<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File Number 0-21447
ADVANCE PARADIGM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-2493381
(State of Incorporation) (IRS Employer Identification Number)
545 E. John Carpenter Freeway, Suite 1570, Irving, Texas 75062
(Address of principal executive offices) (ZIP Code)
</TABLE>
(972) 830-6199
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Common stock, $.01 par value: 10,600,578
outstanding as of November 10, 1999
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ADVANCE PARADIGM, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets as of
September 30, 1999 and March 31, 1999 2
B. Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
September 30, 1999 and 1998 3
C. Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
September 30, 1999 and 1998 4
D. Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 15
SIGNATURES 16
</TABLE>
<PAGE> 3
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1999
-------------- ------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 42,492,000 $ 44,124,000
Accounts receivable, net of allowance for doubtful accounts of
$371,000 and $383,000, respectively 107,582,000 152,818,000
Inventories 4,015,000 8,967,000
Prepaid expenses and other 1,651,000 2,402,000
------------ ------------
Total current assets 155,740,000 208,311,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $8,540,000 and $10,615,000, respectively 15,155,000 21,083,000
INTANGIBLE ASSETS, net of accumulated amortization of
$2,191,000 and $4,019,000, respectively 105,041,000 103,214,000
OTHER ASSETS 897,000 892,000
------------ ------------
Total assets $276,833,000 $333,500,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $148,979,000 $195,040,000
Accrued salaries and benefits 3,780,000 2,629,000
Income taxes payable -- 727,000
Other accrued expenses 1,870,000 1,985,000
------------ ------------
Total current liabilities 154,629,000 200,381,000
NONCURRENT LIABILITIES:
Long-term debt 50,000,000 50,000,000
Deferred income taxes 2,597,000 3,218,000
Other noncurrent liabilities 546,000 526,000
------------ ------------
Total liabilities 207,772,000 254,125,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000
shares authorized; 10,528,449 and 10,593,228
shares issued and outstanding, respectively 105,000 106,000
Additional paid-in capital 48,928,000 49,614,000
Retained earnings 20,028,000 29,655,000
------------ ------------
Total stockholders' equity 69,061,000 79,375,000
------------ ------------
Total liabilities and stockholders' equity $276,833,000 $333,500,000
============ ============
</TABLE>
See accompanying notes to financial statements.
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ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
------------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 181,258,000 $ 434,713,000 $ 345,440,000 $ 850,999,000
------------- ------------- ------------- -------------
Cost of operations:
Cost of revenues 173,727,000 420,510,000 330,869,000 823,866,000
Selling, general and
administrative expenses 3,312,000 5,304,000 6,575,000 10,179,000
------------- ------------- ------------- -------------
Total cost of operations 177,039,000 425,814,000 337,444,000 834,045,000
------------- ------------- ------------- -------------
Operating income 4,219,000 8,899,000 7,996,000 16,954,000
Interest income 708,000 189,000 1,474,000 452,000
Interest expense -- (965,000) -- (1,879,000)
------------- ------------- ------------- -------------
Income before income taxes 4,927,000 8,123,000 9,470,000 15,527,000
Provision for income taxes 1,872,000 3,087,000 3,598,000 5,900,000
------------- ------------- ------------- -------------
Net income $ 3,055,000 $ 5,036,000 $ 5,872,000 $ 9,627,000
============= ============= ============= =============
Basic
Net income per share $ 0.30 $ 0.48 $ 0.58 $ 0.91
============= ============= ============= =============
Weighted average
shares outstanding 10,256,554 10,593,228 10,084,528 10,577,485
============= ============= ============= =============
Diluted
Net income per share $ 0.27 $ 0.41 $ 0.51 $ 0.79
============= ============= ============= =============
Weighted average
shares outstanding 11,499,250 12,325,998 11,596,387 12,237,000
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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ADVANCE PARADIGM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
-----------------------------
1998 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,872,000 $ 9,627,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities -
Depreciation and amortization 1,508,000 3,903,000
Provision for doubtful accounts 12,000 12,000
Change in certain assets and liabilities -
Accounts receivable (29,127,000) (45,248,000)
Inventories 296,000 (4,952,000)
Prepaid expenses
and other assets (215,000) (747,000)
Accounts payable, accrued expenses
and other noncurrent liabilities 3,837,000 46,353,000
------------ ------------
Net cash provided by (used in) operating activities (17,817,000) 8,948,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,904,000) (8,003,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock 485,000 687,000
Proceeds from borrowings -- 12,000,000
Payments on long-term obligations -- (12,000,000)
------------ ------------
Net cash provided by financing activities 485,000 687,000
------------ ------------
INCREASE (DECREASE) IN CASH (20,236,000) 1,632,000
CASH AND CASH EQUIVALENTS, beginning of period 58,342,000 42,492,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 38,106,000 $ 44,124,000
============ ============
</TABLE>
See accompanying notes to financial statements.
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ADVANCE PARADIGM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information in the form prescribed
by the Securities and Exchange Commission (the "Commission") in instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the September 30, 1999 and 1998 unaudited interim financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of results for this interim period. In the
opinion of the Company's management, the disclosures contained in this Form
10-Q are adequate to make the information presented not misleading when read in
conjunction with the Notes to Consolidated Financial Statements included in the
Company's Form 10-K for the year ended March 31, 1999. The results of
operations for the three month and six month periods ended September 30, 1999
are not necessarily indicative of the results to be expected for the full year
or for any future period.
The Company adopted SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information," effective April 1, 1998. This pronouncement changes
the requirements under which public businesses must report segment information.
The objective of the pronouncement is to provide information about a company's
different types of business activities and different economic environments.
SFAS 131 requires companies to select segments based on their internal
reporting system. The Company provides integrated health benefit management
services to its customers, and these services account for substantially all of
its net revenues. Such services are typically negotiated under one contract
with the customer. Therefore, the Company's operations will continue to be
reported in one segment.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and dilutive shares outstanding during the period. A reconciliation of
the numerators and denominators of the basic and diluted per share computations
are as follows:
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
1998 1999 1998 1999
------------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C>
BASIC
Numerator:
Net income $ 3,055,000 $ 5,036,000 $ 5,872,000 $ 9,627,000
=========== =========== =========== ===========
Denominator:
Weighted average common
stock outstanding 10,256,554 10,593,228 10,084,528 10,577,485
=========== =========== =========== ===========
Net income per share $ 0.30 $ 0.48 $ 0.58 $ 0.91
=========== =========== =========== ===========
DILUTED
Numerator:
Net income $ 3,055,000 $ 5,036,000 $ 5,872,000 $ 9,627,000
=========== =========== =========== ===========
Denominator:
Weighted average common 10,256,554 10,593,228 10,084,528 10,577,485
stock outstanding
Other dilutive securities:
Series B preferred stock -- -- 73,260 --
Options and warrants using the
treasury stock method 1,242,696 1,732,770 1,438,599 1,659,515
----------- ----------- ----------- -----------
Weighted average shares outstanding 11,499,250 12,325,998 11,596,387 12,237,000
=========== =========== =========== ===========
Net income per share $ 0.27 $ 0.41 $ 0.51 $ 0.79
=========== =========== =========== ===========
</TABLE>
3. INCOME TAXES
In the three months and six months ended September 30, 1998 and 1999, the
Company's recorded income tax expense approximated an effective tax rate of
38%.
4. ACQUISITIONS
On March 31, 1999, the Company acquired the outstanding stock of
Foundation Health Pharmaceutical Services ("FHPS") for $70 million in cash and
warrants to purchase 200,000 shares of its $0.01 par value common stock. The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of FHPS have been included in the consolidated
financial statements of the Company since April 1, 1999. The
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purchase price was allocated to Goodwill, certain customer contracts and other
intangible assets. The purchase price allocation reflected in the accompanying
financial statements is preliminary. The Company's management is assessing the
net realizable value of certain contracts acquired and reviewing the assets
acquired for other intangible assets. As a result, the purchase price
allocation may be subsequently revised.
The following unaudited pro forma information presents the results of
operations of the Company as if the FHPS acquisition had taken place at the
beginning of the period presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues $ 199,962 $ 390,688
Net income $ 3,155 $ 6,589
Net income per share:
Basic $ 0.31 $ 0.65
Diluted $ 0.27 $ 0.57
Weighted average shares outstanding:
Basic 10,256,554 10,084,528
Diluted 11,499,250 11,596,387
</TABLE>
5. CONCENTRATION OF BUSINESS
Effective April 1, 1999, the Company entered into a Pharmacy Benefit
Services Agreement with Foundation Health Systems, Inc. ("FHS"). Under the
terms of the Service Agreement the Company provides pharmacy services to FHS'
affiliated health plans. In the six months ended September 30, 1999, the
revenues generated under the service contract with FHS and by the
non-affiliated FHPS customers accounted for approximately 40% of the Company's
revenues.
6. DEBT
On March 31, 1999, the Company entered into a senior credit facility
with a group of lenders. The credit facility consists of a $75 million,
three-year revolving credit facility. The Company borrowed $50 million under
the credit facility to fund the acquisition of FHPS. As of September 30, 1999,
$50 million was outstanding under the credit facility.
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7. SUBSEQUENT EVENT - STOCK SPLIT
On October 12, 1999, the Company announced a two-for-one stock split
of its common stock. The record date is November 11, 1999 and the date of
payment is November 30, 1999. The stock split is contingent upon shareholders'
approval of an increase in the Company's authorized common stock at the 1999
Annual Meeting of Stockholders. Financial information contained elsewhere in
this Form 10-Q has not been adjusted to reflect the impact of the stock split.
Net income per share, after giving retroactive effect for the two-for-one stock
split, is presented below for all of the per share amounts disclosed in the
financial statements and the notes to the financial statements:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
1998 1999 1998 1999
------------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BASIC:
Weighted average common
stock outstanding 20,513,108 21,186,456 20,169,056 21,154,970
=============== =============== =============== ===============
Net income per share $ 0.15 $ 0.24 $ 0.29 $ 0.46
=============== =============== =============== ===============
DILUTED:
Weighted average shares outstanding 22,998,500 24,651,996 23,192,774 24,474,000
=============== =============== =============== ===============
Net income per share $ 0.13 $ 0.20 $ 0.25 $ 0.39
=============== =============== =============== ===============
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain consolidated financial data of the
Company, for the periods indicated, as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Data Services 66.1% 75.9% 67.6% 76.2%
Mail Services 16.5 9.7 16.5 9.8
Clinical Services 17.4 14.4 15.9 14.0
----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of operations:
Cost of revenues 95.9 96.7 95.8 96.8
Selling, general and administrative
expenses 1.8 1.2 1.9 1.2
----- ----- ----- -----
Total cost of operations 97.7 97.9 97.7 98.0
----- ----- ----- -----
Operating income 2.3 2.1 2.3 2.0
Interest income, net of expense .4 (.2) .4 (.2)
----- ----- ----- -----
Income before income taxes 2.7 1.9 2.7 1.8
Provision for income taxes (1.0) (.7) (1.0) (.7)
----- ----- ----- -----
Net income 1.7% 1.2% 1.7% 1.1%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Our revenues for the three months ended September 30, 1999
increased by $253.5 million, or 140%, compared to revenues for the three months
ended September 30, 1998. Approximately 83% of the increase in revenues was
attributable to a 59% increase in the number of pharmacy claims processed
during the period. The increase in claims resulted from new contracts signed
throughout the last twelve months with new customers including the services
agreement with Foundation Health Systems, Inc. ("FHS"). Substantially all of
the new customers utilize our pharmacy network. In cases in which we have an
independent obligation to pay our network pharmacy providers, we include
payments from our plan sponsors for these benefits as revenues and payments to
our pharmacy providers as cost of revenues. Therefore, new customers that
utilize our network will generate higher revenues than new business where we
merely administer the customer's network. Approximately 12% of the increase in
revenues resulted from an increase in clinical services revenues derived from
formulary and disease management services as well as clinical trials. This
increase was primarily attributable to the acquisition of Foundation Health
Pharmaceutical Services ("FHPS") and the addition of other new customers. The
remaining 5% of the increase was attributable to additional sales of our mail
pharmacy services, resulting from a 25% increase in the number of mail
prescriptions dispensed.
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COST OF REVENUES. Our cost of revenues for the three months ended
September 30, 1999 increased by $246.8 million, or 142%, compared to the same
period in 1998. This increase was attributable primarily to the additional
costs associated with our claims processing growth and the new customers that
are utilizing our retail pharmacy network, including the new business from FHS.
As a percentage of revenues, cost of revenues was approximately 96.7% in the
three months ended September 30, 1999 compared to 95.9% in the same period in
1998. Revenues from claims processing services generate lower margins than
revenues from our other services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses for the three months ended September 30, 1999 increased
by $2.0 million, or 60%, compared to the same period in 1998. This increase was
primarily the result of our acquisition of FHPS and the related amortization
expense associated with the intangible assets acquired. In addition, further
expansion in management, sales and marketing contributed to the increase. In
spite of the increase, selling, general and administrative expenses as a
percentage of revenues decreased from 1.8% for the three months ended September
30, 1998 to 1.2% in the same period in 1999 as the result of greater economies
of scale and due to the increase in revenues associated with our claims
processing services. Additional revenues generated by customers utilizing our
network pharmacy providers typically do not result in an increase in selling,
general and administrative expenses.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense, net of interest
income, for the three months ended September 30, 1999 increased $1.5 million
compared to the same period in 1998. Interest expense increased as the result
of the acquisition of FHPS on March 31, 1999 and the related bank borrowings
throughout the quarter ended September 30, 1999. No debt was outstanding in the
quarter ended September 30, 1998.
INCOME TAXES. For the three months ended September 30, 1999 and 1998 our
recorded income tax expense approximated an effective tax rate of 38%.
NET INCOME PER SHARE. We reported diluted net income per share of $.41 per
share for the three months ended September 30, 1999 compared to $.27 per share
for the same period in 1998. The weighted average shares outstanding were 11.5
million and 12.3 million for the three months ended September 30, 1998 and
1999, respectively. The increase in the weighted average shares resulted
primarily from the increase in our stock price which has resulted in more
options and warrants becoming dilutive securities. (See Note 2 for
calculation.)
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SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Our revenues for the six months ended September 30, 1999
increased by $505.6 million, or 146%, compared to revenues for the six months
ended September 30, 1998. Approximately 82% of the increase in revenues was
attributable to a 64% increase in the number of pharmacy claims processed
during the period. The increase in claims resulted from new contracts signed
throughout the last twelve months with new customers including the services
agreement with FHS. Substantially all of the new customers utilize our pharmacy
network. In cases in which we have an independent obligation to pay our network
pharmacy providers, we include payments from our plan sponsors for these
benefits as revenues and payments to our pharmacy providers as cost of
revenues. Therefore, new customers that utilize our network will generate
higher revenues than new business where we merely administer the customer's
network. Approximately 13% of the increase in revenues resulted from an
increase in clinical services revenues derived from formulary and disease
management services as well as clinical trials. This increase was primarily
attributable to the acquisition of FHPS and the addition of other new
customers. The remaining 5% of the increase was attributable to additional
sales of our mail pharmacy services, resulting from a 31% increase in the
number of mail prescriptions dispensed.
COST OF REVENUES. Our cost of revenues for the six months ended September
30, 1999 increased by $493.0 million, or 149%, compared to the same period in
1998. This increase was attributable primarily to the additional costs
associated with our claims processing growth and the new customers that are
utilizing our retail pharmacy network, including the new business from FHS. As
a percentage of revenues, cost of revenues was approximately 96.8% in the six
months ended September 30, 1999 compared to 95.8% in the same period in 1998.
Revenues from claims processing services generate lower margins than revenues
from our other services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses for the six months ended September 30, 1999 increased
by $3.6 million, or 55%, compared to the same period in 1998. This increase was
primarily the result of our acquisition of FHPS and the related amortization
expense associated with the intangible assets acquired. In addition, further
expansion in management, sales and marketing contributed to the increase. In
spite of the increase, selling, general and administrative expenses as a
percentage of revenues decreased from 1.9% for the six months ended September
30, 1998 to 1.2% in the same period in 1999 as the result of greater economies
of scale and due to the increase in revenues associated with our claims
processing services. Additional revenues generated by customers utilizing our
network pharmacy providers typically do not result in an increase in selling,
general and administrative expenses.
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INTEREST INCOME AND INTEREST EXPENSE. Interest expense, net of interest
income, for the six months ended September 30, 1999 increased $2.9 million
compared to the same period in 1998. Interest expense increased as the result
of the acquisition of FHPS on March 31, 1999 and the related bank borrowings
throughout the six months ended September 30, 1999. No debt was outstanding in
the quarter ended September 30, 1998.
INCOME TAXES. For the six months ended September 30, 1999 and 1998 our
recorded income tax expense approximated an effective tax rate of 38%.
NET INCOME PER SHARE. We reported diluted net income per share of $.79 per
share for the six months ended September 30, 1999 compared to $.51 per share
for the same period in 1998. The weighted average shares outstanding were 11.6
million and 12.2 million for the six months ended September 30, 1998 and 1999,
respectively. The increase in the weighted average shares resulted primarily
from the increase in our stock price which has resulted in more options and
warrants becoming dilutive securities. (See Note 2 for calculation.)
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had working capital of $7.9 million. Our net
cash provided by operating activities was $8.9 million for the six months ended
September 30, 1999 resulting primarily from net income and also due to the
timing of receivables and payables resulting from our continued growth. During
the six months ended September 30, 1999 we used cash of $8.0 million for
purchases of property, plant and equipment associated with the growth and
expansion of our systems and facilities.
Historically, we have been able to fund our operations and continued growth
through cash flow from operations. We anticipate that cash flow from
operations, combined with our current cash balances and amounts available under
our credit facility, will be sufficient to meet our internal operating
requirements and expansion programs, including capital expenditures, for at
least the next 18 months. However, if we successfully continue our expansion,
acquisition and alliance plans, we may be required to seek additional debt or
equity financing in order to achieve these plans. As of September 30, 1999,
$50.0 million was outstanding under the credit facility.
YEAR 2000 READINESS DISCLOSURE
Our operations require our computer systems and information technology to
work effectively. In fiscal year 1998, we began addressing the year 2000 issue
by forming a year 2000 project team. The year 2000 issue is the result of
computer programs written using two digits rather than four digits to define
"date" fields. Information systems have time-sensitive operations that, as a
result of this date field limitation, could disrupt business activities in the
normal business cycle. For example, some computers that are not year 2000
compliant may interpret the year 2000 as the year 1900. This treatment could
result in significant miscalculations when processing critical date-sensitive
information relating to dates after December 31, 1999.
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<PAGE> 14
In the quarter ending June 30, 1998, we completed the "inventory" portion
of our year 2000 project. We documented all internal hardware, software or
equipment that was date-sensitive. In the quarter ending September 30, 1998, we
completed the second stage of the year 2000 project, which involved assessing
all of the items that had been "inventoried" to determine whether they were
year 2000 compliant. This assessment stage also included surveying all external
vendors and customers with whom we transact business to determine whether their
systems were year 2000 compliant. In the quarter ending December 31, 1998, we
completed the third stage of the year 2000 project, which involved the
development of code to convert systems that are not year 2000 compliant to year
2000 compliant systems. We successfully completed the implementation phase on
March 31, 1999 via upgrade or replacement of all non-compliant systems. While
all core systems are currently considered to be compliant, further maintenance
testing and certifications will continue throughout 1999.
The potential impact of the year 2000 issue depends not only on the
corrective measures we have undertaken, but also on the ways in which the year
2000 issue is addressed by third parties with whom we interact or upon whom we
are dependent, including individual retail pharmacies, health plan sponsors and
pharmaceutical manufacturers. We believe that our greatest risk with respect to
year 2000 issues relates to failures by third parties to be year 2000
compliant. We cannot make any assurance that the software and systems of other
companies with which we transact business will become year 2000 compliant in a
timely manner. Any such failures could have a material adverse effect on our
systems and operations. With respect to the systems we directly use, we believe
our greatest exposure to the year 2000 issue involves our claims processing
operations, which rely on computers to process prescription claims. We have
installed a vendor upgrade and have had this system certified by a third party.
However, any failure of these systems to be year 2000 compliant may have a
material adverse effect on us.
In the quarter ending September 30, 1999, we completed contingency plans
including reaction to worst-case scenarios. This document will continue to be
improved upon and added to through the remainder of 1999 to more fully address
risks both internal to our business processes and those presented from
interaction with business partners. Due to the inability to predict all of the
potential problems that may arise from the year 2000 issue, we cannot be sure
that we will be able to anticipate all contingencies.
FORWARD-LOOKING STATEMENTS
This report contains or may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of the Company's and management's expectations, intentions, plans
and beliefs, including those contained in or implied by "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Notes to Condensed Consolidated Financial Statements. These forward-looking
statements, as defined in Section 21E of the Securities Exchange Act of 1934,
are dependent on certain events, risks and uncertainties that may be outside
the Company's control. These forward-looking statements may include statements
of management's plans and
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objectives for the Company's future operations and statements of future
economic performance; the Company's capital budget and future capital
requirements, and the Company's meeting its future capital needs; and the
assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from those
expressed in or implied by such statements due to a number of factors,
including, without limitation, those described in the context of such
forward-looking statements, and the factors set forth in the Company's Form
10-K under the caption "Risk Factors." All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
- 14 -
<PAGE> 16
PART II. OTHER INFORMATION
Items 1-5 are not applicable.
Item 6. Exhibits and reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
Exhibits required by Item 601 of Regulation S-K:
EXHIBIT NO. EXHIBITS
- ----------- --------
3.1* --- Amended and Restated Certificate of Incorporation
3.2* --- Amended and Restated Bylaws
10.1*** --- Employment Agreement entered into between the Company
and David A. George dated as of March 1, 1999
10.2*** --- First Amendment to Employment Agreement entered into
between the Company and Joseph J. Filipek, Jr. as of
April 1, 1999.
22** --- Definitive Proxy Statement (as amended) pursuant to
Section 14(a) of the Securities Exchange Act of 1934
27*** --- Financial Data Schedule
* Previously filed in connection with our Registration Statement on Form S-1
filed October 8, 1996 (No. 333-06931).
** Previously filed on October 22, 1999 (No. 000-21447).
*** Filed herewith.
- 15 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCE PARADIGM, INC.
(Registrant)
Date: November 10, 1999 By: /s/ David D. Halbert
---------------------------------
David D. Halbert, Chief Executive Officer,
Chairman of the Board and President
Date: November 10, 1999 By: /s/ Danny Phillips
-----------------------------------------
Danny Phillips, Chief Financial Officer,
Senior Vice President, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
- 16 -
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------- -----------
<S> <C>
3.1* --- Amended and Restated Certificate of Incorporation
3.2* --- Amended and Restated Bylaws
10.1*** --- Employment Agreement entered into between the Company
and David A. George dated as of March 1, 1999
10.2*** --- First Amendment to Employment Agreement entered into
between the Company and Joseph J. Filipek, Jr. as of
April 1, 1999.
22** --- Definitive Proxy Statement (as amended) pursuant to
Section 14(a) of the Securities Exchange Act of 1934
27*** --- Financial Data Schedule
</TABLE>
* Previously filed in connection with our Registration Statement on Form S-1
filed October 8, 1996 (No. 333-06931).
** Previously filed on October 22, 1999 (No. 000-21447).
*** Filed herewith.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of March 1,
1999 (the "Effective Date"), by and between Advance Paradigm, Inc. (the
"Company") and David A. George (the "Executive").
WHEREAS, the Company and Executive desire to enter into this Agreement
pursuant to which the Company will employ Executive in the capacity of Executive
Vice President, for the period and on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs Executive, and
Executive hereby accepts such employment, in the capacity of Executive Vice
President of the Company to act in accordance with the terms and conditions
hereinafter set forth. During the term of this Agreement, Executive shall devote
his best efforts and all of his business time, attention and skills to the
successful continuation of the business of the Company and he shall perform such
duties, functions, responsibilities and authority in connection with the
foregoing as are from time to time delegated to Executive by the Chief Executive
Officer of the Company. During the term of this Agreement, the parties agrees
that Executive will be based at the Company's corporate headquarters in Irving,
Texas, and that Executive will spend, on average, three (3) days per week at the
Company's headquarters in order to perform duties under this Agreement.
2. TERM. The employment of Executive shall commence on the Effective
Date and shall end on the second anniversary thereof (the "Initial Term")
subject to automatic renewal for a period of one (1) year, unless either party
delivers written notice of its intent to terminate as of the second anniversary
of this Agreement at least 90 days prior to the date of such second anniversary,
or this Agreement is sooner terminated in accordance with the terms hereof.
3. COMPENSATION. In consideration of the services to be rendered by
Executive to the Company hereunder, the Company hereby agrees to pay or
otherwise provide Executive the following compensation and benefits, it being
understood that the Company shall have the right to deduct therefrom all taxes
which may be required to be deducted or withheld therefrom under any provision
of applicable law (including but not limited to Social Security payments, income
tax withholding and other required deductions now in effect or which may become
effective by law any time during the term of this Agreement):
(a) SALARY. Executive shall receive an annual salary of Two
Hundred Fifty Thousand Dollars ($250,000) with such increases thereto as may be
determined by the Company from time to time in its sole discretion ("Base
Salary"), to be paid in biweekly installments in
1
<PAGE> 2
accordance with the Company's salary payment practices in effect from time to
time for Executives of the Company.
(b) ADDITIONAL COMPENSATION. In addition to the Base Salary,
Executive shall be entitled to receive the compensation set forth in Exhibit A
attached hereto.
(c) BENEFIT PLANS. Executive shall be entitled to participate
in any health, accident, disability and life insurance programs, and any other
fringe benefit program (including a 401(k) savings plan), which the Company may
adopt and implement for the benefit of the Company's Executives.
(d) EXPENSES. Executive shall be entitled to receive
reimbursement for all reasonable expenses incurred by him in connection with the
fulfillment of his duties hereunder; provided, however, that Executive has
complied with all policies and procedures relating to the reimbursement of such
expenses as shall, from time to time, be established by the Company.
(e) VACATION AND SICK LEAVE. During the term of employment,
Executive shall be permitted to take vacations with such frequency and of such
duration as are consistent with the executive vacation policies of the Company
in effect on the date of this Agreement so long as the absence of Executive does
not interfere in any material respect with the performance by Executive of
Executive's duties hereunder. Executive shall also be entitled to sick leave
according to the sick leave policy which the Company may adopt from time to
time.
4. TERMINATION.
(a) DEATH OR DISABILITY. This Agreement shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Disability of the Executive has occurred (pursuant to the
definition of "Disability" set forth below), it may give to the Executive
written notice of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" means Executive's
incapacity due to physical or mental illness which is determined, by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably), to prevent Executive's substantial and continuous
performance of his obligations hereunder for a period of more than 12 weeks
after its commencement or for an aggregate of sixteen weeks in any 12-month
period.
(b) CAUSE. The Company may terminate the Executive's
employment for "Cause." For purposes of this Agreement, "Cause" means:
2
<PAGE> 3
(i) an act or acts of personal dishonesty taken by
the Executive at the expense of the Company,
(ii) a violation by the Executive of the Executive's
obligations under this Agreement,
(iii) the conviction of the Executive of (A) a
misdemeanor (other than traffic violations or similar misdemeanors)
that adversely affects the Company's business, reputation or standing
in the community, or (B) a felony,
(iv) failure to meet reasonable, written performance
criteria for the Executive's position as established by the Company
from time to time, or
(v) breach of Executive's representation set forth in
Section 11 of this Agreement.
(c) WITHOUT CAUSE. The Company may, at its option, terminate
Executive's employment without Cause at any time upon written notice to
Executive.
(d) GOOD REASON. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
means:
(i) The Company causes Executive's position,
authority, duties or responsibilities to be reduced from the position
described in Section 1 of this Agreement;
(ii) Any material failure by the Company to comply
with the provisions of Section 3 of this Agreement other than
immaterial or isolated failures that do not occur in bad faith and are
remedied by the Company promptly upon notice given by the Executive;
(iii) Any termination by the Company of the Executive
otherwise than as expressly permitted by this Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company
shall be communicated by Notice of Termination to the Executive hereto given in
accordance with Section 12 of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which
(i) indicates the specific termination provision in
this Agreement relied upon,
3
<PAGE> 4
(ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the
termination date.
(f) DATE OF TERMINATION. "Date of Termination" means the date
of receipt of the Notice of Termination or any later date specified therein, as
the case may be; provided, however, that
(i) if the Executive's employment is terminated by
the Company other than for Cause or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of such
termination, and
(ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) DEATH. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued or earned and vested (if applicable) by the
Executive as of the Date of Termination, including, for this purpose the
obligation to pay the Executive
(i) the Base Salary through the Date of Termination
at the rate in effect on the Date of Termination (the "Base Salary"),
(ii) the amount of any bonus earned by the Executive
through the Date of Termination, and
(iii) any compensation previously deferred by the
Executive (together with accrued interest, if any, thereon) and not yet
paid by the Company and any accrued vacation pay not yet paid by the
Company (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as "Accrued Obligations").
All such Accrued Obligations shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination.
(b) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, this Agreement shall terminate without
further obligations to the
4
<PAGE> 5
Executive, other than those obligations accrued or earned and vested (if
applicable) by the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of Termination.
Executive shall be entitled after the Disability Effective Date to receive
disability benefits provided by the Company to disabled Executives or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect on the Disability Effective Date.
(c) CAUSE. If the Executive's employment shall be terminated
for Cause, the Company's obligations to the Executive shall terminate other than
the obligation to pay to the Executive the Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, if any, consistent with Company policy.
(d) OTHER THAN FOR CAUSE, DISABILITY, OR DEATH. If the
Executive's employment terminates for any reason other than for Cause, death or
disability, the Company shall continue in accordance with the Company's normal
payroll procedures to pay Executive his Base Salary for a period of twelve (12)
months from the Date of Termination. Any amounts payable to Executive under this
Section 5(d) shall be reduced and offset by the amount of any compensation
received by Executive for other employment during the severance period. During
the severance period, Executive shall use his best efforts to find employment
consistent with the covenants of Executive in Section 6, 7 and 8 of this
Agreement.
(e) STOCK OPTIONS. Executive shall have three (3) months from
the Date of Termination to exercise any vested but unexercised options
previously granted to Executive to purchase shares of the Company's Common
Stock. Any such exercise will be in accordance with the terms and conditions of
the applicable stock option plan and stock option agreement.
6. CONFIDENTIALITY. Executive acknowledges that during the course of
his performance of services for the Company he will acquire knowledge with
respect to the Company's business operations, including, by way of illustration,
the Company's existing and contemplated services, products, trade secrets,
ideas, know how, research and development, formulas, models, compilations,
processes, computer code generated or developed, software or programs and
related documentation, business and financial methods or practices, plans,
pricing, operating margins, marketing, merchandising and selling techniques and
information, customer lists, details of customer agreements, sources of supply,
Executive compensation and benefit plans, patient records and data, and other
confidential information relating to the Company's policy, operating strategy,
expansion strategy or business strategy (all of such information herein referred
to as the "Confidential Information"); provided, that the term Confidential
Information shall not include information which is generally known to the public
or the industry other than as a result of Executive's breach. During the term of
his employment and for the one (1) year period thereafter, Executive shall not
use, in any way, or disclose any of the Confidential Information, directly or
indirectly, either during the term of his employment or at any time
5
<PAGE> 6
thereafter, except as required in the course of his employment. Executive
acknowledges that all computer code, programs, files, records, documents,
information, data and similar items and documentation relating to the business
of the Company (including all copies thereof), whether prepared by Executive or
otherwise, are the exclusive property of the Company and, upon termination of
Executive's employment with the Company (for whatever reason), Executive shall
not take with him, but shall leave with the Company, all such computer code,
programs, files, records, documents, information, data and similar items and
documentation relating to the business of the Company (including all copies
thereof). The obligations of this Section 6 are continuous and shall survive the
termination of Executive's employment with the Company. The Company acknowledges
that prior to the commencement of this Agreement, Executive has obtained
substantial experience and expertise in the health insurance and managed health
industry and use of that experience and expertise in other employment will not
be deemed a violation of this Agreement.
7. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the term of his
employment and for the one (1) year period following termination of Executive's
employment, Executive will not (as an individual, principal, agent, Executive,
consultant, or otherwise), directly or indirectly, in any territory in which the
Company and/or any of its affiliates does business and/or markets its products
and services, engage in activities competitive with, nor render services to any
firm or business engaged or about to become engaged in the Business of the
Company. The Business of the Company includes, but is not limited to, all those
products and services that are presently or hereafter marketed by the Company,
or that are in the development stage at the time of termination of Executive's
employment and are actually marketed by the Company and/or it affiliates
thereafter, as well as, the following businesses: (i) the third party
prescription drug claims processing business; (ii) the organization and
administration of retail pharmacy networks; (iii) the design, development or
marketing of or consulting as to, prescription drug benefit plans; (iv) the
provision of mail service pharmacy; (v) the collection, analysis and/or sale of
data relating to prescription drug utilization; (vi) formulary management and
rebate administration services; (vii) disease state management services; (viii)
conducting clinical trials, medical research, and contract research business;
(ix) conducting health benefit plan surveys, medical efficacy surveys, or NCQA
surveys or related surveys; and (x) any other business in which the Company
and/or any of its affiliates is then engaged as to which Executive has
involvement in the course of his employment hereunder and/or acquired or
received Confidential Information. The Company acknowledges that prior to the
commencement of this Agreement, Executive has obtained substantial experience
and expertise in the health insurance and managed health industry and use of
that experience and expertise in other employment will not be deemed a violation
of this Agreement.
8. NONINTERFERENCE. Executive agrees that during the term of his
employment and for the one (1) year period following the termination of
Executive's employment by the Company, Executive shall not, directly or
indirectly, whether as principal, agent, officer, Executive, investor,
consultant, stockholder, or otherwise, alone or in association with any other
person:
6
<PAGE> 7
(a) Induce or attempt to influence, directly or indirectly,
any Executive of the Company or any subsidiary to terminate his or her
employment with the Company or any subsidiary of the Company,
(b) Disparage the good name or reputation of the Company, the
Company's affiliates, or business of the Company or engage in any conduct that
brings the Company, the Company's affiliates, or the Company's business into
public ridicule or disrepute; or
(c) Solicit, induce or encourage any customer, prospective
customer, consultant, independent contractor or supplier of the Company for the
purpose of offering products or services that, directly or indirectly, compete
or interfere with the Business of the Company. For purposes of this section,
"prospective customer" shall mean any party who has had contact with Company or
its subsidiaries within the six-month period immediately preceding termination
of employment hereunder.
9. INVENTIONS AND PATENTS. Executive agrees that all inventions, ideas,
innovations, improvements or discoveries relating to the business of the Company
or the Company's method of conducting business (including new contributions,
improvements, ideas and discoveries, whether patentable or copyrightable or not)
conceived or made by him during his employment with the Company shall be, and
hereby are, assigned to the Company. Executive will promptly disclose such
inventions, ideas, innovations or improvements to his supervisor or Chief
Executive Officer of the Company and perform all actions reasonably requested by
his supervisor or Chief Executive Officer to establish and confirm such
ownership. The expense of securing any such patents shall be borne by the
Company.
10. NO OTHER BUSINESS. During the term of Executive's employment,
Executive agrees that he will not, directly or indirectly, except with the
express written consent of the Board of Directors or the Chief Executive Officer
of the Company, become engaged in, render services to, permit his name to be
used in connection with, own, manage, operate, control, be employed by,
participate in, consult with, or be connected in any manner, whether as an
officer, director, Executive, agent, consultant, stockholder (other than as the
holder of less than 2% of the aggregate outstanding shares of a class of equity
securities publicly traded on a national securities exchange or quotation
system) or other capacity with the ownership, management, operation or control
of, any business or enterprise other than the Business of the Company.
11. NO CONFLICTS. Executive represents to the Company that Executive
has neither entered into nor is bound by any agreement or obligation, whether
written or verbal, direct or indirect, that prohibits or impedes Executive's
ability to perform his obligations hereunder, including without limitation any
agreement not to compete or agreement to solicit health plan payors.
7
<PAGE> 8
12. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and deemed to have been given when
delivered in person or when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by mail, registered or certified, return receipt
requested, postage prepaid, simultaneously dispatched) to the addressees at the
addresses specified below.
IF TO EXECUTIVE:
David A. George
12522 KnollBrook Drive
Clifton, VA 20124
IF TO THE COMPANY: Advance Paradigm, Inc.
545 E. John Carpenter Freeway, Suite 1570
Irving, TX 75062
Attention: General Counsel
Phone No.: (972) 830-6199
Fax No.: (972) 830-6196
or to such other address or fax number as either party may from time to time
designate in writing to the other.
13. SURVIVAL. No termination of Executive's employment (for whatever
reason) shall reduce or terminate Executive's covenants and agreements in
Sections 6, 7 and 8 hereof.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto relating to the subject matter hereof, and supersedes
all prior agreements and understandings, whether oral or written, with respect
to the same. No modification, alteration, amendment or recision of or supplement
to this Agreement shall be valid or effective unless the same is in writing and
signed by the parties hereto.
15. GOVERNING LAW. This Agreement and the rights and duties of the
parties hereunder shall be governed by, construed under and enforced in
accordance with the laws of the State of Texas.
16. ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns. The rights, duties and
obligations under this Agreement are assignable by the Company to a successor of
all or substantially all of the business or assets of the Company. The rights,
duties and obligations of Executive under this Agreement shall not be
assignable.
8
<PAGE> 9
17. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein except that
any court having jurisdiction shall have the power to reduce the duration, area
or scope of such invalid, illegal or unenforceable provision and, in its reduced
form, it shall be enforceable. It is the intent of the parties hereto that the
provisions hereof be enforceable to the fullest extent permitted by applicable
law. This agreement may be enforced by the Company or any of its affiliates
engaged in the Business.
18. REMEDIES. The parties to this Agreement shall be entitled to
enforce his or its rights under this Agreement specifically, to recover damages
(including, without limitation, reasonable fees and expenses of counsel) by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in his or its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach or
threatened breach of the provisions of this Agreement and that any party may in
his or its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement. Such
injunction or decree shall be available without the posting of any bond or other
security.
19. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, with the same effect as if the parties had signed the
same document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ADVANCE PARADIGM, INC.
By:
-----------------------------------------
David D. Halbert, Chief Executive Officer
9
<PAGE> 10
EXECUTIVE
-----------------------------------------
David A. George
10
<PAGE> 11
EXHIBIT "A"
FRINGE BENEFITS
1. Stock Options. Executive shall be granted an incentive option (the
"Option") to purchase 60,000 shares of the Common Stock (the "Shares")
of the Company. The Option shall be subject to and granted under the
Company's Amended and Restated Incentive Stock Option Plan (the
"Plan"). The Option shall be vested and become exercisable as to 25% of
the total Shares on each of the first four anniversaries of the
Effective Date. The exercise price shall be the fair market value of
the Common Stock of the Company as of the Effective Date, as determined
by averaging the closing price of the Common Stock quoted on NASDAQ for
the five (5) trading days preceding the Effective Date. The Option
shall be immediately exercisable in full upon a Change of Control of
the Company.
2. Incentive Bonus. Executive will be entitled to participate in the
Company's incentive compensation plan for an annual bonus based on the
Company's audited financial performance for the fiscal year as well as
Executive's individual contribution to the Company. The performance
criteria used to calculate the Executive's Annual Bonus during the
Employment Period shall be determined by the Employer and will be
established with a targeted bonus of 70% of Executive's Salary per
annum. Any Annual Bonus payable with respect to a fiscal year shall be
subject to the approval of the Compensation Committee of the Board of
Directors and shall be paid in accordance with the Employer's normal
payroll practices.
3. Apartment Allowance. The Company shall make available for Executive's
use in connection with performance of his duties under this Agreement a
corporate apartment in the Dallas/Fort Worth metroplex for the term of
this Agreement.
4. Car Allowance. Executive shall be provided an $800.00 per month car
allowance to be used while Executive is performing services under this
Agreement in the Dallas/Fort Worth area. At year end, the value of this
benefit will be reported as required by the IRS regulations on
Executive's Form W-2.
5. Club Membership. Executive shall be provided a court or racquet club
membership to the Las Colinas Sports Club. Cost of such membership
shall be paid by the Company.
11
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement effective as of April 1,
1999 (this "Amendment") is entered into by and between Advance Paradigm, Inc.
(the "Company") and Joseph J. Filipek, Jr. (the "Employee").
WHEREAS, the Company and Employee (collectively, the "Parties") entered
into that certain Employment Agreement effective as of December 1, 1996 (the
"Agreement");
WHEREAS, the Parties now desire to amend the Agreement to change the
Employee's compensation and extend the term of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency is hereby acknowledged, the parties
hereby agree to the following:
1. SECTION 2. TERM. The term provision set forth in Section 2 of the
Agreement is hereby amended and restated in its entirety as follows:
"The employment of Employee shall commence on the Effective Date and
shall end on March 31, 2002 (the "Term")." Upon delivery of written
notice by January 1, 2001, the Employee may terminate the Agreement
effective March 31, 2001.
2. SECTION 3. COMPENSATION. Effective as of April 1, 1999, the
compensation provision set forth in Section 3(a) of the Agreement is
hereby amended and restated in its entirety as follows:
"(a) Salary. Employee shall receive annual salary of Two Hundred
Fifteen Thousand dollars ($215,000) with such increases
thereto as may be determined by the Company from time to time
in its sole discretion ("Base Salary"), to be paid in biweekly
installments in accordance with the Company's salary payment
practices in effect from time to time for senior managers of
the Company. The Base Salary may be reviewed by the Board from
time to time to determine any increases to the Base Salary;
provided there will be a targeted increase of $15,000 per
annum subject to performance and market considerations."
The compensation provision set forth in Section 3(b) of the Agreement
is hereby amended and restated in its entirety as follows:
"(b) Bonus Payments. Employee will be entitled to participate in
the Company's incentive compensation plan for an annual bonus
based on the Company's audited financial performance for the
fiscal year, the performance of Advance Paradigm Clinical
Services, Inc. and Employee's individual contribution to the
Company. The performance criteria used to calculate the
Employee's annual bonus during
<PAGE> 2
the employment period shall be determined by the Company and
will be established with a targeted bonus of 50% of Employee's
Base Salary per annum. Any annual bonus payable with respect
to a fiscal year shall be subject to the approval of the
Compensation Committee of the Board of Directors and shall be
paid in accordance with the Company's normal payroll
practices."
The compensation provision set forth in Section 3(g) of the Agreement
is hereby amended by adding the following language:
"(iii) On June 25, 1998, Employee was granted an incentive option to
purchase 40,000 shares of the Common Stock of the Company with an
exercise price of $29.375 per share. The option is subject to and
granted under the ISOP. The option shall vest and become exercisable as
to twenty percent (20%) of the total shares on each of the first five
anniversaries of the date of grant; provided, however, that immediately
prior to the consummation of any sale to or merger with an outside
entity gaining 50% or greater ownership of the Company, the options
shall become, without further act or deed, exercisable as to 100% of
the shares."
Except as specifically amended herein, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
date first above written. By executing this Amendment, the undersigned
individuals hereby warrant and represent that they have read this Amendment in
its entirety and agree to all of its terms.
ADVANCE PARADIGM, INC.
By:
-----------------------------------------
Name: David D. Halbert
Title: Chief Executive Officer
EMPLOYEE
--------------------------------------------
Joseph J. Filipek, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADVANCE
PARADIGM, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,124
<SECURITIES> 0
<RECEIVABLES> 153,201
<ALLOWANCES> 383
<INVENTORY> 8,967
<CURRENT-ASSETS> 208,311
<PP&E> 31,698
<DEPRECIATION> 10,615
<TOTAL-ASSETS> 333,500
<CURRENT-LIABILITIES> 200,381
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 79,269
<TOTAL-LIABILITY-AND-EQUITY> 333,500
<SALES> 0
<TOTAL-REVENUES> 850,999
<CGS> 0
<TOTAL-COSTS> 823,866
<OTHER-EXPENSES> 10,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,427
<INCOME-PRETAX> 15,527
<INCOME-TAX> 5,900
<INCOME-CONTINUING> 9,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,627
<EPS-BASIC> .91
<EPS-DILUTED> .79
</TABLE>
