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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-12
HealthExtras, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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|_| 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:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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May 11, 2001
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of HealthExtras, Inc. The meeting will be held at the Bethesda Marriott, 5151
Pooks Hill Road, Bethesda, Maryland 20814 on June 5, 2001 at 10:00 a.m., Eastern
Time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of
PricewaterhouseCoopers LLP, the Company's independent accountants, will be
present to respond to appropriate questions of stockholders.
It is important that your shares are represented at this meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card. If you attend the meeting, you may
vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ David T. Blair
David T. Blair
CHIEF EXECUTIVE OFFICER
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HEALTHEXTRAS, INC.
2273 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
(301) 548-2900
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of HealthExtras, Inc. ("Company") will
be held at the Bethesda Marriott, 5151 Pooks Hill Road, Bethesda, Maryland 20814
on June 5, 2001 at 10:00 a.m., Eastern Time, for the following purposes:
1. To elect three directors of the Company to terms expiring at the annual
meeting of stockholders in the year 2004 and until their successors are
elected and qualified;
2. To approve the HealthExtras, Inc. 2000 Stock Option Plan;
3. To approve the HealthExtras, Inc. 2000 Directors' Stock Option Program;
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending December 31, 2001;
and
5. To transact any other business that may properly come before the meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Stockholders of record at the close of business on April 25, 2001 are
entitled to receive notice of the annual meeting and to vote at the meeting and
any adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The proxy
will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael P. Donovan
Michael P. Donovan
CORPORATE SECRETARY
Rockville, Maryland
May 11, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
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PROXY STATEMENT
OF
HEALTHEXTRAS, INC.
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 5, 2001
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of HealthExtras, Inc. ("HealthExtras" or the
"Company") to be used at the annual meeting of stockholders of the Company. The
annual meeting will be held at the Bethesda Marriott, 5151 Pooks Hill Road,
Bethesda, Maryland 20814 on June 5, 2001 at 10:00 a.m., Eastern Time. This proxy
statement and the enclosed proxy card are first being mailed to stockholders on
or about May 11, 2001.
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VOTING AND PROXY PROCEDURE
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WHO CAN VOTE AT THE MEETING
You are entitled to vote your shares of HealthExtras common stock if the
records of the Company showed that you held your shares as of the close of
business on April 25, 2001. As of the close of business on that date, a total of
29,186,157 shares of HealthExtras common stock were outstanding. Each share of
common stock is entitled to one vote.
ATTENDING THE MEETING
If you are a beneficial owner of HealthExtras common stock held by a
broker, bank or other nominee (I.E., in "street name"), you will need proof of
ownership to be admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you want to vote
your shares of HealthExtras common stock held in street name in person at the
meeting, you will have to get a written proxy or vote authorization in your name
from the broker, bank or other nominee who holds your shares.
VOTE REQUIRED
A quorum consisting of a majority of the outstanding shares of common
stock entitled to vote is required to be represented at the meeting. If you
return valid proxy instructions or attend the meeting in person, your shares
will be counted for purposes of determining whether there is a quorum, even if
you abstain from voting. Broker non-votes also will be counted for purposes for
determining the existence of a quorum. A broker non-vote occurs when a broker,
bank or other nominee holding shares for a beneficial owner submits a proxy but
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received voting
instructions from the beneficial owner.
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In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
will be elected by a plurality of the votes cast for the election of directors.
This means that the nominees receiving the greatest number of votes will be
elected. Votes that are withheld and broker non-votes will have no effect on the
outcome of the election.
In voting on Proposal 2 regarding the HealthExtras 2000 Stock Option Plan,
Proposal 3 regarding the HealthExtras 2000 Directors' Stock Option Program and
Proposal 4 regarding the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants, you may vote in favor of
the proposal, vote against the proposal or abstain from voting. The 2000 Stock
Option Plan and the 2000 Directors' Stock Option Program each will be approved
by stockholders if a majority of the shares of common stock present or
represented by proxy at the annual meeting are voted in their favor. Abstentions
and broker non-votes will have the same effect as a vote against Proposal 2 and
Proposal 3. Ratification of the appointment of PricewaterhouseCoopers LLP
requires the affirmative vote of a majority of the votes cast on the matter.
Votes that are withheld and broker non-votes will have no effect on the outcome
of Proposal 4.
VOTING BY PROXY
This proxy statement is being sent to you on behalf of the Board of
Directors of HealthExtras for the purpose of requesting that you vote your
shares at the annual meeting. You can vote by executing the enclosed proxy card
to allow your shares to be represented and voted in accordance with your
instructions at the annual meeting by the persons named as proxies on the proxy
card. All shares of HealthExtras common stock represented at the meeting by
properly executed proxies will be voted in accordance with the instructions
indicated on the proxy card. If you sign and return a proxy card without giving
voting instructions, your shares will be voted as recommended by the Company's
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF ITS NOMINEES FOR
DIRECTOR, FOR APPROVAL OF THE HEALTHEXTRAS, INC. 2000 STOCK OPTION PLAN, FOR
APPROVAL OF THE HEALTHEXTRAS, INC. 2000 DIRECTORS' STOCK OPTION PROGRAM AND FOR
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. If the annual meeting
is postponed or adjourned, your HealthExtras common stock may be voted by the
persons named in the proxy card on the new meeting date as well, unless you have
revoked your proxy. The Company does not know of any other matters to be
presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Company in writing before your shares have been voted at the annual meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your HealthExtras common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet.
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PROPOSAL 1 -- ELECTION OF DIRECTORS
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The Company's Board of Directors consists of nine members and is divided
into three classes with three-year staggered terms. Approximately one-third of
the directors are elected each year. Accordingly, three directors will be
elected at the annual meeting to serve for three-year terms until the annual
meeting of stockholders in the year 2004 and until their respective successors
have been elected and qualified. The nominees by the Board of Directors for
election as directors at the annual meeting are William E. Brock, Edward S.
Civera and Karen E. Shaff. Senator Brock and Ms. Shaff currently are directors
of the Company in the class of directors to be reelected at the 2001 Annual
Meeting. Mr. Civera's term as Director currently is scheduled for reelection at
the 2003 Annual Meeting.
If any nominee is unable to serve, the persons named as proxies on the
proxy card would vote your shares to approve the election of any substitute
proposed by the Board of Directors. Alternatively, the Board of Directors may
adopt a resolution to reduce the size of the Board. At this time, the Board of
Directors knows of no reason why any nominee might be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
NOMINEES.
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth certain information with respect to the
directors and executive officers of the Company as of April 30, 2001.
DIRECTOR
NAME AGE POSITION SINCE
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NOMINEES FOR TERMS EXPIRING IN 2004
William E. Brock .......................... 70 Director 2000
Edward S. Civera .......................... 50 Director 2000
Karen E. Shaff(1) ......................... 46 Director 1999
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DIRECTOR
NAME AGE POSITION SINCE
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CONTINUING DIRECTORS WHOSE TERMS EXPIRE
IN 2002
David T. Blair(2) 31 Chief Executive Officer 1999
and Director
Thomas J. Graf(1) 52 Director 1999
Frederick H. Graefe, Esq. 57 Director 2000
CONTINUING DIRECTORS WHOSE TERMS EXPIRE
IN 2003
Bette B. Anderson 72 Director 2000
Thomas L. Blair(2) 56 Chairman of the Board 1999
Julia M. Lawler(1) 41 Director 1999
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(1) Ms. Lawler, Ms. Shaff and Mr. Graf may be considered nominees of Principal Mutual Holding Company.
(2) Thomas L. Blair is the father of David T. Blair.
NAME AGE POSITION
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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Marshall J. Coleman 44 Chief Marketing Officer
Michael P. Donovan 42 Chief Financial Officer
Kevin R. Mauk 37 Chief Operating Officer
BIOGRAPHICAL INFORMATION OF DIRECTORS
BETTE B. ANDERSON has served as Vice Chairman of Kelly, Anderson, Pethick
and Associates, management consultants, since 1995. She served as its President
from 1989 through 1995. Ms. Anderson has served on the Board of Directors for
ITT Corporation, ITT Educational Services, ITT Hartford Insurance and American
Banknote Corp. She is Chairman of the United States Treasury Historical
Association and the Advisory Council of the Girl Scouts of the United States of
America. Previously, Ms. Anderson served as Under Secretary of the United States
Department of the Treasury and prior to that, she was Senior Vice President in
charge of credit administration for the Citizens and Southern National Bank of
Savannah, Georgia.
THOMAS L. BLAIR is the founder of HealthExtras and its predecessors. Mr.
Blair served as Chairman and Chief Executive Officer or Co-Chief Executive
Officer of United Payors & United Providers, Inc. from January 1995 until its
acquisition by BCE Emergis, Inc. in March 2000. Subsequently, Mr. Blair has
served
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as a consultant to BCE Emergis. Mr. Blair founded America's Health Plan, Inc. in
1989 and served as its President and Chief Executive Officer from 1989 to 1992.
From 1992 to 1995, Mr. Blair was President of Initial Managers & Investors,
Inc., which business was contributed to United Payors & United Providers. From
1977 until 1988, Mr. Blair was a principal of Jurgovan & Blair, Inc., which
developed and managed health maintenance organizations. Mr. Blair is also a
director of Coventry Health Care, Inc.
DAVID T. BLAIR joined a predecessor of HealthExtras in July of 1997 as
Chief Financial Officer. From 1995 to 1997, prior to joining HealthExtras, Mr.
Blair was the Finance Manager of United Payors & United Providers. At United
Payors & United Providers, Mr. Blair focused his efforts on its initial public
offering and several strategic acquisitions. In 1994, Mr. Blair co-founded and
was President of Continued Health Care Benefit Program, which markets healthcare
benefits to individuals leaving the United States armed forces. In 1995, this
program was merged into United Payors & United Providers. From 1991 to 1994, Mr.
Blair worked in corporate finance and new business development for Kelly,
Anderson, Pethick and Associates, a management consulting firm.
WILLIAM E. BROCK has served as Senior Counsel and Trustee of the Center
for Strategic and International Studies in Washington, D.C. since 1994 and is
Chairman of Bridges Learning Systems, Inc. From 1988 to 1994, Mr. Brock served
as Chairman of the Brock Group, a consulting firm. From 1988 to 1991, he served
as the Chairman of the National Endowment for Democracy. From 1985 to 1987, he
served as the United States Secretary of Labor and from 1981 to 1985, he was a
United States Trade Representative. Mr. Brock has also served for eight years as
a member of the United States House of Representatives and for six years as a
member of the United States Senate. Mr. Brock is a director of On Assignment,
Inc.
EDWARD S. CIVERA is currently a merger and acquisition consultant. From
1997 to 2000, Mr. Civera served as President, Chief Operating Officer and in
1999 Co-Chief Executive Officer of United Payors & United Providers. Prior to
joining United Payors & United Providers, Mr. Civera was a managing partner with
PricewaterhouseCoopers LLP, where he served for 25 years.
THOMAS J. GRAF joined Principal Life Insurance Company, now a wholly owned
subsidiary of Principal Mutual Holding Company, in 1972 and since 1994, has
served as a Senior Vice President. Mr. Graf is also a director of Coventry
Health Care, Inc.
FREDERICK H. GRAEFE, ESQ. was appointed to the Board of Directors on
December 6, 2000. He has been a partner in the Washington, D.C. office of Baker
& Hostetler, L.L.P. since 1988. From 1980 to 1987 he was a partner at Finley,
Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey. He worked for Howrey
& Simon from 1975 and 1979 after serving a two year clerkship for the Honorable
Howard F. Corcoran, United States District Judge.
JULIA M. LAWLER joined Principal Life Insurance Company in 1984 and is a
Vice President. Since 2000, Ms. Lawler has served as President -- Real Estate
Equity Group of Principal Capital Real Estate Investors, an indirect, wholly
owned subsidiary of Principal Life Insurance Company. Between 1995 and 2000, she
served as Director, Capital Markets. Between 1993 and May 1995, Ms. Lawler
served as an officer of Principal Life Insurance Company in various other
capacities, including Executive Advisor to the President.
KAREN E. SHAFF is Senior Vice President and General Counsel of Principal
Mutual and Principal Life Insurance Company. Ms. Shaff joined Principal Life
Insurance Company in 1982 and held several positions within its law department
until being named Vice President and Associate General Counsel in 1995. In 1999,
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she became Senior Vice President and Deputy General Counsel, a position she held
until being named to her current position in 2000.
BIOGRAPHICAL INFORMATION OF EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARSHALL J. COLEMAN joined HealthExtras in 1999 as Vice President of
Marketing. Mr. Coleman has over fifteen years experience in marketing
communications, brand and business development. From 1994 to 1999, Mr. Coleman
worked for America Online as Senior Manager of Marketing Communication, Manager
of Programming and Promotions and Manager of Business Development. Subsequent to
December 31, 2000, Mr. Coleman has become a consultant to the Company.
MICHAEL P. DONOVAN joined HealthExtras in April 1999 as the Chief
Financial Officer. From early 1998 until early 1999, Mr. Donovan was engaged in
a variety of technology and business development activities for HealthExtras.
From 1992 to 1997, Mr. Donovan served as Senior Vice President of Business and
Technology Development for PHP Healthcare Corporation. From 1989 to 1992, Mr.
Donovan served as Chief Financial Officer of Direct Health, Inc. Prior to that,
Mr. Donovan was a Senior Manager for KPMG, LLP, then KPMG Peat Marwick,
responsible for a variety of technology and health care clients.
KEVIN R. MAUK joined HealthExtras in July 2000 and became Chief Operating
Officer in September 2000. Between 1998 and 2000, Mr. Mauk was the President of
NAQS, Inc., a Maryland-based Internet services provider. Between 1990 and 1998,
Mr. Mauk held several positions, including Senior Vice President, Information
Technology at Mid-Atlantic Medical Services, Inc., a managed care company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts business through meetings and the
activities of the Board and its committees, including taking actions by
unanimous written consents. During the fiscal year ended December 31, 2000, the
Board met four times. All of the Directors attended at least 75% of the total
number of Board meetings held and committee meetings on which such Directors
served during their tenure on the Board during 2000, except for Messrs. Julian
A.L. Allen and Paul H. Warren, Ms. Julia M. Lawler and Ms. Karen E. Shaff. Mr.
Allen did not attend two meetings before resigning. Mr. Warren attended one of
three meetings before resigning. Ms. Lawler and Ms. Shaff each attended two of
four Board meetings.
The composition of the Board of Directors changed during 2000. Messrs.
Julian A.L. Allen and Paul H. Warren resigned from the Board on June 22, 2000
and October 27, 2000, respectively. Mr. Graefe was appointed to Mr. Warren's
seat on the Board by a unanimous vote of the Board of Directors at a regular
meeting of the Board on December 6, 2000.
The full Board of Directors acts as a Nominating Committee for the annual
selection of management's nominees for election as directors. The Company's
Nominating Committee will consider suggestions for nominees to the Board of
Directors that are timely received in proper written form. To be in proper
written form, a stockholder's notice should set forth in writing (i) as to each
person whom the stockholder proposes to be nominated for election as a director,
all information relating to such person that is required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC, including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected and (ii) as to the stockholder giving the
notice (x) the name and address, as they appear on the Company's books, of such
stockholder and (y) the class and number of shares of the Company that are
beneficially owned by such stockholder.
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The Audit Committee consists of Bette B. Anderson, William E. Brock and
Edward S. Civera, all of whom are considered to be independent for purposes of
the requirements of the Nasdaq National Market. The Audit Committee annually
reviews the qualifications of the Company's independent certified public
accountants, makes recommendation to the Board of Directors as to their
selection and reviews the planning and fees for and the results of the annual
audit of the Company's financial statements. The Audit Committee held three
meetings in 2000, each of which was attended by all three directors.
The Compensation Committee also consists of Bette B. Anderson, William E.
Brock and Edward S. Civera. The Compensation Committee has the responsibility of
recommending salary and incentive compensation for executive officers to the
Board of Directors. The Compensation Committee held three meetings in 2000, each
of which was attended by all three directors.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company are entitled to receive a
fee of $2,500 for each Board of Directors meeting and $500 for each committee
meeting attended, plus travel and incidental expenses incurred in attending
meetings and carrying out their duties as directors. Moreover, if the
HealthExtras, Inc. 2000 Directors' Stock Option Program is approved,
non-employee directors are entitled to options to purchase shares of the
Company's common stock as discussed with respect to Proposal 3 requesting
stockholder approval of the HealthExtras 2000 Directors' Option Program. Mr.
Thomas Blair has waived his right to compensation for performing services as a
director of the Company.
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PROPOSAL 2 -- APPROVAL OF THE
HEALTHEXTRAS, INC. 2000 STOCK OPTION PLAN
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On October 4, 2000, the Board of Directors approved the Company's 2000
Stock Option Plan, subject to stockholder approval. Like the stock option plan
adopted prior to the Company's public offering in December 1999, the 2000 Stock
Option Plan will allow the Company to use stock options to ensure that key
officers, employees and other persons who perform services for the Company have
a proprietary interest in the performance and success of the Company and will
help to align the interests of those persons with that of stockholders.
Furthermore, the Board of Directors believes that the granting of stock
options is an important component of the Company's overall compensation
strategy. In order to continue to be able to retain and attract key employees,
the Company must have the ability to offer market competitive long-term
compensation opportunities. Stock options, because of their upside potential,
are a key component in recruiting and retaining employees. As discussed below
under "Proposal 2 -- Approval of the HealthExtras, Inc. 2000 Stock Option Plan -
New Plan Benefits," options have already been granted under the plan, subject to
stockholder approval. Thomas L. Blair and Principal Mutual Holding Company,
which together may be deemed to beneficially own an aggregate of 57.4% of
outstanding shares of common stock of the Company have indicated their intent to
vote to approve the Plan. The Company requests that stockholders approve the
2000 Stock Option Plan.
The 2000 Stock Option Plan supplements the stock option plan adopted prior
to the Company's public offering in December 1999 relating to options to
purchase 4,000,000 shares of common stock. Under that 1999 Plan, 94,500 shares
remain available for the grant of stock options.
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The following summary is a brief description of the material features of
the 2000 Stock Option Plan. This summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Exhibit A.
SUMMARY OF THE 2000 STOCK OPTION PLAN
TYPE OF STOCK OPTION GRANTS. Under the Plan, Options may be granted which
are intended to qualify as either Incentive Stock Options ("ISOs"), within the
meaning of Section 422 of the Internal Revenue Code of 1986, or Non-Qualified
Stock Options ("NQOs").
ADMINISTRATION. The 2000 Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. Subject to the terms of the
2000 Stock Option Plan and resolutions of the Committee, the Committee will
interpret the 2000 Stock Option Plan and is authorized to make all
determinations and decisions thereunder. The Committee also will determine the
participants to whom stock options will be granted, the type and amount of stock
options that will be granted and the terms and conditions applicable to such
grants, including the time or times an option may be exercised and when an
option may terminate.
PARTICIPANTS. All officers, employees and directors of the Company and its
subsidiaries are eligible to participate in the 2000 Stock Option Plan, as well
as independent contractors and consultants to whom the Committee grants
eligibility. The Board's intent is that non-employee directors would not be
granted options under the 2000 Stock Option Plan. Rather, those directors are
entitled to participate in the 2000 Directors' Stock Option Program which is the
subject of Proposal 3 below.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE. The Company has reserved
1,000,000 shares of common stock for issuance under the 2000 Stock Option Plan
in connection with the exercise of options. Shares of common stock reserved
under the 2000 Stock Option Plan may come from either authorized but unissued
shares, or reacquired shares held by the Company in its treasury. If authorized
but unissued or treasury shares are used to satisfy stock option exercises, the
number of shares outstanding would increase and would have a dilutive effect on
the holdings of existing stockholders. Any shares subject to an option which
expires or otherwise terminates unexercised will again be available for issuance
under the 2000 Stock Option Plan.
STOCK OPTION GRANTS. The exercise price of each ISO will not be less than
the fair market value of the common stock on the date of grant, or 110% of the
fair market value in the case of a 10% owner. The exercise price of each NQO
shall be set by the Committee at the time of the grant of the option.
The exercise price of an option may generally be paid in cash, or its
equivalent acceptable to the Company, or common stock, by the surrender of all
or part of the option being exercised, by the immediate sale through a broker of
the number of shares being acquired sufficient to pay the purchase price or by a
combination of these methods, as and to the extent permitted by the Committee.
Under the 2000 Stock Option Plan, except as determined by the Committee,
no option granted shall be assignable or transferable by the optionee, either
voluntarily or by operation of law, other than by will or the laws of descent
and distribution, and during the lifetime of the optionee, shall be exercisable
only by the optionee. Options may become exercisable in full at the time of
grant or at such other times and in such installments as the Committee
determines or as may be specified in the 2000 Stock Option Plan. Options may be
exercised during periods before and after the participant terminates employment,
as the case may be, to the extent authorized by the Committee or specified in
the 2000 Stock Option Plan. However, no
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option may be exercised after the tenth anniversary of the date the option was
granted. In the case of the optionee's termination of employment with the
Company for cause ("Termination for Cause"), all rights under the Optionee's
ISOs and NQOs shall expire immediately upon the effective date of the
Termination for Cause.
Under generally accepted accounting principles, compensation expense will
generally not be recognized with respect to the award of stock options to
employees, officers and directors of the Company and its subsidiaries.
EFFECT OF A CHANGE IN CONTROL. In the event of a change in control (as
defined in the 2000 Stock Option Plan) of the Company, each outstanding stock
option grant will immediately become fully vested and exercisable for the
remaining term of the option. If in connection with a change of control, the
Company is merged into or becomes a subsidiary of another corporation or
otherwise disposes of substantially all its assets to another corporation and no
provisions are made for the continuance or assumption of the Plan, then such
options shall be canceled as of the date of the merger and the optionee shall be
paid the difference of the fair market value of the options and the exercise
price in cash.
TERM OF THE PLAN. Subject to stockholder approval, the effective date of
the 2000 Stock Option Plan is the date of its approval by the Board on October
4, 2000. The 2000 Stock Option Plan will expire, with respect to the ability to
grant options, on the tenth anniversary of that effective date, unless
terminated sooner by the Board.
AMENDMENT OF THE PLAN. The 2000 Stock Option Plan allows the Board to
amend the Plan in certain respects without stockholder approval, unless such
approval is required to comply with a tax law or regulatory requirement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following brief description
of the tax consequences of stock option grants under the 2000 Stock Option Plan
is based on federal income tax laws currently in effect and does not purport to
be a complete description of such federal income tax consequences.
There are no federal income tax consequences either to an optionee or to
the Company upon the grant of an ISO or an NQO. On the exercise of an ISO during
employment or within three months thereafter, the optionee will not recognize
any income and the Company will not be entitled to any deduction, although the
excess of the fair market value of the shares on the date of exercise over the
option price is includable in the optionee's alternative minimum taxable income,
which may give rise to alternative minimum tax liability for the optionee.
Generally, if the optionee disposes of shares acquired upon exercise of an ISO
within two years of the date of grant or one year of the date of exercise, the
optionee will recognize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the shares on the
date of exercise over the option price (limited generally to the gain on the
sale). The balance of any gain or loss will be treated as a capital gain or loss
to the optionee. If the shares are disposed of after the two-year and one-year
periods mentioned above, the Company will not be entitled to any deduction, and
the entire gain or loss for the optionee will be treated as a capital gain or
loss.
On exercise of an NQO, the excess of the date-of-exercise fair market
value of the shares acquired over the option price will be taxable to the
optionee as ordinary income and deductible by the Company. The disposition of
shares acquired upon the exercise of a NQO results in a capital gain or loss for
the optionee, but will have no tax consequences for the Company.
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NEW PLAN BENEFITS
Options were granted under the 2000 Stock Option Plan on October 4, 2000,
subject to stockholder approval of the Plan, as set forth in the following
table. All of these options vest in four equal annual installments commencing on
the first anniversary of the date of grant and expire ten years from the date of
grant.
NUMBER OF DOLLAR VALUE OF
SHARES COVERED EXERCISE PRICE OPTIONS ON
NAME OF OPTIONEE BY OPTIONS PER SHARE APRIL 30, 2001(2)
- ----------------- ------------------- ----------------- --------------------
David T. Blair(1)................................ 150,000 $4.625 $483,750
Michael P. Donovan(1)............................ 120,000 $4.625 $387,000
All employees, including officers who 200,000 $3.57 $856,000
are not executive officer.....................
- ---------------------
(1) The grants to Messrs. David Blair and Donovan are the only grants under the plan to executive officers to date.
(2) Calculated based on the difference between the closing price of HealthExtras common stock on the Nasdaq National Market
on April 30, 2001 and the exercise price of the options.
The Company anticipates that any additional option grants will primarily
be made to officers, employees and independent contractors, as the Committee
deems appropriate. As of the date of this proxy statement, no specific
determinations have been made regarding any future grants under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE HEALTHEXTRAS, INC. 2000 STOCK OPTION PLAN. The Plan requires the approval by
a majority of the votes present or represented by proxy at the Annual Meeting.
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- --------------------------------------------------------------------------------
PROPOSAL 3 -- APPROVAL OF THE
HEALTHEXTRAS, INC. 2000 DIRECTORS' STOCK OPTION PROGRAM
- --------------------------------------------------------------------------------
On June 7, 2000, the Board of Directors approved the Directors' 2000 Stock
Option Program subject to stockholder approval. The purpose of the Program is to
attract and retain outstanding directors of the Company and to help align the
directors' interests with those of the Company's other stockholders. Therefore,
the Company requests that stockholders approve the HealthExtras, Inc. 2000
Directors' Stock Option Program. Thomas L. Blair and Principal Mutual Holding
Company, which in the aggregate beneficially own approximately 57.4% of the
outstanding common stock have indicated they intend to vote to approve the 2000
Directors' Stock Option Program.
The following summary is a brief description of the material features of
the 2000 Directors' Stock Option Program. The summary is qualified in its
entirety by reference to the Program, a copy of which is attached as Exhibit B.
SUMMARY OF THE PROGRAM
TYPE OF STOCK OPTION GRANTS. Awards under the Program shall consist solely
of the grant of Non-Qualified Stock Options ("Director Options").
ADMINISTRATION. The Company's Board of Directors may interpret the Program
and prescribe, amend and rescind rules and regulations relating to the Program
and make all determinations and decisions thereunder.
PARTICIPANTS. Only non-employee directors may participate in the Program.
The term "non-employee director" means a member of the Board of Directors who is
not a full-time employee of the Company or any of its subsidiaries.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE. The Company has reserved
200,000 shares of common stock for issuance under the Program in connection with
the exercise of options. Shares of common stock reserved under the Program may
come from either authorized but unissued shares, or reacquired shares held by
the Company in its treasury. If authorized but unissued or treasury shares are
used to satisfy stock option exercises, the number of shares outstanding would
increase and would have a dilutive effect on the holdings of existing
stockholders. Any shares subject to an option which expires or otherwise
terminates unexercised will again be available for issuance under the Program.
STOCK OPTION GRANTS. The exercise price of each Director Option will be
not less than 100% of the fair market value of the common stock on the date of
grant. Under generally accepted accounting principles, compensation expense will
generally not be recognized with respect to the award of stock options to
directors of the Company and its subsidiaries.
As of the date of the adoption of the Program by the Board of Directors,
each non-employee director was automatically granted, without further action by
the Board of Directors, a Director Option to purchase 15,000 shares of Company
common stock, subject to stockholder approval of the Program. Subject to the
overall number of shares reserved for the Program, new non-employee directors
elected to the Board of Directors after the adoption of the Program will also be
automatically granted a Director Option to purchase
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15,000 shares at the time of election or appointment. Subsequent grants of
Director Options for 5,000 shares of Company common stock will be granted
automatically, without further action by the Board of Directors, to each
non-employee director, who has been a director since the previous annual meeting
of stockholders, on the day after each Annual Meeting of Stockholders, so long
as shares remain available for grants under the Program.
Under the Program, an affiliate of a Director may be permitted to receive
Director Options in lieu of the Director. In addition, Directors may waive their
receipt of options under the Program. In such cases, those options will not be
granted under the Program and will remain available for future grant. Thomas
Blair has waived his right to receive options. Director Options become
exercisable in full on the first anniversary of the date of the grant of the
option.
Based on the difference between the closing selling price of the Company's
common stock on the Nasdaq National Market on April 30, 2001 and the exercise
price of the options, each option to purchase 15,000 shares of common stock
granted on June 7, 2000, subject to stockholder approval, to Senator Brock and
Ms. Anderson, at an exercise price of $4.63 per share, has a value of $48,300.
In addition, based on that same market price on April 30, 2001, the option to
purchase 15,000 shares granted to Mr. Graefe on January 2, 2001 at an exercise
price of $3.56 per share has a value of $64,350.
EXERCISE OF OPTIONS. The exercise price of Director Options is 100% of the
fair market value, as defined in the Program, of the Company's common stock on
the date of the grant. The exercise price of an option may generally be paid in
cash, or its equivalent acceptable to the Company, of the full purchase price
for the shares being purchased.
Director Options may be exercised during periods before and after the
optionee terminates his service to the Company, as the case may be, to the
extent authorized by the Program. However, no Director Option may be exercised
after the tenth anniversary of the date it was granted. In the case of the
optionee's termination of service for cause, all rights under the optionee's
Director Option shall expire immediately upon the effective date of such
termination.
EFFECT OF A CHANGE IN CONTROL. In the event of a change in control (as
defined in the Program) of the Company, each outstanding Director Option will
immediately become fully vested and exercisable for the remaining term of the
option. If in connection with a change of control, the Company is merged into or
becomes a subsidiary of another corporation or otherwise disposes of
substantially all its assets to another corporation and no provisions are made
for the continuance or assumption of the Plan, then such options shall be
canceled as of the date of the merger and the optionee shall be paid the
difference of the fair market value of the options and the exercise price in
cash.
TERM OF THE PLAN. The Board of Directors adopted the Program on June 7,
2000, subject to approval by the stockholders of the Company at the 2001 Annual
Meeting of Stockholders. The Program will expire on the tenth anniversary of
that June 7 effective date, unless terminated sooner by the Board.
AMENDMENT OF THE PLAN. The Program allows the Board to amend the Plan in
certain respects without stockholder approval, unless such approval is required
to comply with a tax law or regulatory requirement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following brief description
of the tax consequences of stock option grants under the Program is based on
federal income tax laws currently in effect and does not purport to be a
complete description of such federal income tax consequences.
There are no federal income tax consequences either to the optionee or to
the Company upon the grant of a Director Option. On exercise of a Director
Option, the excess of the date-of-exercise fair market value of the shares
acquired over the option price will generally be taxable to the optionee as
ordinary income and deductible by the Company. The disposition of shares
acquired upon the exercise of a Director Option will generally result in a
capital gain or loss for the optionee, but will have no tax consequences for the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE HEALTHEXTRAS, INC. 2000 DIRECTORS' STOCK OPTION PROGRAM. The Program
requires the approval by a majority of the votes present or represented by proxy
at the Annual Meeting.
- --------------------------------------------------------------------------------
PROPOSAL 4 -- RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors has appointed PricewaterhouseCoopers LLP to be its
independent accountants for the 2001 fiscal year, subject to the ratification by
stockholders. A representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting to respond to appropriate questions from
stockholders and will have the opportunity to make a statement should he or she
desire to do so.
If the ratification of the appointment of the independent accountants is
not approved by a majority of the votes cast by stockholders at the annual
meeting, other independent accountants will be considered by the Board of
Directors. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
AUDIT FEES
The aggregate fees the Company paid to PricewaterhouseCoopers LLP for the
annual audit and for the review of the Company's Form 10-Q quarterly reports for
the year ended December 31, 2000 totaled $79,000.
ALL OTHER FEES
The aggregate fees the Company paid to PricewaterhouseCoopers LLP for all
other non-audit services, including fees for tax-related services for the year
2000 totaled $19,000. The Audit Committee believes that the non-audit fees paid
to PricewaterhouseCoopers LLP are compatible with PricewaterhouseCoopers
maintaining its independence with respect to the Company.
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- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors knows of no other matters that are likely to be
brought before the annual meeting. If any other matters should be properly
brought before the meeting, it is the intention of the persons named as proxies
on the enclosed proxy card to vote, or otherwise act, in accordance with their
judgment on such matters.
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid to
or earned by the Chief Executive Officer during 2000 and the other executive
officers of the Company as of December 31, 2000 who received more than $100,000
during 2000.
LONG-TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------- -------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITIONS YEAR ($) ($) ($)(1) ($)(2) (#) ($)(3)
- ------------------------ ------ ---------- -------- --------------- ----------- ------------ ----------------
David T. Blair.......... 2000 $ 165,000 $ -- $20,000 $ -- 500,000 $8,900
1999 111,183 15,300 -- -- 1,500,000 5,500
Michael P. Donovan...... 2000 210,000 -- -- -- 400,000 --
1999 174,500 -- -- 301,334 600,000 --
Marshall J. Coleman..... 2000 192,000 -- -- -- 50,000 --
- ----------------------------------
(1) Does not include the aggregate amount of perquisites and other personal benefits, which were less than 10% of the total
annual salary and bonus reported and $50,000.
(2) Represents the total value of an award of rights to receive the equivalent of 266,667 shares of common stock of HealthExtras
which was granted to Mr. Donovan in February 1999 by a predecessor entity. The rights vest over a four-year period commencing
March 1, 1999. At December 31, 2000, the value of the unvested portion of the restricted stock award was $466,784.50.
(3) Represents for 2000, matching 401k contribution of $8,900 for Mr. Blair.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock option grants to
Messrs. Blair, Donovan and Coleman during the year ended December 31, 2000. The
options included in the table below which are identified as granted under the
2000 Stock Option Plan to Messrs. David Blair and Donovan are also included in
the disclosure under "Proposal 2 - Approval of the HealthExtras, Inc. 2000 Stock
Option Plan."
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERMS(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE DATE 5% 10%
- ------ ------------ ------------- -------------- ----------- ----------- -------------
David T. Blair.............. 500,000(3) 34% $4.625 2010 $475,000 $2,034,000
Michael P. Donovan.......... 400,000(4) 27% $4.625 2010 $380,000 $1,627,000
Marshall J. Coleman......... 50,000(5) 3% $4.625 2010 $ 46,000 $ 193,000
- ------------------------------------
(1) All of the options granted vest in four equal annual installments beginning on the first anniversary of the date of grant.
(2) As of December 31, 2000, the exercise price of these options was in excess of the market price of the underlying common
stock. The dollar gains under these columns result from calculations required by the Securities and Exchange Commission's
rules and are not intended to forecast future price appreciation for HealthExtras' common stock. It is important to note
that options have value only if the stock price increases above the exercise price shown in the table during the effective
option period.
(3) Options to purchase 350,000 of these shares were granted under the 1999 Stock Option Plan on June 7, 2000 and expire on
June 7, 2010; options to purchase 150,000 of these shares were granted under the 2000 Stock Option Plan, subject to
stockholder approval of that plan, on October 4, 2000 and expire on October 4, 2010.
(4) Options to purchase 280,000 of these shares were granted under the 1999 Stock Option Plan on June 7, 2000 and expire on
June 7, 2010; options to purchase 120,000 of these shares were granted under the 2000 Stock Option Plan, subject to
stockholder approval of that plan, on October 4, 2000 and expire on October 4, 2010.
(5) These options were granted under the 1999 Stock Option Plan on June 7, 2000 and expire on June 7, 2010.
OPTION VALUE AT FISCAL YEAR END
The following table provides information regarding unexercised stock
options for Messrs. Blair, Donovan and Coleman as of December 31, 2000. Messrs.
Blair, Donovan and Coleman did not exercise any stock options during the year
ended December 31, 2000.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END YEAR-END
(#) ($)(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ------------- ----------------- ------------- -----------------
David T. Blair......................... 375,000 1,625,000 -- --
Michael P. Donovan..................... 150,000 850,000 -- --
Marshall J. Coleman.................... 75,000 275,000 -- --
- --------------------------------
(1) None of the options were in the money as of December 31, 2000.
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EMPLOYMENT AGREEMENTS
HealthExtras has executed employment agreements with David T. Blair and
Michael P. Donovan, both of which were effective January 1, 2000. The Company
also had an employment agreement with Mr. Coleman, but it has been rescinded in
connection with his becoming a consultant to the Company after December 31,
2000.
The employment agreements, which are substantially similar for each of the
executives, except for a bonus arrangement for Mr. Blair, provide for three-year
terms and automatically renew for an additional two years unless a notice of
non-renewal is given six months prior to the expiration date. Mr. Blair's base
salary, pursuant to his employment agreement, is $165,000 per year. In addition,
Mr. Blair is entitled to a bonus equal to one percent of HealthExtras' annual
after-tax profits. Mr. Donovan's base salary, pursuant to his employment
agreement, is $210,000 per year. Base salary may be increased by the Board of
Directors, in the case of Mr. David Blair, and by the Chief Executive Officer,
in the case of Mr. Donovan. In addition to base salary, the employment
agreements provide for, among other things, participation by the executives in
employee benefit plans, an automobile allowance and other fringe benefits
applicable to executive personnel and reimbursement of reasonable expenses
incurred in promoting our business.
Upon an executive's termination for cause, or upon an executive's
voluntary resignation, that executive shall be entitled only to such
compensation and benefits as shall have accrued through the date of the
executive's termination or resignation, as the case may be. In the event that an
executive is terminated for any reason other than cause or voluntary
resignation, including termination by reason of death or disability, that
executive shall receive payments under the employment agreement due for the
remaining term of the employment agreement, provided that such payment shall not
be less than the payment due for a 12 month period. Upon an executive's
voluntary resignation or termination for cause during the term of the agreement,
each employment agreement provides that, for a period of two years from the date
of termination, the executive will not compete directly or indirectly with
HealthExtras' business, nor will the executive solicit or contract with entities
contracting with HealthExtras.
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- --------------------------------------------------------------------------------
THE REPORT OF THE COMPENSATION COMMITTEE, THE REPORT OF THE AUDIT
COMMITTEE AND THE STOCK PERFORMANCE GRAPH SET FORTH BELOW SHALL NOT BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE
THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, OR THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER THOSE ACTS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------
The Compensation Committee of the Board of Directors, which is composed of
three directors who are not employees of the Company, is responsible for
establishing and implementing policies governing executive compensation.
Furthermore, the Committee evaluates the performance of executive officers and
approves appropriate levels of compensation. The Compensation Committee may also
be advised by external compensation consultants, and may receive reports from
management.
The Committee believes that compensation policy should reflect both
executives' management skills as well as Company performance and shareholder
returns. To this end, the following goals underlie the Committee's policies:
To attract and retain key executives who possess the management skills and
experience vital to the long-term success of the Company.
To provide compensation that is competitive and consistent with executive
compensation levels found in similar companies.
To motivate executives to enhance long-term shareholder value by building
their ownership in the Company.
To make the compensation program an integral part of the Company's
long-term planning and management process.
CASH COMPENSATION
The Company's cash compensation policy for its executive officers is to
provide compensation consisting of a base annual salary that does not fluctuate
and a cash bonus opportunity for the chief executive officer as specified in his
employment agreement based on annual financial performance by the Company.
Overall, it was the Compensation Committee's intent that the salaries of the
Company's officers be competitive with those of executives with like
responsibilities in companies of similar size and industry grouping. The
executive officers' base salaries were determined in this manner, and have
remained unchanged from the levels established in 2000. In addition, no bonuses
were paid to executive officers during 2000. The Company also provides its
executive officers with a car allowance and provides benefits under a
split-dollar life insurance program.
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21
LONG-TERM INCENTIVE COMPENSATION
Long-term incentive compensation is in the form of the Company's stock
option plans, which are designed to align the executive's incentive compensation
more directly with stockholder value by linking compensation to the long-term
performance of the Company's stock. Long-term compensation is also designed to
encourage executives to make career commitments to the Company. The size of an
executive's stock option award is based upon management's and the Compensation
Committee's subjective evaluation of the contribution an executive can and has
made to overall performance of the Company and the number of shares available
for award under the stock option plans.
In 2000, the Company engaged an outside consultant to compare and comment
upon the Company's stock option policy in light of prevailing practices at
companies of similar size, industry grouping and levels of performance. The
Company's option policies, and the grants made to executive officers and other
employees during the year, reflect the application of that study as well as the
judgment and experience of the Committee members.
2000 CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of David T. Blair, Chief Executive Officer and Director,
is determined by the process described above and, with the exception of the
bonus arrangement in Mr. Blair's employment agreement, consists of the same
components as those of the other executive officers in the executive
compensation table, namely base salary, car allowance, split-dollar life
insurance, stock options, and various fringe benefits.
Mr. Blair's base compensation increased from $110,000 to $165,000 per year
from 1999 to 2000, commensurate with his efforts and the Company's performance,
and in 2000 Mr. Blair did not receive a bonus. In addition, during the year 2000
Mr. Blair received 500,000 options to purchase shares of the Company's common
stock, which will vest in equal increments over the next four years.
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
OF HEALTHEXTRAS, INC.
Bette B. Anderson
William E. Brock
Edward S. Civera
18
22
- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the performance of the Company's common stock
with the Nasdaq Stock Market (U.S. Companies) Index and the Russell 2000 Index.
All indices shown in the graph have been reset to a base of 100 as of December
14, 1999, the first day of trading in the Company's common stock, and assume an
investment of $100 on that date. The Company has not paid cash dividends on its
common stock.
COMPARATIVE RETURNS
HEALTHEXTRAS, INC., THE NASDAQ MARKET INDEX AND
THE RUSSELL 2000 INDEX
[GRAPHIC OMITTED]
SUMMARY
12/14/99 12/31/99 12/31/00 4/30/01
----------- ----------- ---------- ----------
HealthExtras, Inc. $100.00 $133.33 $ 38.88 $ 87.22
Nasdaq Stock Market Index $100.00 $113.93 $ 69.17 $ 59.25
Russell 2000 Index $100.00 $109.18 $105.89 $106.74
NOTES:
A. The lines represent the index levels as of the dates set forth.
B. If a specified date is not a trading day, the preceding trading day is
used.
C. The index level for all series was set to $100.00 on 12/14/99, the first
day of trading for HealthExtras, Inc. common stock. The common stock
closed at $9 per share on that date.
19
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- --------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors is responsible for assisting
the Board in fulfilling its responsibility to the stockholders relating to
corporate accounting, reporting practices and the quality and integrity of the
financial reports of the Company. Additionally, the Audit Committee selects the
auditors and reviews their independence and their annual audit. The Audit
Committee is comprised of three directors, each of whom is independent under the
Nasdaq National Market's listing standards. The Audit Committee acts under a
written charter adopted by the Board of Directors, a copy of which is attached
to this proxy statement as Exhibit C.
The Audit Committee reviewed and discussed the annual financial statements
with management and the independent accountants. As part of this process,
management represented to the Audit Committee that the financial statements were
prepared in accordance with generally accepted accounting principles. The Audit
Committee also received and reviewed written disclosures and a letter from the
accountants concerning their independence as required under applicable standards
for auditors of public companies. The Audit Committee discussed with the
accountants the contents of such materials, the accountants' independence and
the additional matters required under Statement on Auditing Standards No. 61.
Based on such review and discussion, the Audit Committee recommended that the
Board of Directors include the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 for
filing with the Securities and Exchange Commission.
Bette B. Anderson
William E. Brock
Edward S. Civera
- --------------------------------------------------------------------------------
STOCK OWNERSHIP
- --------------------------------------------------------------------------------
The following table provides information as of April 25, 2001, derived
from beneficial ownership reports filed with the SEC and furnished to the
Company, about the shares of HealthExtras common stock that may be considered to
be owned by each beneficial owner of more than 5% of the Company's outstanding
common stock, by each director or nominee for director of the Company, by each
of the named executive officers in the executive compensation table, and by all
directors and executive officers of the Company as a group. Unless otherwise
indicated, each of the named individuals has sole voting power and sole
investment power with respect to the shares shown, and the business address of
such person is HealthExtras, Inc., 2273 Research Boulevard, Second Floor,
Rockville, Maryland 20850.
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PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES OWNED OUTSTANDING
- ------- ----------------- -------------------
Principal Mutual Holding Company(1)................................ 8,840,000 30.3%
Thomas L. Blair(2)................................................. 7,929,700 27.1%
BCE Emergis Corporation(2,3)....................................... 4,330,000 14.8%
Health Partners(4)................................................. 4,140,000 14.2%
David T. Blair(5).................................................. 36,000 *
Marshall J. Coleman(6)............................................. 100,000 *
Michael P. Donovan(7).............................................. 133,300 *
Bette B. Anderson(8)............................................... 10,000 *
William E. Brock(8)................................................ -- --
Edward S. Civera................................................... -- --
Thomas J. Graf(2,9)................................................ 10,000 *
Frederick H. Graefe(10)............................................ 400 *
Julia M. Lawler(2,9)............................................... -- --
Karen E. Shaff(2,9)................................................ 2,000 *
All directors and executive officers as a group
(10 persons)(11)................................................ 8,121,400 27.8%
- -----------------------------------------
*Less than 1% of outstanding shares.
(1) Thomas J. Graf, Julia M. Lawler and Karen E. Shaff, directors of
HealthExtras, are employed by Principal Mutual or an affiliate of that
Company. The address of Principal Mutual is 711 High Street, Des Moines,
Iowa 50392.
(2) Thomas L. Blair and his wife may be deemed the beneficial owners of an
aggregate of 7,929,700 shares of common stock. Of the total shares, Mr.
Blair has sole power to vote and to invest 4,154,700 shares and Mrs.
Blair has sole power to vote and to invest 3,775,000 shares. Mr. Blair
has granted, subject to certain change in control provisions, an option
to BCE Emergis Corporation, formerly United Payors & United Providers,
which is now an indirect, wholly owned subsidiary of BCE Emergis, Inc.,
to purchase prior to October 1, 2003 a total of 4,330,000 shares of
HealthExtras common stock for an aggregate exercise price of $4 million.
(3) The business address for BCE Emergis Corporation is 2273 Research
Boulevard, Fourth Floor, Rockville, Maryland 20850.
(4) A Schedule 13D Report was filed on December 22, 1999 by Health Partners,
Capital Z Financial Services Fund II, L.P., ("Fund II"), which serves as
general partner of Health Partners, Capital Z Partners, L.P., which is
the general partner of Fund II, and Capital Z Partners, Ltd., which is
the general partner of Capital Z Partners, L.P. That Schedule 13D also
reports that Steven M. Gluckstern, who is Chairman of the Board, and
Robert Spass, who is the Deputy Chairman of the Board of Capital Z
Partners, Ltd., may be deemed to be the beneficial owners of the shares
held by Health Partners and that Messrs. Gluckstern and Spass disclaim
any such beneficial ownership. The business address for Health Partners
is 54 Thompson Street, New York, New York 10012.
(5) Does not include options to purchase 375,000 shares of common stock at an
exercise price of $13.20 per share which are exercisable and 87,500
shares of common stock at an exercise price of $4.625 which become vested
on June 7, 2001.
(6) Does not include options to purchase 75,000 shares of common stock at an
exercise price of $13.20 per share which are exercisable and options to
purchase 12,500 shares of common stock at an exercise price of $4.625
which become vested on June 7, 2001.
(7) Does not include options to purchase 300,000 shares of common stock at an
exercise price of $13.20 per share which are exercisable and 70,000
shares of common stock at an exercise price of $4.625 which become vested
on June 7, 2001.
(8) Does not include options to purchase 15,000 shares of common stock
granted on June 7, 2000 to each of Ms. Anderson and Mr. Brock under the
2000 Directors' Option Program, subject to stockholder approval of that
program, which become vested on June 7, 2001.
(9) Mr. Graf, Ms. Lawler and Ms. Shaff disclaim any beneficial ownership with
respect to the shares beneficially owned by Principal Mutual.
(10) Does not include options to purchase 15,000 shares of common stock
granted on January 2, 2001 to Mr. Graefe under the 2000 Directors' Option
Program, subject to stockholder approval of that program, which become
vested on January 2, 2002.
(11) Does not include the shares beneficially owned by Principal Mutual.
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- --------------------------------------------------------------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act requires the Company's
executive 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 SEC. Executive officers, directors
and greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on a review of copies of such reports of ownership furnished
to the Company, or written representations that no forms were necessary, the
Company believes that as of April 25, 2001 its executive officers, directors and
greater than 10% beneficial owners are in compliance with all applicable filing
requirements. David Blair and Michael Donovan will file Form 4 reports regarding
the receipt of stock options upon stockholder approval of the 2000 Stock Option
Plan.
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
The following are transactions involving Thomas L. Blair, the Chairman of
the Board, including transactions prior to April 2000 involving United Payors &
United Providers, which became a subsidiary of BCE Emergis, Inc. on or about
March 28, 2000, and the Company. Mr. Blair was the Chairman of the Board of
Directors, Co-Chief Executive Officer and beneficial owner of an aggregate of
approximately 38.2% of United Payors & United Providers common stock prior to
its acquisition by BCE Emergis.
Effective January 1, 1999, the Company entered into an agreement with
United Payors & United Providers, whereby United Payors & United Providers
provided administrative services for the Company and was reimbursed for the
costs incurred. The amount paid by the Company for such services was $1.2
million, for the year ended December 31, 2000. Under a revised agreement dated
December 22, 1999, services to be provided by United Payors & United Providers
subsequent to March 31, 2000, are limited primarily to services relating to
information technology and communications and are paid on a cost plus fee basis.
The amount paid for these services under the revised agreement was $829,000 for
the year ended December 31, 2000.
In addition, The Company entered into an agreement dated December 22,
1999, to lease office space under a non-cancelable sublease agreement with
United Payors & United Providers. The sublease agreement provides for annual
escalations and for the payment by the Company of its proportionate share of the
increase in the costs of operating the building. Rent expense for the year ended
December 31, 2000, was $363,600.
As of December 31, 1999, the Company owned 40,150 shares of common stock,
or 0.2% of the outstanding common stock, of United Payors & United Providers.
All of these shares were sold in March 2000 for aggregate proceeds of
$1,084,050, resulting in a gain of $551,735.
During 2000, the Company entered into a joint venture with Southern
Aircraft Leasing Corporation, owned by the Chairman of the Board of the Company,
whereby the Company invested $988,500 for a fractional interest of approximately
45% in two aircraft used for corporate business purposes. For corporate business
purposes, the Company also utilizes the services of an aircraft owned by
Southern Aircraft Leasing Corporation. For the year ended December 31, 2000, the
Company paid $109,575 for utilizing the services of this aircraft.
22
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- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Company will pay the cost of this proxy solicitation. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of HealthExtras common stock. In addition to soliciting
proxies by mail, directors, officers and regular employees of the Company may
solicit proxies personally or by telephone. None of these persons will receive
additional compensation for these activities. The Company has retained Reagan &
Associates to assist in soliciting proxies for a fee of $4,000 plus expenses.
The Company's Annual Report to Stockholders has been mailed to
stockholders of record as of the close of business on April 25, 2001. Any
stockholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Secretary of the Company. The Annual Report is not to be
treated as part of the proxy solicitation material or as having been
incorporated herein by reference.
A copy of the Company's Form 10-K (without Exhibits) for the fiscal year
ended December 31, 2000, as filed with the Securities and Exchange Commission,
will be furnished without charge to stockholders of record upon written request
to Corporate Secretary, HealthExtras, Inc., 2273 Research Boulevard, Second
Floor, Rockville, Maryland 20850.
Proposals that stockholders seek to have included in the proxy statement
for the Company's next annual meeting must be received by the Company no later
than January 10, 2002. Any such proposals will be subject to the requirements of
the proxy rules adopted by the Securities and Exchange Commission.
The Bylaws of the Company provide an advance notice procedure for certain
business to be brought before an annual meeting. In order for a stockholder to
properly bring business before an annual meeting, the stockholder must deliver
written notice to the Secretary of the Company at the principal executive
offices of the Company not less than 90 days before the time originally fixed
for such meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. In order for the notice of a stockholder proposal for consideration at
the Company's 2002 Annual Meeting of Stockholders to be timely, the Company
would have to receive such notice no later than March 7, 2002 assuming the
Annual Meeting is held on June 5, 2002 and that the Company provides at least
100 days' notice or public disclosure of the date of the meeting. The notice
must include the stockholder's name and address, as it appears on the Company's
record of stockholders, a brief description of the proposed business, the reason
for conducting such business at the annual meeting, the class and number of
shares of the Company's Common Stock that are beneficially owned by such
stockholder and any material interest of such stockholder in the proposed
business. In the case of nominations to the Board, certain information regarding
the nominee must be provided.
23
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EXHIBIT A
HealthExtras, Inc.
2000 STOCK OPTION PLAN
----------------------
1. PURPOSE OF THE PLAN AND TYPES OF AWARDS
- -------------------------------------------
HealthExtras, Inc., a Delaware corporation, intends for the HealthExtras,
Inc. 2000 Stock Option Plan (the "Plan") to provide additional incentive to
certain valued and trusted officers, employees, and other individuals who
perform services for HealthExtras, Inc. and its subsidiaries or other affiliates
(HealthExtras, Inc. and/or its subsidiaries and other affiliates, as the context
may require, is/are referred to herein as the "Company"), by encouraging them to
acquire shares of common stock of the Company (the "Stock") through options to
purchase Stock granted pursuant to the Plan ("Options"), thereby increasing each
individual's proprietary interest in the business of the Company and providing
them with an increased personal interest in the continued success and progress
of the Company, the result of which will promote both the interests of the
Company and its shareholders.
The Committee (as described below) will grant Options under the Plan either
intended to qualify as incentive stock options ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options ("NQOs"). Each individual granted an Option (an
"Optionee") under the Plan shall enter into an agreement with the Company (an
"Option Agreement") setting forth the terms and conditions of the Option, as
determined in accordance with the Plan.
2. ADMINISTRATION OF PLAN
- --------------------------
A committee of the Board of Directors of the Company (the "Committee"),
composed of two (2) or more members of the Board of Directors of the Company
(the "Board of Directors") who shall be appointed from time to time by the Board
of Directors, shall administer this Plan. The Committee shall have the sole and
absolute power:
a. subject to the provisions of the Plan, to determine the terms and
conditions of all Options; to construe and interpret the Plan and any Option
Agreement; to determine the time or times an Option may be exercised, the
number of shares as to which an Option may be exercised at any one time,
and when an Option may terminate; to establish, amend and revoke rules and
regulations relating to the Plan and its administration; and to correct any
defect, supply any omission, or reconcile any inconsistency in the Plan, or
in any Option Agreement, in a manner and to the extent it shall deem
necessary, all of which determinations and interpretations made by the
Committee shall be conclusive and binding on all Optionees, any other
holders of Options and on their legal representatives and beneficiaries;
b. to determine all questions of policy and expediency that may arise in
the administration of the Plan and generally exercise such powers and
perform such acts as are deemed necessary or expedient to promote the best
interests of the Company; and
28
c. except to the extent prohibited by, or impermissible in order to obtain
treatment desired by the Committee under, applicable law or rule, to
allocate or delegate all or any portion of its powers and responsibilities
to any one or more of its members or to any person(s) selected by it,
subject to revocation or modification by the Committee of such allocation or
delegation.
3. SHARES SUBJECT TO THE PLAN
- ------------------------------
Subject to the provisions of Paragraph 13 of the Plan, the Stock which may
be issued pursuant to Options granted under the Plan shall not exceed in the
aggregate 1,000,000 shares. If any Options granted under the Plan terminate,
expire or are surrendered without having been exercised in full, the number of
shares of Stock not purchased under such Options shall be available again for
the purpose of the Plan.
4. PERSONS ELIGIBLE FOR OPTIONS
- --------------------------------
a. All officers, employees, directors and independent contractors of the
Company shall be eligible to receive Options under the Plan. The Committee,
or the Board, shall determine the individuals to whom Options shall be
granted, the time or times such Options shall be granted, the type of Option
to be granted, the number of shares to be subject to each Option, the times
when each Option may be exercised, and any other terms and conditions
associated with the Option. The Committee may grant an employee ISOs or NQOs
or both under the Plan.
b. With respect to the granting of ISOs only, no ISO will be granted to an
employee, and an attempted grant of such an ISO will be void, if the
aggregate Fair Market Value Per Share (as defined below), determined by the
Committee at the time an ISO is granted, of the Stock with respect to which
the ISO and previously granted ISOs are exercisable for the first time by
such employee during any calendar year (under all such plans of the Company)
exceeds $100,000.00 or such other amount as may be specified in Section 422
(d) of the Code.
5. PURCHASE PRICE
- ------------------
The purchase price of each share of Stock covered by each ISO shall not be
less than one hundred percent (100%) of the Fair Market Value Per Share (as
defined below) of the Stock on the date the ISO is granted; provided, however,
if when an ISO is granted the Optionee receiving the ISO owns, or will be
considered to own by reason of Section 424(d) of the Code, more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
the purchase price of the Stock covered by such ISO shall not be less than one
hundred and ten percent (110%) of the Fair Market Value Per Share of the Stock
on the date the ISO is granted. The purchase price of each share of Stock
covered by each NQO shall be set from time to time by the Committee; provided,
however, that the Committee shall set the purchase price for each share of Stock
covered by an Option at the time of the grant of the Option.
For purposes of this Plan, "Fair Market Value Per Share" of the Stock shall
mean: (i) if the Stock is not publicly traded, the amount determined by the
Committee in good faith on the date of the grant of the Option; (ii) if the
Stock is traded only otherwise than on a securities exchange and is not reported
A-2
29
on The Nasdaq National Market ("Nasdaq"), the closing quoted selling price of
the Stock on the date of grant of the Option as quoted in "pink sheets"
published by the National Daily Quotation Bureau; (iii) if the Stock is traded
only otherwise than on a securities exchange and is reported on Nasdaq, the
closing Nasdaq reported sales price of the Stock on the date of grant of the
Option, as reported in the Wall Street Journal; or (iv) if the Stock is admitted
to trading on a securities exchange, the closing quoted selling price of the
Stock on the date of grant of the Option, as reported in the Wall Street
Journal.
6. DURATION OF OPTIONS
- -----------------------
a. Non-Qualified Options
TERMINATION OF EMPLOYMENT OR SERVICE (GENERAL). Unless otherwise determined
by the Committee, upon the termination of an Optionee's employment or other
service for any reason other than retirement, disability or death, or
Termination for Cause, the Optionee may exercise only those NQOs that were
immediately exercisable by the Optionee at the date of such termination and
only for a period of three (3) months following the date of such
termination, or, if sooner, until the expiration of the term of the NQOs.
TERMINATION OF EMPLOYMENT OR SERVICE (RETIREMENT). Unless otherwise
determined by the Committee, in the event of an Optionee's retirement (as
described in the Optionee's Option Agreement), the Optionee may exercise
only those NQOs that were immediately exercisable by the Optionee at the
date of retirement and only for a period of one (1) year following the date
of retirement, or, if sooner, until the expiration of the term of the NQOs.
TERMINATION OF EMPLOYMENT OR SERVICE (DISABILITY OR DEATH). Unless
otherwise determined by the Committee, in the event of the termination of an
Optionee's employment or other service due to disability (as described in
the Optionee's Option Agreement) or death, all NQOs held by such Optionee
shall immediately become exercisable and remain exercisable for a period two
(2) years following the date of such termination, or, if sooner, until the
expiration of the term of the NQOs.
TERMINATION OF EMPLOYMENT OR SERVICE (TERMINATION FOR CAUSE). In the event
of an Optionee's Termination for Cause, all rights with respect to the
Optionee's NQOs shall expire immediately upon the effective date of such
Termination for Cause. For purposes of this Plan, "Termination for Cause"
shall include termination because of an Optionee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar infractions).
A-3
30
b. Incentive Stock Options
TERMINATION OF EMPLOYMENT OR SERVICE (GENERAL). Unless otherwise determined
by the Committee, upon the termination of an Optionee's employment or other
service for any reason other than retirement, disability or death, or
Termination for Cause, the Optionee may exercise only those ISOs that were
immediately exercisable by the Optionee at the date of such termination and
only for a period of three (3) months following the date of such termination
or, if sooner, the expiration of the term of the ISOs.
TERMINATION OF EMPLOYMENT (RETIREMENT). Unless otherwise determined by the
Committee, in the event of an Optionee's retirement (under circumstances
described in the Optionee's Option Agreement), the Optionee may exercise
only those ISOs that were immediately exercisable by the Optionee at the
date of retirement and only for a period of one (1) year following the date
of cessation of employment by reason of retirement or, if sooner, the
expiration of the term of the ISOs. Any Option originally designated an ISO
shall be treated as a NQO to the extent the Optionee exercises such Option
more than three (3) months following the date of the Optionee's cessation of
employment by reason of retirement.
TERMINATION OF EMPLOYMENT (DISABILITY OR DEATH). Unless otherwise determined
by the Committee, in the event of the termination of an Optionee's
employment or other service due to disability (as described in the
Optionee's Option Agreement) or death, all ISOs held by such Optionee shall
immediately become exercisable and remain exercisable for a period of one
(1) year following the date of such termination, or, if sooner, until the
expiration of the term of the ISOs.
TERMINATION OF EMPLOYMENT (TERMINATION FOR CAUSE). In the event of an
Optionee's Termination for Cause, all rights under such Optionee's ISOs
shall expire immediately upon the effective date of such Termination for
Cause. For purposes of this provision, "Termination for Cause" shall have
the same meaning as when applied to NQOs.
c. Effect of a Change in Control
Unless otherwise determined by the Committee at the time of grant and
notwithstanding anything in this Plan to the contrary, in the event of a
Change in Control, all outstanding Options shall be vested as of the
effective date of the Change in Control. If, in connection with or as a
consequence of a Change in Control, the Company is merged into or
consolidated with another corporation, if the Company becomes a subsidiary
of another corporation or if the Company sells or otherwise disposes of
substantially all of its assets to another corporation, then unless
provisions are made in connection with such transactions for the continuance
A-4
31
of the Plan and/or the assumption or substitution of then outstanding
Options with new options covering the stock of the successor corporation, or
parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices, such Options shall be canceled as of the
effective date of the merger, consolidation, or sale and the Optionee shall
be paid in cash an amount equal to the difference between the Fair Market
Value of the Stock subject to the Options on the effective date of such
corporate event and the exercise price of the Options. Notwithstanding
anything in this Section 6(c) or any Option agreement to the contrary, in
the event that the consummation of a Change in Control is contingent on
using pooling of interests accounting methodology, the Board may, in its
discretion, take any action necessary to preserve the use of pooling of
interests accounting.
For purposes of this Plan, a Change in Control is defined as the occurrence
of:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934), other than Principal Mutual Holding
Company, or an affiliate, or Thomas L. Blair is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities; or
(b) During any period of twenty-four consecutive months, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(c) The stockholders of the Company approve a definitive agreement,
regarding:
(i) for the merger or other business combination of the Company with
or into another corporation pursuant to which the Company will not
survive or will survive only as a subsidiary of another corporation;
(ii) for the sale or other disposition of all or substantially all of
the assets of the Company;
(iii) for the merger of another corporation into the Company which
survives if, as a result of such merger less than fifty percent (50%)
of the outstanding voting securities of the Company shall be owned in
the aggregate immediately after such merger by the owners of the voting
shares of the Company outstanding immediately prior to such merger;
(iv) for the liquidation or dissolution of the Company; or
(v) any combination of the foregoing.
A-5
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7. EXERCISE OF OPTIONS
- -----------------------
An Option may be exercisable in installments or otherwise upon such terms
as the Committee shall determine when the Option is granted. As a condition of
the exercise, in whole or in part, of any Option, the Committee may require the
Optionee to pay, in addition to the purchase price of the Stock covered by the
Option, an amount equal to any Federal, state, local and foreign taxes that may
be required to be withheld in connection with the exercise of such Option.
Notwithstanding the foregoing, the Committee may authorize the Company's
officers to establish procedures for the satisfaction of an Optionee's
withholding tax liability incurred upon exercise of an Option by enabling the
Optionee to authorize the Company to retain from the total number of shares to
be issued pursuant to such Option exercise that number of shares (based on the
then Fair Market Value Per Share as determined by the Committee) that will
satisfy the withholding tax due.
8. METHOD OF EXERCISE
- ----------------------
a. When the right to purchase shares accrues, Options may be exercised by
giving written notice to the Company stating the number of shares for which
the Option is being exercised, accompanied by payment in full by cash, or
its equivalent, acceptable to the Company, of the purchase price for the
shares being purchased and, if applicable, any Federal, state, local or
foreign taxes required to be withheld in accordance with the provisions of
Paragraph 7 of the Plan. The Committee may establish or direct such
additional or different procedures or requirements for the exercise of
Options from time to time.
b. In the Committee's discretion, payment of the purchase price for the
shares may be made in whole or in part with other shares of Stock of the
Company which are free and clear of all liens and encumbrances. The value of
the shares of Stock tendered in payment for the shares being purchased shall
be the Fair Market Value Per Share on the date of the Optionee's notice of
exercise.
c. Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be
required for the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national securities exchange or
Nasdaq or any Federal, state, local or foreign law. If the Optionee, or
other person entitled to exercise the Option, fails to timely accept
delivery of and pay for the shares specified in such notice, the Committee
shall have the right to terminate the Option with respect to such shares.
d. Each Option Agreement with respect to an ISO shall require the Optionee
to notify the Committee of any disposition of Stock issued pursuant to the
exercise of such Option under the circumstances described in Section 421(b)
of the Code (relating to certain disqualifying dispositions), within 10 days
of such disposition.
A-6
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9. TRANSFERABILITY OF OPTIONS
- ------------------------------
Except as otherwise determined by the Committee, no Option granted under
the Plan shall be assignable or transferable by the Optionee, either voluntarily
or by operation of law, other than by will or the laws of descent and
distribution, and, during the lifetime of the Optionee, shall be exercisable
only by the Optionee.
10. CONTINUANCE OF EMPLOYMENT OR SERVICE
- ----------------------------------------
Nothing contained in the Plan or in any Option Agreement shall confer upon
any Optionee any rights with respect to the continuation of employment by, or
service with, the Company or interfere in any way with the right of the Company
(subject to the terms of any separate employment agreement to the contrary) at
any time to terminate such employment or service or to increase or decrease the
compensation of the Optionee from the rate in existence at the time of the
granting of any Option.
11. RESTRICTIONS ON SHARES
- --------------------------
If the Company shall be advised by counsel that certain requirements under
the Federal, state or foreign securities laws must be met before Stock may be
issued under this Plan, the Company shall notify all persons who have been
issued Options, and the Company shall have no liability for failure to issue
Stock under any exercise of Options because of delay while such requirements are
being met or the inability of the Company to comply with such requirements.
12. PRIVILEGE OF STOCK OWNERSHIP
- --------------------------------
No person entitled to exercise any Option granted under the Plan shall have
the rights or privileges of a shareholder of the Company for any shares of Stock
issuable upon exercise of such Option until such person has become the holder of
record of such shares. No adjustment shall be made for dividends or other rights
for which the record date is prior to the date on which such person becomes the
holder of record, except as provided in Paragraph 13 of the Plan.
13. ADJUSTMENT
- --------------
a. If the number of outstanding shares of Stock are increased or decreased,
or such shares are exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization,
reclassification, stock dividend, stock split, reverse stock split,
combination of shares, or other similar transaction, the aggregate number of
shares of Stock subject to the Plan as provided in paragraph 3 above, the
maximum number of shares under Options that may be granted to an Optionee
during any calendar year specified in paragraph 4(a) above, and the shares
subject to issued and outstanding Options under the Plan shall be
appropriately and proportionately adjusted by the Committee. Any such
adjustment in an outstanding Option shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option
but with an appropriate adjustment in the price for each share or other unit
of any security covered by the Option. In the event the Committee
determines that any dividend or other distribution (whether in the form of
A-7
34
cash, shares of Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
shares of Stock or other securities of the Company, issuance of warrants or
other rights to purchase shares of Stock or other securities of the Company,
or other similar transaction or event affects the shares of Stock or other
securities or property then covered by Options such that an adjustment other
than as provided in the foregoing portion of this subparagraph (a) is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan and Options
granted thereunder, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of shares of
stock (or other securities or property) which thereafter may be made the
subject of Options, (ii) the number and kind of shares of stock (or other
securities or property) subject to outstanding Options, (iii) the purchase
price with respect to any outstanding Options, or, if deemed appropriate,
make provision for a cash payment to the holders of outstanding Options, and
(iv) the aggregate number of shares of Stock or number and kind of other
securities or property subject to the Plan and the maximum number of shares
or other securities or property under Options that may be granted to an
Optionee during any calendar year specified in Paragraph 4(a) of the Plan.
b. Adjustments under this Paragraph 13 shall be made by the Committee whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of Stock shall
be issued under the Plan or in connection with any such adjustment.
A-8
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14. AMENDMENT AND TERMINATION OF PLAN
---------------------------------
a. The Board of Directors, may, from time to time, suspend or terminate the
Plan or amend or revise the terms of the Plan or any Option Agreement;
provided that if and to the extent required by applicable law or rule, any
such amendment to the Plan shall be subject to approval by a majority of
votes cast at a meeting of shareholders at which a quorum representing a
majority of the Stock is present in person or by proxy or such other vote as
may be required by such law or rule.
b. Subject to the provisions in Paragraph 13 of the Plan, the Plan shall
terminate on the date which is ten years after its effective date.
c. Subject to the provisions in Paragraph 13 of the Plan, no amendment,
suspension or termination of this Plan or any Option Agreement shall,
without the consent of the Optionee, adversely affect the rights of such
Optionee under any Option previously granted to such Optionee under the
Plan.
15. EFFECTIVE DATE OF PLAN
- --------------------------
The Plan shall become effective upon adoption by the Board of Directors
subject to approval by a majority of shareholders of the Company present or
represented by proxy at a meeting of shareholders occurring within twelve (12)
months of the date of Board action. Options may be granted under the Plan prior
to the date of shareholder approval; provided, however, that such Options shall
be null and void in the event shareholder approval is not obtained.
A-9
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16. Term of Plan
- ----------------
No Option shall be granted pursuant to the Plan after 10 years after the
effective date of the Plan.
17. Governing Law
- -----------------
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware, except to the extent that Federal law shall be deemed to
apply.
A-10
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EXHIBIT B
HealthExtras, Inc.
2000 DIRECTORS' STOCK OPTION PROGRAM
1. PURPOSE OF THE PROGRAM AND TYPES OF AWARDS
- -----------------------------------------------
The purpose of the HealthExtras, Inc. 2000 Directors' Stock Option Program
(the "Program") is to attract and retain outstanding directors of HealthExtras,
Inc. (the "Company") and to furnish incentives to such persons by providing
opportunities to acquire common stock of the Company on advantageous terms and
to further align such persons' interests with those of the Company's other
stockholders through compensation that is based on the value of the Company's
common stock.
2. ADMINISTRATION OF PROGRAM
- ------------------------------
The Board of Directors of the Company (the "Board of Directors") shall have
the authority to interpret the Program, prescribe, amend and rescind rules and
regulations relating thereto and make all other determinations necessary or
advisable for the administration of the Program.
3. SHARES RESERVED UNDER THE PROGRAM
- --------------------------------------
There is hereby reserved for issuance under the Program an aggregate of
200,000 shares of HealthExtras, Inc. common stock. If an option as to any shares
expires, or is canceled or surrendered, or otherwise terminates for any reason
without having been exercised in full, or for any reason ceases to be
exercisable, the number of unpurchased shares covered thereby shall, unless the
Program shall have been terminated, again become available for the granting of
options under the Program within the aggregate amount stated above.
4. PERSONS ELIGIBLE FOR OPTIONS
- ---------------------------------
Only Non-Employee Directors may participate in the Program. The term
"Non-Employee Director" shall mean a member of the Board of Directors who is not
a full-time employee of the Company or any of its subsidiaries.
5. TYPES OF BENEFITS
- ----------------------
Awards under the Program shall consists solely of the grant of
Non-Qualified Stock Options.
6. GRANTS OF NON-QUALIFIED STOCK OPTIONS
- ------------------------------------------
(a) INITIAL GRANTS. Subject to the provisions of Section 15 of this
Program, as of the date of adoption of this Program by the Board of Directors,
38
each Non-Employee Director as of such date shall be granted automatically,
without further action by the Board of Directors, a Non-Qualified Stock Option
to purchase 15,000 shares of Company common stock.
(b) GRANTS TO NEW NON-EMPLOYEE DIRECTORS. Subject to the provision of
Section 15 of this Program, each Non-Employee Director who, after the date of
adoption of this Program by the Board of Directors, is elected to the Board of
Directors for the first time by stockholders of the Company at any special or
annual meeting of stockholders or, if earlier, is appointed to the Board of
Directors, will, at the time such Non-Employee Director is elected or appointed,
as the case may be, and duly qualified, be granted as of said date
automatically, without further action by the Board of Directors, a Non-Qualified
Stock Option, to purchase 15,000 shares of Company common stock.
(c) SUBSEQUENT GRANTS. Subsequent grants of Non-Qualified Stock Options
for 5,000 shares of Stock will be granted automatically, without further action
by the Board of Directors, to each active Non-Employee Director who has been a
Director since the previous Annual Meeting of Stockholders on the day after the
Annual Meeting of Stockholders in each year for as long as shares remain in the
Program. Subsequent grants will be pro-rated based on the availability of
shares.
(d) VESTING AND EXERCISABILITY. Subject to the provisions of Section 15
of this Program, each Non-Qualified Stock Option shall because exercisable on
the first anniversary date of the date of grant of the Option. To the extent not
exercised, installments shall accumulate and be exercisable at any time, in
whole or in part, but not later than the date the Option expires.
(e) OPTION AGREEMENT. Each grant may be evidenced by an agreement by the
Optionee and the Company (an "Option Agreement"). The Option Agreement will set
forth the terms and conditions of the Option, as determined in accordance with
the Program. It is recognized that, as a matter of policy, certain Directors may
waive their receipt of Options under the Program. In such case, those Options
will not be granted under the Program and will remain available for future
grant. In addition, at the request of a Director, the Board may permit that
options to which a Director would be entitled under this Program be granted to
an affiliate of such Director which has requested that the Director serve on the
Board rather than to the Director.
7. PURCHASE PRICE
- -------------------
The Purchase Price of each share of Company common stock upon exercise of
an Option shall equal 100% of the Fair Market Value Per Share of the Company's
common stock on the Date of Grant.
For purposes of this Program, "Fair Market Value Per Share" of the
Company's common stock shall mean: (i) if the common stock is not publicly
traded, the amount determined as Fair Market Value Per Share by the Board of
Directors in good faith on the date of the grant of the Option; (ii) if the
common stock is traded only otherwise than on a national securities exchange and
is not reported on The Nasdaq National Market ("Nasdaq"), the closing quoted
selling price of the common stock on the date of grant of the Option as quoted
in "pink sheets" published by the National Daily Quotation Bureau; (iii) if the
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39
common stock is traded only otherwise than on a national securities exchange and
is reported on Nasdaq, the closing Nasdaq reported sales price of the common
stock on the date of grant of the Option, as reported in the Wall Street
Journal; or (iv) if the common stock is admitted to trading on a national
securities exchange, the closing quoted selling price of the common stock on the
date of grant of the Option, as reported in the Wall Street Journal.
8. DURATION OF OPTIONS
- ------------------------
DURATION. A Non-Qualified Stock Option will not be exercisable after the
expiration of ten (10) years from the date such Option is granted.
TERMINATION OF EMPLOYMENT OR SERVICE (GENERAL). Upon the termination of an
Optionee's service for any reason other than retirement, disability or death, or
Termination for Cause, the Optionee may exercise only those Options that were
immediately exercisable by the Optionee at the date of such termination and only
for a period of three (3) months following the date of such termination, or, if
sooner, until the expiration term of the Option.
TERMINATION OF SERVICE AS A RESULT OF RETIREMENT, DISABILITY OR DEATH. In
the event of the termination of an Optionee's service due to retirement,
disability (as described in the Optionee's Option Agreement) or death, all
Options held by such Optionee shall immediately become exercisable and remain
exercisable for a period two (2) years following the date of such termination,
or, if sooner, until the expiration term of the Option.
TERMINATION OF SERVICE FOR CAUSE. In the event of an Optionee's Termination
for Cause, all rights with respect to the Optionee's Options shall expire
immediately upon the effective date of such Termination for Cause. For purposes
of this Program, "Termination for Cause" shall include termination because of an
Optionee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar infractions).
ACCELERATION UPON A CHANGE IN CONTROL. In the event of a Change in Control,
all outstanding Options shall be vested as of the effective date of the Change
in Control. If, in connection with or as a consequence of a Change in Control,
the Company is merged into or consolidated with another corporation, if the
Company becomes a subsidiary of another corporation or if the Company sells or
otherwise disposes of substantially all of its assets to another corporation,
then unless provisions are made in connection with such transactions for the
continuance of the Program and/or the assumption or substitution of then
outstanding Options with new options covering the stock of the successor
corporation, or parent or subsidiary thereof, with appropriate adjustments as to
the number and kind of shares and prices, such Options shall be canceled as of
the effective date of the merger, consolidation, or sale and the Optionee shall
be paid in cash an amount equal to the difference between the Fair Market Value
Per Share of the common stock subject to the Option on the effective date
of such corporate event and the exercise price of the Option. Notwithstanding
anything in this Section 8 or any Option Agreement to the contrary, in the event
that the consummation of a Change in Control is contingent on using pooling of
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interests accounting methodology, the Board may, in its discretion, take any
action necessary to preserve the use of pooling of interests accounting. For
purposes of this Program, a Change in Control is defined as the occurrence of:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934), other than Principal Mutual
Holding Company, or an affiliate, or Thomas L. Blair, is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities; or
(b) During any period of twenty-four consecutive months, individuals
who at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period;
or
(c) The stockholders of the Company approve a definitive agreement,
and the closing for such transaction is scheduled to occur within
twenty-four hours for:
(i) the merger or other business combination of the Company
with or into another corporation pursuant to which the
Company will not survive or will survive only as a
subsidiary of another corporation;
(ii) the sale or other disposition of all or substantially all
of the assets of the Company;
(iii) the merger of another corporation into the Company (or
with a subsidiary of the Company) with the Company
surviving, if, as a result of such merger less than fifty
percent (50%) of the outstanding voting securities of the
Company shall be owned in the aggregate immediately after
such merger by the owners of the voting shares of the
Company outstanding immediately prior to such merger;
(iv) the liquidation or dissolution of the Company; or
(v) any combination of the foregoing.
9. METHOD OF EXERCISE
- -----------------------
(a) When the right to purchase shares accrues, Options may be exercised
by giving written notice to the Company stating the number of shares for which
the Option is being exercised, accompanied by payment in full by cash, or its
equivalent, acceptable to the Company, of the purchase price for the shares
being purchased.
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(b) A Non-Employee Director may pay the purchase price of shares upon
exercise of an Option by delivery of a properly executed exercise notice. The
notice shall be accompanied by payment of the purchase price of the shares being
purchase under the Option being exercised in one or more of the following forms:
(i) A check, wire transfer, or money order payable to the order
of the Company for such amount;
(ii) The tender of shares of common stock of Company having a
Fair Market Value equal to the purchase price; and
(iii) A copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan
proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
(c) Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be required
for the Company, with reasonable diligence, to comply with any applicable
listing requirements of any national securities exchange or Nasdaq or any
Federal, state, local or foreign law. If the Optionee, or other person entitled
to exercise the Option, fails to timely accept delivery of and pay for the
shares specified in such notice, the right to the Option with respect to such
shares shall be terminated.
10. TRANSFERABILITY OF OPTIONS
- -------------------------------
Except as provided by the Board of Directors, no Option granted under the
Program shall be assignable or transferable by the Optionee, either voluntarily
or by operation of law, other than by will or the laws of descent and
distribution, and, during the lifetime of the Optionee, shall be exercisable
only by the Optionee.
11. CONTINUANCE OF SERVICE
- ---------------------------
Nothing contained in the Program or in any Option Agreement shall confer
upon any Optionee any rights with respect to the continuation of service with
the Company or interfere in any way with the right of the Company at any time to
terminate such service (unless specified in another arrangement between the
Company and the Optionee) or to increase or decrease the compensation of the
Optionee from the rate in existence at the time of the granting of any Option.
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12. RESTRICTIONS ON SHARES
- -------------------------------
If the Company shall be advised by counsel that certain requirements under
the Federal, state or foreign securities laws must be met before common stock
may be issued under this Program, the Company shall notify all persons who have
been issued Options, and the Company shall have no liability for failure to
issue common stock under any exercise of Options because of delay while such
requirements are being met or the inability of the Company to comply with such
requirements.
13. PRIVILEGE OF STOCK OWNERSHIP
- -------------------------------------
No person entitled to exercise any Option granted under the Program shall
have the rights or privileges of a stockholder of the Company for any shares of
common stock issuable upon exercise of such Option until such person has become
the holder of record of such shares. No adjustment shall be made for dividends
or other rights for which the record date is prior to the date on which such
person becomes the holder of record, except as provided in Paragraph 14 of the
Program.
14. ADJUSTMENT PROVISIONS
- ------------------------------
(a) If the Company shall at any time change the number of issued common
stock without new consideration to the Company (such as by stock dividends or
stock splits), the total number of shares reserved for issuance under this
Program, the number of shares to be granted under Section 6 and the number of
shares covered by each outstanding Non-Qualified Stock Option shall be adjusted
so that the aggregate consideration payable to the Company and the value of each
such benefit shall not be changed. The Board of Directors shall also have the
right to provide for the continuation of Non-Qualified Stock Options or for
other equitable adjustments after changes in the Company or in the common shares
resulting from reorganization, sale, merger, consolidation, spin-off or similar
occurrence.
(b) Notwithstanding any other provision of this Program, and without
affecting the number of shares otherwise reserved or available hereunder, the
Committee may authorize the issuance or assumption of Non-Qualified Stock
Options in connection with any merger, consolidation, acquisition of property or
stock, or reorganization upon such terms and conditions as it may deem
appropriate.
15. STOCKHOLDER APPROVAL
- -------------------------
The Program was adopted by the Board of Directors of the Company on June 7,
2000. The Program and any Non-Qualified Stock Option granted thereunder shall be
null and void if stockholder approval is not obtained by the Annual Meeting of
Stockholders in 2001.
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16. AMENDMENT AND TERMINATION OF PROGRAM
- -----------------------------------------
(a) The Board of Directors may, from time to time, suspend or terminate
the Program or amend or revise the terms of the Program or any Option Agreement;
provided that if and to the extent required by applicable law or rule, any such
amendment to the Program shall be subject to approval by a majority of votes
cast at a meeting of stockholders at which a quorum representing a majority of
the outstanding shares of common stock is present in person or by proxy or such
other vote as may be required by law.
(b) Subject to the provisions in Paragraph 15 of the Program, the Program
shall terminate on the date which is ten years after its effective date.
(c) Subject to the provisions in Paragraph 15 of the Program, no
amendment, suspension or termination of this Program or any Option Agreement
shall, without the consent of the Optionee, adversely affect the rights of such
Optionee under any Option previously granted to such Optionee under the Program.
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EXHIBIT C
HEALTHEXTRAS, INC.
------------------
CHARTER OF THE AUDIT COMMITTEE
------------------------------
MISSION STATEMENT
-----------------
The role of the Audit Committee (the "Committee") is to assist the Board
of Directors in overseeing all material aspects of HealthExtras, Inc.'s (the
"Company") financial reporting, internal control, and audit functions. In
particular, the Committee should focus on the qualitative aspects of financial
reporting to stockholders, compliance with significant applicable legal,
ethical, and regulatory requirements and the objectivity of the Company's
financial statements. The Committee also should foster a strong, positive
working relationship with management, outside auditors, counsel, and other
Committee advisors.
ORGANIZATION
COMMITTEE COMPOSITION. The Committee shall consist of at least three Board
members, all of whom (subject to the exception below) shall be independent
Directors within the contemplation of the Nasdaq Stock Market Rules. Committee
members shall have the ability to read and understand financial statements,
including the balance sheet, income statement, statement of cash flows, and key
performance indicators. At least one member of the Committee must have past
employment experience in finance or accounting, requisite professional
certification in accounting or other comparable experience or background that
results in the individual's financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities. Committee appointments, shall be
approved annually by the Board.
MEETINGS. The Committee shall meet at least quarterly. Additional meetings
shall be scheduled as considered necessary by the Committee or its Chairperson.
A quorum of the Committee shall be a majority of the appointed members of the
Committee.
EXTERNAL RESOURCES. The Committee shall be authorized to access internal
and external resources, as the Committee requires, to carry out its
responsibilities.
EXCEPTION. Notwithstanding the requirement for three independent Board
members, one Director who is not independent as defined in Nasdaq Rule 4200, and
is not a current employee or an immediate family member of such employee, may be
appointed to the Audit Committee, if the Board, under exceptional and limited
circumstances, determines that membership on the Committee by the individual is
required by the best interests of the Company and its shareholders, and the
Board discloses, in the next annual proxy statement subsequent to such
determination, the nature of the relationship and the reasons for that
determination.
ROLES AND RESPONSIBILITIES
GENERAL
o The Chairperson and others on the Committee shall, to the extent
appropriate, have contact throughout the year with senior
management, the Board of Directors, outside auditors and legal
counsel, as applicable, to strengthen the Committee's knowledge of
relevant current and prospective business issues, risks and
exposures. The Committee may request that members of management,
counsel, and the outside auditors, as applicable, participate in
Committee meetings, as necessary, to carry out the Committee's
responsibilities.
o The Committee, with input from management, the outside auditors and,
to the extent appropriate, other Committee advisors, shall develop
an annual plan, which shall include an agenda and procedures for the
review of the Company's quarterly financial data and its year end
audit, as well as the review of the independence of the Company's
outside auditors.
45
o The Committee shall report periodically, as deemed necessary, but at
least semi-annually, to the Board.
o The Committee shall make recommendations to the Board regarding the
compensation to be paid to the outside auditors and its views
regarding the retention of the outside auditors for the upcoming
fiscal year.
RESPONSIBILITY OF THE COMMITTEE
OVERSIGHT OF FINANCIAL REPORTING
(1) The Committee shall review the annual financial statements, including
the overall scope and focus of the annual audit. This review should include a
determination of whether the annual financial statements are complete and
consistent with the information known to Committee members. This review shall
also include a review of key financial statement issues and risks, their impact
or potential effect on reported financial information, the processes used by
management to address such matters, related outside auditor views, and the basis
for audit conclusions. Any important conclusions concerning the year-end audit
work should be discussed well in advance of the public release of the annual
financial statements.
(2) The Committee shall review any important recommendations on financial
reporting, controls and other matters made by the outside auditor management's
response.
(3) The Committee should be briefed on the processes used by management in
producing its interim financial statements and review and discuss with
management any questions or issues concerning the statements. Any important
issues on interim financial statements should be discussed well in advance of
the public release of the interim financial statements.
(4) The Committee should review all major financial reports in advance of
filings or distribution, including the annual report.
OVERSIGHT OF OUTSIDE AUDITOR
(1) The Committee shall require the outside auditor to submit annually a
formal written statement delineating all relationships between the auditor and
the Company, consistent with Independence Standards Board Standard 1.
(2) The Committee shall discuss with the outside auditor any disclosed
relationships or services that may impact the objectivity and independence of
the auditor.
(3) The Committee shall take, or recommend to the Board, appropriate
action to oversee the independence of the outside auditor.
(4) The Committee should meet with the outside auditor at least annually.
(5) The Audit Committee shall communicate to the outside auditor that:
o The outside auditor is ultimately accountable to the Board of
Directors and the Audit Committee as representatives of the
shareholders.
o The outside auditor shall report all relevant issues to
the Committee.
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46
o If the outside auditor identifies significant issues relative
to the overall Board responsibility that have been
communicated to management but, in its judgment, have not been
adequately addressed, it should communicate those issues to
the Committee.
(6) The Board and the Committee have the ultimate responsibility to
select, evaluate, and, where appropriate, replace the outside auditor (or to
nominate the outside auditor to be proposed for shareholder approval in any
proxy statement).
(7) The Committee should require that the outside auditors review the
financial information included in the Company's interim financial statements
before the Company files its quarterly reports with the Securities and Exchange
Commission.
REPORTING TO STOCKHOLDERS
(1) The Committee should annually provide a written report of its
activities and findings, a copy of which shall be included within the proxy
statement for the annual meeting of stockholders. The report shall appear over
the names of the Committee members. Such report shall be furnished to and
approved by the Board of Directors prior to its inclusion in the proxy
statement. The report should state whether the Committee:
o has reviewed and discussed the audited financial statements
with management;
o has discussed with the outside auditors the matters required
to be discussed by Statement of Auditing Standards No. 61;
o has received the written disclosures and the letter from the
outside auditors regarding the independence required by
Independence Standards Board Standard No. 1;
o has discussed with the auditors their independence; and
o based on the review and discussion of the audited financial
statements with management and the outside auditors, has
recommended to the Board of Directors that the audited
financial statements be included in the Company's annual
report on Form 10-K.
(2) The Company should disclose that the Committee is governed by a
written charter, a copy of which has been approved by the Board of Directors.
The Committee should review the charter annually, assess its adequacy and
propose appropriate amendments to the Board of Directors. A copy of the charter
should be filed as an appendix to the proxy statement at least every three
years, to the extent required by SEC regulators.
(3) The Company should also disclose in its proxy statement the
independence of the Committee. To the extent that the Board appoints a
non-independent director to the Committee, the Company should disclose the
nature of the relationship of the non-independent director and the reasons for
appointing the non-independent director to the Committee in the next proxy
statement.
COMMITTEE SELF ASSESSMENT AND EDUCATION
o The Committee should review, discuss, and assess its own performance
as well as the Committee's role and responsibilities, seeking input
from senior management, the Board, and others.
o The Committee should review significant accounting and reporting
issues, including recent professional and regulatory pronouncements
and understand their impact on the Company's business, results of
operation and financial statements.
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While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
in accordance with generally accepted accounting principles. These functions are
the responsibility of management and the outside auditor. Nor is it the duty of
the Committee to conduct investigations, to resolve disagreements, if any,
between management and the outside auditor or to assure compliance with laws and
regulations.
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ANNUAL MEETING OF STOCKHOLDERS
HEALTHEXTRAS, INC.
JUNE 5, 2001
10:00 A.M. EASTERN TIME
-------------------------------
The undersigned hereby appoints Thomas L. Blair and David T. Blair, or
each of them, each with full power of substitution, to act as proxies for the
undersigned, and to vote all shares of common stock of HealthExtras, Inc. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders, to be
held on June 5, 2001, at 10:00 a.m. Eastern Time, at the Bethesda Marriott, 5151
Pooks Hill Road, Bethesda, Maryland 20814 and at any and all adjournments
thereof, with all of the powers the undersigned would possess if personally
present at such meeting as follows:
1. The election as directors of all nominees listed (except as marked
to the contrary below).
NOMINEES:
William E. Brock Edward S. Civera Karen E. Shaff
FOR ALL nominees WITHHOLD AUTHORITY
---------------- ------------------
listed (except as marked to vote for all
to the contrary below.) nominees listed.
|_| |_|
INSTRUCTION: To withhold your vote from some but not all of the nominees, mark
the "FOR ALL" box and write the name(s) of the nominee(s) you do not vote for in
the space provided below.
================================================================================
2. The approval of the HealthExtras, Inc. 2000 Stock Option Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The approval of the HealthExtras, Inc. 2000 Directors' Stock Option
Program.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
49
4. The ratification of the appointment of PricewaterhouseCoopers, LLP
as independent auditors of HealthExtras, Inc. for the fiscal year
ending December 31, 2001.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES AND "FOR" ALL
OF THE PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY
WILL BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL
MEETING.
Dated:_______________________, 2001
--------------------------------
SIGNATURE OF STOCKHOLDER
--------------------------------
SIGNATURE OF CO-HOLDER (IF ANY)
The signer acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of Annual Meeting of Stockholders and of a Proxy
Statement dated May 11, 2001 and of the Annual Report to Stockholders.
NOTE: Please sign exactly as your name appears on this card. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder may sign but only one
signature is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.