<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File Number 0-21447
ADVANCE PARADIGM, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2493381
(State of Incorporation) (IRS Employer Identification Number)
545 E. John Carpenter Freeway, Suite 1900, Irving, Texas 75062
(Address of principal executive offices) (ZIP Code)
(972) 830-6199
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Common stock, $.01 par value: 7,803,067
outstanding as of August 13, 1997
<PAGE>
ADVANCE PARADIGM, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997 2
B. Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1997 and 1996 3
C. Condensed Consolidated Statements of Cash
Flows for the Three Months Ended June 30,
1997 and 1996 4
D. Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, 1997 June 30, 1997
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 51,086,000 $ 51,696,000
Accounts receivable, net of allowance for doubtful
accounts of $142,000 and $148,000, respectively 35,343,000 33,602,000
Inventories 1,859,000 3,636,000
Prepaid expenses and other 426,000 529,000
------------ ------------
Total current assets 88,714,000 89,463,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $3,292,000 and $3,683,000,
respectively 5,576,000 6,754,000
INTANGIBLE ASSETS, net of accumulated amortization of
$1,154,000 and $1,241,000, respectively 12,699,000 12,612,000
OTHER ASSETS 484,000 479,000
------------ ------------
Total assets $107,473,000 $109,308,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $59,782,000 $60,600,000
Accrued salaries and benefits 1,991,000 2,195,000
Income taxes payable 712,000 262,000
Other accrued expenses 1,365,000 1,214,000
------------ ------------
Total current liabilities 63,850,000 64,271,000
NONCURRENT LIABILITIES:
Deferred income taxes 755,000 843,000
Other noncurrent liabilities 340,000 341,000
------------ ------------
Total liabilities 64,945,000 65,455,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B preferred stock, $.01 par value; 5,000 shares
authorized, 4,444 shares issued and
outstanding -- --
Common stock, $.01 par value; 25,000,000
shares authorized; 7,800,817 and 7,803,067
shares issued and outstanding, respectively 78,000 78,000
Additional paid-in capital 42,891,000 42,898,000
Retained earnings (accumulated deficit) (441,000) 877,000
------------ ------------
Total stockholders' equity 42,528,000 43,853,000
------------ ------------
Total liabilities and stockholders' equity $107,473,000 $109,308,000
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1996 1997
------------- --------------
<S> <C> <C>
Revenues $ 49,809,000 $ 77,710,000
------------- --------------
Cost of operations:
Cost of revenues 47,454,000 74,064,000
Selling, general and
administrative expenses 1,714,000 2,112,000
------------- --------------
Total cost of operations 49,168,000 76,176,000
------------- --------------
Operating income 641,000 1,534,000
Interest income 205,000 672,000
Interest expense (177,000) --
------------- --------------
Income before income taxes 669,000 2,206,000
Provision for income taxes -- 838,000
------------- --------------
Net income $ 669,000 $ 1,368,000
------------- --------------
Net income per share $ 0.11 $ 0.14
------------- --------------
Weighted average
shares outstanding 6,200,187 10,110,116
------------- --------------
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1996 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 669,000 $ 1,368,000
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 388,000 477,000
Provision for doubtful accounts -- 6,000
Change in certain assets and liabilities -
Accounts receivable (3,392,000) 1,735,000
Inventories 114,000 (1,777,000)
Prepaid expenses
and other assets (182,000) (98,000)
Accounts payable, accrued expenses
and other noncurrent liabilities 2,530,000 460,000
----------- ------------
Net cash provided by operating activities 127,000 2,171,000
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (935,000) (1,568,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 10,000,000 --
Net proceeds from issuance of Common Stock -- 7,000
Net payments on long-term obligations (12,000) --
----------- ------------
Net cash provided by financing activities 9,988,000 7,000
----------- ------------
INCREASE IN CASH 9,180,000 610,000
CASH AND CASH EQUIVALENTS, beginning of period 16,457,000 51,086,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $25,637,000 $ 51,696,000
----------- ------------
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and substantially in the form
prescribed by the Securities and Exchange Commission (the "Commission") in
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the June 30, 1997 and 1996 unaudited interim financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of results for this interim period. In the
opinion of the Company's management, the disclosures contained in this Form 10-Q
are adequate to make the information presented not misleading when read in
conjunction with the Notes to Consolidated Financial Statements included in the
Company's Form 10-K for the year ended March 31, 1997. The results of operations
for the three month period ended June 30, 1997 are not necessarily indicative of
the results to be expected for the full year or for any future period.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period which include
stock options and warrants. The primary and fully diluted per share amounts were
the same.
In February 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings Per Share" (SFAS 128). SFAS 128 is effective for financial
statements for both interim and annual periods ending after December 31, 1997,
with early application prohibited. SFAS 128 requires the calculation of "Basic"
earnings per share which is computed by dividing net income by the weighted
average number of shares of Common Stock outstanding during the period. In
addition, SFAS 128 requires the calculation of "Diluted" earnings per common
share which is computed using the weighted average
- 5 -
<PAGE>
number of shares of Common Stock and common stock equivalents. Pro forma
"Basic" earnings per share for the three months ended June 30, 1996 and 1997
would have been $0.21 and $0.18, respectively. Pro forma "Diluted" earnings per
share for the three months ended June 30, 1996 and 1997, would have been $0.11
and $0.14, respectively.
3. INCOME TAXES
In the three months ended June 30, 1997, the Company recorded a provision
for income taxes of $838,000. The company has recorded its tax provision based
upon an estimated, effective tax rate of 38%.
- 6 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain consolidated financial data of the
Company, for the periods indicated, as a percentage of revenues.
Three Months
Ended June 30,
--------------
1996 1997
---- ----
Revenues 100.0% 100.0%
Cost of operations:
Cost of revenues 95.3 95.3
Selling, general and administrative
expenses 3.5 2.7
---- ----
Total cost of operations 98.8 98.0
---- ----
Operating income 1.2 2.0
Interest income, net of expense .1 .8
---- ----
Net income before taxes 1.3% 2.8%
---- ----
- 7 -
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues for the three months ended June 30, 1997 increased
$27.9 million, or 56%, compared to revenues for the three months ended June 30,
1996. Approximately 81% of the increase in revenues was attributable to a 59%
increase in the number of pharmacy claims processed during the period.
Approximately 13% of the increase was attributable to additional sales of the
Company's mail pharmacy services, resulting from a 16% increase in the number of
mail prescriptions dispensed. Approximately 6% of the increase in revenues
resulted from an increase in clinical services revenues derived from formulary
and disease management services.
COST OF REVENUES. Cost of revenues for the three months ended June 30,
1997 increased by $26.6 million, or 56%, compared to the same period in 1996.
This increase was attributable primarily to the expanded volume in the Company's
mail pharmacy and the additional costs associated with the Company's claims
processing growth. As a percentage of revenues, cost of revenues was 95.3% in
the three months ended June 30, 1996 and 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense for the three months ended June 30, 1997 increased by
$398,000, or 23%, compared to the same period in 1996. This increase was the
result of the Company's expansion of its administrative and support staff levels
and salaries and benefits in response to volume growth in all services. In spite
of the increase, selling, general and administrative expenses as a percentage of
revenues decreased from 3.5% for the three months ended June 30, 1996 to 2.7% in
the same period in 1997 as the result of greater economies of scale and due to
the increase in revenues associated with the Company's claims processing
services. Additional revenues generated by clients utilizing the Company's
network pharmacy providers do not result in an increase in selling, general and
administrative expenses.
INTEREST INCOME AND INTEREST EXPENSE. Interest income, net of interest
expense, for the three months ended June 30, 1997 increased $644,000 compared to
the same period in 1996. The increase resulted from cash management programs
which utilized the Company's short-term excess cash to generate interest income
through investment in money market funds and high-grade commercial paper. In
addition, the Company's cash balance throughout the three months ended June 30,
1997 included the $10.0 million proceeds from the June 1996 issuance of its
Series B Preferred Stock and the $19.3 million proceeds from its October 1996
initial public offering. A portion of the proceeds were used to retire the
Whitney Note and as a result interest expense decreased $177,000.
INCOME TAXES. The Company had income tax loss carryforwards available to
offset income generated for the three months ended June 30, 1996, and as a
result, recorded no federal income tax expense. For the three months ended June
30, 1997 the Company recorded income tax expense of $838,000 based upon an
estimated, effective tax rate of 38%.
- 8 -
<PAGE>
NET INCOME PER SHARE. The Company reported net income per share of $.14
per share for the three months ended June 30, 1997 compared to $.11 per share
for the same period in 1996. The weighted average shares outstanding were 6.2
million and 10.1 million for the three months ended June 30, 1996 and 1997,
respectively. The increase in the weighted average shares resulted primarily
from the issuance of 2.4 million shares in connection with the Company's initial
public offering in October 1996 and the issuance of Series B preferred stock in
June 1996. The Series B preferred stock is convertible into 1.1 million shares
of Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had working capital of $25.2 million.
The Company's net cash provided by operating activities was $2.2 million for
the three months ended June 30, 1997 resulting primarily from the Company's
net income of $1.4 million for the period. During the three months ended
June 30, 1997 the Company used cash of $1.6 million for purchases of
property, plant and equipment associated with the growth and expansion of the
Company's systems and facilities. In particular, $1.3 million was used to
expand the automation and capacity of the Company's mail pharmacy facility.
The Company anticipates that cash from operations, combined with the proceeds
remaining from its initial public offering will be sufficient to meet the
Company's internal operating requirements and expansion programs, including
capital expenditures, for at least the next 18 months.
FORWARD-LOOKING STATEMENTS
This report contains or may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of the Company's and management's expectations, intentions, plans and
beliefs, including those contained in or implied by "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Notes to
Condensed Consolidated Financial Statements. These forward-looking statements,
as defined in Section 21E of the Securities Exchange Act of 1934, are dependent
on certain events, risks and uncertainties that may be outside the Company's
control. These forward-looking statements may include statements of management's
plans and objectives for the Company's future operations and statements of
future economic performance; the Company's capital budget and future capital
requirements, and the Company's meeting its future capital needs; and the
assumptions described in this report underlying such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to a number of factors, including, without
limitation, those described in the context of such forward-looking statements,
and the factors set forth in the Company's Form 10-K under the caption "Risk
Factors."
- 9 -
<PAGE>
PART II. OTHER INFORMATION
Items 1-5 are not applicable.
Item 6. Exhibits and reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
Exhibits required by Item 601 of S-K:
Exhibit No. Exhibits
- ----------- --------
3.1* --- Amended and Restated Certificate of Incorporation of the Company
3.2* --- Amended and Restated Bylaws of the Company
4.1** --- 1997 Nonstatutory Stock Option Plan
27** --- Financial Data Schedule
* Previously filed in connection with the Company's Registration Statement on
Form S-1 filed October 8, 1996 (No. 333-06931).
**Filed herewith.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCE PARADIGM, INC.
(Registrant)
Date: August 13, 1997 By: /s/ David D. Halbert
--------------------------------
David D. Halbert, Chief Executive Officer,
Chairman of the Board and President
Date: August 13, 1997 By: /s/ Danny Phillips
--------------------------------
Danny Phillips, Chief Financial Officer,
Senior Vice President, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
- 11 -
<PAGE>
ADVANCE PARADIGM, INC.
1997 NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1997 Nonstatutory Stock Option Plan (the
"Plan") is to provide a means by which directors, officers, consultants,
advisors and employees of Advance Paradigm, Inc. (the "Company") or any of its
Affiliates (as defined below), may be given an opportunity to purchase shares of
Common Stock of the Company, par value $0.01 per share ("Common Stock"). The
Plan is intended to advance the interests of the Company by encouraging stock
ownership on the part of certain directors, officers, consultants, advisors or
employees by enabling the Company (and its Affiliates) 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 (and its Affiliates).
For purposes of this Plan, "Affiliate" shall mean any parent or subsidiary
corporation of the Company as defined in Sections 424(e) and (f), respectively,
of the Internal Revenue Code of 1986 (the "Code"). "Affiliation" shall refer to
a group of Affiliates.
2. STOCK SUBJECT TO OPTION. Subject to adjustment as provided in
Sections 4(g) and (h) hereof, options may be granted by the Company from time to
time to purchase up to an aggregate of 300,000 shares of the Company's
authorized but unissued Common Stock; provided, however, that the number of
Shares that may be granted to any person under the Plan shall be reasonable in
relation to the purpose of the Plan. Shares that by reason of the expiration of
an option or otherwise are no longer subject to purchase pursuant to an option
granted under the Plan may be reoptioned under the Plan. The Company shall not
be required upon the exercise of any option, to issue and deliver any shares of
stock prior to the completion of such registration or other qualification of
such shares under any state or federal law, rule or regulation as the Company
shall determine to be necessary or desirable.
3. PARTICIPANTS. All officers, directors, consultants, advisors and
employees of the Company and its Affiliates may be granted options under the
Plan.
4. TERMS AND CONDITIONS OF OPTIONS. The Committee (as defined in Section
5(a) hereof) may grant options from time to time pursuant to the Plan. Such
options shall be evidenced by written agreements substantially in the form of
the Nonstatutory Stock Option Agreement, which is attached hereto as "Appendix
A," and shall not be inconsistent with this Plan. Shares of Common Stock that
may be purchased under an option granted pursuant to this Plan shall sometimes
hereinafter be referred to as "Option Shares." Nothing in this Plan or an
option granted hereunder shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain any optionee for
any time.
(a) OPTION PRICE. Except as otherwise provided in an optionee's
Nonstatutory Stock Option Agreement, the exercise price for each Option
Share shall be determined by the Committee but shall not be less than the
market value of the Common Stock on the date the option is granted (the
"Date of Grant"); provided, however, that in connection with a merger,
consolidation or reorganization of the Company or any of its Affiliates,
the Committee may grant options under the Plan at an option price per share
less than the market value of the Common Stock on the Date of Grant if such
options are
<PAGE>
granted under the Plan in exchange for, or upon conversion of, options
to purchase capital stock of any other entity which is a party to such
merger, consolidation or reorganization and such option price is no
less than the exercise price of the options which are to be exchanged or
converted (after giving effect to any adjustment to such exercise price
effected in accordance with the plan of merger, consolidation or
reorganization).
(b) TERM OF OPTION. Notwithstanding any other provision of this
Plan, unless otherwise provided in an optionee's Nonstatutory Stock Option
Agreement, each option granted under this Plan shall expire not more than
ten years from the date the option is granted, except that under the
circumstances described in Sections 4(f), 4(h) and 4(i), options may expire
and terminate at an earlier date.
(c) EXERCISE OF OPTION. Except as otherwise provided in an
optionee's Nonstatutory Stock Option Agreement, each option shall be
exercisable as to 20% of the total shares covered by such option as of the
first anniversary of the Date of Grant, and the right to exercise with
respect to an additional 20% of the total shares shall accrue on each of
the four subsequent anniversaries of the Date of Grant and shall be
cumulative; provided that options granted to directors of the Company shall
be exercisable as to 33 1/3% of the total shares covered by such option as
of the first anniversary of the Date of Grant, and the right to exercise
with respect to an additional 33 1/3% of the total shares shall accrue on
each of the two subsequent anniversaries of the Date of Grant and shall be
cumulative. The date of grant shall be the date set forth in any option
agreement as the "Date of Grant." Except as contemplated in
Sections 4(f)(1) and 4(f)(2) hereof, where an optionee's service
relationship with the Company and its Affiliates is terminated for any
reason, no option shall give an optionee (or his successor) a right to
acquire any greater number of shares than he had rights to acquire on the
date of such termination. The Committee may accelerate the time at which
an option may be exercised.
(d) MANNER OF EXERCISE. Option Shares purchased upon exercise of
options shall at the time of purchase be paid for in full. The Company
shall satisfy its employment tax and other tax withholding obligations by
requiring the optionee (or such optionee's estate or representative) to pay
the amount of employment tax and withholding tax, if any, that must be paid
under federal, state and local law due to the exercise of the option. To
the extent that the right to purchase shares has accrued hereunder, options
may be exercised from time to time by written notice to the Company stating
the full number of shares with respect to which the option is being
exercised and the time of delivery thereof, which shall be at least fifteen
days after the giving of such notice unless an earlier date shall have been
mutually agreed upon by the optionee (or other person entitled to exercise
the option) and the Company, accompanied by payment to the Company of the
purchase price in full and the amount of employment tax and withholding tax
due, if any, upon the exercise of the option. Such payment shall be
effected (i) by certified or official bank check, (ii) by the delivery of a
number of shares of Common Stock (plus cash if necessary) having a fair
market value equal to the amount of such purchase price and employment or
withholding tax (subject to such restrictions or procedures as the Company
deems necessary to satisfy Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or (iii) by delivery of the
2
<PAGE>
equivalent thereof acceptable to the Company. The Company will, as soon as
reasonably possible notify the optionee (or such optionee's representative)
of the amount of employment tax and other withholding tax that must be paid
under federal, state and local law due to the exercise of the option. At
the time of delivery, the Company shall, without transfer or issue tax to
the optionee (or other person entitled to exercise the option), deliver to
the optionee (or to such other person) at the principal office of the
Company, or such other place as shall be mutually agreed upon, a
certificate or certificates for the Option Shares, provided, however, that
the time of delivery may be postponed by the Company for such period as may
be required for it with reasonable diligence to comply with any
requirements of law.
(e) ASSIGNABILITY OF OPTIONS. Options granted hereunder may be
transferred by the optionee thereof to one or more transferees; provided
that (i) there may be no consideration for such transfer, (ii) the optionee
(or such optionee's estate or representative) shall remain obligated to
satisfy all employment tax and other withholding tax obligations associated
with the exercise of the options, (iii) the optionee shall notify the
Company in writing that such transfer has occurred, the identity and
address of the permitted transferee and the relationship of the permitted
transferee to the optionee, and (iv) such transfer shall be effected
pursuant to transfer documents as approved by the Company, which approval
will not be unreasonably withheld. To the extent an option transferred
pursuant to this Section 4(e) is not fully exercisable as of the date of
transfer thereof, the optionee shall specify in the transfer document
whether and to what extent the transferred options (if less than all of the
options subject to the applicable Nonstatutory Stock Option Agreement) are
exercisable, subject to the limitations on exercisability contained in the
applicable Nonstatutory Stock Option Agreement. Any transferee may not
further assign or transfer the transferred option otherwise than (i) by
will or the laws of the descent and distribution or (ii) with the prior
approval of the Company, which approval will not be unreasonably withheld.
Following any permitted transfer, any such options shall continue to be
subject to the same terms and conditions as were applicable immediately
prior to transfer; provided that for purposes of Sections 4(h), 4(i) and
4(j) hereof the term "optionee" shall be deemed to refer also to each
permitted transferee. The events of termination of relationship in Section
4(f) hereof shall continue to be applied with respect to the optionee,
following which the options shall be exercisable by the transferee only to
the extent, and for the periods specified in Section 4(f).
(f) TERMINATION OF RELATIONSHIP.
(1) If optionee's service relationship with the Company (or
an Affiliate) is terminated because optionee dies or becomes
disabled within the meaning of Section 105(d)(4) of the Code,
such option shall continue to vest in accordance with this Plan
and the Nonstatutory Stock Option Agreement in effect for a
period of twelve months from the date of death or disability of
such optionee, and optionee, his estate or beneficiary shall have
the right to exercise his options at any time within such twelve
month period (if otherwise within the term of the option).
Notwithstanding the foregoing, the provisions of this Section
4(f)(1) shall
3
<PAGE>
be subject to Sections 4(b), 4(h) and 4(i), which may earlier
terminate the option.
(2) In the event that an officer, director or employee
optionee retires from service from the Company and its Affiliates
in accordance with the Company's or its Affiliates' retirement
policies from time to time in effect, such option shall continue
to vest during the lifetime of the optionee in accordance with
the Plan and the Nonstatutory Stock Option Agreement in effect
and may be exercised at any time during the remaining term of the
option. If an optionee that has retired dies subsequent to
retirement during the term of an option, such option shall
continue to vest in accordance with this Plan and the
Nonstatutory Stock Option Agreement in effect and may be
exercised within twelve months of such optionee's death (if
otherwise within the option period), but not thereafter.
Notwithstanding the foregoing, the provisions of this Section
4(f)(2) shall be subject to Sections 4(b), 4(h) and 4(i), which
may earlier terminate the option.
(3) In the event that the service relationship between
optionee and the Company and its Affiliates terminates for any
reason, and the provisions of Sections 4(f)(1), 4(f)(2) and 4(i)
do not apply, the option may be exercised, to the extent the
option could be exercised immediately prior to such termination,
at any time within ninety days (or such greater periods as the
Committee may determine) after the date of such termination (if
otherwise within the option period).
(g) ADJUSTMENT OF OPTIONS ON RECAPITALIZATION. The aggregate number
of shares of Common Stock for which options may be granted to persons
participating under the Plan, the number of shares covered by each
outstanding option, and the exercise price per share for each such option
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Company resulting from the
subdivision or consolidation of shares after the Date of Grant, or the
payment of a stock dividend after the Date of Grant of the option, or other
increase in such shares effected after the Date of Grant without receipt of
consideration by the Company, provided, however, that any options to
purchase fractional shares resulting from any such adjustment shall be
eliminated, and provided further, that any such adjustment shall be made in
a manner so as not to constitute a modification as defined in Section
424(h)(3) of the Code.
4
<PAGE>
(h) ADJUSTMENT OF OPTIONS UPON REORGANIZATION. If the Company shall
at any time participate in a reorganization and (A) the Company is not the
surviving entity or (B) the Company is the surviving entity and the
stockholders of Common Stock are required to exchange their shares for
property and/or securities, the Company shall give each optionee written
notice of such fact on or before fifteen (15) days before such
reorganization, and each option shall be exercisable in full after receipt
of such notice and prior to such reorganization; however, options not
exercised prior to such reorganization shall expire on the occurrence of
such reorganization. In lieu of the foregoing, subject to the terms and
conditions of the definitive reorganization documents, optionees may elect
to have their options assumed by the successor entity or replaced with a
comparable option to purchase shares of the capital stock of the successor
entity. A sale of all or substantially all the assets of the Company for a
consideration (apart from the assumption of obligations) consisting
primarily of securities shall be deemed a reorganization for the foregoing
purposes. Notwithstanding the foregoing, the provisions of this Section
4(h) shall be subject to Section 4(b).
(i) DISSOLUTION OF COMPANY. In the event of the proposed dissolution
or liquidation of the Company, the options granted hereunder shall
terminate as of a date to be fixed by the Committee, provided that not less
than thirty (30) days prior written notice of the date so fixed shall be
given to the optionee, and the optionee shall have the right, during the
period of thirty (30) days preceding such termination, to exercise his
option. The foregoing notwithstanding, the provisions of this Section 4(i)
shall be subject to Section 4(b) and shall be subject to Section 4(h) if
the optionee receives notice under Section 4(h) at a time earlier than the
notice provided for herein.
(j) RIGHTS AS A STOCKHOLDER. The optionee shall have no rights as a
shareholder with respect to any shares of Common Stock of the Company held
under option until the date of issuance of the stock certificates to him
for such shares. Except as provided in Section 4(g), no adjustment shall
be made for dividends or other rights for which the record date is prior to
the date of such issuance.
(k) TIME OF GRANTING OPTIONS. The grant of an option shall occur
only when a written option agreement substantially in the form of the
Nonstatutory Stock Option Agreement, which is attached hereto marked
"Exhibit A," shall have been duly executed and delivered by or on behalf of
the Company and the person to whom such option shall be granted; provided,
that the Date of Grant of an option shall be the date upon which the
Committee approved such grant and such date shall be set forth as the Date
of Grant in the Nonstatutory Stock Option Agreement.
(l) STOCK LEGEND. Certificates evidencing shares of the Company's
Common Stock purchased upon the exercise of options issued under the Plan
shall be endorsed with a legend in substantially the following form, unless
a registration statement relating to such shares has been declared
effective under the Securities Act by the Securities and Exchange
Commission:
5
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND NEITHER THESE
SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT, APPLICABLE STATE SECURITIES LAWS
AND THE RULES AND REGULATIONS THEREUNDER.
5. ADMINISTRATION.
(a) The Plan shall be administered by a Compensation Committee (the
"Committee") consisting of not less than two (2) "non-employee directors"
(as defined in Rule 16b-3 promulgated under the Exchange Act). The members
of the Committee shall be appointed by the Board of Directors. The Board
of Directors may, from time to time, remove members from or add members to
the Committee. Vacancies in the Committee, however caused, shall be filled
by the Board of Directors. The Committee shall select one of its members
chairman and shall hold meetings at such times and places as it may
determine. The Committee may appoint a secretary and, subject to the
provisions of the Plan and to policies determined by the Board of Directors
of the Company, may make such rules and regulations for the conduct of its
business as it shall deem advisable. A majority of the Committee shall
constitute a quorum. All actions of the Committee shall be taken by a
majority of its members. Any action may be taken by a written instrument
signed by a majority of the members, and action so taken shall be fully as
effective as if it had been taken by a vote of the majority of the members
at a meeting duly called and held.
(b) Subject to the express terms and conditions of the Plan, the
Committee shall have full power to grant options under the Plan, to
construe or interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it and to make all other determinations necessary
or advisable for its administration.
(c) Subject to the provisions of Sections 3 and 4 hereof, the
Committee may, from time to time, determine the persons that shall be
granted options under the Plan, the number of Option Shares subject to each
option and the exercise price, and the time or times at which options shall
be granted and may be exercised.
(d) The Committee shall report to the Board of Directors the names of
persons granted options, the number of Option Shares subject to, and the
terms and conditions of each option.
(e) No member of the Board of Directors or of the Committee shall be
liable for any action or determination made in good faith with respect to
the Plan or to any option.
6. EFFECTIVE DATE AND TERMINATION.
(a) The effective date of the Plan is May 1, 1997.
6
<PAGE>
(b) The Plan shall terminate on the tenth anniversary of the
effective date of the Plan; but the Board of Directors may terminate the
Plan at any time prior thereto. Termination of the Plan shall not alter or
impair, without the consent of the optionee, any of the rights or
obligations of any optionee or his or her successors under any options
outstanding and not exercised in full on the date of termination.
7. AMENDMENTS. The Board of Directors of the Company may, from time to
time, alter, amend, suspend, or discontinue the Plan, or alter or amend any and
all option agreements granted thereunder.
8. STATUS OF OPTIONS. Options granted pursuant to this Plan are not
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, and the terms of this Plan and options granted hereunder shall be
so construed; nothing in this Plan shall be interpreted as a representation,
guarantee or other undertaking on the part of the Company that the options
granted pursuant to this Plan are, or will be, determined to be Incentive Stock
Options, within the meaning of Section 422 of the Code.
9. USE OF PROCEEDS. The proceeds from the sale of Common Stock pursuant
to the exercise of options will be used for the Company's general corporate
purposes.
10. SECURITIES LAWS.
(a) The Company shall not be obligated to issue any Option Shares
pursuant to any option granted under the Plan at any time when the offering
of the shares covered by such option have not been registered under the
Securities Act, and such other state and federal laws, rules or regulations
as the Company deems applicable and, in the opinion of legal counsel for
the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the offering and sale of such
shares.
(b) It is intended that the Plan and any grant of an option made to a
person subject to Section 16 of the Exchange Act, meet all of the
requirements of Rule 16b-3, as currently in effect or as hereunder modified
or amended ("Rule 16b-3"), promulgated under the Exchange Act. If any
provision of the Plan or any such option would disqualify the Plan or such
option under, or would otherwise not comply with, Rule 16b-3, such
provision or option shall be construed or deemed amended to conform to Rule
16b-3.
7
<PAGE>
APPENDIX A
1997 NONSTATUTORY STOCK OPTION AGREEMENT
Advance Paradigm, Inc. (the "Company"), in consideration of the value of
the continuing services of ________________________________ (hereinafter called
"Optionee"), which continuing services the grant of this option is designed to
secure, and in consideration of the undertakings made herein by Optionee, and
pursuant to its 1997 Nonstatutory Stock Option Plan (the "Plan"), hereby grants
to Optionee an option, evidenced by this option agreement, exercisable for the
period and upon the terms hereinafter set out, to purchase ___________________
(___________) shares of Common Stock ("Common Stock") of the Company at a price
of $__________ per share.
1. TERM OF OPTION.
(a) This option is granted as of ________________________ [THE DATE
THE COMMITTEE MAKES THE GRANT] (sometimes hereinafter called the "Date of
Grant") and will terminate and expire, to the extent not previously
exercised, ten (10) years after the Date of Grant, or at such earlier time
as may be specified in Sections 4 and 6 hereof.
(b) Except as otherwise provided in this Option Agreement, Optionee
shall have the right to acquire shares under this Option Agreement as
follows:
(i) As of the first anniversary of the Date of Grant and
thereafter, Optionee may exercise rights to acquire 20% of the Option
Shares;
(ii) As of each of the second, third, fourth and fifth
anniversaries of the Date of Grant and thereafter, Optionee may
exercise rights to acquire an additional 20% of the Option Shares.
2. ASSIGNABILITY OF OPTION. This option is transferable to the extent
permitted under the Plan.
3. MANNER OF EXERCISE. The Optionee (or other person entitled to
exercise this option) shall purchase shares of stock of the Company subject
hereto by the payment to the Company of the purchase price in full and the
amount of employment tax and withholding tax due, if any, upon the exercise of
the option (i) by certified or official bank check, (ii) by the delivery of a
number of shares of Common Stock (plus cash if necessary) having a fair market
value equal to the amount of such purchase price and employment and withholding
tax, or (iii) by delivery of the equivalent thereof acceptable to the Company.
Any employment or withholding tax due upon exercise of this option shall be, and
shall remain, the responsibility of the Optionee (or such Optionee's estate or
representative). This option may be exercised from time to time by written
notice to the Company stating the full number of shares to be purchased and the
time and delivery thereof, which shall be at least fifteen (15) days after the
giving of notice unless an earlier date shall have been agreed upon between the
Optionee (or other person entitled to exercise this option) and the Company,
accompanied by full payment for the shares described in the first sentence of
this Section 3. The Company will, as soon as is
A-1
<PAGE>
reasonably possible, notify the Optionee (or such Optionee's representative)
of the amount of employment tax and other withholding tax, if any, that must
be paid under federal, state and local law due to the exercise of the option.
The Company shall have no obligation to deliver certificates for the shares
purchased until the Optionee (or such Optionee's representative) pays to the
Company the purchase price in full and the amount of employment tax and
withholding tax specified in the Company's notice as described in this Section
3 by payment terms set forth in the first sentence of this Section 3. At the
time of delivery, the Company shall, without transfer or issue tax to the
Optionee (or other person entitled to exercise this option) deliver at the
principal office of the Company, or at such other place as shall be mutually
agreed upon, a certificate or certificates for such shares, provided, however,
that the time of delivery may be postponed by the Company for such period as
may be required for it to comply with reasonable diligence with any
requirements of law.
4. TERMINATION OF RELATIONSHIP.
(a) If Optionee's service relationship with the Company (or an
Affiliate) is terminated because Optionee dies or becomes disabled within
the meaning of Section 105(d)(4) of the Code, this option shall continue to
vest in accordance with the Plan and this option agreement for a period of
twelve (12) months from the date of death or disability of Optionee, and
Optionee, his estate or beneficiary shall have the right to exercise this
option at any time within such twelve (12) month period (if otherwise
within the term of the option). Notwithstanding the foregoing, the
provisions of this Section 4(a) shall be subject to Sections 1(a) and 6
hereof, which may earlier terminate the option.
(b) In the event that the Optionee retires from service from the
Company and its Affiliates in accordance with the Company's (or its
Affiliates') retirement policies in effect from time to time, this option
shall continue to vest during the lifetime of the Optionee in accordance
with the terms of the Plan and this Option Agreement and may be exercised
at any time during the remaining term of the option. If Optionee dies
subsequent to his retirement during the term of this option, this option
shall continue to vest in accordance with the Plan and this option
agreement and may be exercised within twelve (12) months of Optionee's
death (if otherwise within the option period), but not thereafter.
Notwithstanding the foregoing, the provisions of this Section 4(b) shall be
subject to Sections 1(a) and 6, which may earlier terminate the option.
(c) In the event that the service relationship between Optionee and
the Company and its Affiliates terminates for any reason, and the
provisions of Sections 4(a) and 4(b) hereof and Section 4(i) of the Plan do
not apply, this option may be exercised, to the extent the option could be
exercised immediately prior to such termination at any time within ninety
(90) days after the date of such termination. Notwithstanding the
foregoing, the provisions of this Section 4(c) shall be subject to Sections
1(a) and 6, which may earlier terminate the option.
5. ADJUSTMENTS ON RECAPITALIZATION. The number of shares of Common Stock
subject hereto and the option price per share shall be proportionately adjusted
for any increase or decrease in the number of issued shares of the Common Stock
resulting from the subdivision or
A-2
<PAGE>
consolidation of shares, or the payment of a stock dividend after the Date of
Grant, or other decrease or increase in the shares of Common Stock outstanding
effected without receipt of consideration by the Company, provided, however,
that any options to purchase fractional shares resulting from such adjustments
shall be eliminated.
6. ADJUSTMENT OF OPTIONS UPON REORGANIZATION. If the Company shall at
any time participate in a reorganization and (A) the Company is not the
surviving entity or (B) the Company is the surviving entity and the stockholders
of Common Stock are required to exchange their shares for property and/or
securities, the Company shall give each optionee written notice of such fact on
or before fifteen (15) days before such reorganization, and each option shall be
exercisable in full after receipt of such notice and prior to such
reorganization; however, options not exercised prior to such reorganization
shall expire on the occurrence of such reorganization. In lieu of the
foregoing, subject to the terms and conditions of the definitive reorganization
documents, Optionee may elect to have his options assumed by the successor
entity or replaced with a comparable option to purchase shares of the capital
stock of the successor entity. A sale of all or substantially all the assets of
the Company for a consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed a reorganization for the
foregoing purposes. Notwithstanding the foregoing, the provisions of this
Section 6 shall be subject to Section 1(a).
7. SUBJECT TO PLAN. This option is subject to all the terms and
conditions of the Plan, and specifically to the power of the Committee (as
defined in the Plan) to make interpretations of the Plan and of options granted
thereunder, and of the Board of Directors of the Company to alter, amend,
suspend or discontinue the Plan. By acceptance hereof, Optionee acknowledges
receipt of a copy of the Plan and recognizes and agrees that all determinations,
interpretations or other actions respecting the Plan may be made by a majority
of the Board of Directors of the Company or of the Committee, and that such
determinations, interpretations or other actions are final, conclusive and
binding upon all parties, including Optionee. Capitalized terms used but not
otherwise defined in this option agreement shall have the meanings ascribed to
them by the Plan.
IN WITNESS WHEREOF, this Option Agreement is executed as of the _____ day
of ________________________, 199___.
ADVANCE PARADIGM, INC.
By:
-----------------------------------
Title:
--------------------------------
A-3
<PAGE>
The undersigned Optionee hereby accepts the benefits of the foregoing
Nonstatutory Stock Option Agreement.
-------------------------------------
------------------- , Optionee
A-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADVANCE
PARADIGM, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 51,696
<SECURITIES> 0
<RECEIVABLES> 33,750
<ALLOWANCES> 148
<INVENTORY> 3,636
<CURRENT-ASSETS> 89,463
<PP&E> 10,437
<DEPRECIATION> 3,683
<TOTAL-ASSETS> 109,308
<CURRENT-LIABILITIES> 64,271
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 43,775
<TOTAL-LIABILITY-AND-EQUITY> 109,308
<SALES> 0
<TOTAL-REVENUES> 77,710
<CGS> 0
<TOTAL-COSTS> 74,064
<OTHER-EXPENSES> 2,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (672)
<INCOME-PRETAX> 2,206
<INCOME-TAX> 838
<INCOME-CONTINUING> 1,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,368
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
