant Program.
(10) Includes 7,500 shares owned directly by Mr. Hamerslag and 1,125 shares
subject to options that are exercisable within 60 days of May 31, 1996. Excludes
3,375 shares issuable upon exercise of options exercisable after July 31, 1996.
Also excludes 1,500 shares issuable upon the exercise of options to be granted
to Mr. Hamerslag at the Annual Meeting (provided he is re-elected) as a
non-employee director of the Company under the Automatic Option Grant Program.
12
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(11) Includes 6,000 shares owned directly by Mr. Brown and 1,125 shares
subject to options that are exercisable within 60 days of May 31, 1996. Excludes
3,375 shares issuable upon exercise of options exercisable after July 31, 1996.
Also excludes 1,500 shares issuable upon the exercise of options to be granted
to Mr. Brown at the Annual Meeting (provided he is re-elected) as a non-employee
director of the Company under the Automatic Option Grant Program.
(12) Includes 1,667,489 shares owned directly or indirectly and 105,008
shares subject to options exercisable within 60 days of May 31, 1996 held by
those officers and directors referenced above in footnotes 2, 4, 7, 8, 9, 10 and
11 and one additional officer not referenced above who is an executive officer
but not a Named Executive Officer. Excludes 54,542 shares issuable upon exercise
of options exercisable after July 31, 1996 held by all executive officers and
directors as a group.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act") requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and the National Association of Securities Dealers. Officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal year 1996,
all filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
---- --- --------
V. Gordon Clemons 52 Chairman of the Board, Chief Executive Officer and President
Daniel H. Davis 47 Vice President, Marketing and New Business Development
Richard J. Schweppe 41 Chief Financial Officer and Secretary
Louis E. Silverman 37 Vice President, Operations
- -------------------
Information regarding Mr. Clemons is included under the heading "Directors
and Nominees."
Mr. Davis has been the Vice President, Marketing and New Business
Development since April 1988. From October 1987 to April 1988, Mr. Davis was the
Senior Vice President, Sales and Employee Benefits Group for INTRACORP. From May
1983 to October 1987, he was the Senior Vice President, Marketing, for
INTRACORP. Mr. Davis has 25 years of experience in the health care and insurance
industries.
Mr. Schweppe has been the Chief Financial Officer since April 1991. From
March 1988 to April 1991, Mr. Schweppe was the Director of Finance for the
Company. From May 1983 to February 1988 Mr. Schweppe was the Manager, Technical
Accounting for Caremark, Inc.
Mr. Silverman became Vice President, Operations in June 1995. Mr. Silverman
was Vice President, Eastern and California Operations from April 1994 to May
1995. Mr. Silverman joined the Company in March 1993 as Vice President, Eastern
Operations. Prior to joining the Company, Mr. Silverman served as Vice President
of Corporate Development (1986-1990) and Vice President of California Operations
(1990-1993) of Office Specialists, a national temporary employment company. Mr.
Silverman has 12 years of experience in service sector general management,
including direct operating, acquisitions, and strategic planning
responsibilities.
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EXECUTIVE COMPENSATION AND RELATED INFORMATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION*
The Compensation Committee administers the Company's executive compensation
programs. After consideration of the Compensation Committee's recommendations,
the full Board of Directors reviews and approves the salaries of all elected
officers, including those of the executive officers named in the Summary
Compensation Table which follows this report. The Compensation Committee is
responsible for administering all other elements of executive compensation,
including annual incentive awards and stock option grants under the Company's
Option Plan for executive officers and other key employees.
GENERAL COMPENSATION GOALS
The design and implementation of all executive compensation arrangements
are based on certain goals derived from Company values, business strategy and
management requirements. These goals may be summarized as follows:
- Pay competitive salaries to attract, retain and motivate a highly
competent executive team essential to the long-term success of the
Company;
- Tie an individual's total compensation to individual and profit
center performance and the financial success of the Company;
- Reward executives for long-term corporate success by facilitating
their ability to acquire an ownership interest in the Company; and
- Align executives' financial interests with stockholder value.
FACTORS
Several of the more important factors which were considered in establishing
the components of each executive officer's compensation package for the 1996
fiscal year are summarized below. Additional factors were also taken into
account, and we may in our discretion apply entirely different factors,
particularly different measures of financial performance, in setting executive
compensation for future fiscal years. All compensation decisions will be
designed to further the general compensation goals indicated above.
BASE SALARIES. Base salaries are targeted to be moderate yet competitive in
relation to salaries commanded by those in similar positions with other
companies in the same industry. The base salary for each executive officer is
reviewed annually and is set on the basis of personal performance, the relative
importance of the functions the officer performs, the scope of the officer's
ongoing responsibilities, the salary levels in effect for comparable positions
with the Company's principal competitors, and internal equity considerations.
The weight given to each of these factors varies from individual to individual.
- ----------------------
*The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the 1993 Act or the 1934 Act.
14
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ANNUAL INCENTIVE AWARDS. Although the Company has a March 31 fiscal year
end, it has calendar year budgets and annual incentive plans which are based on
the calendar year. Annual bonuses are designed to reward personal contributions
to the success of the Company and are earned under a structured formula that
considers the following factors:
Company Profit Center Financial Performance
Each profit center of the Company submits a proposed annual operating
budget including annual profit goals for review of and approval by the Chief
Executive Officer of the Company in conjunction with ratification by the
Committee. At the end of the calendar year, the Compensation Committee evaluates
actual financial performance against these targets. The resulting performance
evaluation dictates whether an increase or decrease in an executive's "normal"
incentive compensation award is granted. For executive officers with operations
responsibilities, the annual incentive award can range from zero to 30% of base
salary depending upon performance as compared to budget. For executive officers
with corporate staff responsibilities, such awards are based upon departmental
objectives.
Individual Performance
Each executive's personal performance is measured against individual goals
("MBO's") established for that person on an annual basis. Leadership, planning,
management and innovation are considered in addition to goal achievement and the
weight assigned to each of these factors will vary from individual to
individual. The maximum amount that any executive may earn based on the MBO
element is 5% of base salary, with full achievement of MBO's resulting in a 75%
payout and increasing up to 100% payout for achievement exceeding established
MBO's. For executive officers with operations responsibilities, this element
comprises a lesser percentage of the annual incentive award for the individual
and for executive officers with corporate staff responsibilities, it comprises a
greater percentage of the annual incentive award.
Discretionary Awards
The Compensation Committee also has the discretion under
extraordinary circumstances to award bonuses based on a percentage of base
salary.
Incentive awards to the Chief Executive Officer and the other Named
Executive Officers are shown in the "Bonus" column of the Summary Compensation
Table, which follows this report.
STOCK OPTIONS. Stock option grants accomplish the third and fourth
compensation objectives: to motivate executive officers to manage the business,
to improve long-term Company performance and to align the interests of executive
officers with stockholder value. Customarily, option grants are made with
exercise prices equal to the fair market value of the shares on the grant date
and will be of no value unless the market price of the Company's outstanding
shares appreciates, thereby aligning a substantial part of the executive
officer's compensation package with the return realized by the stockholders. The
option generally vests over a period of four years, contingent upon the
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the officer
remains employed by the Company and the market price of the underlying shares
appreciates over the option term. The size of the option grant is designed to
create a meaningful opportunity for stock ownership and is based upon the
individual's current position with the Company, internal comparability with
option grants made to other Company executives and the individual's potential
for future responsibility and promotion over the option term. The Committee has
established certain general guidelines in making option grants to the executive
officers in an attempt to target a fixed number of unvested option shares based
upon the individual's position with the Company and the officer's existing
holdings of unvested options. However, the Committee does not adhere strictly to
these guidelines and will occasionally vary the size of the option grant made to
each executive officer as circumstances warrant.
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19
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The annual base salary for the Company's Chief Executive Officer, Mr.
Clemons, was established on January 26, 1988, when the Company and North Star
entered into an employment agreement with Mr. Clemons. The agreement became
effective on February 15, 1988 and has an indefinite term. The agreement
provides Mr. Clemons with an annual salary of $250,000, payable in semi-monthly
installments. Mr. Clemons may terminate the agreement at any time on four months
notice and the Company may terminate the agreement with or without cause. If Mr.
Clemons is terminated without cause, the Company is required to pay Mr. Clemons
his then-current salary for one year after such termination, less any other
employment compensation received by Mr. Clemons during such one year period.
TAX LIMITATION
As a result of federal tax legislation enacted in 1993, a publicly-held
company such as CorVel will not be allowed a federal income tax deduction for
compensation paid to certain executive officers, to the extent that compensation
exceeds $1.0 million per officer in any fiscal year beginning after December 31,
1993. In connection with this limitation, the stockholders approved an
amendments to the Option Plan at the 1994 Annual Meeting that limits the number
of shares of Common Stock for which any one participant may be granted stock
options or stock appreciation rights over the remaining term of the Option Plan.
In addition, compensation payable to the Chief Executive Officer under his
existing employment agreement may be entitled to the transitional relief
provisions of the new law and would not have to be taken into account for
purpose of the $1.0 million limitation. Because it is very unlikely that the
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer of the Company.
COMPENSATION COMMITTEE
Thomas R. Brown
Steven J. Hamerslag
Jeffrey J. Michael
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STOCK PERFORMANCE GRAPH*
The graph depicted below shows the Company's stock price at
June 28, 1991 (the effective date of the Company's initial public offering),
assuming an initial investment of $100 and at March 31, 1992, 1993, 1994, 1995
and 1996, the Standard and Poor's 500 index ("S&P 500") and the Nasdaq Health
Services Index over the same period. The data depicted on the graph are as set
forth in the chart below the graph.
During the prior three years the Company reported its stock
performance as compared to a self-determined peer group; however, because of
the ongoing changes in the members of the peer group due to acquisition, and the
limited number of publicly-traded peer companies performing comparable services,
the Company decided to use the broader-based health services index. Last year's
peer group consisted of Health Care COMPARE Corp., Health Risk Management, Inc.
Pharmacy Management Services, Inc., American Claims Evaluation, Inc., and GMIS,
Inc. Excluding Pharmacy Management Services, Inc. (which was the subject of an
acquisition), an initial investment of $100 in the peer group on June 28, 1991
would be $193.44 as of March 31, 1996.
[GRAPH]
June 28, 1991 March 31, 1992 March 31, 1993 March 31, 1994 March 31, 1995 March 31, 1996
CorVel
Corporation 100 170.00 135.00 230.00 283.00 350.00
S & P 500 100 108.76 121.69 120.10 134.91 173.91
Nasdaq 100 132.02 129.73 170.28 196.30 236.93
Health
Services Index
- ----------------------
*The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the 1993 Act or the 1934 Act.
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SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other executive officers whose total
cash salary and bonus for fiscal 1996 exceeded $100,000 (the "Named Executive
Officers") for the three fiscal years ended March 31, 1994, 1995 and 1996. No
other executive officer who would otherwise have been included in such table on
the basis of salary and bonus earned for the 1996 fiscal year resigned or
terminated employment during fiscal year 1996.
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
COMPENSATION COMPENSATION(2)
-----------------------------------
ANNUAL COMPENSATION SECURITIES
NAME OF INDIVIDUAL FISCAL --------------------- UNDERLYING
AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS(#)
- -------------------------------------------------------------------------------------------------------------------
V. GORDON CLEMONS 1996 $239,583 $ - - $ 600
Chief Executive Officer 1995 $239,583 $ - - $1,640
1994 $250,000 $ - - $2,792
DANIEL H. DAVIS 1996 $160,000 $30,000 4,000 $2,650
Vice President,
Marketing and New
Business Development 1995 $160,000 $50,000 7,500 $3,750
1994 $145,000 $50,000 9,000 $3,728
LOUIS E. SILVERMAN
Vice President
1996 $156,875 $50,000 3,000 $2,651
1995 $137,500 $56,841 5,000 $3,715
1994 $127,404 $32,933 10,000 $3,704
- -----------------------------
(1) Includes employee contributions to the Company's 401(k) Plan.
(2) "All Other Compensation" represents amounts contributed by the Company to
the Company's 401(k) Plan which match the Named Executive Officer's deferred
contribution to such Plan and annual premiums paid by the Company on behalf of
each Named Executive Officer for the purchase of group term life insurance in an
amount equal to such executive officer's annual salary as follows:
Fiscal Year 401(k) Company-paid
Contributions Life Insurance
Premiums
-------------------------------------------------------
V. Gordon Clemons 1996 $ 74 $392
1995 $ 479 $390
1994 $ 305 $396
Daniel H. Davis 1996 $ 192 $250
1995 $ 700 $250
1994 $1,455 $228
Louis E. Silverman 1996 $ 115 $251
1995 $ 700 $215
1994 $ 864 $204
18
22
STOCK OPTIONS
The following table provides information with respect to stock
option grants made during fiscal 1996 to the Named Executive Officers. No
options were granted during such fiscal year to the Chief Executive Officer.
Except for the limited stock appreciation rights described in footnote 1 below
the table, no stock appreciation rights were granted during such fiscal year to
the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS AVERAGE ANNUAL RATE OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION FOR OPTION TERM
OPTIONS GRANT EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME GRANTED (1) DATE FISCAL YEAR(2) ($/SHARE)(3) DATE 5%(4) 10%(4)
- ---- ----------- ---- -------------- ------------ ----- ----- -----
Daniel H. Davis 2,500 5/5/95 3.32% $22.25 5/4/00 $15,368.16 $33,959.62
1,500 7/5/95 1.99% $22.625 7/4/00 $ 9,376.31 $20,719.18
Louis E. Silverman 3,000 7/5/95 3.98% $22.625 7/4/00 $18,752.61 $41,438.37
- -------------------
(1) Each Option will become exercisable for 25% of the option shares one
year from the grant date and thereafter the remaining shares become
exercisable in 36 equal monthly installments. To the extent not already
exercisable, the options generally become exercisable upon a sale of
assets, a merger or consolidation pursuant to which either (i) the
Company does not survive or (ii) ownership of more than 50% of the
voting power of the Company's stock is transferred, unless the option
is assumed or replaced with a comparable option by the successor
corporation. The options are also subject to "limited stock
appreciation rights" pursuant to which the options, to the extent
exercisable and outstanding for at least six months at the time of
certain hostile tender offers in which more than 50% of the shares
acquired are acquired from parties other than directors and executive
officers of the Company, will automatically be canceled in return for a
cash payment to the optionee based upon the tender-offer price of the
Common Stock subject to that option. Each option has a maximum term of
five years, subject to earlier termination in the event of the
optionee's cessation of employment with the Company.
(2) The Company granted options to purchase a total of 75,300 shares of
Common Stock during fiscal 1996.
(3) The exercise price may be paid in cash, in shares of the Company's
Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the
purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares and the Federal and state income tax liability
incurred by the optionee in connection with such exercise. The Plan
Administrator has the discretionary authority to reprice outstanding
options under the Option Plan through the cancellation of those options
and the grants of replacement options with an exercise price equal to
the lower fair market value of the option shares on the regrant date.
(4) These gains are based on annual compounded rates of growth of stock
price mandated by the SEC of 5% and 10% per year from the date the
option was granted over the full option term. These rates do not
represent the Company's estimate or projection of future Common Stock
prices. There is no assurance that the values that may be realized by a
Named Executive Officer on exercise of his options or any other holder
of the Company's Common Stock will be at or near the value estimated in
the foregoing table.
19
23
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during the 1996 fiscal
year and unexercised options held as of the end of such fiscal year. No stock
appreciation rights were exercised during the 1996 fiscal year and except for
the limited stock appreciation rights described in footnote 1 to the table
above, no stock appreciation rights were outstanding at the end of such fiscal
year. Mr. Davis did not exercise any options during the 1996 fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------------------
NET VALUE OF UNEXERCISED IN-
NUMBER OF SECURITIES THE-MONEY OPTIONS AT FISCAL
UNDERLYING UNEXERCISED YEAR-END (MARKET PRICE OF
SHARES VALUE OPTIONS AT FISCAL YEAR-END SHARES AT FISCAL YEAR-END
NAME ACQUIRED REALIZED 1996 ($35.00) LESS EXERCISE PRICE)
ON (MARKET PRICE
- --------------------------------------------------------------------------------------------------------------------------------
EXERCISE AT EXERCISE LESS
(#) EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------------
V. GORDON CLEMONS 362,900 $10,105,000 60,000 0 $2,099,994 0
DANIEL H. DAVIS -- -- 18,698 11,802 $ 410,204 $175,783
LOUIS E. SILVERMAN 2,000 $ 43,250 20,604 15,396 $ 391,336 $223,040
- --------------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
On January 26, 1988, the Company and North Star entered into an
employment agreement with Mr. Clemons. The agreement became effective on
February 15, 1988 and has an indefinite term. The agreement provides Mr. Clemons
with an annual salary of $250,000, payable in semi-monthly installments. Mr.
Clemons may terminate the agreement at any time on four months notice and the
Company may terminate the agreement with or without cause. If Mr. Clemons is
terminated without cause, the Company is required to pay Mr. Clemons his then
current salary for one year after such termination, less any other employment
compensation received by Mr. Clemons during such one year period.
NONQUALIFIED STOCK OPTION AGREEMENT
Mr. Clemons, the Company and North Star entered into a Nonqualified
Stock Option Agreement on January 26, 1988 which was amended on August 31, 1988,
July 1, 1989, May 14, 1991 and May 16, 1991 (as amended, the "Option
Agreement"). The Option Agreement provided Mr. Clemons with the right to acquire
750,000 shares of the Company's Common Stock at $.0001 per share. Mr. Clemons
exercised this option pursuant to the Option Agreement for 150,000 shares
immediately following the completion of the Company's initial public offering in
July 1991, 25,000 shares in January 1992, 10,000 shares in May 1992, 100,000
shares in December 1992, 5,100 shares in December 1993, 10,000 shares in May
1994, 5,000 shares in November 1994, 12,000 shares in December 1994, 10,000
shares in March 1995, 200,000 shares in May 1995, 39,900 shares in November
1995, and 123,000 shares in January 1996. As of March 31, 1996, the entire
60,000 remaining shares covered by the Option Agreement were currently
exercisable.
CERTAIN TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Michael is a member of the Compensation Committee. Mr. Michael is
the President and Chief Executive Officer of North Star.
20
24
INDEMNIFICATION AGREEMENT
In connection with the Company's initial public offering of its Common
Stock, the Company agreed to indemnify North Star against certain liabilities in
connection with the offering, including liabilities under the 1933 Act.
REGISTRATION AGREEMENT
In January 1996, the Company and North Star entered into a Registration
Agreement pursuant to which the Company agreed, among other things, to register
350,000 shares (the "Shares") on Form S-3 under the 1933 Act. In addition, under
the terms of the Registration Agreement, each of the Company and North Star
agreed to indemnify and hold the other harmless against certain liabilities
under the 1933 Act that could arise in connection with the sale by North Star of
the Shares. North Star completed the sale of the Shares in January 1996.
EXECUTIVE OFFICER LOAN
In November 1995, Mr. Clemons, Chairman, Chief Executive Officer and
President of the Company exercised an option expiring January 2, 1996 to
purchase 39,900 shares of the Company's Common Stock under the Option Agreement
at an exercise price of $.0001 per share. Since the Company was able to
recognize a substantial tax deduction as a result of Mr. Clemons' option
exercise, the Company loaned Mr. Clemons an amount equal to $683,381.38 for the
sole purpose of enabling him to pay federal and state tax obligations associated
with the exercise of the option. The loan was evidenced by a full recourse
promissory note in the principal amount of $683,381.38 and was secured by the
shares received upon the exercise of the option. The loan bore interest at the
rate of 5.71% per annum and such interest was due and payable with the principal
balance on November 20, 1996. The principal balance of the loan plus all acrued
interest was paid in full on February 15, 1996. The largest aggregate amount
outstanding under the loan during the fiscal year ended March 31, 1996 was
$692,575.38.
ANNUAL REPORT AND STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
A copy of the Annual Report of the Company for the fiscal year ended
March 31, 1996 has been mailed concurrently with this Proxy Statement. The
Annual Report is not incorporated into this Proxy Statement, is not considered
"soliciting material", is not deemed filed with the SEC and is not incorporated
by reference in any filing of the Company under the 1933 Act or the 1934 Act.
A stockholder who intends to present a proposal at the Company's 1997
Annual Meeting of Stockholders must submit such proposal to the Company for
inclusion in the Company's 1997 Proxy Statement and proxy card relating to such
meeting not later than March 3, 1997. Stockholder proposals must be mailed to
the Company's principal office at 1920 Main Street, Suite 1090, Irvine,
California 92614, Attention: Secretary.
COSTS OF SOLICITATION
Proxies will be solicited by mail and by telephone by regular employees
of the Company without additional remuneration. The Company will request banks,
brokerage houses and other institutions to forward the soliciting material to
persons for whom they hold shares and to obtain authorization for the execution
of proxies. The Company will reimburse banks, brokerage houses and other
institutions for their reasonable expenses in forwarding the Company's proxy
materials to beneficial owners of the Common Stock. All costs associated with
the solicitation of proxies will be borne by the Company. Proxies in the
accompanying form which are properly executed, duly returned to the Company's
management and not subsequently revoked will be voted as specified thereon.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN A COPY OF THIS REPORT, WITHOUT
CHARGE, BY WRITING TO THE COMPANY'S SECRETARY.
21
25
CORVEL CORPORATION
RESTATED 1988 EXECUTIVE STOCK OPTION PLAN
PLAN AMENDMENT
The CorVel Corporation Restated 1988 Executive Stock Option Plan (the
"Plan") is hereby amended, effective June 21, 1996 as follows:
1. Section V.A. of Article One is hereby amended in its entirety to
read as follows:
A. The Common Stock issuable under the Plan shall be made available
either from authorized but unissued shares of Common Stock or from shares of
Common Stock reacquired by the Company on the open market. The aggregate number
of shares of Common Stock issuable over the term of this Plan shall not exceed
1,535,000(1) shares (subject to adjustment from time to time in accordance with
the provisions of Section V.C.).
2. Section V.D. of Article Four is hereby amended in its entirety to
read as follows:
D. The Plan shall in all events terminate upon the earlier of (i) June
30, 2006 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise or surrender
of stock options and/or stock appreciation rights under the Plan. If the date
of termination is determined under clause (i) above, then any stock options and
stock appreciation rights at the time outstanding under the Plan shall continue
to have force and effect in accordance with the provisions of the instruments
evidencing such grants.
3. Except as modified by this plan amendment, the terms and provisions
of the CorVel Corporation Restated 1988 Executive Stock Option Plan as in
effect on the date hereof shall continue in full force and effect.
- -----------------
(1) Includes the 200,000-share increase adopted by the Board on June
21, 1996, subject to stockholder approval at the 1996 Annual Meeting.
26
IN WITNESS WHEREOF, CorVel Corporation has caused this plan amendment
to be executed on its behalf by its duly-authorized officer effective as of June
21, 1996, subject to stockholder approval of the amendment at the 1996 Annual
Meeting of Stockholders.
CORVEL CORPORATION
By /s/ Gordon Clemons
--------------------------------------
V. Gordon Clemons
Title: Chairman of the Board,
Chief Executive Officer
and President
27
FORM OF PROXY
CORVEL CORPORATION
PROXY
ANNUAL MEETING OF STOCKHOLDERS, AUGUST 1, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held on August 1, 1996, and the
accompanying Proxy Statement and appoints V. Gordon Clemons and Jeffrey J.
Michael, or either of them, the proxy of the undersigned, with full power of
substitution, to vote all shares of the Common Stock of CorVel Corporation which
the undersigned is entitled to vote, either on his or her own behalf or on
behalf of an entity or entities, at the Annual Meeting of Stockholders of CorVel
Corporation to be held at 600 City Parkway West, Suite 200, Orange, California,
on Thursday, August 1, 1996 at 9:00 a.m. Pacific Daylight Time, and at any
adjournment or postponement thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this proxy shall be voted in the following manner:
1. To elect the following directors to serve for a term of one year.
Thomas R. Brown FOR / / WITHHOLDING AUTHORITY / /
V. Gordon Clemons FOR / / WITHHOLDING AUTHORITY / /
Peter E. Flynn FOR / / WITHHOLDING AUTHORITY / /
Steven J. Hamerslag FOR / / WITHHOLDING AUTHORITY / /
Jeffrey J. Michael FOR / / WITHHOLDING AUTHORITY / /
2. To approve amendments to the Company's Restated 1988 Executive Stock Option
Plan (the "Option Plan") to (a) increase the number of shares issuable over
the term of the Option Plan by 200,000 shares and (b) extend the expiration
date of the Option Plan from August 1, 1998 to June 30, 2006.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the appointment of Ernst & Young LLP as independent auditors of
the Company for fiscal 1997.
FOR / / AGAINST / / ABSTAIN / /
28
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS SET FORTH
ABOVE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ABOVE.
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED ABOVE AND FOR PROPOSALS 2 AND 3
IF NO SPECIFICATION IS MADE.
Dated:
---------------------------
---------------------------
(Print name(s) as it (they)
appear(s) on certificate)
---------------------------
(Authorized Signature(s))
Please print the name(s)
appearing on each share
certificate(s) over which
you have voting authority.
PLEASE RETURN YOUR EXECUTED PROXY TO U.S. STOCK TRANSFER CORPORATION
IN THE ENCLOSED SELF-ADDRESSED, POSTAGE PRE-PAID ENVELOPE.