<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / 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 Section240.14a-11(c) or
Section240.14a-12
ADVANCE PARADIGM, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
Irving, Texas
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, SEPTEMBER 23, 1997
To the Stockholders of Advance Paradigm, Inc.
The 1997 Annual Meeting of Stockholders (the "Annual Meeting") of Advance
Paradigm, Inc., a Delaware corporation (the "Company"), will be held on Tuesday,
September 23, at 2:00 p.m. at the Omni Park West Hotel, 1590 LBJ Freeway,
Dallas, Texas 75234 for the following purposes:
1. To elect two directors to serve until the Company's Annual Meeting of
Stockholders in 2000;
2. To ratify the selection of Arthur Andersen, LLP as independent auditors
for the Company for the fiscal year ending March 31, 1998; and
3. To transact all other business that may properly come before such
meeting or any adjournment(s) thereof.
The close of business on Wednesday, August 20, 1997, has been fixed as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting or any adjournment(s) thereof. Only holders of
record of the Company's Common Stock at the close of business on the record date
are entitled to notice of, and to vote at, the Annual Meeting. The Company's
stock transfer books will not be closed. A complete list of stockholders
entitled to vote at the Annual Meeting will be available for examination by any
Company stockholder at the Company's headquarters, 545 East John Carpenter
Freeway, Suite 1500, Irving, Texas 75062, for purposes pertaining to the Annual
Meeting, during normal business hours for a period of 10 days prior to the
Annual Meeting, and at the time and place of the Annual Meeting.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
EXPECT TO ATTEND IN PERSON, YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY CARD AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED AND VOTED
AT THE ANNUAL MEETING. A self-addressed, postage prepaid envelope is enclosed
for your convenience. You may revoke your proxy by following the procedures set
forth in the accompanying Proxy Statement.
By order of the Board of Directors
ADVANCE PARADIGM, INC.
Danny Phillips
Secretary
July 29, 1997
<PAGE>
[LOGO]
545 EAST JOHN CARPENTER FREEWAY, SUITE 1500
IRVING, TEXAS 75062
(972) 830-6199
------------------------
PROXY STATEMENT
---------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company for use at the Annual Meeting to be held on Tuesday, September
23, 1997, at 2:00 p.m., local time, at the Omni Park West Hotel, 1590 LBJ
Freeway, Dallas, Texas 75234, or at any adjournment(s) thereof. The solicitation
of proxies by the Board of Directors of the Company (the "Board of Directors")
will be conducted primarily by mail. In addition, officers, directors and
employees of the Company may solicit proxies personally or by telephone,
telegram or other forms of wire or facsimile communication. These persons will
receive no special compensation for any solicitation activities. The Company
will, upon request, reimburse brokers, custodians, nominees and fiduciaries for
reasonable expenses incurred by them in forwarding proxy material to beneficial
owners of the common stock of the Company ("Common Stock"). The costs of the
solicitation will be borne by the Company. This proxy statement and the form of
proxy were first mailed to stockholders of the Company on or about August 22,
1997.
The enclosed proxy, although executed and returned, may be revoked at any
time prior to the voting of the proxy (a) by the execution and submission of a
revised proxy bearing a later date, (b) by written notice of revocation to the
Secretary of the Company at the address set forth above, or (c) by voting in
person at the Annual Meeting. In the absence of such revocation, shares
represented by the proxies will be voted at the Annual Meeting.
At the close of business on August 20, 1997, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding 7,803,067 shares of Common Stock, each share of
which is entitled to one vote. Common Stock is the only class of outstanding
securities of the Company entitled to notice of and to vote at the Annual
Meeting.
A. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting. Peter M. Castleman
and Jeffrey R. Jay, have been nominated to serve as directors and, if elected,
will serve until the Company's Annual Meeting of Stockholders in 2000 and until
their respective successors shall have been duly elected and qualified or until
their earlier death, disqualification or removal from office. Each of these
nominees for director currently serves as a director of the Company. Under the
Bylaws of the Company and consistent with Delaware law, directors shall be
elected by plurality vote at each annual meeting of stockholders at which a
quorum is present and, accordingly, abstentions and "broker non-votes" will have
no effect on the election of directors except in determining if a quorum is
present. A broker non-vote occurs if a broker or other nominee does not have
discretionary authority and has not received instructions with respect to a
particular item. Stockholders may not cumulate their votes in the election of
directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy, if signed and returned, will be voted for the election of the
below-listed nominees. Although the Board of Directors does
1
<PAGE>
not contemplate that any of the nominees will be unable to serve, if such a
situation arises prior to the Annual Meeting, the persons named in the enclosed
proxy will vote for the election of such other person(s) as may be nominated by
the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF PETER M. CASTLEMAN AND
JEFFREY R. JAY TO THE BOARD OF DIRECTORS.
The following table sets forth certain information regarding the director
nominees and the other directors of the Company:
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR DIRECTOR'S
NAME AGE POSITION SINCE TERM ENDING
- - ----------------------------------- --- ----------------------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
David D. Halbert................... 41 Chairman of the Board, President and Chief 1986 1998
Executive Officer
Jon S. Halbert..................... 37 Executive Vice President, Chief Operating 1988 1998
Officer and Director
Peter M. Castleman................. 41 Director 1993 1997
Rogers K. Coleman, M.D............. 65 Director 1996 1998
Stephen L. Green................... 46 Director 1993 1999
Jeffrey R. Jay..................... 39 Director 1993 1997
Kenneth J. Linde................... 50 Director 1997 1999
Michael D. Ware.................... 51 Director 1993 1999
</TABLE>
DAVID D. HALBERT founded the Company in 1986. Mr. Halbert has continuously
served as Chairman of the Board, President and Chief Executive Officer of the
Company. From 1981 to 1985, Mr. Halbert served as Vice President of Finance and
Marketing for LaJet Energy Company, an energy company, and prior to 1981 he
served as Vice President and Chief Operating Officer of Sabian Corporation, a
metal fabrication company. David D. Halbert is the brother of Jon S. Halbert.
JON S. HALBERT joined the Company in January 1988 and has continuously
served as a director and as an executive officer of the Company since such date.
Mr. Halbert currently serves as Executive Vice President and Chief Operating
Officer of the Company. Prior to joining the Company, he worked as a registered
representative of Bear Stearns & Co. Inc., an investment banking firm. Jon S.
Halbert is the brother of David D. Halbert.
PETER M. CASTLEMAN has served as a director of the Company since August
1993. Mr. Castleman has been a General Partner of J. H. Whitney & Co., a private
investment firm, since January 1989, and has served as the Managing Partner of
J. H. Whitney & Co. since December 1992.
ROGERS K. COLEMAN, M.D., has served as a director of the Company since
September 1996. Dr. Coleman has been employed by Blue Cross & Blue Shield of
Texas, Inc. ("BCBS of Texas") since 1976, and has served in various executive
capacities for BCBS of Texas since 1986, including as its President and Chief
Executive Officer since January 1991. In addition, since January 1991, Dr.
Coleman has served as a director of the BCBS Association, the national
association of BCBS plans.
STEPHEN L. GREEN has served as a director of the Company since August 1993.
Mr. Green currently serves as a General Partner of Canaan Partners, a venture
capital firm. Prior to joining Canaan Partners in November 1991, Mr. Green
served as Managing Director in GE Capital's Corporate Finance Group for more
than five years. Mr. Green currently serves on the Board of Directors of the
following public companies: Alarmguard, Inc., Chartwell Re Corporation and Suiza
Foods Corporation.
JEFFREY R. JAY, M.D., has served as a director of the Company since August
1993. Since 1993, he has been a General Partner of J. H. Whitney & Co., a
private investment firm. From 1988 to 1993, Dr. Jay was
2
<PAGE>
employed by Canaan Partners, a venture capital firm. Dr. Jay currently is a
national advisory member of the American Medical Association's Physician Capital
Source Committee and is a director of the following public companies: CRA
Managed Care, Inc. and Nitinol Medical Technologies.
KENNETH J. LINDE has served as a director of the Company since January 1997.
Mr. Linde is employed by Principal Health Care, Inc., a subsidiary of The
Principal Finance Group, and has served as the President and Chief Executive
Officer of Principal Health Care Inc. for more than five years. He has been a
director of United Payors and United Providers, a national provider network,
since May 1997.
MICHAEL D. WARE has served as a director of the Company since August 1993.
Mr. Ware is a co-founder of Advance Capital Markets, Inc., a private investment
firm, and has served as its Managing Director since January 1989. Prior to
founding Advance Capital Markets, Inc., Mr. Ware was the President of Reliance
Energy Services, Inc.
The directors elected at the Annual Meeting will hold office until the 2000
annual meeting of stockholders of the Company and until their successors are
duly elected and qualified, or until their earlier death, resignation,
disqualification or removal from office.
The following table sets forth information regarding the executive officers
of the Company who are not directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Joseph J. Filipek, Jr. ............. 42 Executive Vice President
T. Danny Phillips................... 38 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer
John H. Sattler..................... 44 Senior Vice President, Sales and Marketing
Robert L. Cinquegrana............... 44 Senior Vice President, Strategic Planning and Business Development
Alan T. Wright, M.D................. 40 Vice President and Chief Medical Officer
Ernest Buys......................... 55 Chief Information Officer
</TABLE>
JOSEPH J. FILIPEK, JR., P.D., currently serves as the Executive Vice
President of the Company. Prior to joining the Company in December 1993, Dr.
Filipek founded Advance Paradigm Clinical Services, Inc. ("Advance Clinical") in
1991 as a wholly owned subsidiary of BCBS of Maryland, Inc. ("BCBS of Maryland")
and has continuously served as its Chief Executive Officer and President.
Advance Clinical is a wholly owned subsidiary of the Company, having been
acquired by the Company in December 1993. From 1985 to 1990, he served as
Director of Pharmacy for FreeState Health Plan, and from 1982 to 1984, he held
various managerial positions in the Department of Pharmacy, University of
Maryland.
T. DANNY PHILLIPS joined the Company in February 1992, and currently serves
as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of
the Company and its subsidiaries. Prior to joining the Company, Mr. Phillips
served as Chief Financial Officer of Aloha Petroleum, Ltd., a retail gasoline
company, from April 1991 to February 1992. From 1985 to April 1991, Mr. Phillips
served in various financial management positions for Harken Energy Corporation,
a publicly held company, and its then wholly owned subsidiary E-Z Serve, Inc.
Prior to 1985, Mr. Phillips, a certified public accountant, was with the
accounting firm of Condley and Company.
JOHN H. SATTLER, R.PH., joined the Company in 1994, and serves as the Senior
Vice President, Sales and Marketing of the Company. Prior to joining the
Company, Mr. Sattler served as Vice President, Sales and Marketing for Health
Care Pharmacy Providers, Inc. from September 1992 to November 1994. Prior to
1992, he served as Manager of Third Party Marketing for American Drug Stores,
Inc.
ROBERT L. CINQUEGRANA currently serves as the Senior Vice President,
Strategic Planning and Business Development of the Company. Prior to joining the
Company in December 1993, Mr. Cinquegrana served as
3
<PAGE>
Chief Operating Officer and Vice President of Advance Clinical since its
inception in 1991. From 1987 to 1991, Mr. Cinquegrana was associated with BCBS
of Maryland, including service as Vice President of Strategic Planning and Chief
Financial Officer for Columbia FreeState Health System, a managed care
subsidiary of BCBS of Maryland.
ALAN T. WRIGHT, M.D., M.P.H., joined the Company in April 1994 and currently
serves as Vice President and Chief Medical Officer of the Company. Dr. Wright
has been serving as the Vice President and Chief Medical Officer of the Company
since February 15, 1996. From 1992 to April 1994, he served as Associate
Corporate Medical Director at BCBS of Maryland. Prior to 1992, he served as
Medical Director for Aetna Health Plans of the Mid-Atlantic Region. Dr. Wright
practices emergency medicine on a part time basis at Carr County General
Hospital in Westminister, Maryland. He currently serves as a diplomat to the
American Board of Internal Medicine and the National Board of Medical Examiners.
ERNEST BUYS joined the Company in June 1994, and serves as Chief Information
Officer of the Company. In addition, Mr. Buys serves as Chief Operating Officer
of Advance Paradigm Data Services, Inc., the Company's claims processing
subsidiary. From 1989 to 1993, he served as Vice President of Information
Services for Perform Cost Management.
The executive officers named above were elected to serve in such capacities
until their respective successors have been duly elected and have been qualified
or until their earlier death, disqualification, retirement, resignation or
removal from office.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during fiscal year 1997. One
former director attended at least 60% of the aggregate total meetings of the
Board of Directors and any committee on which such director served. Each of the
other directors attended at least 80% of the aggregate total meetings of the
Board of Directors and any committee on which such director served.
The Board of Directors currently has two standing committees, the
Compensation Committee and the Audit Committee. The Compensation Committee,
which currently consists of Messrs. Coleman, Linde and Ware, meets periodically
to review executive compensation and approve grants of options to Company
officers and employees, as well as to renew, approve and recommend to the Board
of Directors the terms and conditions of all stock option plans or changes to
stock option plans. The Compensation Committee met three times during fiscal
1997 and each member attended all of such meetings. The Audit Committee, which
currently consists of Mr. Ware, Mr. Linde and Dr. Jay, recommends to the Board
of Directors (for approval by the stockholders) a public accounting firm to
conduct the annual audit of the accounts of the Company. The Audit Committee
also meets with the Chief Financial Officer and the accounting firm at the
conclusion of the annual audit to review the audited financial statements and to
discuss the results of the audit, any significant recommendations by the
accounting firm for improvement of the Company's accounting systems and
controls, and the quality and depth of staffing in the accounting and financial
departments of the Company. The Audit Committee met one time during fiscal 1997
and each member attended this meeting.
COMPENSATION OF DIRECTORS
Directors did not receive compensation for serving as directors of the
Company in the year ended March 31, 1997. Beginning in the year ending March 31,
1998, each non-officer director will receive $2,000 per meeting attended and
$1,000 per committee meeting attended. The Company reimburses directors for
out-of-pocket expenses incurred in connection with attending Board and committee
meetings. Directors will be eligible to receive nonstatutory stock options under
the Company's 1997 Nonstatutory Stock Option Plan. See "Executive
Compensation--Stock Option Plans" for a description of such plan.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid or awarded by the Company to the Chief Executive Officer and the four most
highly compensated executive officers whose cash compensation exceeded $100,000
(the "Named Executives") for services rendered in all capacities for fiscal
years 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
YEAR SALARY $ BONUS $ OPTIONS (#) COMPENSATION
--------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
David D. Halbert.................................... 1997 $ 171,635 $ 91,000 92,500
Chairman of the Board, President 1996 $ 150,000 $ 70,280 --
and Chief Executive Officer
Jon S. Halbert...................................... 1997 152,981 76,570 92,500
Executive Vice President and 1996 140,000 62,315 --
Chief Operating Officer
Joseph J. Filipek, Jr. ............................. 1997 156,492 70,947 57,500
Executive Vice President 1996 124,200 55,282 --
T. Danny Phillips................................... 1997 156,277 69,983 48,750
Senior Vice President and 1996 120,000 47,790 --
Chief Financial Officer
Alan T. Wright...................................... 1997 162,389 59,500 --
Vice President and Chief 1996 124,200 49,463 18,750
Medical Officer
</TABLE>
The following table sets forth information regarding the stock option grants
made by the Company to the Named Executives during fiscal year 1997. In
addition, in accordance with the regulations of the Commission, hypothetical
gains or "option spreads" that would exist for the respective options are shown.
These gains are based on assumed rates of annual stock price appreciation of 5%
and 10% from the date the options were granted.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM(4)
NAME GRANTED(1) YEAR ($/SH) DATE 5%($) 10%($)
- - --------------------------------------------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David D. Halbert(2).......................... 62,500 14.0% 9.00 10/7/06 353,753 896,480
David D. Halbert(3).......................... 30,000 6.7% 12.50 12/23/06 235,835 597,653
Jon S. Halbert(2)............................ 62,500 14.0% 9.00 10/7/06 353,753 896,480
Jon S. Halbert(3)............................ 30,000 6.7% 12.50 12/23/06 235,835 597,653
Joseph J. Filipek, Jr.(2).................... 37,500 8.4% 9.00 10/7/06 212,252 537,888
Joseph J. Filipek, Jr.(3).................... 20,000 4.5% 12.50 12/23/06 157,224 398,435
T. Danny Phillips(2)......................... 28,750 6.5% 9.00 10/7/06 162,726 412,381
T. Danny Phillips(3)......................... 20,000 4.5% 12.50 12/23/06 157,224 398,435
Alan T. Wright............................... -- -- -- -- -- --
</TABLE>
- - ------------------------
(1) The options reflected in this table were all granted under the Company's
1993 Incentive Stock Option Plan. The date of grant is 10 years prior to the
expiration date listed.
(2) The options vest and become exercisable in cumulative installments of
one-fifth of the number of shares of Common Stock upon the first five
anniversaries of the date of grant so long as the officer remains an
employee of the Company or its affiliates on such anniversaries.
(3) The options vest and become exercisable in cumulative installments of
one-third of the number of shares of Common Stock upon the first three
anniversaries of the date of grant so long as the officer remains an
employee of the Company or its affiliates on such anniversaries.
(4) These amounts represent only certain assumed rates of appreciation based on
the grant date value in accordance with the Commission's executive
compensation rules. Actual gains, if any, on stock option exercises will
depend on future performance of the Common Stock. No assurance can be given
that the values reflected in these columns will be achieved.
6
<PAGE>
The following table summarizes pertinent information concerning the number
and value of any options held by the Named Executives at March 31, 1997. No
options were exercised by the Named Executives in fiscal year 1997.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS
(#) AT FISCAL YEAR END ($)
---------------------------- --------------------------
EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
---------------------------- --------------------------
<S> <C> <C>
David D. Halbert.................... 204,700/160,800 $ 2,285,185/974,540
Jon S. Halbert...................... 204,850/160,900 2,286,693/975,545
Joseph J. Filipek, Jr............... 45,000/87,500 452,250/475,875
T. Danny Phillips................... 54,950/71,550 562,398/366,327
Alan T. Wright...................... 8,750/22,500 20,688/52,125
</TABLE>
- - ------------------------
(1) Upon the occurrence of the following events, the vesting of the options will
accelerate: (i) as to the options held by Messrs. D. Halbert, J. Halbert and
Phillips, upon the consummation of any transaction in which an outside
entity gains more than 50% ownership of the Company, the options will vest
immediately prior to such transaction and (ii) as to the options held by Dr.
Filipek and Dr. Wright, upon a sale of substantially all of the Common Stock
or assets of the Company or a merger in which the Company is not the
surviving entity, the options will vest immediately prior to such
transaction.
(2) The value of the options is based upon the difference between the March 31,
1997 market value of $13.25 per share and the exercise price.
EMPLOYMENT AGREEMENTS
On August 4, 1993, each of Messrs. D. Halbert, J. Halbert and Phillips
entered into nondisclosure/ noncompetition agreements with the Company pursuant
to which each agreed during the term of his employment, and for two years
thereafter, not to compete with the Company in the continental United States
and, for the one-year period following termination, not to solicit or interfere
with the Company's relationship with any person or entity doing business with
the Company, or offer employment to any of the Company's employees.
In connection with the Company's acquisition of Advance Clinical in December
1993, Advance Clinical entered into three-year employment agreements with each
of Dr. Filipek and Mr. Cinquegrana. Both of these contracts were extended in
December 1996. Dr. Filipek, employed as President and Chief Executive Officer of
Advance Clinical, is entitled to an annual base salary of $175,000, subject to
annual increases of at least $10,000. Mr. Cinquegrana, employed as Vice
President and Chief Operating Officer of Advance Clinical, is entitled to an
annual base salary of $145,000, subject to annual increases of at least $5,000.
In addition, the employment agreement provides that Dr. Filipek and Mr.
Cinquegrana are entitled to participate in any bonus, insurance, 401(k) or other
plans generally available to Advance Clinical's employees. Further, the
respective employment agreements grant 57,500 and 22,500 qualified stock options
to Dr. Filipek and Mr. Cinquegrana, respectively, which vest over the next five
years. The employment agreements contain confidentiality, noncompetition and
non-solicitation provisions effective during the term of employment and for one
year after employment has terminated, unless employment is terminated for cause,
in which case the noncompetition provision will survive for two years.
Effective as of November 14, 1996, the Company entered into a three-year
employment agreement with Mr. Sattler to serve as the Company's Senior Vice
President, Sales and Marketing. Mr. Sattler is entitled to receive an annual
base salary of $155,000, subject to annual increases of at least $10,000. In
7
<PAGE>
addition, the employment agreement provides that Mr. Sattler is entitled to
participate in any bonus and benefit plans of the Company. Further, the
employment agreement grants 32,500 qualified stock options to Mr. Sattler which
will vest over the next five years. The employment agreement contains
confidentiality, noncompetition and non-solicitation provisions effective during
the term of the employment and for one year after employment has terminated.
Effective as of February 15, 1996, the Company entered into a three-year
employment agreement with Dr. Wright to serve as Vice President and Chief
Medical Officer of the Company. Dr. Wright is entitled to an annual base salary
of $165,000 for the fiscal year ending March 31, 1997, $175,000 for the fiscal
year ending March 31, 1998 and $185,000 for the fiscal year ending March 31,
1999. In addition, the employment agreement provides that Dr. Wright is entitled
to participate in any bonus or benefit plans of the Company. Further, the
employment agreement grants 18,750 qualified stock options to Dr. Wright, which
will vest at a rate of 20% of the total options on each of the first five
anniversaries of his employment agreement. The employment agreement contains
confidentiality, noncompetition and non-solicitation provisions effective during
the term of employment and for one year after employment has terminated, unless
employment is terminated for cause, in which case the noncompetition provision
will survive for two years.
Effective as of June 17, 1996, the Company entered into a three-year
employment agreement with Mr. Buys to serve as the Company's Chief Information
Officer. Mr. Buys is entitled to receive an annual base salary of $150,000,
subject to annual increases at the discretion of the Board of Directors. In
addition, the employment agreement provides that Mr. Buys is entitled to
participate in any bonus and benefit plans of the Company.
STOCK OPTION PLANS
On July 30, 1993, the Board of Directors and the stockholders of the Company
adopted the 1993 Incentive Stock Option Plan (the "1993 Incentive Plan") which
provides for the grant of qualified stock options to officers and key employees
of the Company. The purpose of the 1993 Incentive Plan is to assist the Company
in attracting and retaining key employees. A total of 1,859,000 shares of Common
Stock has been reserved for issuance under the 1993 Incentive Plan. As of March
31, 1997, options to purchase 1,279,000 shares of Common Stock have been granted
thereunder. The options granted under the 1993 Incentive Plan are incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
The 1993 Incentive Plan is administered by the Compensation Committee of the
Board of Directors, which is comprised of directors who are not participants in
the 1993 Incentive Plan. Subject to the provisions of the 1993 Incentive Plan,
the Compensation Committee has the authority to administer the 1993 Incentive
Plan and determine, among other things, the interpretation of any provision of
the 1993 Incentive Plan, the eligible employees who are to be granted stock
options, the number of shares which may be issued and the option exercise price.
In no event will options be granted at prices less than the fair market value of
the Common Stock on the date of grant. No option can be granted for a term of
more than ten years.
On December 1, 1993, in connection with the Advance Clinical acquisition,
the Board of Directors of the Company adopted a second incentive stock option
plan, the terms and provisions of which are identical to those of the 1993
Incentive Plan. A total of 178,750 shares of Common Stock were reserved for
issuance under this second incentive stock option plan, all of which have been
issued to employees of Advance Clinical.
In connection with the merger of Advance Health Care, Inc. ("Advance Health
Care") with and into the Company (the "Merger"), the 1993 Incentive Plan was
amended to increase the number of shares reserved for issuance thereunder to
1,859,000 and the Advance Health Care incentive stock option plan
8
<PAGE>
was merged with and into the 1993 Incentive Plan. Holders of options under the
Advance Health Care incentive stock option plan received options to purchase
Common Stock under the 1993 Incentive Plan.
Options granted under the 1993 Incentive Plan are not transferable other
than by will or under the laws of descent and distribution, and are exercisable
during the lifetime of the optionee or his guardian or legal representative.
Upon termination of the optionee's employment with the Company, the period of
time during which the stock options are exercisable is restricted to three
months. The Board of Directors has the right to amend, suspend or terminate the
1993 Incentive Plan at any time, but no such action after the 1993 Incentive
Plan becomes effective can affect or impair the rights of any optionee under any
options granted prior to such action. Certain amendments must be approved by the
holders of Common Stock.
On May 1, 1997, the Board of Directors and the stockholders of the Company
adopted the 1997 Nonstatutory Stock Option Plan (the "Nonstatutory Plan"), which
provides for the grant of qualified stock options to directors, officers,
consultants, advisors and employees of the Company. The purpose of the
Nonstatutory Plan is to advance the interests of the Company by encouraging
stock ownership on the part of certain directors, officers, consultants,
advisors and employees, by enabling the Company to secure and retain the
services of highly qualified persons, and by providing such persons with an
additional incentive to advance the success of the Company. A total of 300,000
shares of Common Stock has been reserved for issuance under the Plan. As of May
1, 1997, options to purchase 90,000 shares of Common Stock have been granted
thereunder, which will vest over the next three years.
The Nonstatutory Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the Nonstatutory Plan, the
Compensation Committee has the authority to administer the Nonstatutory Plan and
determine, among other things, the interpretation of any provision of the
Nonstatutory Plan, the eligible employees who are to be granted stock options
and the number of shares which may be issued. Except as otherwise provided in an
optionee's Nonstatutory Stock Option Agreement, the exercise price for each
option share will be determined by the Compensation Committee. No option can be
granted for a term of more than ten years.
Options granted under the Nonstatutory Plan may be transferred by the
optionee, provided that there is no consideration for such transfer, the
optionee remains responsible for employment tax and other withholding taxes
associated with the exercise of the options, the optionee notifies the Company
in writing that such transfer has occurred and the Company approves the transfer
documents (which approval will not be unreasonably withheld). Upon termination
of the optionee's service relationship with the Company, the period of time
during which the stock options are exercisable is restricted to twelve months.
The Board of Directors has the right to alter, amend, suspend or discontinue the
Nonstatutory Plan, or alter or amend any and all option agreements granted
thereunder.
INCENTIVE COMPENSATION PLAN
Employees of the Company who hold director-level positions or higher are
eligible to receive annual incentive-based bonus payments if the Company meets
or exceeds certain predetermined annual performance goals. The bonuses payable
under the incentive compensation plan are based on a percentage of each
employee's salary. One-half of the bonus is payable upon the Company meeting the
predetermined performance goals, with the other one-half subject to the
satisfaction of certain performance goals as determined by management for such
individual.
401(k) PLAN
The Company has established a tax-qualified employee savings and retirement
plan (the "401(k) Plan"). All employees who have been employed by the Company
for at least three months are eligible to participate. Employees may contribute
to the 401(k) Plan subject to a statutorily annual limit. The Company is
required to make contributions to the 401(k) Plan of at least 50% of the first
6% of salary deferral contributed by each participant.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
In fiscal year 1997, decisions with respect to the compensation of the
Company's executive officers and other employees were made by a Compensation
Committee consisting of Messrs. Coleman, Linde and Ware. None of the members of
the Compensation Committee has been an officer of the Company.
Mr. D. Halbert, Chairman of the Board, Chief Executive Officer and President
of the Company, serves on the Board of Directors of Advance Capital Markets
("ACM"). Mr. Ware, a member of the Company's Board of Directors and the
Compensation and Audit Committees, is the Managing Director of ACM. Each of
Messrs. D. Halbert and Ware participates in the determination of ACM's executive
officer compensation.
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE STOCKHOLDER
RETURN PERFORMANCE PRESENTATION THAT APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL
NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT") OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's compensation plans, including the Company's stock
option plans. The Committee has established compensation policies and made the
compensation decisions described herein for the years presented. The Committee's
compensation policies were applied to each of the Named Executive Officers,
including the Chief Executive Officer ("CEO"), in the same manner.
The Committee believes that in order for the Company to succeed it must be
able to attract and retain qualified executives. The objectives of the Committee
in determining the type and amount of executive officer compensation are (i) to
provide a compensation package consisting of a base salary, bonus and long term
incentives in the form of stock options, in the aggregate, competitive with the
median range for peer group companies and (ii) to allow the Company to attract
and retain talented executive officers and to align their interests with those
of the shareholders.
CASH COMPENSATION
The Company's cash compensation policy for its executive officers, including
the CEO, is to provide short-term compensation consisting of two components, a
base annual salary which does not fluctuate and a cash bonus awarded based upon
specific short-term financial goals of the Company.
BASE SALARY
In fiscal year 1997, the Company engaged an outside consultant to determine
the extent to which the Company's policy on cash compensation was being met with
respect to all executive officers of the Company. The consultant gathered
compensation information on a group of similar, peer group companies. Overall,
it was the Committee's intent that the salaries of the Company's officers be
competitive with those of executives with like responsibilities in companies
within this peer group. The CEO's base salary was determined in this manner, as
reflected in the summary compensation table.
BONUS
Annual incentive bonuses are intended to reflect the Committee's belief that
a significant portion of the annual compensation of each executive officer
should be contingent upon the performance of the Company, as well as the
individual contribution of each officer. Accordingly, the executive officers of
the
10
<PAGE>
Company, including the CEO, participate in an annual executive bonus plan which
provides for cash bonuses based upon the Company's overall financial performance
and the achievement of certain specified levels of profitability for the fiscal
year. The Committee annually establishes targeted profitability levels for the
ensuing fiscal year in conjunction with the Company's annual financial plan. The
purpose of the bonus plan is to reward and reinforce executive management's
commitment to achieve levels of annual profitability and return consistent with
increasing shareholder value.
The Committee annually determines in advance each executive's participation
level in the bonus plan. The Committee takes into account various qualitative
and quantitative factors which reflect the executive's position, longevity in
office, level of responsibility, and ability to impact the Company's
profitability and financial success. For fiscal year 1997 (as compared to fiscal
year 1996), the Company increased revenues by 101% and net income before taxes
by 346%, both of which were in excess of the Company's financial plan. Cash
bonuses earned under the bonus plan are paid each year upon completion of the
Company's annual audit of the results of operations for the previous fiscal year
by the Company's outside auditors. The CEO's bonus was determined in this
manner, as reflected in the summary compensation table.
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 values 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 Committee's
subjective evaluation of the contribution an executive can and has made to
overall growth and profitability of the Company and the number of shares
available for award under the stock option plan.
Stock options are granted with an exercise price equal to the market value
on the date of grant and constitute compensation only if the Company's stock
price increases thereafter. The Committee has discretion to determine the
vesting schedule for each option grant and generally has made grants which
become exercisable in equal amounts over three or five years. Executives must be
employed by the Company at the time of vesting in order to exercise their
options. The number of shares granted to the CEO was determined in this manner,
as reflected in the summary compensation table.
Compensation Committee
Rogers K. Coleman, Chairman
Kenneth J. Linde
Michael D. Ware
11
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the percentage change in the
cumulative total return on the Company's Common Stock with the cumulative total
return of the CRSP Total Return Index for the Nasdaq National Market (U.S.
Companies) ("Nasdaq Market Index") and the CRSP Total Return Industry Index for
Nasdaq Health Care Stocks ("Health Care Index") for the period commencing on
October 8, 1996(1) and ending on March 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
OCTOBER 8, 1996 THROUGH MARCH 31, 1997(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEGEND ADVANCE PARADIGM, INC. NASDAQ N-HEALTH CARE
<S> <C> <C> <C>
10/96 100 100 100
03/97 147.2 98.2 83.9
</TABLE>
- - ------------------------
(1) For purposes of this presentation, the Company has used a per share price of
$9.00 which was the closing sales price of the Company's Common Stock on
October 8, 1996. Trading in the Company's Common Stock commenced on October
8, 1996, and the Company's 1997 fiscal year ended on March 31, 1997.
(2) Assumes that $100.00 was invested on October 8, 1996 in the Company's Common
Stock at a price of $9.00 per share and at the closing sales price for each
index on that date and that all dividends were reinvested. No cash dividends
have been declared on the Company's Common Stock. Stockholder returns over
the indicated period should not be considered indicative of future
stockholder returns.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WHITNEY FINANCING
On December 8, 1993, the Company and an affiliate of J.H. Whitney & Co. (the
"Affiliate") entered into a Note and Warrant Purchase Agreement pursuant to
which the Affiliate paid the Company $7.0 million in exchange for a note (the
"Whitney Note") and a warrant (the "Whitney Warrant") to purchase shares of
Common Stock. Although the Whitney Note had a seven-year term, the Company was
obligated to prepay the indebtedness, without penalty or premium, upon
consummation of a public offering, and thus approximately $7.0 million of the
net proceeds received from the Company's initial
12
<PAGE>
public offering were used to pay the Whitney Note in full. The Whitney Warrant
grants the Whitney Debt Fund the right to purchase an aggregate of 336,500
shares of Common Stock at an exercise price of $4.00 per share until December 8,
2003. Mr. Castleman has been a General Partner of J.H. Whitney & Co. since 1989,
and has served as the Managing Partner of J.H. Whitney & Co. since December
1992. Dr. Jay has been a General Partner of J.H. Whitney & Co. since 1993.
MANAGEMENT RELATIONSHIP WITH ADVANCE HEALTH CARE
Prior to the consummation of the merger of Advance Health Care, Inc.
("Advance Health Care") with and into the Company (the "Merger"), certain
management employees of the Company provided administrative and management
services to Advance Health Care. Each of Mr. D. Halbert, the Chairman of the
Board, President and Chief Executive Officer of the Company, and Mr. J. Halbert,
Executive Vice President and Chief Operating Officer of the Company, served in
the same positions for Advance Health Care. Additionally, Mr. Phillips, the
Company's Senior Vice President, Chief Financial Officer, Secretary and
Treasurer served as Chief Financial Officer and Vice President of Accounting for
Advance Health Care. Further, Messrs. D. Halbert, J. Halbert and Ware served on
the Board of Directors of Advance Health Care.
As of August 1, 1993, the Company and Advance Health Care entered into an
agreement for the provision of mail pharmacy and claims adjudication services
for the benefit of employees of certain subsidiaries of Advance Health Care.
During fiscal year 1996, Advance Health Care paid the Company approximately
$56,000 (the fair market value as determined by the Board of Directors) for
these services. This agreement had an initial one-year term, to renew
automatically for 12-month periods unless terminated by either party upon
written notice delivered 90 days prior to the expiration of any term. This
agreement terminated as of the effective date of the Merger.
WARRANTS TO BCBS OF TEXAS
On November 25, 1995, the Company granted to BCBS of Texas the right to earn
up to four warrants, each representing the right to acquire 66,750 shares of
Common Stock, in consideration of BCBS of Texas causing additional lives to be
enrolled in the Company's pharmacy benefit management programs (the "BCBS of
Texas Warrants"). BCBS of Texas' right to earn the BCBS of Texas Warrants
expires November 25, 2000. Each BCBS of Texas Warrant will not be exercisable
until the first annual anniversary of its issuance. At such time the BCBS of
Texas Warrant will be exercisable in whole during a four-year term at an
exercise price of $11.00 per share. As of June 30, 1997, none of the BCBS of
Texas Warrants has been earned or issued. Dr. Coleman has been employed by BCBS
of Texas since 1976, and has served in various executive capacities for BCBS of
Texas since 1986, including as its President and Chief Executive Officer since
January 1991.
ISSUANCE OF SERIES B PREFERRED STOCK
On June 25, 1996, the Company and BCBS of Texas entered into a stock
purchase agreement (the "Series B Stock Purchase Agreement") pursuant to which
BCBS of Texas purchased an aggregate of 2,597 shares of the Series B Preferred
Stock at an effective purchase price of $3,850 per share. Upon consummation of
the initial public offering (at the initial public offering price of $9.00 per
share), the number of shares of Series B Preferred Stock was adjusted to 4,444
shares (at an effective purchase price of $2,250 per share). BCBS of Texas has
certain registration rights in connection with its shares. As of the date of
sale, the conversion rate of the Series B Preferred Stock was one-to-one.
Following the stock split of the Common Stock in connection with the initial
public offering, each share of Series B Preferred Stock is convertible into 250
shares of Common Stock. Dr. Coleman has been employed by BCBS of Texas since
1976, and has served in various executive capacities for BCBS of Texas since
1986, including as its President and Chief Executive Officer since January 1991.
13
<PAGE>
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal stockholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
Executive Officers, and persons who own more than 10% of the Company's Common
Stock, to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, Directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge and based solely on
review of the copies of such reports furnished to the Company during the period
commencing October 8, 1996 and ending March 31, 1997, its Officers, Directors
and greater than 10% stockholders had complied with all applicable Section 16(a)
filing requirements.
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of June 30, 1997 with respect to
(i) each person known by the Company to own beneficially more than five percent
of the Company's Common Stock; (ii) each of the Company's directors and Named
Executive Officers; and (iii) all directors and executive officers as a group.
Pursuant to the rules of the Commission, in calculating percentage ownership,
each person is deemed to beneficially own his own shares subject to options
exercisable within 60 days after June 30, 1997, but options owned by others
(even if exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER THE
OFFERING
-------------------------
NUMBER PERCENTAGE
---------- -------------
<S> <C> <C>
J.H. Whitney & Co. (1)................................................................... 1,597,750 19.6%
177 Broad Street
Stamford, CT 06901
Canaan Capital Partners L.P. (2)......................................................... 1,090,750 14.0
105 Rowayton Avenue
Rowayton, CT 06853
Blue Cross & Blue Shield of Texas, Inc. (3).............................................. 1,111,111 12.5
901 S. Central Expressway
Richardson, TX 75081
Assicurazioni Generali S.p.A............................................................. 442,000 5.7
117 Fenchurch Street
London, EC3M 5DY
United Kingdom
David D. Halbert (4)..................................................................... 546,142 6.8
545 E. John Carpenter Freeway
Suite 1900
Irving, TX 75062
Jon S. Halbert (5)....................................................................... 367,792 4.6
Joseph J. Filipek (6).................................................................... 45,000 *
Alan T. Wright (7)....................................................................... 8,750 *
T. Danny Phillips (8).................................................................... 61,200 *
Michael D. Ware.......................................................................... 25,500 *
Peter M. Castleman (9)................................................................... 1,597,750 19.6
Stephen L. Green (10).................................................................... 1,106,250 14.2
Jeffrey R. Jay (11)...................................................................... 1,605,250 19.7
Rogers K. Coleman (12)................................................................... 1,111,111 12.5
All directors and executive officers as a group (14 persons) (13)........................ 4,954,903 50.2%
</TABLE>
- - ------------------------
(1) Includes 261,250 shares of Common Stock owned by J.H. Whitney & Co.,
1,000,000 shares of Common Stock owned by the Whitney 1990 Equity Fund, L.P.
(the "Whitney Fund") and 336,500 shares of Common Stock issuable upon
exercise of the Whitney Warrant held by the Whitney Debt Fund. The
individual General Partners of J.H. Whitney & Co., who are also General
Partners of the Whitney Fund and Whitney Debt Fund, share investment and
voting power with respect to the shares of Common Stock owned by such
entities. Mr. Castleman and Dr. Jay, each a director of the Company, serve
as Managing Partner and General Partner, respectively, of J.H. Whitney & Co.
15
<PAGE>
(2) Includes 117,000 shares of Common Stock owned by Canaan L.P. and 973,750
shares of Common Stock owned by Canaan Capital Offshore Limited Partnership
C.V. ("Canaan Offshore"). Canaan Capital Limited Partnership ("Canaan L.P.")
exercises sole investment and voting power with respect to the shares of
Common Stock owned by such entities. Mr. Green, a director of the Company,
is a General Partner of Canaan L.P. Does not include 125,000 shares held by
Quai Ltd., as to which Canaan L.P. disclaims beneficial ownership.
(3) Represents 1,111,111 shares issuable upon the conversion of the Series B
Preferred Stock held by BCBS of Texas. Dr. Coleman, a director of the
Company, is an officer of BCBS of Texas.
(4) Includes 204,700 shares issuable pursuant to options which are exercisable
within 60 days of June 30, 1997. Includes 19,592 shares held by Halbert &
Associates, Inc. David D. Halbert may be deemed to beneficially own all of
the shares held by Halbert & Associates, Inc. Also includes 29,850 shares of
Common Stock held for the benefit of Mr. D. Halbert's minor children, as to
which Mr. D. Halbert disclaims beneficial ownership.
(5) Includes 204,850 shares issuable pursuant to options which are exercisable
within 60 days of June 30, 1997. Includes 19,592 shares held by Halbert &
Associates, Inc. Jon S. Halbert may be deemed to beneficially own all of the
shares held by Halbert & Associates, Inc. Also includes 29,850 shares of
Common Stock held for the benefit of Mr. J. Halbert's minor children, as to
which Mr. J. Halbert disclaims beneficial ownership.
(6) Includes 45,000 shares issuable pursuant to options which are exercisable
within 60 days of June 30, 1997.
(7) Includes 8,750 shares issuable pursuant to options which are exercisable
within 60 days of June 30, 1997.
(8) Includes 54,950 shares issuable pursuant to options which are exercisable
within 60 days of June 30, 1997.
(9) Includes no shares held directly by Mr. Castleman. Mr. Castleman, a director
of the Company, is a General Partner of J.H. Whitney & Co., the Whitney Fund
and the Whitney Debt Fund and therefore may be deemed to share beneficial
ownership of the shares held by the Whitney Investors. J.H. Whitney, the
Whitney Fund and the Whitney Debt Fund are collectively referred to as the
"Whitney Investors."
(10) Includes 15,500 shares held directly by Mr. Green. Mr. Green, a director of
the Company, is a General Partner of Canaan Partners, the General Partner of
Canaan L.P. and Canaan Offshore and therefore may be deemed to share
beneficial ownership of the shares held by the Canaan Investors other than
125,000 shares held by Quai Ltd., as to which Mr. Green disclaims beneficial
ownership. Canaan L.P., Canaan Offshore, Quai Ltd., Dr. Jay and Mr. Green
are collectively referred to as the "Canaan Investors."
(11) Includes 7,500 shares held directly by Dr. Jay. Dr. Jay, a director of the
Company, is a General Partner of J.H. Whitney & Co., the Whitney Fund and
the Whitney Debt Fund and therefore may be deemed to share beneficial
ownership of the shares held by the Whitney Investors.
(12) Represents 1,111,111 shares issuable upon the conversion of the Series B
Preferred Stock held by BCBS of Texas. Dr. Coleman is the President and
Chief Executive Officer of BCBS of Texas. Dr. Coleman disclaims beneficial
ownership of these shares.
(13) Includes 3,819,203 shares beneficially held by entities affiliated with
certain directors and includes 584,500 shares subject to stock options held
by directors and officers exercisable within 60 days of June 30, 1997.
16
<PAGE>
B. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen, LLP, which
has served as independent auditors of the Company since 1992, as independent
auditors of the Company for the fiscal year ending March 31, 1998, and
recommends ratification by the stockholders of such appointment. Such
ratification requires the affirmative vote of the holders of a majority of the
Common Stock of the Company entitled to vote on this matter and represented in
person or by proxy at the Annual Meeting. Accordingly, under the Bylaws of the
Company and in accordance with Delaware law, an abstention would have the same
legal effect as a vote against this proposal, but a broker non-vote would not be
counted for purposes of determining whether a majority had been achieved. The
persons named in the accompanying proxy intend to vote for ratification of such
appointment unless instructed otherwise on the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of Arthur Andersen, LLP as the Company's
independent auditors without the approval of the stockholders of the Company
whenever the Board of Directors deems such termination necessary or appropriate.
A representative of Arthur Andersen, LLP is expected to attend the Annual
Meeting and will have the opportunity to make a statement, if such
representative desires to do so, and will be available to respond to appropriate
questions.
ANNUAL REPORT
The 1997 Annual Report of the Company, including financial statements,
accompanies this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material and for presentation at the Company's 1998 Annual Meeting of
Stockholders must forward such proposal to the Secretary of the Company at the
address indicated on page 1 of this Proxy Statement, so that the Secretary
receives it no later than April 1, 1998.
FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH
31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING
EXHIBITS, ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO ADVANCE PARADIGM,
INC., 545 EAST JOHN CARPENTER FREEWAY, SUITE 1500, DALLAS, TEXAS 75062,
ATTENTION: DANNY PHILLIPS, SECRETARY. COPIES OF EXHIBITS ARE AVAILABLE UPON
PAYMENT OF $25.00 TO COVER THE COSTS OF REPRODUCTION.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons voting the proxy.
By Order of the Board of Directors,
Danny Phillips
Secretary
July 29, 1997
17
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ADVANCE PARADIGM, INC.
The undersigned hereby appoints Danny Phillips and David Halbert proxies, with
power to act without the other and with power of substitution, and hereby
authorizes them to represent and vote, as designated on the other side, all
the shares of stock of Advance Paradigm, Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Stockholders of the Company to be held September 23,
1997 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
- - -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
<PAGE>
<TABLE>
<S> <C>
- - ---------------------------------------------------------------------------------------------------------------------------------
Please mark your
vote as indicated in /X/
this example
FOR AGAINST ABSTAIN
ITEM 1. Election of directors duly nominated: ITEM 2. PROPOSAL TO RATIFY THE APPOINTMENT / / / / / /
Peter M. Castleman and Jeffrey R. Jay OF INDEPENDENT ACCOUNTANTS.
WITHHELD
FOR for all
/ / / /
(INSTRUCTION: To withhold authority to vote for any ITEM 3. In their discretion, the Proxies are authorized
individual nominee, write that nominee's name in the to vote upon such other business as may properly
space provided below): come before the meeting.
- - ----------------------------------------------------
This proxy when properly executed will be voted in
the manner directed herein by the undersigned
stockholder. If no direction is made, this proxy
will be voted "FOR" Proposals 1 and 2.
A vote "FOR" Proposals 1 and 2 is recommended by the
Board of Directors.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
Signature(s) DATED , 1997
----------------------------------------------------------------------------- ----------------------
- - ----------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
</TABLE>
