SCHEDULE 14A
AMENDMENT NO. 1
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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 240.14a-11(c) or 240.14a-12
ADVANCE PARADIGM, INC.
(Name of Registrant As Specified in 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)(4) 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):
$__________ (aggregate amount to be distributed to security
holders)
4) Proposed maximum aggregate value of transaction:
$__________ (aggregate amount to be distributed to security
holders)
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>
[COMPANY LOGO]
545 E. John Carpenter Freeway, Suite 1570
Irving, Texas
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, November 10, 1999
To the Stockholders of Advance Paradigm, Inc.
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of
Advance Paradigm, Inc., a Delaware corporation (the "Company"), will be
held on Wednesday, November 10, at 2:00 p.m. at the Hotel Crescent Court,
400 Crescent Court, Dallas, Texas, for the following purposes:
1. To elect two directors to serve until the Company's Annual Meeting
of Stockholders in 2002;
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 25,000,000 to 50,000,000;
3. To approve the Company's Amended and Restated Incentive Stock Option
Plan (the "1993 Incentive Plan") as amended to (i) increase the
number of shares available for issuance thereunder from 2,359,000
to 3,359,000, and (ii) conform the plan to the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), in order to preserve the full income tax deduction
available to the Company;
4. To approve the Company's Corporate Officer Incentive Plan;
5. To ratify the selection of Arthur Andersen, LLP as independent
auditors for the Company for the fiscal year ending March 31, 2000;
and
6. To transact all other business that may properly come before such
meeting or any adjournment(s) thereof.
The close of business on September 17, 1999, 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 common stock of the Company ("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 E. John Carpenter Freeway, Suite 1570, 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
OCTOBER 22, 1999
<PAGE>
[COMPANY LOGO]
545 East John Carpenter Freeway, Suite 1570
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
Wednesday, November 10, 1999, at 2:00 p.m., local time, at the Hotel
Crescent Court, 400 Crescent Court, Dallas, Texas, 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 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 October 21, 1999.
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 September 17, 1999, the record date for
the determination of stockholders entitled to notice of and to vote at the
Annual Meeting, there were outstanding 10,588,228 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. Stephen L.
Green and Michael D. Ware have been nominated to serve as directors and, if
elected, will serve until the Company's Annual Meeting of Stockholders in
2002 and until their respective successors shall have been duly elected and
qualified or until their earlier death, resignation, 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 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 STEPHEN L. GREEN AND
MICHAEL D. WARE TO THE BOARD OF DIRECTORS.
The following table sets forth certain information regarding the
director nominees and the other directors of the Company:
SERVED AS DIRECTOR'S
DIRECTOR TERM
NAME AGE POSITION SINCE ENDING
- ---- --- -------- ----- ------
David D. Halbert. . . . 43 Chairman of the 1986 2001
Board, President and
Chief Executive
Officer
Jon S. Halbert. . . . . 39 Executive Vice 1988 2001
President, Chief
Operating Officer
and Director
David A. George . . . . 44 Executive Vice 1998 2000
President and
Director
Rogers K. Coleman, M.D. 67 Director 1996 2001
Stephen L. Green. . . . 48 Director 1993 1999
Jeffrey R. Jay. . . . . 41 Director 1993 2000
Kenneth J. Linde. . . . 52 Director 1997 1999
Michael D. Ware . . . . 53 Director 1993 1999
DAVID D. HALBERT founded the Company in 1986 and has continuously
served as Chairman of the Board, President and Chief Executive Officer of
the 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 that
date. Mr. Halbert currently serves as an Executive Vice President and
Chief Operating Officer of the Company. Jon S. Halbert is the brother of
David D. Halbert.
DAVID A. GEORGE has served as a director of the Company since November
1998 and has served as Executive Vice President since March 1999. From
October 1995 to November 1998, Mr. George served as Executive Vice
President of United HealthCare Corporation. Before United HealthCare, Mr.
George was Executive Vice President of MetraHealth Corporation
("MetraHealth"), from December 1994 to October 1995. MetraHealth merged
with United HealthCare Corporation in October 1995. Prior to joining
MetraHealth, Mr. George was President of Southern Group Operations for The
Prudential Healthcare System.
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 since January 1991. In addition, since January 1991, Dr. Coleman
has served as a director of the Blue Cross & Blue Shield Association, the
national association of Blue Cross & Blue Shield plans. Since the merger
between BCBS of Texas and Blue Cross & Blue Shield of Illinois in December
1998, Dr. Coleman has served as Chairman of the Board of its parent
company, Health Care Service Corporation.
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: Mortgage.com, Inc. and
Suiza Foods Corporation.
JEFFREY R. JAY, M.D., has served as a director of the Company since
August 1993. Since September 1993, he has been a General Partner of J. H.
Whitney & Co., 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 Nitinol Medical Technologies.
KENNETH J. LINDE has served as a director of the Company since January
1997. Mr. Linde is currently President and Chief Executive Officer of
Discovery Health North America, a newly formed health insurance company as
of May 1999. Mr. Linde served as Chief Operating Officer of Coventry
Health Care from April 1998 until July 1998. Before Coventry Health Care,
Mr. Linde served as President and Chief Executive Officer of Principal
Health Care, Inc., a subsidiary of The Principal Financial Group, from
January 1987 to April 1998. Principal Health Care, Inc. merged with
Coventry Corporation in April 1998.
MICHAEL D. WARE has served as a director of the Company since July
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
2002 annual meeting of stockholders of the Company or 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:
NAME AGE POSITION
- ---- --- --------
Joseph J. Filipek, Jr., P.D. . 44 Executive Vice President
T. Danny Phillips. . . . . . . 40 Senior Vice President, Chief
Financial Officer, Secretary and
Treasurer
John H. Sattler, R.Ph. . . . . 47 Senior Vice President, Sales and
Marketing
Alan T. Wright, M.D., M.P.H. . 43 Senior Vice President and Chief
Medical Officer
Robert W. Horner, III. . . . . 38 Senior Vice President, General Counsel
Andrew C. Garling, M.D.. . . . 54 Senior Vice President, Disease
Management Programs
JOSEPH J. FILIPEK, JR., P.D., currently serves as an 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 Blue Cross & Blue Shield
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, acquired by the Company in December 1993. From
1985 to 1990, Dr. Filipek 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
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.
ALAN T. WRIGHT, M.D., M.P.H., joined the Company in April 1994 and
currently serves as Senior Vice President and Chief Medical Officer of the
Company. Dr. Wright has been serving as the Senior 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. Before 1992, he served as Medical Director for Aetna Health
Plans of the Mid-Atlantic Region. He currently is a diplomate to the
American Board of Internal Medicine and the National Board of Medical
Examiners.
ROBERT W. HORNER, III joined the Company in August 1999, and serves as
Senior Vice President, General Counsel. Prior to joining the Company, from
November 1996, Mr. Horner served as Senior Vice President, General Counsel
and Secretary for Vitalink Pharmacy Services, Inc. On August 28, 1998, Mr.
Horner resigned from his positions as Senior Vice President and Secretary
of Vitalink pursuant to the terms of Vitalink's merger agreement with
Genesis Health Ventures, Inc. and continued to serve as General Counsel of
Vitalink until January 1999. Mr. Horner continues to serve as a consultant
pursuant to an agreement with Vitalink Pharmacy Services, Inc. which is in
effect through June 2000. From March 1996 to November 1996, Mr. Horner
served as General Counsel and Secretary of In Home Health, Inc., an
affiliated company of Vitalink. Prior to March 1996, Mr. Horner served as
an attorney for Manor Care, Inc., also an affiliated company of Vitalink.
ANDREW C. GARLING, M.D. joined the Company in August 1999, and serves
as Senior Vice President, Disease Management Programs. Prior to joining the
Company, from 1997 to 1999, Dr. Garling served as Chief Medical Officer and
Senior Vice President of the Payor Solutions Group at McKesson HBOC. From
1995 to 1997, Dr. Garling served as Vice President and Chief Medical
Officer of Advanced Health Inc., a physician practice management company.
Prior to 1995, Dr. Garling served as Chief Information Officer of the
Southern Group Operations of Prudential Healthcare Systems Inc.
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 four meetings during fiscal year 1999.
Each of the directors attended at least 75% of the aggregate total meetings
of the Board of Directors, except Rogers K. Coleman attended 50% of these
meetings.
The Board of Directors currently has two standing committees, the
Compensation Committee and the Audit and Investment Committee. The
Compensation Committee, which currently consists of Dr. Coleman and Messrs.
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 one time during fiscal 1999 and each member
attended such meeting and held one meeting via unanimous written consent.
The Audit and Investment Committee, which currently consists of Messrs.
Ware, Green, Linde and Dr. Jay, recommends to the Board of Directors (for
ratification by the stockholders) a public accounting firm to conduct the
annual audit of the accounts of the Company and reviews and recommends
potential investment opportunities for the Company's excess cash. The
Audit and Investment 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 1999 and all members attended
this meeting, except for Kenneth J. Linde.
COMPENSATION OF DIRECTORS
Each non-officer director received $2,000 per meeting attended and
$1,000 per committee meeting attended during the year ended March 31, 1999.
The Company reimburses directors for out-of-pocket expenses incurred in
connection with attending Board and committee meetings. Directors are
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.
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 1999, 1998 and 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS SECURITIES
ANNUAL COMPENSATION ------------------------
------------------- UNDERLYING ALL OTHER
YEAR SALARY $ BONUS $ OPTIONS (#) COMPENSATION
---- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
David D. Halbert 1999 $383,333 $383,333 75,000 ---
Chairman of the Board, 1998 $308,654 $172,500 ---
President and Chief
Executive Officer 1997 $171,635 $91,000 92,500 ---
Jon S. Halbert 1999 266,667 186,667 50,000 ---
Executive Vice 1998 216,731 113,620 --- ---
President and Chief 1997 152,981 76,570 92,500 ---
Operating Officer
Joseph J. Filipek, Jr. 1999 199,277 95,439 40,000 ---
Executive Vice 1998 175,898 84,845 --- ---
President 1997 156,492 70,947 57,500 ---
T. Danny Phillips 1999 196,667 118,000 40,000 ---
and Senior Vice 1998 168,846 81,290 --- ---
President Chief 1997 156,277 69,983 48,750 ---
Financial Officer
Alan T. Wright 1999 182,776 62,900 --- ---
Senior Vice President 1998 174,769 61,425 30,000 ---
and Chief Medical 1997 162,389 59,500 --- ---
Officer
</TABLE>
The following table sets forth information regarding the stock option
grants made by the Company to the Named Executives during fiscal year 1999.
In addition, in accordance with the regulations of the Securities and
Exchange Commission (the "Commission"), hypothetical gains or "option
spreads" that would exist for the respective options are shown. These
gains are based on assumed rates of annual stock price appreciation of 5%
and 10% from the date the options were granted.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM(2)
NAME GRANTED(1) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
David D. Halbert (3). . . 75,000 14.3% $29.38 6/25/08 1,385,250 3,511,500
Jon S. Halbert (3). . . . 50,000 9.5 29.38 6/25/08 923,500 2,341,000
Joseph J. Filipek, Jr.(3) 40,000 7.6 29.38 6/25/08 738,800 1,872,800
T. Danny Phillips (3) . . 40,000 7.6 29.38 6/25/08 738,800 1,872,800
Alan T. Wright. . . . . . --- --- --- --- --- ---
<FN>
_______________
(1) The options reflected in this table were all granted under the
Company's 1993 Incentive Stock Option Plan. The date of grant is 10
years prior to the expiration date listed.
(2) These amounts represent only certain assumed rates of appreciation
based on the grant date value in accordance with the Commission's
executive compensation rules. Actual gains, if any, on stock option
exercises will depend on future performance of the Common Stock. No
assurance can be given that the values reflected in these columns will
be achieved.
(3) The options vest and become exercisable in cumulative installments of
one-fifth of the number of shares of Common Stock upon the first five
anniversaries of the date of grant so long as the officer remains an
employee of the Company or its affiliates on such anniversaries.
</TABLE>
The following table summarizes pertinent information concerning the
number and value of any options held by the Named Executives at March 31,
1999.
<TABLE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY
ACQUIRED FISCAL YEAR OPTIONS AT
ON VALUE END (#) FISCAL YEAR END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
(#) ($) UNEXERCISABLE(1) UNEXERCISABLE(2)
-------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
David D. Halbert 19,731 508,035 297,498/122,500 17,697,459/5,074,844
Jon S. Halbert 2,834 47,200 315,250/97,500 18,897,659/4,229,531
Joseph J. Filipek, Jr. 35,000 1,448,513 68,333/69,167 3,888,129/2,909,652
T. Danny Phillips 46,750 1,914,093 55,833/63,917 3,158,585/2,625,168
Alan T. Wright 7,500 267,000 19,750/34,000 922,453/1,339,875
<FN>
_______________
(1) Upon the consummation of 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 corporation, the options will vest immediately prior to
such transaction.
(2) The value of the options is based upon the difference between the March
31, 1999 market value of $63-3/16 per share and the exercise price.
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of March 1, 1999, the Company entered into a two-year
employment agreement with Mr. George to serve as Executive Vice President
of the Company. Mr. George is entitled to receive an annual base salary of
$250,000 subject to increases as may be determined by the Company. In
addition, the employment agreement provides that Mr. George is entitled to
participate in any bonus or benefit plans of the Company. Further, the
employment agreement grants 60,000 qualified stock options to Mr. George,
which vest over four years. The employment agreement contains
confidentiality, noncompetition and nonsolicitation provisions effective
during the term of the employment and for one year after employment has
terminated.
In connection with the Company's acquisition of Advance Clinical in
December 1993, Advance Clinical entered into a three-year employment
agreement with Dr. Filipek. This contract was extended in December 1996 for
a term of three years and again in April 1999 for an additional three-year
term. Dr. Filipek, employed as President and Chief Executive Officer of
Advance Clinical, is entitled to an annual base salary of $215,000, subject
to a target annual increase of $15,000. In addition, the employment
agreement provides that Dr. Filipek is entitled to participate in any
bonus, insurance, 401(k) or other plans generally available to Advance
Clinical's employees. Further, the employment agreement granted a total of
97,500 qualified stock options to Dr. Filipek, which vest over five years.
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 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 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 vest over 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 Senior Vice President
and Chief Medical Officer of the Company. This agreement was amended on
April 1, 1999, for a term ending March 31, 2002. Under the amended agreement,
Dr. Wright is entitled to an annual base salary of $200,000 with such
increases as may be determined by the Company. In addition, the employment
agreement provides that Dr. Wright is entitled to participate in certain
bonus or benefit plans of the Company. The employment agreement, as amended,
grants a total of 38,750 qualified stock options to Dr. Wright, which vest
over five years. 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.
STOCK OPTION PLANS
On July 30, 1993, the Board of Directors and the stockholders of the
Company adopted 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 2,359,000 shares of Common Stock
has been reserved for issuance under the 1993 Incentive Plan. At the Annual
Meeting, the stockholders are being asked to approve an amendment to the
1993 Incentive Plan increasing the number of shares reserved for issuance
under the 1993 Incentive Plan to 3,359,000. As of September 30, 1999, no
shares of Common Stock remained available for future grants under the 1993
Incentive Plan, and options to acquire an additional 56,103 shares have
been contingently granted under the 1993 Incentive Plan, subject to
approval by the stockholders of an increase in the aggregate number of
shares reserved for issuance under the 1993 Incentive Plan to 3,359,000.
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").
In connection with the merger of Advance Health Care, Inc. ("Advance
Health Care") with and into the Company, 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 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. On October 29, 1998,
the stockholders of the Company approved an amendment to the 1993 Incentive
Plan, which amendment increased the number of shares reserved for issuance
under the 1993 Incentive Plan to 2,359,000.
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.
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 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 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 (the "Advance Clinical Plan"), all of which have been
issued to employees of Advance Clinical.
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 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 Nonstatutory Plan. As of September 30, 1999, options to purchase
163,922 shares of Common Stock have been granted thereunder.
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 participating 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 participant.
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 statutory 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. For the fiscal year ended March 31, 1999, the Company
contributed an aggregate of $268,000 to the 401(k) Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
In fiscal year 1999, decisions with respect to the compensation of the
Company's executive officers and other employees were made by a
Compensation Committee consisting of Dr. Coleman and Messrs. Linde and
Ware. None of the members of the Compensation Committee is an officer of
the Company.
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
COMMISSION 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
Executives, 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 that does not fluctuate and a cash bonus
awarded based upon specific short-term financial goals of the Company.
BASE SALARY
In fiscal year 1999, 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. 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 Company, including the CEO, participated in an
annual executive bonus plan that 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 1999. 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 management's commitment to
achieve levels of annual profitability and return consistent
with increasing stockholder 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 that 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
1999 (as compared to fiscal year 1998), the Company increased revenues by
63% and net income by 60%, 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.
Compensation Committee
Kenneth J. Linde, Chairman
Rogers K. Coleman, M.D.
Michael D. Ware
STOCKHOLDER 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 Services Stocks ("Health Services Index") for the
period commencing on October 8, 1996(1) and ending on March 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
OCTOBER 8, 1996 THROUGH MARCH 31, 1999(2)
ADVANCE PARADIGM, INC. NASDAQ N-HEALTH SERVICES
---------------------- ------ -----------------
OCTOBER 1996 100 100 100
MARCH 1997 147.2 98.2 83.9
MARCH 1998 440.3 149.0 100.5
MARCH 1999 702.1 200.5 69.6
_______________
(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 fiscal year ends
on March 31.
(2) Assumes that $100.00 was invested in 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 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 PARTY TRANSACTIONS
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 of Series B Preferred Stock. In April 1998, BCBS of Texas
converted the Series B Preferred Stock, in accordance with its terms, into
1,111,111 shares of Common Stock. Dr. Coleman, a director of the Company,
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.
ADVANCE CAPITAL MARKETS
In fiscal 1998, the Company entered into an agreement with Advance
Capital Markets ("ACM") pursuant to which ACM agreed to act as financial
advisor for the Company. In exchange for these professional services, the
Company paid ACM a fee of $150,000 in 1998 in connection with the IMR
transaction and $85,000 in connection with the Baumel-Eisner transaction.
The fees paid are equivalent to or less than similar fees incurred in arm's-
length transactions. Michael Ware, a Director of the Company, is the
Managing Director and President of ACM.
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 April 1, 1998
and ending March 31, 1999, its Officers, Directors and greater than 10%
stockholders had complied with all applicable Section 16(a) filing
requirements.
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 September 30, 1999 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 Executives; 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
September 30, 1999, but options owned by others (even if exercisable within
60 days) are deemed not to be outstanding shares.
BENEFICIAL OWNERSHIP
---------------------
NUMBER PERCENTAGE
--------- ----------
Blue Cross & Blue Shield of Texas, Inc. (1). . . . 1,111,111 10.5
901 S. Central Expressway
Richardson, TX 75081
Essex Investment Management Corp. (2). . . . . . . 883,555 8.4
125 High Street, Boston, MA 02110
David D. Halbert (3) . . . . . . . . . . . . . . . 654,587 6.0
545 E. John Carpenter Freeway, Suite 1570,
Irving, TX 75062
Warburg Pincus Asset Management, Inc. (4). . . . . 539,316 5.1
466 Lexington Avenue, New York, NY 10017
Jon S. Halbert (5) . . . . . . . . . . . . . . . . 451,772 4.1
Joseph J. Filipek (6). . . . . . . . . . . . . . . 78,833 *
T. Danny Phillips (7). . . . . . . . . . . . . . . 91,833 *
Alan T. Wright (8) . . . . . . . . . . . . . . . . 22,250 *
All directors and executive officers
as a group (14 persons) (9). . . . . . . . . . . 2,523,069 21.9%
_______________
(1) Represents 1,111,111 shares issued in April 1998 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.
(2) Based upon information filed by Essex Investment Management Corp. with
the Securities and Exchange Commission on Form 13G on January 5, 1999.
(3) Includes 319,998 shares issuable pursuant to options which are
exercisable within 60 days of September 30, 1999. 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 31,896 shares of Common Stock held for
the benefit of Mr. D. Halbert's minor children, as to which Mr. D.
Halbert disclaims beneficial ownership.
(4) Based upon information filed by Warburg Pincus Asset Management, Inc.
with the Securities and Exchange Commission on Form 13G on January 8,
1999.
(5) Includes 337,750 shares issuable pursuant to options which are
exercisable within 60 days of September 30, 1999. 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 42,528 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 78,833 shares issuable pursuant to options which are
exercisable within 60 days of September 30, 1999.
(7) Includes 69,583 shares issuable pursuant to options which are
exercisable within 60 days of September 30, 1999.
(8) Includes 22,250 shares issuable pursuant to options which are
exercisable within 60 days of September 30, 1999.
(9) Includes 1,140,703 shares beneficially held by entities affiliated
with certain directors and includes 904,998 shares subject to stock
options held by officers and directors exercisable within 60 days of
September 30, 1999.
*Less than 1.0%
B. APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
The Board of Directors has adopted, subject to stockholder approval,
an amendment to the Amended and Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 25,000,000
shares to 50,000,000 shares. The text of the proposed amendment is included
in the form of Certificate of Amendment attached to this Proxy Statement as
APPENDIX A.
As of September 30, 1999, there were outstanding 10,593,228 shares of
Common Stock, 2,365,268 shares of Common Stock were reserved for
issuance upon the exercise of options granted under the Company's stock
option plans and 638,430 shares of Common Stock were reserved for issuance
upon the exercise of outstanding warrants. In addition, the Board of
Directors, subject to the stockholder's approval of this proposal to increase
the authorized number of shares of Common Stock, has approved a two-for-one
stock split of the Company's Common Stock in the form of a stock dividend,
which would use more than all of the currently authorized but unissued shares
of Common Stock. The Board of Directors believes that the stock split will be
beneficial to the trading market for the Common Stock and will promote
liquidity in the Common Stock by reducing the per share trading price and
increasing the number of publicly traded shares. If this proposal to
increase the authorized number of shares of Common Stock is approved by the
stockholders, the stock split will become effective as of the close of
business on November 11, 1999, and stockholders of record as of that date
(the "record date") will receive one additional share of Common Stock for
each share held on the record date. The additional shares will be mailed
or delivered on or about November 30, 1999, by the Company's transfer
agent, ChaseMellon Shareholder Services L.L.C. If this proposal to
increase the authorized number of shares of Common Stock is not approved by
the stockholders, the Company will not have a sufficient number of
authorized shares of Common Stock to effect the two-for-one stock split
and, accordingly, the stock split will not become effective.
The authorization of an additional 25,000,000 shares of Common Stock
as contemplated by the proposed amendment would give the Board of Directors
the express authority, without further action of the Company's
stockholders, to issue such shares of Common Stock from time to time as the
Board of Directors deems necessary or advisable. The Board of Directors
believes that having available additional authorized but unissued shares of
Common Stock will allow the Company greater flexibility in considering
potential future actions involving the issuance of capital stock for
business and financial purposes in the future. Other than shares to be
distributed in connection with the stock split, the Company currently has
no specific plans to issue the additional shares of Common Stock that would
be authorized by this proposal. The additional shares may be used, without
further stockholder approval, for various purposes including raising
capital, acquisitions, providing equity incentives to employees, officers
or directors, and stock splits in the form of stock dividends.
Although the proposed increase in the authorized capital stock of the
Company could be construed as having anti-takeover effects, neither the
Board of Directors nor the Company's management views this proposal in that
perspective. Nevertheless, the Company could use the additional shares to
frustrate persons seeking to effect a takeover or otherwise gain control of
the Company by, for example, privately placing shares to purchasers who
might side with the Board of Directors in opposing a hostile takeover bid.
The Company is not aware of such hostile takeover bid at this time. Shares
of Common Stock could also be issued to a holder that would thereafter have
sufficient voting power to assure that any proposal to amend or repeal the
Company's Bylaws or certain provisions of the Company's Amended and
Restated Certificate of Incorporation would not receive the requisite vote
required. Such uses of the Common Stock could render more difficult or
discourage an attempt to acquire control of the Company, if such
transactions were opposed by the Board of Directors.
The additional shares of Common Stock will have rights identical to
the currently outstanding Common Stock. Adoption of the proposed amendment
and any issuance of the Common Stock would not affect the rights of the
holders of currently outstanding Common Stock, except for effects
incidental to increasing the outstanding number of shares of Common Stock
such as dilution of earnings per share and voting rights of current holders
of Common Stock.
If this proposal to increase the authorized number of shares of Common
Stock is approved by the stockholders, it will become effective when the
Company files a Certificate of Amendment to its Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware. The Company anticipates that it will file the Certificate of
Amendment with the Secretary of State of the State of Delaware shortly
after the Annual Meeting of Stockholders.
Approval of the proposed amendment will require the affirmative vote
of the holders of a majority of the shares of Common Stock
entitled to vote on this matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
C. APPROVAL OF THE AMENDED AND RESTATED
INCENTIVE STOCK OPTION PLAN AS AMENDED
The purpose of the 1993 Incentive Plan is to provide a means by which
certain employees of the Company and its affiliates may be given an
opportunity to purchase Common Stock and to qualify such options as
"Incentive Stock Options" as such term is defined in Section 422 of the
Code. The 1993 Incentive Plan is intended to advance the interests of the
Company by encouraging stock ownership on the part of certain employees, by
enabling the Company (and its affiliates) to secure and retain services of
highly qualified persons, and by providing employees with an additional
incentive to advance the success of the Company (and its affiliates).
The 1993 Incentive Plan currently authorizes the issuance of up to
2,359,000 shares of Common Stock pursuant to options granted under the 1993
Incentive Plan. As of September 30, 1999, no shares of Common Stock
remained available for future grants under the 1993 Incentive Plan, and
options to acquire 56,103 shares have been contingently granted under the
1993 Incentive Plan, subject to approval by the stockholders at the Annual
Meeting of an increase in the aggregate number of shares available for
issuance under the 1993 Incentive Plan as described below. The Board of
Directors has determined that it would be desirable to have an additional
1,000,000 shares available for future grants under the 1993 Incentive Plan
in order to have available appropriate long-term incentives and competitive
compensation opportunities for the employees of the Company. In addition,
the Board of Directors has determined that it is in the Company's best
interest to conform the 1993 Incentive Plan to the requirements of Section
162(m) of the Code in order to preserve the full income tax deduction
available to the Company in the event of any "disqualifying dispositions"
described in Section 421(b) of the Code or in the event an option granted
under the 1993 Incentive Plan otherwise fails to qualify as an incentive
stock option. Accordingly, subject to stockholder approval, the Board of
Directors has adopted an amendment to the 1993 Incentive Plan providing (i)
for an increase in the aggregate number of shares of Common Stock available
for issuance under the 1993 Incentive Plan from 2,359,000 to 3,359,000,
(ii) that the number of shares of Common Stock that may be granted to any
employee under the 1993 Incentive Plan shall not exceed 3,359,000, (iii)
that members of the Compensation Committee, which administers the 1993
Incentive Plan, shall qualify as both an "outside director" as defined
under Section 162(m) of the Code and a "non-employee director" as defined
under Rule 16b-3 of the Securities Exchange Act of 1934, (iv) that the
Board of Directors shall act in lieu of the Compensation Committee during
all periods in which such committee is not in place, and (v) that the
Compensation Committee may not exercise any discretion to increase the
amount of compensation payable to an optionee in violation of Section
162(m) of the Code. The full text of the 1993 Incentive Plan as amended is
attached to this Proxy Statement as APPENDIX B.
Approval of the 1993 Incentive Plan as amended will require the
affirmative vote of the holders of a majority of the shares of
Common Stock entitled to vote on this matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
GENERAL. In July 1993, the Board of Directors of the Company adopted
the 1993 Incentive Plan. The 1993 Incentive Plan is currently administered
by the Compensation Committee (the "Committee"). Subject to the express
provisions of the 1993 Incentive Plan, the Committee may, from time to
time, determine the persons that will be granted options under the 1993
Incentive Plan, the number of shares of Common Stock subject to each option
and the exercise price, and the time or times when such options shall be
granted and may be exercised. Unless otherwise provided in the optionee's
stock option agreement, all of the options granted to date under the 1993
Incentive Plan are exercisable over a five-year period. On September 5,
1997, the Company filed with the Commission a registration statement on
Form S-8, under the Securities Act registering the shares of Common Stock
underlying the options offered under the 1993 Incentive Plan.
EMPLOYEES WHO MAY PARTICIPATE IN THE INCENTIVE PLAN. All employees of
the Company and its affiliates may be granted options under the 1993
Incentive Plan. A director who is not otherwise employed by the Company or
an affiliate may not be granted an option.
EXERCISE. Shares of Common Stock purchased upon exercise of options
("Option Shares") shall at the time of purchase be paid for in full. To
the extent that the right to purchase shares has accrued under the 1993
Incentive Plan, 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, accompanied by full payment for the
shares by cash, check or surrender of other shares of Common Stock having a
fair market value on the date of surrender equal to the aggregate exercise
price of the shares as to which the option is being exercised, or such
other consideration and method of payment for the issuance of Option Shares
as is permitted under Delaware General Corporation Law.
The exercise price of Option Shares granted under the 1993 Incentive
Plan may not be less than 100% of the fair market value of the Common Stock
on the date of grant (110% in the case of Option Shares granted to a holder
of more than 10% of the total voting power of all classes of the Company's
capital stock on the date of the grant). The Committee will determine the
fair market value of the Common Stock on the date the option is granted.
NON-ASSIGNABILITY. No option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution. During
the lifetime of an optionee, the option is exercisable only by the
optionee.
TERM. Unless otherwise provided in an optionee's written agreement
under the 1993 Incentive Plan, each option granted thereunder will expire
not more than ten years from the date the option is granted. However, in
the event of the proposed dissolution or liquidation of the Company, the
options may expire and terminate at an earlier date.
The 1993 Incentive Plan will terminate on August 1, 2003, but the
Board of Directors may terminate the 1993 Incentive Plan at any time prior
thereto. Termination of the 1993 Incentive Plan will not alter or impair,
without the consent of the optionee, any of the rights or obligations of
any optionee and any option previously granted under the 1993 Incentive
Plan.
TERMINATION OF EMPLOYMENT. In the event that an optionee's employment
by the Company and its affiliates is terminated for any reason, the options
granted to optionee pursuant to the 1993 Incentive Plan will terminate
three months after such termination.
ADJUSTMENTS TO OPTIONS. In the event of an increase or decrease in
the number of outstanding shares of Common Stock as a result of a
recapitalization, stock dividend or other event, which increase or decrease
is effected without receipt of consideration by the Company, the number of
shares for which options may be granted under the 1993 Incentive Plan, the
number of shares covered by each outstanding option and the exercise price
thereof shall be proportionately adjusted.
In the event of the proposed dissolution or liquidation of the
Company, all options under the 1993 Incentive Plan will terminate as of a
date to be fixed by the Committee, provided that the optionee will be given
at least 30 days notice and the optionee will have the right during that 30
days to exercise his option.
RIGHTS AS A STOCKHOLDER. The optionee will have no rights as a
stockholder 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.
AMENDMENTS. The Board of Directors may, from time to time, alter,
amend, suspend, or discontinue the 1993 Incentive Plan, or alter or amend
any and all option agreements granted thereunder; provided, however, that
no such action of the Board of Directors, without the approval of the
stockholders of the Company, may alter the provisions of the 1993 Incentive
Plan so as to decrease the minimum option price; extend the term of the
1993 Incentive Plan beyond ten years or the maximum term of the options
granted beyond ten years; alter any outstanding option agreement to the
detriment of the optionee without his consent; or decrease, directly or
indirectly (by cancellation and substitution of options or otherwise), the
option price applicable to any option granted under the 1993 Incentive
Plan.
FEDERAL INCOME TAX ASPECTS. The 1993 Incentive Plan is intended to
qualify as a stock option plan under Section 422 of the Code. If the 1993
Incentive Plan qualifies as such, then an employee who receives an
incentive stock option under the 1993 Incentive Plan will not be deemed to
recognize income either at the time of the grant of the option or, assuming
that the optionee has been an employee at all times during the period
beginning on the date of the grant and ending three months prior to the
date of exercise, at the time of exercise of the option. Gain or loss from
the sale or exchange of stock acquired upon such exercise will generally
be treated as long-term capital gain or loss, provided that such sale or
exchange of the shares does not occur within either the two-year period
after the date of the granting of the option or the one-year period after
the date such shares were acquired upon exercise. Under these circumstances,
no deduction will be allowable to the Company in connection with either the
grant of such options or the issuance of shares upon exercise thereof.
If a disposition (as that term is defined in Section 424(c) of the
Code) of shares acquired pursuant to the exercise of an incentive stock
option is made within either the two-year period after the date of granting
of the option or the one-year period after the date the shares were
acquired (a "disqualifying disposition"), the optionee will generally
recognize compensation income at the time of disposition equal to the
excess of the fair market value of the shares at the time of exercise over
the option price (limited to the difference between the amount realized by
the employee on the sale of such shares and the exercise price). Any such
compensation income recognized as described in this paragraph will increase
the optionee's tax basis in his shares. If a disposition described in this
paragraph occurs in a taxable transaction, any gain in excess of
compensation income recognized on the disposition will be capital gain, and
any loss will be capital loss. Such capital gain or loss will be long-term
capital gain or loss, depending on the holding period of the shares. If an
optionee recognizes compensation income as the result of a disposition as
described in this paragraph, the Company will be entitled to a
corresponding income tax deduction for its taxable year in which or with
which ends the taxable year of the employee in which the amount of
compensation income is included in such employee's gross income. The
employee will be deemed to have included such compensation income in gross
income if the Company satisfies in a timely manner the applicable Form W-2
or Form 1099 reporting requirements under Section 6041 or Section 6041A of
the Code, whichever is applicable, and the Treasury regulations thereunder.
Upon the exercise of an incentive stock option, the excess of the fair
market value of the shares at the time of exercise over the option price
will be an item of tax preference subject to the alternative minimum tax
provisions, unless the optionee makes a disqualifying disposition of such
shares as described in the preceding paragraph.
In the event that options granted under the Plan do not qualify as
incentive stock options, the employee will recognize compensation income
upon the receipt of such option if the option has a readily ascertainable
fair market value at the time of the grant, in the amount of the fair
market value of the option. If the nonstatutory stock options do not have
a readily ascertainable fair market value, the employee will not recognize
income upon grant of the nonstatutory stock options, but will recognize
compensation income upon the exercise of the nonstatutory stock options if
the shares issued pursuant to such exercise are either transferable or not
subject to substantial risk of forfeiture. The amount of the income will
be measured by the excess, if any, of the fair market value of the shares
at the time of exercise (determined without regard to any restrictions
other than a restriction which, by its terms, will never lapse) over the
amount paid as the exercise price of the nonstatutory stock options. If,
however, the employee is subject to certain restrictions with respect to
the shares received upon the exercise of the nonstatutory stock options,
then the taxable income realized by the employee will be deferred and will
be measured based on the fair market value of the shares at the time the
restrictions lapse. Gain or loss on the subsequent sale or exchange of
such shares will be capital gain or loss if the shares are a capital asset
in the hands of the employee. Such capital gain or loss will be long-term
capital gain or loss depending on the holding period. An employee may
elect, pursuant to Section 83(b) of the Code, to be taxed in the taxable
year in which a nonstatutory stock option is exercised on the difference
between the fair market value of the Common Stock on the date of exercise
and the exercise price.
In the case of compensation income recognized by an employee as
described above in connection with the exercise of an option, the Company
will be entitled to a corresponding income tax deduction for its taxable
year in which or with which ends the taxable year of the employee in which
the amount of compensation income is included in such employee's gross
income. The employee will be deemed to have included such compensation
income in gross income if the Company satisfies in a timely manner the
applicable Form W-2 or Form 1099 reporting requirements under Section 6041
or Section 6041A of the Code, whichever is applicable, and the Treasury
regulations thereunder.
STOCK OPTION AWARDS
The following table shows options which have been granted under the
1993 Incentive Plan as of September 30, 1999, to certain persons or groups
(including options which have been exercised).
1993 INCENTIVE STOCK OPTION PLAN
EXERCISE
NUMBER OF PRICE PER
NAME AND POSITION SHARES SHARE (1)
- ----------------- --------- ---------
David D. Halbert 440,500 $8.60
Chairman of the Board,
President and Chief Executive
Officer
Jon S. Halbert 415,750 $7.34
Executive Vice President and
Chief Operating Officer
Joseph J. Filipek, Jr. 97,500(2) $18.08(2)
Executive Vice President
T. Danny Phillips 166,500 $11.55
Senior Vice President and
Chief Financial Officer
Alan T. Wright 81,250 $26.86
Senior Vice President and
Chief Medical Officer
Executive Officers Group (9 persons) 1,430,250 $13.61
Non-Executive Officer Employee 1,004,853 $24.41
Group (112 persons)
Non-Executive Officer Director Group - 0 - --
(5 persons)
_______________
(1) Exercise prices shown are weighted averages of the actual exercise
prices for stock options granted to the individuals of the groups, as
applicable.
(2) This number does not include the 75,000 stock options granted to
Mr. Filipek under the Advance Clinical Plan, each with an exercise
price of $3.20.
D. APPROVAL OF THE COMPANY'S CORPORATE OFFICER INCENTIVE PLAN
The Board of Directors has adopted the Company's Corporate Officer
Incentive Plan (the "Incentive Plan") and has recommended that it be
submitted to the Company's stockholders for their approval at the Annual
Meeting. The Incentive Plan is intended to motivate key executives to
achieve the Company's objectives through incentive cash awards based upon
performance goals. The Incentive Plan is structured to permit, and
approval of this proposal by the stockholders will enable, awards to
qualify as "performance-based compensation" under Section 162(m) of the
Code.
SUMMARY OF THE INCENTIVE PLAN
This summary addresses only certain features of the Incentive Plan.
Please refer to the full text of the Incentive Plan included in APPENDIX C
attached to this Proxy Statement.
The Incentive Plan is administered and interpreted by the Compensation
Committee. The objectives of the Incentive Plan are as follows: (1) to
support the Company's overall business strategies; (2) to reinforce the
community of interests of the executives with those of the stockholders of
the Company; and (3) to provide an incentive opportunity for executives
that is in line with the Company's compensation philosophy. The
individuals who, at the discretion of the Compensation Committee, may be
eligible to participate in the Incentive Plan are the chief
executive officer, the chief operating officer, any executive vice
president and the chief financial officer.
The amount of compensation awarded under the Incentive Plan depends on
the organizational performance of the Company. The organizational
performance is determined by certain performance measures, which shall
consist of earnings per share of the Company and the following operational
objectives: revenue growth, return on equity, increase in number of covered
lives, mail service level improvement and call center response time
improvement. The Compensation Committee will determine the relative weight
of the performance measures each fiscal year. The Compensation Committee
will establish the following target levels of performance for each
performance measure: (1) threshold; (2) target; and (3) outstanding. Goals
under the Incentive Plan and the target performance levels will be provided
in writing to all participants within 90 days of the beginning of each
fiscal year. A cash bonus of a percentage or percentages of base salary
will be paid to each participant for each fiscal year in which the
performance goals set by the Compensation Committee are met. Payouts under
the plan shall be limited to $5,000,000 for any participant in any fiscal
year.
The following table indicates the overall target award levels
expressed as a percentage of base salary for each executive position for
both the earnings per share and the operational objective components of the
bonus. Participants will not receive any cash bonus if earnings per share
does not reach the threshold level.
AWARD LEVELS
-------------
EXECUTIVE POSITION THRESHOLD TARGET OUTSTANDING
------------------ --------- ------ -----------
Chief Executive Officer 25% 100% 150%
Chief Operating Officer 17.5% 70% 105%
Executive Vice President 17.5% 70% 105%
Chief Financial Officer 15% 60% 90%
The following table illustrates the compensation that could be awarded
under the Incentive Plan for the current fiscal year if the various
performance goals are achieved.
COMPENSATION AWARDED
--------------------
NAME AND POSITION THRESHOLD TARGET OUTSTANDING
----------------- --------- ------ -----------
David D. Halbert, $125,000 $500,000 $750,000
Chief Executive Officer
Jon S. Halbert, $61,250 $245,000 $367,500
Executive Vice President
David A. George, $43,750 $175,000 $262,500
Executive Vice President
T. Danny Phillips, $37,500 $150,000 $225,000
Chief Financial Officer
EFFECT OF FEDERAL INCOME TAXATION ON THE INCENTIVE PLAN
The following discussion of tax consequences with respect to the
compensation that may be awarded under the Incentive Plan is not
comprehensive and is intended only as a brief summary. The laws and
regulations governing the tax aspects of awards are complex and are subject
to change in the future.
Upon the payment of compensation awarded to a plan participant, the
participant will recognize compensation income and the Company will then be
entitled to a deduction for tax purposes in the amount of the compensation
awarded.
According to the Incentive Plan, its terms shall be interpreted in
such a fashion so as to qualify all compensation paid under the Incentive
Plan as "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code. The Board of Directors believes that all
compensation paid under the Incentive Plan is performance based and
therefore will be deductible for tax purposes by the Company under Section
162(m) of the Code.
Approval of the Incentive Plan will require the affirmative vote of the
holders of a majority of the shares of Common Stock entitled to vote on this
matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
E. 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,
2000, 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 1999 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 2000 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 June 23, 2000.
FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MARCH 31, 1999, 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 1570,
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
OCTOBER 22, 1999
<PAGE>
APPENDIX A
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCE PARADIGM, INC.
Advance Paradigm, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
FIRST: The corporation was originally incorporated under the name
Advance Pharmacy Services, Inc. and filed its original Certificate of
Incorporation with the Secretary of State of Delaware on July 27, 1993.
The Amended and Restated Certificate of Incorporation was filed on
October 7, 1996 and a Certificate of Amendment was filed on October 11,
1996.
SECOND: The first paragraph of Article IV of the Amended and Restated
Certificate of Incorporation is hereby deleted and replaced in its entirety
with the following:
"The aggregate number of shares of capital stock which the
Company shall have authority to issue is 55,000,000 shares
of capital stock, consisting of 50,000,000 shares of Common
Stock, par value $0.01 per share and five million
(5,000,000) shares of which is Preferred Stock, par value of
$0.01 per share. Unless specifically provided otherwise
herein, the holders of such shares shall be entitled to one
vote for each share held in any stockholder vote in which
any of such holders is entitled to participate."
THIRD: The foregoing amendment was declared advisable and proposed to
the corporation's stockholders by resolutions adopted by unanimous written
consent of the Board of Directors dated October 8, 1999.
FOURTH: Pursuant to resolution of its Board of Directors, the
stockholders of said corporation approved the amendment at the Annual
Meeting of Stockholders held on November 10, 1999.
FIFTH: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Advance Paradigm, Inc. has caused this certificate
to be signed by David D. Halbert, its President and Chief Executive
Officer, and Danny Phillips, its Secretary, this ___ day of
__________________, 1999.
ADVANCE PARADIGM, INC.
By _______________________________
David D. Halbert
President and Chief Executive
Officer
ATTEST:
______________________________
Danny Phillips
Secretary
<PAGE>
APPENDIX B
ADVANCE PARADIGM, INC.
AMENDED AND RESTATED
INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Amended and Restated Incentive
Stock Option Plan (the "Plan") is to provide a means by which certain
employees of Advance ParadigM, Inc. (the "Company") and its Affiliates (as
defined below) may be given an opportunity to purchase common stock of the
Company ("Common Stock") and to qualify such options as "incentive stock
options" as such term is defined in Section 422 of the Internal Revenue
Code of 1986 (the "Code"). The Plan is intended to advance the interests
of the Company by encouraging stock ownership on the part of certain
employees, by enabling the Company (and its Affiliates) to secure and
retain the services of highly qualified persons, and by providing employees
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 Code. Affiliation shall refer to a group of
Affiliates. The Plan has been conformed to the requirements of Section 162
(m) of the Code and the Treasury Regulations thereunder pertaining to
"qualified performance--based compensation" in order to preserve the full
deduction available to the Company in the event of any "disqualifying
dispositions" described in Code Section 421 (b) or in the event an option
hereunder otherwise fails to qualify as an incentive stock option.
2. STOCK SUBJECT TO OPTION. Subject to adjustment as provided in
Section 4 (g) hereof, options may be granted by the Company from time to
time to purchase up to an aggregate of 3,359,000 shares of the Company's
authorized but unissued Common Stock; provided, however, that the number of
shares that may be granted to any employee under the Plan over the term of
the Plan shall not exceed 3,359,000. 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 or 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 employees of the Company and its Affiliates
may be granted options under the Plan. A director who is not otherwise
employed by the Company (or an Affiliate) may not be granted an option. A
person who holds an option granted hereunder that has not expired is
referred to as an optionee.
4. TERMS AND CONDITIONS OF OPTIONS. The Committee (as that term is
defined in Section 5) 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 Stock Option Agreement, which is attached hereto as
Appendix A, and shall not be inconsistent with this Plan. Shares of 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 govern the employment rights and
duties between the optionee and the Company or Affiliate. Neither this
Plan, nor any grant or exercise pursuant hereto, shall constitute an
employment agreement among such parties.
(a) OPTION PRICE. The option price for each Option Share shall
not be less than the fair market value of a share of the Common Stock on
the date the option is granted; provided, however, the foregoing
notwithstanding, the option price for options granted to any employee
owning stock (using the attribution of stock ownership rules of Section
424(d) of the Code) possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its Affiliates on
the date such option is granted (a "10% Shareholder"), shall be at least
110% of the fair market value of the Common Stock on the date the option is
granted. The Committee shall, in good faith, determine the fair market
value of the Common Stock on the date the option is granted, and the fair
market value may be more or less than the book value of the Common Stock.
(b) TERM OF OPTION. Any other provision of this Plan
notwithstanding, unless otherwise provided in an optionee's 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 Section 4(i), options may expire and terminate
at an earlier date.
(c) EXERCISE OF OPTION. Unless otherwise provided in an
optionee's 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 next four
anniversaries of the date of grant and shall be cumulative. The date of
grant shall be the date set forth in any option as the Date of Grant.
Further, where an optionee's employment by 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 his termination. The Committee may
accelerate the time at which an option may be exercised.
(d) MANNER OF EXERCISE.
(i) Shares of Common Stock purchased upon exercise of
options shall at the time of purchase be paid for in full. To
the extent that the right to purchase Option Shares has accrued
hereunder, options may be exercised from time to time by written
notice to the Company stating the full number of Option 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, accompanied by full payment for the shares
which may be paid in cash, by check or in shares of Common Stock
having a fair market value (as determined by the Committee in
good faith) on the date of surrender equal to the aggregate
exercise price of the Option Shares as to which the Option is
exercised, or any combination of such methods of payment, or such
other consideration and method of payment for the issuance of
Option Shares as is permitted under Delaware General Corporation
Law.
(ii) At the time of delivery, the Company shall,
without stock 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 such 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. If the Option
Shares are not registered under the Securities Act of 1933 (the
"Act"), then the Company at the time of exercise will require in
addition that the registered owner deliver investment
representations in form acceptable to the Company and its
counsel, and the Company will place a legend on the certificate
for such Option Shares restricting the transfer of same. At no
time shall the Company have any obligation or duty to register
under the Act the Option Shares.
(iii) The Company shall have the right to deduct from
any settlement of an award made under the Plan, including the
delivery of shares, an amount sufficient to cover withholding
required by law for any federal, state or local taxes or to take
such other action as may be necessary to satisfy any such
withholding obligations. The Committee may permit shares to be
used to satisfy required tax withholding and such shares shall be
valued at the fair market value as of the settlement date of the
applicable award.
(e) NON-ASSIGNABILITY OF OPTION RIGHTS. No option shall be
assignable or transferable otherwise than by will or by the laws of descent
and distribution. During the lifetime of an optionee, the option is
exercisable only by the optionee.
(f) TERMINATION OF EMPLOYMENT. In the event that optionee's
employment by the Company and its Affiliates shall terminate for any
reason, the options granted to optionee pursuant to this Plan shall
terminate on the three-month anniversary of such termination. Should the
optionee elect to exercise an option granted hereunder during the three-
month period beginning on the date of termination, the Company shall have
the right to purchase and, upon written notice from the Company of its
intention to exercise such right, the optionee shall sell to the Company,
all Option Shares acquired during such three-month period. If the Company
elects to purchase any or all of such shares, the Company shall provide
written notice thereof and shall pay to the optionee the fair market value
of such shares as determined in good faith by the Board of Directors as of
the date of the termination of optionee's employment. The Company shall
not have the right to purchase any shares under this Section 4(f) if the
Common Stock has been registered under the Act and has been listed or
admitted to trading on one or more national securities exchanges or is
quoted by the NASD Automated Quotation System.
(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, or the payment of a stock dividend
after the date of grant of the option, or other increase in such shares
effected 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.
(h) ADJUSTMENT OF OPTIONS UPON REORGANIZATION.
(i) With respect to options to acquire stock of an
Affiliate of optionee's then present employer, if optionee's then
present employer ceases to be affiliated with the other member(s)
of the Affiliation, then the option shall expire and terminate
thirty (30) days after the date on which optionee's employer
ceases to be an Affiliate. Notwithstanding the foregoing, the
provisions of this Section 4(h) shall be subject to Section 4(b)
and shall be subject to Section 4(i) if the optionee receives
notice under Section 4(i) at a time earlier than the notice
provided for herein.
(ii) Excluding for purposes of this Section 4(h)(2) any
transactions between the Company and any Affiliate of the
Company, in the event of (i) a sale of substantially all of the
Common Stock, (ii) a sale of substantially all of the assets of
the Company, or (iii) a merger in which the Company is not to be
the surviving corporation (each a "Vesting Transaction"), the
options of an optionee granted hereunder may, in the sole
discretion of the Board of Directors, automatically vest
immediately prior to the closing of a Vesting Transaction and, to
the extent such Vesting Transaction does not occur, the vesting
shall be deemed rescinded and optionee shall again only be
entitled to exercise the options in accordance the terms of the
optionee's Stock Option Agreement. The Company shall give each
optionee holding vested options or entitled to accelerated
vesting written notice of any Vesting Transaction at least
fifteen (15) days prior to the closing of any such transaction,
and each such optionee shall notify the Company of its intent to
exercise any or all of its options immediately prior to the
closing of such Vesting Transaction; provided, however, that any
options not exercised prior to the closing of such Vesting
Transaction shall expire on the closing of such Vesting
Transaction. The foregoing notwithstanding, the provisions of
this Section 4(h)(2) shall be subject to Sections 4(b) and 4(d).
(i) DISSOLUTION OF ISSUER OF OPTION STOCK. 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 SHAREHOLDER. 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.
5. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee
(the "Committee") consisting of one or more directors to be appointed by
the Board of Directors of the Company; provided, however, that each
director shall, while serving on the Committee, qualify as both an "Outside
Director" under the Treasury Regulations promulgated under Section 162 (m)
of the Code and a "Non-Employee Director" under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. 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 as 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, may make such
rules and regulations for the conduct of its business as it shall deem
advisable. All action of the Committee shall require the affirmative vote
of 75% of its members. Any action may be taken by a written instrument
signed by all of the members, and action so taken shall be fully as
effective as if it had been taken by a vote of all of the members at a
meeting duly called and held. The Board of Directors shall act in lieu of a
Committee during all periods in which a Committee is not in place.
(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 which employees of the Company
or its Affiliates shall be granted options under the Plan, the number of
Option Shares subject to each option, and the time or times at which
options shall be granted, and the Company may grant such options under the
Plan. However, the Committee may not exercise any discretion to increase
the amount of compensation payable to an optionee hereunder in violation of
Code Section 162 (m) or the Treasury Regulations promulgated thereunder.
(d) The Committee shall report to the Board of Directors the
names of employees 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 August 1, 1993.
(b) The Plan shall terminate on August 1, 2003; but the Board of
Directors may terminate the Plan at any time prior to ten years from the
effective date of the Plan. Termination of the Plan shall not alter or
impair, without the consent of the optionee, any of the rights or
obligations and any option theretofore granted under the Plan.
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, provided, however, that
no such action of the Board of Directors, without the approval of the
shareholders of Company, may alter the provisions of the Plan so as to:
(a) decrease the minimum option price;
(b) extend the term of the Plan beyond ten years or the maximum
term of the options granted beyond ten years;
(c) alter any outstanding option agreement to the detriment of
the optionee without his consent; or
(d) decrease, directly or indirectly (by cancellation and
substitution of options or otherwise), the option price applicable to any
option granted under this Plan.
The foregoing notwithstanding, (i) the Board of Directors may amend
the Plan in any respect in order to qualify the options granted pursuant
hereto as Incentive Stock Options as defined in Section 422 of the Code,
and (ii) no amendment may be made to this Plan (or any option granted
hereunder without the consent of the optionee) which could constitute a
modification of any option outstanding under Section 424(h) of the Code or
which would adversely affect an outstanding option's status as an incentive
stock option under Section 422 of the Code.
8. STATUS OF OPTIONS. Options granted pursuant to this Plan are
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, provided, however, that 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.
<PAGE>
APPENDIX A
INCENTIVE STOCK OPTION AGREEMENT
Advance ParadigM, Inc. (the "Company"), in consideration of the value
of the continuing services of [NAME] ("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 1993 Incentive 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 upon exercise
of the option.
1. EXERCISE PRICE. The exercise price of the option shall be
<$______> per share, which price represents at least 100% of the fair
market value of a share of the Common Stock at the Date of Grant (as
hereinafter defined).
2. TERM OF OPTION. This option is granted and dated as of <DATE OF
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 Section 4 of the Plan. Except as otherwise provided in this Option
Agreement or in the Plan, this option is 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 next four anniversaries of the
Date of Grant and shall be cumulative.
3. MANNER OF EXERCISE. The Optionee (or other person entitled to
exercise the option) shall purchase shares of Common Stock subject hereto
in the manner and in accordance with the rules set forth in the Plan.
4. TERMINATION OF EMPLOYMENT. As provided in the Plan, if
Optionee's employment with the Company and its Affiliates (as defined in
the Plan) is terminated for any reason, (i) any portion of the option not
vested on the date of termination will be forfeited, and (ii) at any time
within three months of the date of such termination, the Optionee shall
have the right to exercise any or all of the options vested in such
Optionee immediately prior to such termination; provided, however, that, if
the Common Stock has not been registered in accordance with the Securities
Act of 1933 and has not been listed or admitted to trading on one or more
national securities exchanges or is not quoted by the NASD Automated
Quotation System, any shares of Common Stock acquired upon exercise of the
option following such termination, will be subject to purchase by the
Company at the fair market value of such shares as determined in good faith
by the Board of Directors.
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
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. SUBJECT TO PLAN. This option is subject to all the terms and
conditions of the Plan, and specifically to the power of the Compensation
Committee of the Board of Directors of the Company 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
subject to the limitations expressed in 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 Compensation Committee, and that such determinations,
interpretations, or other actions are final, conclusive and biding upon all
parties, including Optionee.
IN WITNESS WHEREOF, this Option Agreement is executed as of the <DATE
OF GRANT>.
ADVANCE PARADIGM, INC.
By: _________________________
Name: _______________________
Title: ______________________
The undersigned Optionee hereby accepts the benefits of the foregoing
Incentive Stock Option Agreement.
____________________________
[NAME], Optionee
<PAGE>
APPENDIX C
ADVANCE PARADIGM CORPORATE OFFICER INCENTIVE PLAN
1. PLAN OBJECTIVES. The objectives of this plan (the "Plan") are to
do the following:
(a) support the overall business strategies of Advance Paradigm,
Inc. (the "Company");
(b) reinforce the community of interests of the executives with
those of the shareholders of the Company; and
(c) provide an incentive opportunity for executives that is in
line with the Company's compensation philosophy.
2. ADMINISTRATION OF THE PLAN. The Compensation Committee (the
"Committee") of the board of directors (the "Board") of the Company will
administer and interpret the Plan.
3. ELIGIBILITY AND PARTICIPATION. The individuals eligible to
participate in the Plan are the following officers of the Company: the
chief executive officer, the chief operating officer, any executive vice
president and the chief financial officer. The Committee shall designate
those eligible individuals who shall participate in the Plan from time to
time.
4. PERFORMANCE GOALS. A cash bonus of a percentage or percentages
of base salary will be paid to each participant for each fiscal year of the
Company in which the performance goals set by the Committee are met. The
performance goals shall consist of earnings per share of the Company
("EPS") and/or the following specific operational objectives: revenue
growth; return on equity; increase in number of covered lives; mail service
level improvement; call center response time improvement (EPS and such
operational objectives being collectively referred to herein as
"Performance Goals").
There will be three defined levels of EPS performance:
--- Threshold---the minimum performance level for which a payout
will occur
--- Target---the targeted performance level
--- Outstanding---an outstanding level of performance
No payout will occur for EPS performance less than the threshold.
From one to five operational objectives, or measures, will be selected
annually. Alternatively, no operational objectives may be selected for a year.
For each operational objective selected, three defined levels of
performance generally will be established:
--- Threshold---the minimum performance level for which a payout
will occur
--- Target---the targeted performance level
--- Outstanding---an outstanding level of performance
For some objectives, it may not be possible to define three levels, in
which case one to two levels will be defined. Target performance levels,
however, will be defined for all objectives.
5. COMMUNICATION OF PERFORMANCE GOALS PERFORMANCE. The specific
Performance Goals under the Plan will be provided by the Committee in
writing to all Plan participants within 90 days of the beginning of each
fiscal year. For each Performance Goal, target performance levels and
weighting will be defined and communicated within the 90-day period. As
appropriate, threshold and outstanding levels of performance will also be
provided at that time. Prior to payment of any bonuses hereunder the
Committee must certify in writing that the Performance Goals for the year
have been met.
6. TARGET AWARD LEVELS. The compensation philosophy, existing award
levels, and competitive market analysis were combined to develop
recommended Plan incentive target award levels. The following matrix
indicates the overall target award levels by executive position for EPS
and the operational objective components of the bonus:
AWARD LEVELS
--------------------------------------------
EXECUTIVE POSITION THRESHOLD* TARGET* OUTSTANDING*
- ------------------ ---------- ------- ------------
CEO 25% 100% 150%
COO 17.5% 70% 105%
EVP 17.5% 70% 105%
CFO 15% 60% 90%
*Award Levels are expressed as a percentage of base salary.
A minimum EPS must be achieved before any incentives are awarded under the
Plan. The following example illustrates the calculation of the bonus under
the Plan:
EXAMPLE: The Company achieves an outstanding level of performance
with respect to its EPS goal for the fiscal year. The Committee earlier
timely determined that the bonus for the year should be weighted 75% to the
specific EPS target and 25% to the specific operational objections that
were set. However, only a threshold level of performance is achieved with
respect to the other operational objectives for the year. Executive A's
base salary for the year is $100,000. Executive A's bonus under the Plan
for the year is $118,750. This amount is determined as the sum of the (a)
150% of 75% of the $100,000 base salary (or $112,500) plus (b) 25% of 25%
of the $100,000 base salary (or $6,250).
7. DISCRETION. The Committee may, at its discretion, reduce the
bonus of any participant in the Plan based on an evaluation of individual
or organizational performance. The Committee shall, in setting performance
goals for the fiscal year, be entitled to reasonably set the goals and
shall have, without limitation, the right to exclude extraordinary items
from the definition of EPS. Particular items of revenue, income or expense
may be considered extraordinary for this purpose. The foregoing
notwithstanding, however, neither the Committee, nor any other person or
entity, shall have any discretion to increase the amount of any bonus
payable under the Plan contrary to the requirements for "qualified
performance-based compensation" under Section 162(m) of the Internal
Revenue Code of 1986.
8. LIMITATIONS. Payouts under the Plan shall be limited to
$5,000,000 for any participant in any fiscal year of the Company.
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ADVANCE PARADIGM, INC.
The undersigned hereby appoints Danny Phillips and David D. 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 November 10, 1999 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
Please mark your vote
as indicated in this example:
/X/
ITEM 1. Election of directors duly ITEM 4. Proposal to approve the
nominated: Corporate Officer Incentive
Plan.
Stephen L. Green and
Michael D. Ware
FOR AGAINST ABSTAIN
WITHHELD / / / / / /
FOR for all
/ / / /
ITEM 2. Proposal to approve the ITEM 5. Proposal to ratify the
amendment to the Amended selection of Arthur
and Restated Certificate Andersen, LLP as independent
of Incorporation. auditors of the corporation.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /
ITEM 3. Proposal to approve the ITEM 6. In their discretion, the
Amended and Restated Proxies are authorized
Incentive Stock Option to vote upon such other
Plan as amended. business as may properly
come before the meeting.
FOR AGAINST ABSTAIN
/ / / / / / ---------------------------------
(INSTRUCTION: To withhold authority to vote
for any individual nominee, write that nominee's
name in the space provided below):
- -------------------------------------------------------
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, 2, 3, 4 and 5.
A vote "FOR" Proposals 1, 2, 3, 4 and 5 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 an 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 ______________, 1999
- ---------------------------------------------------------------------------
* FOLD AND DETACH HERE *
