<PAGE> 1
SCHEDULE 14A
(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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ADVANCE PARADIGM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE> 2
[ADVANCE PARADIGM LOGO]
545 E. John Carpenter Freeway, Suite 1570
Irving, Texas
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Thursday, October 28, 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
Thursday, October 28, at 2:00 p.m. at the Company's headquarters for the
following purposes:
1. To elect up to three directors to serve until the Company's
Annual Meeting of Stockholders in 2002;
2. To ratify the selection of Arthur Andersen, LLP as
independent auditors for the Company for the fiscal year
ending March 31, 2000; and
3. To transact all other business that may properly come before
such meeting or any adjournment(s) thereof.
The close of business on Friday, 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
JULY 29, 1999
<PAGE> 3
[ADVANCE PARADIGM 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 Thursday,
October 28, 1999, at 2:00 p.m., local time, at the Company's headquarters, 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
September 28, 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 10,561,742 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
Up to three 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
1
<PAGE> 4
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:
<TABLE>
<CAPTION>
Served as Director's
Name Age Position Director Since Term Ending
- ---- --- -------- -------------- -----------
<S> <C> <C> <C> <C>
David D. Halbert........................ 43 Chairman of the Board, 1986 2001
President and Chief
Executive Officer
Jon S. Halbert.......................... 39 Executive Vice President, 1988 2001
Chief Operating Officer
and Director
David A. George......................... 43 Executive Vice President 1998 2000
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
</TABLE>
David D. Halbert founded the Company in 1986. Mr. Halbert has
continuously served as Chairman of the Board, President and Chief Executive
Officer of the Company. 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.
2
<PAGE> 5
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: Chartwell Re Corporation 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 NMT Medical, Inc.
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.
3
<PAGE> 6
The following table sets forth information regarding the executive
officers of the Company who are not directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joseph J. Filipek, Jr., 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............. 42 Senior Vice President and Chief Medical Officer
Laura I. Johansen....................... 34 Senior Vice President, General Counsel
</TABLE>
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.
Prior to 1992, he served as Medical Director for Aetna Health Plans of the
Mid-Atlantic Region. He currently serves as a diplomate to the American Board
of Internal Medicine and the National Board of Medical Examiners.
Laura I. Johansen joined the Company in February 1995, and serves as
Senior Vice President, General Counsel. Prior to joining the Company, Ms.
Johansen served as an attorney in the Corporate/Securities Section of Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
4
<PAGE> 7
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
review 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.
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards Securities
------------------- 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 1997 $171,635 $91,000 92,500
Officer
Jon S. Halbert 1999 266,667 186,667 50,000
Executive Vice President and 1998 216,731 113,620 --
Chief Operating Officer 1997 152,981 76,570 92,500
Joseph J. Filipek, Jr. 1999 199,277 95,439 40,000
Executive Vice President 1998 175,898 84,845 --
1997 156,492 70,947 57,500
T. Danny Phillips 1999 196,667 118,000 40,000
Senior Vice President and 1998 168,846 81,290 --
Chief Financial Officer 1997 156,277 69,983 48,750
Alan T. Wright 1999 182,776 62,900 --
Senior Vice President and 1998 174,769 61,425 30,000
Chief Medical Officer 1997 162,389 59,500 --
</TABLE>
The following table sets forth information regarding the stock option
grants made by the Company to the Named Executives during fiscal year 1999. In
addition, in accordance with the regulations of the Securities and Exchange
Commission (the "Commission"), hypothetical gains or "option spreads" that
would exist for the respective options are shown. These gains are based on
assumed rates of annual stock price appreciation of 5% and 10% from the date
the options were granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Potential Realizable
Total Value at Assumed
Options Annual Rates of
Number of Granted Stock Price
Securities to Appreciation For
Underlying Employees Exercise Option Term(2)
Options in Fiscal Price Expiration --------------
Name Granted(1) Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ---- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
David D. Halbert (3).......... 75,000 14.3% $29.38 6/25/08 1,385,250 3,511,500
Jon S. Halbert (3)............ 50,000 9.5 29.38 6/25/08 923,500 2,341,000
Joseph J. Filipek, Jr. (3).... 40,000 7.6 29.38 6/25/08 738,800 1,872,800
T. Danny Phillips (3)......... 40,000 7.6 29.38 6/25/08 738,800 1,872,800
Alan T. Wright................ -- -- -- -- -- --
</TABLE>
6
<PAGE> 9
- ---------------
(1) The options reflected in this table were all granted under the
Company's 1993 Incentive Stock Option Plan. The date of grant is 10
years prior to the expiration date listed.
(2) These amounts represent only certain assumed rates of appreciation
based on the grant date value in accordance with the Commission's
executive compensation rules. Actual gains, if any, on stock option
exercises will depend on future performance of the Common Stock. No
assurance can be given that the values reflected in these columns will
be achieved.
(3) The options vest and become exercisable in cumulative installments of
one-fifth of the number of shares of Common Stock upon the first five
anniversaries of the date of grant so long as the officer remains an
employee of the Company or its affiliates on such anniversaries.
The following table summarizes pertinent information concerning the
number and value of any options held by the Named Executives at March 31, 1999.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options at In-the-Money Options at
Shares Fiscal Year End (#) Fiscal Year End ($)
Acquired on Value ------------------- ------------------
Exercise (#) Realized ($) Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)
------------ ------------ -------------------------------- ----------------------------
<S> <C> <C> <C> <C>
David D. Halbert 19,731 508,035 297,398/122,500 17,691,238/5,074,844
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
</TABLE>
- ---------------
(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.
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
non-solicitation 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. Dr. Filipek, employed as President and Chief Executive Officer of
Advance Clinical, is entitled to an annual base salary of
7
<PAGE> 10
$175,000, subject to annual increases of at least $10,000. 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 grants 57,500 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.
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. As of June 30, 1999,
options to purchase 2,336,743 shares of Common Stock have been granted
thereunder. The options granted under the 1993 Incentive Plan are incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
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.
8
<PAGE> 11
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, 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 March 31, 1998, options to purchase 143,922 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.
9
<PAGE> 12
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 Executive
Officers, including the Chief Executive Officer ("CEO"), in the same manner.
The Committee believes that in order for the Company to succeed it
must be able to attract and retain qualified executives. The objectives of the
Committee in determining the type and amount of executive officer compensation
are (i) to provide a compensation package
10
<PAGE> 13
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, participate 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. The Committee annually establishes targeted
profitability levels for the ensuing fiscal year in conjunction with the
Company's annual financial plan. The purpose of the bonus plan is to reward and
reinforce executive management's commitment to achieve levels of annual
profitability and return consistent with increasing 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.
11
<PAGE> 14
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
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<PAGE> 15
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)
<TABLE>
<CAPTION>
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ADVANCE PARADIGM, INC. NASDAQ N-HEALTH SERVICES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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(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
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.
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<PAGE> 16
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 June 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 Executive Officers; and (iii) all directors and executive officers as a
group. Pursuant to the rules of the Commission, in calculating percentage
ownership, each person is deemed to beneficially own his own shares subject to
options exercisable within 60 days after June 30, 1999, but options owned by
others (even if exercisable within 60 days) are deemed not to be outstanding
shares.
14
<PAGE> 17
<TABLE>
<CAPTION>
Beneficial Ownership
----------------------------------
Number Percentage
-------- ------------
<S> <C> <C>
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).......................................... 644,103 5.9
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)............................................ 439,272 4.0
Joseph J. Filipek (6)......................................... 76,333 *
Alan T. Wright (7)............................................ 22,250 *
T. Danny Phillips (8)......................................... 86,083 *
All directors and executive officers
as a group (13 persons) (9).............................. 2,492,250 21.8%
</TABLE>
- ---------------
(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 312,398 shares issuable pursuant to options which are
exercisable within 60 days of June 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 325,250 shares issuable pursuant to options which are
exercisable within 60 days of June 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 31,896 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 76,333 shares issuable pursuant to options which are
exercisable within 60 days of June 30, 1999.
(7) Includes 22,250 shares issuable pursuant to options which are
exercisable within 60 days of June 30, 1999.
(8) Includes 63,833 shares issuable pursuant to options which are
exercisable within 60 days of June 30, 1999.
15
<PAGE> 18
(9) Includes 1,140,703 shares beneficially held by entities affiliated
with certain directors and includes 877,063 shares subject to stock
options held by officers and directors exercisable within 60 days of
June 30, 1999.
*Less than 1.0%
B. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen, LLP,
which has served as independent auditors of the Company since 1992, as
independent auditors of the Company for the fiscal year ending March 31, 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 April 1, 2000.
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<PAGE> 19
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
JULY 29, 1999
17
<PAGE> 20
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 October 28,
1999 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
<PAGE> 21
Please mark your vote
as indicated in this example:
/X/
<TABLE>
<S> <C>
ITEM 1. Election of directors duly nominated: ITEM 2. Proposal to approve the Amendment
Stephen L. Green and to the Amended and Restated Incentive
Michael D. Ware Stock Option Plan.
WITHHELD FOR AGAINST ABSTAIN
FOR for all / / / / / /
/ / / /
(INSTRUCTION: To withhold authority to vote ITEM 3. In their discretion, the Proxies are authorized to
for any individual nominee, write that nominee's vote upon such other business as may properly
name in the space provided below): come before the meeting.
- ------------------------------------------------ --------------------------------------------------
This proxy when properly executed will be voted
in the manner directed herein by the undersigned
stockholder. If no direction is made, this proxy
will be voted "FOR" Proposals 1, 2 and 3.
A vote "FOR" Proposals 1, 2 and 3 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
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* FOLD AND DETACH HERE *
</TABLE>
