<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>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
American Physician Partners, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
AMERICAN PHYSICIAN PARTNERS, INC.
3600 Chase Tower
2200 Ross Avenue
Dallas, Texas 75201
Telephone (214) 303-2776
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1999
To the Stockholders of American Physician Partners, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
American Physician Partners, Inc., a Delaware corporation (the "Company"), will
be held at 2200 Ross Avenue, 39th Floor, Dallas, Texas 75201, on Wednesday, May
5, 1999, at 10:30 a.m., Dallas, Texas time, for the following purposes:
(1) To elect six (6) persons to serve as directors until the 2000 Annual
Meeting of Stockholders and until their successors are duly elected and
qualified.
(2) To amend the Company's Restated Certificate of Incorporation to
authorize the Board of Directors to adopt, alter or amend the Company's
Amended and Restated Bylaws.
(3) To amend the Company's 1996 Stock Option Plan to increase the number of
shares reserved for issuance thereunder by 1,000,000 shares.
(4) To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for fiscal year 1999.
(5) To transact such other business as may properly come before the meeting
or any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 8,
1999, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting or any adjournment(s) thereof. Only
stockholders of record at the close of business on March 8, 1999 are entitled to
notice of, and to vote at, such meeting. A complete list of stockholders
entitled to vote at the meeting will be available for examination at 3600 Chase
Tower, 2200 Ross Avenue, Dallas, Texas 75201, for ten days prior to and during
the meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, TO ASSURE YOUR
REPRESENTATION AT THE MEETING, YOU ARE ENCOURAGED TO FILL OUT, SIGN, DATE AND
MAIL PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES. PROXIES FORWARDED BY OR FOR BROKERS OR
FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY THEM.
BY ORDER OF THE BOARD OF DIRECTORS,
Paul M. Jolas
General Counsel, Senior Vice President and
Secretary
Dallas, Texas
April ___, 1999
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<PAGE> 3
AMERICAN PHYSICIAN PARTNERS, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1999
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of American Physician Partners, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company to be
held on Wednesday, May 5, 1999, at 10:30 a.m. (the "Annual Meeting") and at any
and all adjournments thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at 2200 Ross Avenue, 39th Floor, Dallas, Texas 75201. The Company's
phone number is (214) 303-2776. The approximate date on which this Proxy
Statement, the accompanying proxy card and a copy of the Company's Annual Report
to Stockholders for the year ended December 31, 1998, including financial
statements, are first being sent or given to stockholders is April 12, 1999.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on March 8, 1999 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting and
any adjournment(s) thereof. At the Record Date, 19,297,213 shares of the
Company's Common Stock, par value $.0001 per share ("Common Stock") were issued
and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to the solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing a written notice of revocation bearing a later date than the proxy with
the Secretary of the Company (Paul M. Jolas) at or before the taking of the vote
at the Annual Meeting, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of the Company at or before the
taking of the vote at the Annual Meeting or (iii) attending the Annual Meeting
and voting in person (although attendance at the Annual Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be delivered to the Secretary of the Company, or
hand-delivered to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting.
VOTING AND SOLICITATION
Each share of Common Stock is entitled to one vote for each director to
be elected and upon all other matters to be brought to a vote by the
stockholders at the Annual Meeting.
The cost of soliciting proxies will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies may be solicited by
certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone, telegraph or letter.
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<PAGE> 4
QUORUM; ABSTENTIONS, BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST" or "ABSTAIN" are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to a proposal (other than the election of directors).
In the absence of a controlling precedent to the contrary, the Company intends
to treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal.
Brokers who hold shares in street name for customers generally may not
vote on certain matters unless they have received instructions from beneficial
owners. Brokers who do not receive instruction, however, may vote on the
election of directors and the proposal to ratify the appointment of the
independent public accountants. As used herein, "broker non-votes" means the
votes that could have been cast on other matters by brokers with respect to
uninstructed shares if the brokers had received their customers' instructions.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court
held that, while broker non-votes should be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which the broker has expressly
not voted. The Company intends to treat broker non-votes in this manner.
Accordingly, a broker non-vote will not have any effect on the outcome of the
voting on proposals other than the proposal to ratify the appointment of the
independent public accountants.
The affirmative vote of a plurality of the shares of Common Stock
present or represented at the Annual Meeting is required to elect the directors,
and the affirmative vote of a majority of the shares of Common Stock present or
represented at the Annual Meeting is required to approve the proposals to amend
the Company's Restated Certificate of Incorporation, amend the Company's 1996
Stock Option Plan and ratify the appointment of Arthur Andersen LLP.
Uninstructed shares held by brokers are entitled to vote on the appointment of
Arthur Andersen LLP. Therefore, broker non-votes will have the effect of
negative votes. Abstentions will have the effect of negative votes on each of
these matters.
With regard to the election of directors, votes may be cast in favor or
withheld; abstentions and broker non-votes will be excluded entirely from the
vote and will have no effect.
PROPOSAL I: ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors (the "Board") currently consists of
six persons. All six positions on the Board are to be elected at this meeting.
Unless otherwise instructed, the proxyholders will vote the proxies received by
them for the Company's nominees named below, all of whom are presently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board to
fill the vacancy. In the event additional persons are nominated for election as
directors, the proxyholders intend to vote all proxies received by them in favor
of the nominees set forth below. The Company is not aware of any nominee who
will be unable or will decline to serve as a director. The term of office of
each person elected as a director will continue until the next Annual Meeting of
Stockholders or until his successor has been elected and qualified.
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<PAGE> 5
The names of the nominees and certain information about them, are set
forth below.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION DIRECTOR SINCE
- ---- --- ---------------- --------------
<S> <C> <C> <C>
Less T. Chafen, M.D.(4).................. 57 Director 1997
John W. Colloton(3)(4)................... 68 Director 1997
John Pappajohn(2)(4)..................... 70 Director 1996
Derace L. Schaffer, M.D.(1)(3)........... 51 Director 1996
Michael L. Sherman, M.D.(2)(3)(5)........ 56 Director and Committees 1997
Mark L. Wagar(1)(2)...................... 47 Chairman of the Board, President, 1998
Chief Executive Officer and Director
</TABLE>
(1) Member of the Executive Committee of the Board
(2) Member of the Acquisition Committee of the Board
(3) Member of the Compensation and Stock Plan Administration Committee of
the Board
(4) Member of the Audit Committee of the Board
(5) Dr. Sherman's consulting agreement with the Company provides that the
Company will nominate Dr. Sherman for election at the 1998 and 1999
annual meetings of stockholders.
Less T. Chafen, M.D. has been a director of the Company since the
consummation of the IPO. Since 1978, Dr. Chafen has served as the Chairman of
the Board and currently serves as President of PIC Medical Group, Inc., one of
the initial radiology practices. Dr. Chafen is a board certified radiologist and
nuclear medicine physician. Dr. Chafen received his M.D. from Loma Linda
University and his B.A. in zoology and chemistry from Columbia Union College.
John W. Colloton has been a director of the Company since June 1997.
Mr. Colloton served as the director of the University of Iowa Hospitals and
Clinics from 1971 to 1993, and since 1993, has been Vice President for Statewide
Health Services at the University of Iowa. He also serves as a director of the
following companies: Baxter International, Inc.; MidAmerican Energy, Inc.;
Wellmark, Inc. (Blue Cross and Blue Shield of Iowa and South Dakota); and Iowa
State Bank and Trust Company. Mr. Colloton is also a trustee of the University
of Pennsylvania Medical Center. Mr. Colloton, who earned his M.A. in Hospital
and Health Administration from the University of Iowa, has been elected to the
Institute of Medicine of the National Academy of Sciences and has received
Distinguished Service Awards from both the American Hospital Association and the
Association of American Medical Colleges.
John Pappajohn has been a director of the Company since its inception.
Since 1969, Mr. Pappajohn has been the President and principal stockholder of
Equity Dynamics, Inc., a financial consulting firm, and the sole owner of
Pappajohn Capital Resources, a venture capital firm, both located in Des Moines,
Iowa. He also serves as a director of the following public companies: Allion
Healthcare, Inc.; PACE HealthManagement Systems, Inc.; Patient InfoSystems,
Inc.; and MCI Informatics, Inc. Mr. Pappajohn received his Bachelors degree in
business from the University of Iowa.
Derace L. Schaffer, M.D. has been a director of the Company since its
inception. Dr. Schaffer is President of Ide Imaging Group, P.C., one of the
initial radiology practices, as well as the Lan Group, a venture capital firm.
He also serves as a director of the following public companies: Allion
Healthcare, Inc.; Oncor, Inc. and Patient InfoSystems, Inc. He is also a
director of several private companies, including Logisticare, Inc.; Analytika,
Inc. and Card Systems, Inc. Dr. Schaffer is a board certified radiologist. He
received his postgraduate radiology training at the Harvard Medical School and
Massachusetts General Hospital, where he served as Chief Resident. Dr. Schaffer
is a member of Alpha Omega Alpha, the national medical honor society, and is
Clinical Professor of Radiology at the University of Rochester School of
Medicine.
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<PAGE> 6
Michael L. Sherman, M.D. has been a director of the Company since the
consummation of the IPO. Since 1995, Dr. Sherman has served as the President of
Advanced Radiology, P.A., one of the initial radiology practices. From 1985 to
1995, Dr. Sherman served as the Managing Partner of Drs. Copeland, Hyman &
Shackman. Dr. Sherman is a board certified radiologist. Dr. Sherman received his
M.D. from the University of Maryland Medical School and his A.B. in history and
pre-medicine from Duke University.
Mark L. Wagar is Chairman, President and Chief Executive Officer of the
Company. Mr. Wagar was appointed President and Chief Executive Officer of the
Company in May 1998. Previously, he served as President and Chief Operating
Officer of MedPartners, Inc., a publicly-traded physician practice management
company providing management and administrative services to multispecialty,
emergency, radiology, and other medical groups, as well as pharmacy and disease
management services. Mr. Wagar joined MedPartners through its acquisition of
Mullikin Medical Enterprises in 1995 where he was Chief Operating Officer. Prior
to Mullikin, he was President of CIGNA HealthCare of California. With over 25
years of healthcare executive experience, Mr. Wagar has served in a variety of
public and private for-profit companies as well as in several not-for-profit
hospitals. He received his B.A. from The Ohio State University in 1973 and a
Masters of Science in healthcare administration in 1976 from The Ohio State
University.
There is no family relationship among any of the nominees or between
any director or executive officer of the Company.
Since July 1998, the Board has consisted of six directors. Although the
Company has not identified any candidate to serve as a director (other than
those nominated herein) and although the Company does not have any current
intention of expanding the Board, the Company may increase the size of the Board
from time to time. These actions likely would be accomplished through Board
action rather than through a special meeting of Stockholders.
The affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting is required to
elect the nominees for director named above.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES FOR
DIRECTOR NAMED ABOVE.
MEETINGS OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the
Board. The Board meets to review significant developments affecting the Company
and to act on matters requiring Board approval. It also holds special meetings
when an important matter requires Board action between scheduled meetings. The
Board met five times during fiscal year 1998. During fiscal year 1998, each
member of the Board participated in at least 75% of all Board and applicable
committee meetings held during the period, except John Colloton.
The Board has established Audit, Compensation and Stock Plan
Administration, Executive and Acquisition Committees to devote attention to
specific subjects and to assist it in the discharge of its responsibilities. The
functions of those committees, their current members and the number of meetings
held during fiscal year 1998 are described below. The Board does not have a
standing nominating committee.
Audit Committee. The Board has a standing Audit Committee which
provides the opportunity for direct communications between the independent
public accountants and the Board. The Audit Committee meets with the certified
public accountants periodically to review their effectiveness during the annual
audit program and to discuss the Company's internal control policies and
procedures. The members of the Audit Committee are Messrs. Colloton and
Pappajohn and Dr. Chafen. The Audit Committee met four times during fiscal year
1998.
Compensation and Stock Plan Administration Committee. The Board also
has a standing Compensation and Stock Plan Administration Committee (the
"Compensation Committee") that provides recommendations to the Board
5
<PAGE> 7
regarding salaries and other compensation of executive officers of the Company.
The members of the Compensation Committee are Mr. Colloton and Drs. Schaffer and
Sherman. The Compensation Committee met two times during fiscal year 1998.
Executive Committee. The Executive Committee exercises all of the
powers of the Board between meetings of the Board, except such powers as are
reserved to the Board by law. The members of the Executive Committee are Mr.
Wagar and Dr. Schaffer. The Executive Committee met once during fiscal year
1998.
Acquisition Committee. The Board has a standing Acquisition Committee
which evaluates certain acquisition proposals regarding radiology practices,
management service organizations, imaging centers and related businesses. The
members of the Acquisition Committee are Messrs. Pappajohn and Wagar and Dr.
Sherman. The Acquisition Committee did not meet during fiscal year 1998; the
full Board considered the acquisition proposals during 1998.
PROPOSAL II: AMENDMENT OF CERTIFICATE OF INCORPORATION
The Board has recommended that the Company's Restated Certificate of
Incorporation (the "Certificate") be amended to authorize the Board to adopt,
alter or amend the Company's Amended and Restated Bylaws (the "Bylaws"). The
amendment would be made to Article VII of the Certificate, which currently
provides as follows:
The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board. The number of
directors which shall constitute the whole Board shall be fixed by, or
in the manner provided in, the Bylaws of the Corporation.
If the proposed amendment is approved by the stockholders, Article VII
of the Certificate will provide as follows:
The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board. The number of
directors which shall constitute the whole Board shall be fixed by, or
in the manner provided in, the Bylaws of the Corporation. In
furtherance and not in limitation of the Board's power to manage the
business and conduct the affairs of the Corporation, the Board shall
have the power, upon the affirmative vote of at least a majority of the
Directors then serving, to adopt, amend or repeal from time to time the
Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote thereon to adopt, amend or repeal the Bylaws.
Notwithstanding the foregoing, the Board shall not have the power to
alter, amend or repeal the second or third sentences of the first
paragraph of Article III, Section 2 of the Bylaws regarding the
composition of the Board, or any other Bylaw (or Article or Section
thereof) that expressly provides that it cannot be altered, amended or
repealed by the Board.
The Delaware General Corporation Law (the "DGCL") authorizes a Delaware
corporation to empower its board to adopt, amend or repeal the corporation's
bylaws. The DGCL further provides that granting this power to a corporation's
board of directors does not divest the corporation's stockholders of this power
and does not limit such stockholders' power to adopt, amend or repeal bylaws.
The Company's Bylaws currently can be altered and amended, and new
Bylaws can be adopted, only by the Company's stockholders. If the Certificate is
amended as proposed, the Board also will have the power to adopt, amend or
repeal the Company's Bylaws. Whether or not the proposed amendment is adopted,
the Company's stockholders will continue to have such power.
Article IX of the Company's Bylaws provides that the Bylaws can be
altered, amended or repealed, and new Bylaws can be adopted, by the holders of a
majority of the outstanding voting shares of the Company or by the
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<PAGE> 8
Board, when such power is conferred upon the Board by the Certificate. The
proposed amendment to the Certificate would constitute the grant of power
referred to in Article IX of the Bylaws.
PURPOSES AND EFFECTS OF THE PROPOSED AMENDMENT
The Board is proposing the proposed amendment to the Certificate to
facilitate the Board's management of the business and affairs of the Company.
Although the Company's stockholders currently have the power to adopt, amend or
repeal Bylaws, the exercise of this power can occur only at an annual
stockholders' meeting or at a special meeting called for that purpose. If the
Company proposed a Bylaw amendment, the Company would be required to prepare and
distribute a proxy statement relating to the proposed amendment. To ensure
approval of a proposed Bylaw amendment, the Company also might be required to
engage a third-party proxy solicitor. The Company would incur expenses in
calling and holding the meeting, in preparing the proxy statement and in
engaging the services of a third-party proxy solicitor (if necessary).
The Board believes that the process required for stockholder approval
of Bylaw changes could impose unnecessary expense and delay on the Company and
could adversely affect the Company's ability to change the Bylaws from time to
time to address changed circumstances. The Board further believes that granting
such power to the Board would permit the Board to change the Bylaws on a timely
basis without incurring expenses relating to the stockholder proxy solicitation
process.
The Board believes that most Delaware corporations grant to their
boards of directors the power to adopt, alter or amend their bylaws. The Board
further believes that Article IX of the Company's Bylaws, discussed above,
indicates that the Company's founders contemplated that the Board would have
this power.
The proposed amendment to the Certificate would prohibit the Board from
altering, amending or repealing the second and third sentences of Article III,
Section 2 of the Bylaws. The second sentence of this Bylaw provides that if the
Board consists of seven Directors, then at least two must be licensed physicians
who, at the time of nomination, perform professional medical services for or on
behalf of a radiology practice management services organization, diagnostic
imaging center or other related business that the Company has acquired. The
third sentence provides that the Board must include at least three such
physician directors if the Board has nine members. The Board currently consists
of six directors, three of whom are physician directors as described in Article
III, Section 2 of the Bylaws. There can be no assurance that the Company's
stockholders will not alter, amend or repeal these Bylaw provisions or elect
directors who are not physician directors.
The proposed amendment to the Certificate also would prohibit the Board
from altering, amending or repealing any Bylaw (or Article or Section thereof)
that expressly provides that it cannot be altered, amended or repealed by the
Board. This prohibition would prevent the Board from taking action to change or
eliminate certain Bylaws, including a Bylaw amendment that is proposed to be
adopted by the Board if the amendment to the Certificate is adopted at the
Annual Meeting. See " - Anticipated Bylaw Amendment" below.
EFFECTIVE TIME OF THE PROPOSED AMENDMENT
The proposed amendment would become effective upon filing Articles of
Amendment to the Certificate with the Secretary of State of the State of
Delaware. The Company anticipates that such filing would be made promptly
following adoption of the proposed amendment at the Annual Meeting of
Stockholders. Accordingly, the Company anticipates that if the proposed
amendment is adopted, it would become effective on the date of the Annual
Meeting of Stockholders.
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<PAGE> 9
POSSIBLE ANTITAKEOVER EFFECTS
Although the Board is not proposing the amendment of the Certificate
for antitakeover purposes, the proposed amendment could increase the ability of
the Board to resist an unsolicited offer to acquire the Company or to resist a
stockholder's efforts to call a special meeting at which a new Board might be
elected. For example, a Board could amend the Bylaws to require advance
notification of stockholder proposals to be considered at meetings of the
stockholders, to extend the notice period required for stockholders to call a
special meeting of stockholders or to increase the percentage of stockholders
required to call a special meeting of stockholders. The stockholders could amend
the Bylaws to override Bylaw changes made by the Board, but such changes could
delay an unsolicited acquisition or other action that required a change in the
composition of the Board. The Board does not have any current intention of
adopting or amending the Bylaws for antitakeover purposes.
ANTICIPATED BYLAW AMENDMENT
If the proposed amendment is adopted at the Annual Meeting of
Stockholders, the Chairman of the Board will present the following Bylaw
regarding the Company's Physician Advisory Board (the "Advisory Board") for
adoption by the Board at the annual meeting of the Board to be held immediately
after the Annual Meeting of Stockholders. Management understands that a majority
of the Directors have expressed their intention to vote in favor of this Bylaw
amendment.
ARTICLE X
PHYSICIAN ADVISORY BOARD
The Company shall establish and maintain a Physician Advisory
Board. The purpose of the Physician Advisory Board shall be to advise
the Company's Board and management with respect to issues and matters
affecting physicians, the Company's services to physicians and
affiliated practices and the enhancement of patient services and
satisfaction. The size, scope of activities and the process for the
selection of members of the Physician Advisory Board shall be
determined from time-to-time by the Company's Board. The Physician
Advisory Board shall not be qualified or authorized to engage in any
activity which may be construed or deemed to constitute the practice of
medicine by the Company. The Chairman of the Physician Advisory Board
will provide a written or oral report to the Company's Board at the
request of the Company's Chairman of the Board. This Article X shall
not be altered, amended or repealed by the Company's Board of
Directors.
The primary focus of the Physician Advisory Board is to enhance the
quality of services provided by the Company, its imaging centers and its
radiology practices. The Physician Advisory Board currently consists of 11
practicing physicians from the radiology practices. The Physician Advisory Board
serves as a forum in which its members discuss and make recommendations
regarding clinical applications, practice protocols, appropriateness criteria,
utilization guidelines, best practices and managed care issues. Recommendations
are communicated to all radiology practice physicians. However, the adoption of
such recommendations is at the discretion of the radiology practices.
The anticipated Bylaw amendment will be proposed to ensure that the
Physician Advisory Board is retained as a component of the Company's efforts to
improve the quality of its services and of the services provided by the
radiology practices. Some radiologists who are stockholders have expressed
concern that, although the Company currently has a Physician Advisory Board,
there is no Bylaw requiring that the Company continue to maintain such a board
or to name members to the Physician Advisory Board and that the Physician
Advisory Board continue to function as an advisory group to the Company and the
radiology practices.
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The anticipated Bylaw amendment will provide that it cannot be altered,
amended or repealed by the Board of Directors. However, this Bylaw amendment can
be altered, amended or repealed by the affirmative vote of not less than a
majority of the stockholders entitled to vote who are present (in person or by
proxy) at a meeting of stockholders. There can be no assurance that the
stockholders will not amend this Bylaw at a future time.
THE BOARD rECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE CERTIFICATE.
PROPOSAL III: AMENDMENT OF 1996 STOCK OPTION PLAN
GENERAL
The Company's 1996 Stock Option Plan (the "Plan") was adopted by the
Board on May 1. 1996 and subsequently approved by the stockholders, and a total
of three million (3,000,000) shares of Common Stock were initially reserved
thereunder.
The Board believes that it is in the Company's best interest to amend
the Plan and increase the number of shares reserved for issuance thereunder so
that the Company may attract and retain high quality employees necessary to
build the Company's infrastructure and continue to provide ongoing incentives to
the Company's employees in the form of options to purchase the Company's Common
Stock.
The Plan provides for the granting to employees of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the granting of nonstatutory options to
employees, directors and consultants.
PURPOSE
The principal purpose of the Plan is to provide equity incentives to
the Company's employees, consultants and non-employee directors by enabling them
to participate in the Company's success and to encourage the participants'
continued service to the Company.
ADMINISTRATION
The Plan may be administered by the Board or by a committee, and is
currently being administered by the Compensation Committee (the "Plan
Administrator"). Grants of options under the Plan shall be made by the Board or
a committee. No member of the Board or committee may vote on any option to be
granted him or take part in any consideration of the Plan as it may apply to
him. Grants of options to directors who are employees may be made by the Board
if a majority of the directors are "disinterested persons" or by a committee
consisting of two or more "disinterested persons," and grants of options to
non-employee directors may be made only as described in the "Eligibility"
section below. The interpretation and construction of any provision of the Plan
is within the sole discretion of the Board or committee, whose determination is
final and conclusive. Members of the Board or committee receive no additional
compensation for their services in connection with the administration of the
Plan. Copies of the Plan are available upon request at the Company's principal
executive offices.
ELIGIBILITY
The Plan provides that options may be granted to employees (including
officers and directors who are also employees), consultants of the Company or
any parent or majority-owned subsidiary and non-employee directors. Incentive
stock options may be granted only to employees. The Plan Administrator selects
the optionees and determines the number of shares to be subject to each option
and the time or times at which shares become
9
<PAGE> 11
exercisable under the option. In making such determination, the duties and
responsibilities of the employee or consultant, the value of his or her
services, his or her present and potential contribution to the success of the
Company, the anticipated number of years of future service and other relevant
factors are taken into account. Generally, such options become exercisable or
"vest" in a series of installments over the period that the optionee remains in
the Company's service. The exercise schedule applicable to each option is
determined by the Plan Administrator. Each option may be exercised only to the
extent it is vested.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
The Plan contains an "Automatic Option Grant Program" which provides
for automatic grants of non-qualified options to purchase 30,000 shares of
Common Stock to non-employee directors at the time a director is first elected
or appointed as a non-employee director, which vest with respect to 10,000
shares on the first anniversary of the date of the grant and the remaining
shares become exercisable in 24 equal monthly installments over the next 24
months, provided that such person continues to serve as a director of the
Company. In addition, upon expiration of the 36-month period following the
initial option grant to such non-employee director, such non-employee director
shall automatically be granted at each annual stockholders meeting a
non-qualified option to purchase 10,000 shares of Common Stock vesting over a
term of 12 months. Each such option entitles the director to purchase shares of
Common Stock vesting over a term of 12 months. Each such option entitles the
director to purchase shares of Common Stock at an exercise equal to the fair
market value of the Common Stock on the automatic grant date. Each option shall
have a ten year term measured from the automatic grant date.
TERMS OF OPTIONS
The terms of options granted under the Plan (other than options granted
to non-employee directors as described in the "Automatic Grants to Non-Employee
Directors" section above (the "Non-employee Director Options") are determined by
the Plan Administrator. Each option granted under the Plan is evidenced by a
stock option agreement between the Company and the optionee and is subject to
the following additional terms and conditions.
(a) Exercise of Option. Options under the Plan generally become
exercisable as to one sixtieth (1/60th) of the underlying shares after each
month from the date of grant.
An option granted under the Plan is exercised by giving written notice
of exercise to the Company, specifying the number of full shares of Common Stock
to be purchased and tendering payment of the purchase price to the Company.
Payment for shares issued upon exercise of an option may consist of cash, check,
or in other shares of the Company's Common Stock or any combination of such
methods of payment, or such other consideration and method of payment as is
permitted under the DGCL.
(b) Exercise Price. The per share exercise price of options granted
under the Plan (other than Non-employee Director Options) is determined by the
Plan Administrator and, in the case of incentive stock options, may not be less
than one hundred percent (100%) of the fair market value on the date of grant.
However, in the case of incentive stock options granted to an optionee who owns
more than ten percent (10%) of the voting power or value of all classes of stock
of the Company, the per share exercise price must not be less than one hundred
ten percent (110%) of the fair market value on the date of grant. The exercise
price of nonstatutory options may be less than one hundred percent (100%), but
shall be no less than eighty-five percent (85%), of the fair market value of the
Company's Common Stock on the date of grant. For so long as the Company's Common
Stock is listed on any established stock exchange or a national market system,
including without limitation the NASDAQ National Market System ("NASDAQ NMS"),
the fair market value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange on the date of grant of the option, as reported in
The Wall Street Journal or such source as the Plan Administrator deems reliable.
10
<PAGE> 12
(c) Termination of Status as an Employee, Consultant or Non-employee
Director. If the optionee's employment or consulting relationship with the
Company or status as a non-employee director is terminated for any reason (other
than death or disability), options may be exercised for a period of time not
exceeding thirty-six (36) months (as is set determined by the Plan Administrator
and set forth in the option agreement) after such termination as to all or part
of the shares as to which the optionee was entitled to exercise at the date of
such termination.
(d) Death or Disability of Optionee. Options may be exercised for a
period of time not exceeding thirty-six (36) months (as is determined by the
Plan Administrator and set forth in the option agreement) following termination
because of a permanent and total disability or by the employee's estate after
his or her death.
(e) Term and Termination of Options. Options granted under the Plan may
have a term of ten (10) years. No option may be exercised by any person after
the expiration of its term. In the case of an incentive stock option granted to
an optionee who, immediately before the grant of such option, owns more than ten
percent (10%) of the voting power or value of all classes of stock of the
Company, the term of such incentive stock option may not exceed five (5) years.
(f) Non-Transferability of Options. An option generally is not
transferable by the optionee, other than by will or the laws of descent or
distribution, and is exercisable during the optionee's lifetime only by the
optionee. However, a nonstatutory option may be structured so that the option
can be assigned during the optionee's lifetime to one or more members of the
optionee's immediate family or to a trust established exclusively for one or
more of the optionee's family members. The terms applicable to any assigned
portion of any option shall be the same as the terms in effect for the option
immediately before the assignment. In the event of the optionee's death, options
may be exercised by a person who acquires the right to exercise the option by
bequest or inheritance.
(g) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Plan Administrator.
CHANGES IN CAPITALIZATION
In the event of a change, such as a stock split or stock dividend
payable in Common Stock, is made in the Company's capitalization, which results
in an exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by the Company, appropriate adjustment shall be made in
the option price and number of shares subject to outstanding options.
Appropriate adjustment will also be made in the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
options have yet been granted or which have been returned to the Plan upon
cancellation of an option. Such adjustments shall be made by the Board, whose
determination shall be final and conclusive, subject to any required action by
the stockholders of the Company.
In the event of a merger or consolidation of the Company with or into
another corporation, a dissolution or liquidation of the Company, or a proposed
sale of all or substantially all of the assets of the Company, all outstanding
options shall immediately vest and become fully exercisable immediately prior to
the effective date of the event. However, options will not immediately vest and
become fully exercisable if (i) the outstanding options shall be assumed or a
comparable option shall be substituted by such successor corporation (or a
parent or subsidiary of such successor corporation) or (ii) the option is
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the event on the shares and
provides for a subsequent payout in accordance with the same vesting/exercise
schedule applicable to the options. The Plan Administrator has the discretionary
authority either in advance of a Change of Control of the Company or at the time
of a Change of Control to make any outstanding options immediately vest and
become fully exercisable.
With respect to the Automatic Option Grant Program, all outstanding
options shall immediately vest and become fully exercisable immediately in the
event of a merger or consolidation of the Company with or into another
11
<PAGE> 13
corporation, a dissolution or liquidation of the Company, a proposed sale of all
or substantially all of the assets of the Company or a Change of Control of the
Company. In the case of a Hostile Take-Over, the optionee shall have thirty (30)
days immediately following the Hostile Take-Over to surrender to the Company all
of the optionee's outstanding options. Within the five (5) days of the
surrender, the optionee shall receive a cash distribution from the Company equal
to the excess of (i) the Take-Over Price for all of the shares subject to each
surrendered option over (ii) the aggregate exercise price payable for these
shares.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided that, to the extent necessary
and desirable to comply with Rule 16b-3 promulgated under the Act, or with
Section 422 of the Code or any other successor or applicable law or regulation,
the Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as is required by the applicable law, rule or
regulation. Any amendment or termination of the Plan shall not affect options
already granted and unless mutually agreed otherwise between the optionee and
the Plan Administrator, which agreement must be in writing and signed by the
optionee and the Company.
The Plan will continue to require stockholder approval of amendments in
accordance with federal tax laws and regulations applicable to incentive stock
option plans, to the extent the Company desires that the Plan continue to
qualify for the grant of incentive stock options thereunder. The Code and the
rules and regulations thereunder governing incentive stock option plans
currently require stockholder approval for any increase in the number of shares
issuable under a plan and for changes in the eligibility standards under a plan.
In any event, the Plan shall terminate in 2006. Any options outstanding
under the Plan at the time of termination shall remain outstanding until they
expire by their terms.
TAX INFORMATION
Options granted under the Plan may be either "incentive stock options,"
as defined in Section 422 of the Code or nonstatutory options.
Incentive Stock Options. If an option granted under the Plan is an
incentive stock option, the optionee will recognize no income upon grant of the
incentive stock option and incur no tax liability due to the exercise unless the
optionee is subject to the alternative minimum tax. The Company will not be
allowed a deduction for federal income tax purposes as a result of the exercise
of an incentive stock option regardless of the applicability of the alternative
minimum tax. Upon the sale or exchange of the shares at least two (2) years
after grant of the option and one (1) year after receipt of the shares by the
optionee, any gain will be treated as long term capital gain. If these holding
periods are not satisfied, the optionee will recognize ordinary income equal to
the difference between the exercise price and the lower of the fair market value
of the stock at the date of the option exercise or the sale price of the stock.
The Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Any gain recognized by the optionee on such a
premature disposition of the shares in excess of the amount treated as ordinary
income will be characterized as capital gain or loss.
Nonstatutory Options. All other options which do not qualify as
incentive stock options are referred to as nonstatutory options. An optionee
will not recognize any taxable income at the time he or she is granted a
nonstatutory option. However upon its exercise, the optionee will recognize
ordinary income for tax purposes measured by the excess of the then fair market
value of the shares over the option price. The income recognized by an optionee
who is also an employee of the Company will be subject to tax withholding by the
Company. Upon resale of such shares by the optionee, any difference between the
sales price and the exercise price, to the extent not recognized as ordinary
income as provided above, will be treated as capital gain or loss. The Company
will be
12
<PAGE> 14
entitled to a tax deduction in the amount and at the time that the optionee
recognizes ordinary income with respect to shares acquired upon exercise of a
nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company, with respect to the grant and
exercise of options under the Plan, does not purport to be complete and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside.
PLAN BENEFITS
The Company cannot now determine the exact number of options to be
granted in the future to the executive officers named under "EXECUTIVE OFFICER
COMPENSATION - Summary Compensation Table," all current executive officers as a
group or all other employees (including current officers who are not executive
officers) as a group. See "EXECUTIVE OFFICER COMPENSATION - Stock Option Grants
and Exercises" for the number of stock options granted to the executive officers
named in the Summary Compensation table in fiscal 1998. In fiscal 1998, options
to purchase 635,000 shares of Common Stock of the Company were granted to all
current executive officers shown in the Compensation Table as a group and
options to purchase 792,500 shares of Common Stock of the Company were granted
to all other employees (including current officers who are not executive
officers) as a group.
REQUIRED VOTE
The affirmative vote of a majority of the votes cast is required to
approve the amendment to the Company's Plan.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1996 STOCK OPTION
PLAN.
PROPOSAL IV: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has
appointed Arthur Andersen LLP as the independent public accountants of the
Company for fiscal year 1999, subject to stockholder ratification.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they so desire and to be
available to respond to appropriate questions.
The affirmative vote of a majority of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote is required to ratify the appointment of Arthur Andersen LLP.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT
OF ARTHUR ANDERSEN LLP.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 8, 1999 certain information
with regard to the beneficial ownership of the Common Stock by (i) all persons
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director and nominee for director of the
Company, (iii) each executive officer of the Company, and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated, all
shares shown in the table below are held with sole voting and investment power
by the person or entity indicated. See "Executive Compensation - Stock Option
Grants and Exercises" for disclosures regarding options that are not currently
exercisable.
13
<PAGE> 15
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF OUTSTANDING
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- ---- ------------- -------------
<S> <C> <C>
Community Radiology Associates, Inc. .................................... 1,019,018 5.3%
4110 Aspen Hll Road, Suite 200
Rockville, MD 20853
Mark L. Wagar (3) (4) ................................................... 95,666 *
Mark S. Martin (3) (5) .................................................. 168,759 *
Sami S. Abbasi (3) (6) .................................................. 166,666 *
Paul M. Jolas (3) (7) ................................................... 128,916 *
Derace L. Schaffer, M.D. (3) (8) ........................................ 655,642 3.4
John Pappajohn (3) (9) .................................................. 566,458 2.9
Less T. Chafen, M.D. (3) (10) ........................................... 51,492 *
John W. Colloton (3) (11) ............................................... 18,333 *
Michael L. Sherman, M.D. (3) (12) ....................................... 114,639 *
All directors and executive officers as a group (nine persons) (13) ..... 1,966,571 9.8%
</TABLE>
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to
securities. Shares of Common Stock issuable upon the exercise or
conversion of stock options or other securities currently exercisable
or convertible, or exercisable or convertible within 60 days, are
deemed outstanding and to be beneficially owned by the person holding
such option or security for purposes of computing such person's
percentage ownership, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Except for
shares held jointly with a person's spouse or subject to applicable
community property laws, or as indicated in the footnotes to this
table, each stockholder identified in the table posses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.
(2) Applicable percentage of ownership is based on 19,297,213 shares of
Common Stock outstanding.
(3) The address of Messrs. Wagar, Martin, Abbasi, Jolas, Pappajohn and
Colloton and Drs. Schaffer, Chafen and Sherman is c/o American
Physician Partners, Inc., 3600 Chase Tower, 2200 Ross Avenue, Dallas,
Texas 75201.
(4) Includes 91,666 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(5) Includes 166,759 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(6) Includes 163,666 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(7) Includes 125,916 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(8) Includes exercisable options to purchase 30,000 shares of Common Stock
in connection with service as a director of the Company exercisable
within 60 days. Also includes 109,965 shares of Common Stock received
in connection with the acquisition of the assets of, and affiliation
with, Ide Imaging Group, P.C. (formerly, The Ide Group, P.C.)
(9) Includes exercisable options to purchase 30,000 shares of Common Stock
in connection with service as a director of the Company exercisable
within 60 days. Also includes 100,000 shares held by Halkis Ltd., a
sole
14
<PAGE> 16
proprietorship owned by Mr. Pappajohn, 75,000 owned by Thebes Ltd., a
sole proprietorship owned by Mr. Pappajohn's spouse, Mary Pappajohn,
and 75,000 shares owned directly by Mary Pappajohn. Mr. Pappajohn
disclaims beneficial ownership of the shares owned by Thebes Ltd. and
by Mary Pappajohn.
(10) Includes exercisable options to purchase 14,166 share of Common Stock
in connection with service as a director of the Company exercisable
within 60 days. Also includes 37,326 shares of Common Stock received in
connection with the acquisition of the assets of, and affiliation with,
PIC Medical Group, Inc. (formerly, Pacific Imaging Consultants).
(11) Includes exercisable options to purchase 18,333 shares of Common Stock
in connection with service as a director of the Company exercisable
within 60 days.
(12) Includes exercisable options to purchase 39,166 shares of Common Stock
in connection with service as a consultant to and a director of the
Company. Also includes 75,473 shares of Common Stock received in
connection with the acquisition of the assets of, and affiliation with,
Advanced Radiology, P.A. (formerly, Advanced Radiology, L.L.C.)
(13) Includes 679,672 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Act"),
requires the Company's directors, executive officers and beneficial owners of
more than 10% of the Common Stock to file with the Securities and Exchange
Commission (the "Commission") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Based solely upon its review of the copies of such forms received by it, the
Company believes that all such reports were submitted on a timely basis during
fiscal year 1998.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information with respect to each executive officer
of the Company including their respective ages as of March 8, 1999 and the
positions held with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ----------------------------------------
<S> <C> <C>
Mark L. Wagar................ 47 Chairman of the Board, President, Chief
Executive Officer and Director
Mark S. Martin............... 39 Senior Vice President and Chief
Operating Officer
Sami S. Abbasi............... 33 Senior Vice President and Chief
Financial Officer
Paul M. Jolas................ 34 Senior Vice President, General Counsel
and Secretary
</TABLE>
Officers serve pursuant to employment agreements. Set forth below is
biographical information regarding each executive officer who is not a nominee
for election as a director.
Mark S. Martin has served as Chief Operating Officer and Senior Vice
President of the Company since June 1996. From January 1993 through June 1996,
Mr. Martin served as Executive Vice President of Practice Management Development
and Support for Medaphis Physician Services Corporation, a subsidiary of
Medaphis Corporation, a publicly-traded company which provides business and
information services to physicians, physician group practices and hospitals.
From October 1987 through December 1992, he served as Vice President of
Financial Services for CompMed, Inc., a company which provided comprehensive
management and administrative services to
15
<PAGE> 17
hospital-based physicians and physician groups, with a primary emphasis on
radiology. From 1982 through 1987, Mr. Martin was employed by KPMG Peat Marwick
as a tax manager. Mr. Martin was licensed as a Certified Public Accountant in
1982. He received his B.A. in accounting from Capital University.
Sami S. Abbasi has served as Chief Financial Officer and Senior Vice
President of the Company since August 1996. From January 1995 through July 1996,
Mr. Abbasi served as Vice President in the Health Care Group of Robertson
Stephens & Company. His responsibilities included investment banking business
development and transaction execution with emerging growth publicly-held and
privately-held companies in the health care industry. From 1988 through January
1995, he held various positions with Citicorp Securities, Inc., including Vice
President and Senior Analyst -- Health Care Group. Mr. Abbasi received his
M.B.A. from the University of Rochester and his B.A. in economics from the
University of Pennsylvania.
Paul M. Jolas has served as General Counsel and Senior Vice President
of the Company since August 1996 and as Secretary of the Company since October
1996. From September 1989 through July 1996, Mr. Jolas was an attorney with the
law firm of Haynes and Boone, LLP in Dallas, Texas, where he practiced in the
corporate finance section and was responsible for a broad range of corporate and
securities transactions, including numerous initial and secondary public
offerings of equity and debt securities, mergers and acquisitions and public
company reporting requirements. Mr. Jolas received his J.D. from Duke University
School of Law and his B.A. in economics from Northwestern University.
EXECUTIVE COMPENSATION
The following table shows information concerning the annual and long-term
compensation for services in all capacities to the Company for fiscal years
1996, 1997 and 1998 with respect to those persons who were, during fiscal year
1998, (i) the Chief Executive Officer and (ii) the other four executive officers
of the Company (collectively, with the Chief Executive Officer, the "Named
Executive Officers"). Since the Company was not formed until April 30, 1996, the
information for 1996 is from inception (April 30, 1996) to December 31, 1996.
16
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------- SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------ ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Mark L. Wagar .......................... 1998 $212,131 $106,800 500,000 $ --
Chairman of the Board, President
and Chief Executive Officer
Gregory L. Solomon(2) .................. 1998 219,231 -- -- --
Former President and Chief .......... 1997 192,917 131,500 125,000 5,841(4)
Executive Officer ................... 1996 142,500 -- 250,000(3) 4,518(4)
Mark S. Martin ......................... 1998 188,782 145,000 50,000 --
Senior Vice President and ........... 1997 162,500 111,250 90,000 1,404(4)
Chief Operating Officer ............. 1996 84,529 -- 180,000(3) 25,274(5)
Sami S. Abbasi ......................... 1998 185,128 130,000 50,000 --
Senior Vice President and ........... 1997 162,500 111,250 90,000 4,244(4)
Chief Financial Officer ............. 1996 66,667 -- 180,000(3) 5,619(6)
Paul M. Jolas .......................... 1998 149,038 110,000 35,000 --
Senior Vice President, .............. 1997 140,833 80,500 70,000 1,806(4)
General Counsel and Secretary ....... 1996 58,333 -- 140,000(3) 945(4)
</TABLE>
- -------------------
(1) Perquisites are not included since the aggregate amount is less than
the lesser of $50,000 or 10% of salary and bonus, in accordance with
regulations promulgated by the Commission; therefore, the Other Annual
Compensation Column has not been included in this table.
(2) Mr. Solomon served as President and Chief Executive Officer of the
Company until May 20, 1998.
(3) 25% of the options granted in 1996 were cancelled in connection with
the IPO. Upon completion of the IPO, the Company granted to each such
Named Executive Officer options to purchase twice the number of shares
of Common Stock and with the same vesting period as the options that
were cancelled and with an exercise price equal to the IPO price.
(4) Represents amount of health insurance premiums reimbursed by the
Company.
(5) Represents amount of health insurance premiums and $24,399 in
relocation expenses reimbursed by the Company.
(6) Represents amount of health insurance premiums and $4,103 in relocation
expenses reimbursed by the Company.
Stock Option Grants and Exercises
The following table sets forth certain information concerning options
granted in fiscal year 1998 to the Company's Named Executive Officers. The
Company had outstanding 2,113,998 options for the purchase of Common Stock as of
December 31, 1998. The Company has no outstanding stock appreciation rights and
granted no stock appreciation rights during fiscal year 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED EXERCISE OR PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE OPTION TERM(2)
NAME GRANTED(1) IN FISCAL YEAR ($/SH)(1) EXPIRATION DATE 5%($) 10%($)
---- ----------- -------------- ---------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark L. Wagar ........... 500,000 35.2% $ 8.75 05/20/08 $ 2,751,414 $ 6,972,623
Gregory L. Solomon ...... -- 0.0 -- -- -- --
Mark S. Martin .......... 50,000 3.5 8.75 05/20/08 275,141 697,262
Sami S. Abbasi .......... 50,000 3.5 8.75 05/20/08 275,141 697,262
Paul M. Jolas ........... 35,000 2.5 8.75 05/20/08 192,599 488,084
</TABLE>
(1) The option exercise price may be paid in shares of Common Stock owned by
the Named Executive Officer, in cash, or in any other form of valid
consideration as determined by the Compensation Committee in its
discretion.
(2) The dollar amounts in these columns represent the potential realizable
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming that the market price of
Common Stock appreciates in value from the date of grant at assumed annual
rates of 5% and 10% (compounded annually) until the end of the ten (10)
year term. These assumed rates of appreciation are prescribed by the rules
and regulations of the Commission, and therefore are not intended to
forecast possible future appreciation, if any, of the price of the Common
Stock. These numbers do not take into account provisions of certain
options providing for termination of the option following termination of
employment, nontransferability or vesting over periods.
The following table sets forth certain information concerning options
exercised in fiscal year 1998 by the Named Executive Officers.
17
<PAGE> 19
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END($)(3)
ON -------------- --------------------------- ----------------------------
NAME EXERCISE(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark L. Wagar .......... -- -- 58,333 441,667 $ -- $ --
Gregory L. Solomon ..... 109,756 $ 878,048 -- -- -- --
Mark S. Martin ......... 2,000 12,375 151,153 121,847 534,551 288,387
Sami S. Abbasi ......... 3,000 18,563 148,571 123,429 522,491 294,259
Paul M. Jolas .......... 1,000 6,188 114,434 92,566 402,256 228,869
</TABLE>
- ------------
(1) Includes all exercises during calendar year 1998.
(2) The value realized equals the fair market value of the Common Stock
acquired on the date of exercise minus the exercise price.
(3) Based on the closing price of the Common Stock of $6.3125 per share, as
of December 31, 1998, less the option exercise price. There is no
guarantee that if and when these options are exercised they will have
this value.
Employment Contracts
The Company has employment agreements with Messrs. Wagar, Martin,
Abbasi and Jolas, each of whom receive annual salaries at the rate of $400,000,
$235,000, $235,000 and $180,000, respectively. Each employment agreement has a
term of one year with automatic successive one-year renewal periods. Each
employment agreement provides that in the event of a termination of employment
by the Company (i) other than for cause, (ii) upon disability or (iii) upon
voluntary termination by employee due to an adverse change in duties, such
employee shall be entitled to receive from the Company a payment equal to
one-half of the amount of such employee's then current annual base salary to be
paid in one lump sum (plus up to an additional six months of annual base salary
to be paid on a monthly basis under certain circumstances), plus a payment for
all accrued but unpaid wages and expense reimbursements. Such employment
agreements provide that in the event such employee's employment terminates
following a change in control transaction (as defined in such employment
agreements) of the Company, the Company shall pay such employee two times such
employee's then current annual base salary. Each such employment agreement
contains a covenant-not-to-compete with the Company for a period of one year
following termination of employment.
Compensation of Directors
Pursuant to the Company's Amended and Restated Bylaws, the members of
the Board may be compensated in a manner and at a rate determined from time to
time by the Board. Directors who are employees of the Company do not receive
additional compensation for service as a director. Under the Company's 1996
Stock Option Plan, Directors who are not employees of the Company receive
options to purchase 10,000 shares of Common Stock per year of service and $1,000
for each Board meeting attended in person and $500 for attendance via telephone.
Directors are paid $500 for each committee meeting attended and $250 for
attendance via telephone, unless such committee meeting is held on the same day
as a Board meeting.
REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Compensation Committee is composed of independent directors who are
not employees of the Company and who qualify as disinterested persons for
purposes of Section 16(b) under the Act. The Compensation Committee is
responsible for reviewing all aspects of the Company's executive compensation
programs and administering the Company's 1996 Stock Option Plan. In addition,
the Compensation Committee is responsible for reviewing and recommending to the
Board policies and programs for the development of management personnel and
management
18
<PAGE> 20
structure and organization. In fiscal year 1998, the members of the
Compensation Committee were Mr. Colloton and Drs. Schaffer and Sherman. The
Compensation Committee meets during the first quarter of the fiscal year to
establish target base compensation levels for the Company's executive officers
for that year and to finalize bonuses for the previous fiscal year or make a
recommendation on such compensation issues to the Board.
The Compensation Committee believes that compensation for the Company's
employees, including the Named Executive Officers, must be in amounts sufficient
to attract, retain and motivate employees, while at the same time maintaining a
reasonable relationship to the Company's financial performance. Moreover, the
Compensation Committee believes that compensation decisions should foster career
opportunities for, and aid the development of, employees and encourage and
reward employees who put the Company's interests ahead of their own.
The Company's compensation philosophy is based on the following general
principles:
O Achieve compensation levels for employees through base
salaries and bonuses (based on Company and individual
performance) to be able to attract and retain the most
qualified executives.
O Align employees' and stockholders' interests in maximizing
stockholder value through the granting of options to purchase
Common Stock of the Company.
Compensation of the Chairman of the Board and Chief Executive Officer and the
Other Executive Officers
The Company's employment agreements with Messrs. Martin, Abbasi and
Jolas were entered into in 1996 and were amended in 1999. These agreements
establish the base salaries and provide for bonuses determined by the
Compensation Committee. The Company entered into an employment agreement with
Mr. Wagar on May 20, 1998, upon his appointment as President and Chief Executive
Officer of the Company. Mr. Wagar's employment agreement establishes a base
salary and provides for bonuses determined by the Compensation Committee and a
pre-determined bonus on the first anniversary of employment with the Company.
The Company has in place a bonus plan pursuant to which the executive
officers of the Company and certain key employees whose responsibilities and
activities are closely connected to the Company's overall performance will be
entitled to receive cash bonuses based on the overall performance of the Company
as well as the employee's individual responsibilities, performance and
contribution to the Company's overall performance. To date, cash bonuses are
calculated as a percentage of each eligible employee's base salary and are at
the discretion of the Compensation Committee or the Board.
In fiscal year 1998, the Board approved grants of stock options to
Messrs. Wagar, Martin, Abbasi and Jolas. In determining the number of shares to
grant under these stock options, the Compensation Committee took into account
the Company's performance, individual job performance, employee morale,
physician satisfaction and the Company's desire to retain Messrs. Wagar, Martin,
Abbasi and Jolas and to honor previous commitments to these individuals. No
specific weights were assigned to any of these factors.
MEMBERS OF THE COMPENSATION COMMITTEE
John W. Colloton
Derace L. Schaffer, M.D.
Michael L. Sherman, M.D.
19
<PAGE> 21
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction of
a public company to $1,000,000 for compensation paid to its chief executive
officer or any of its four other highest paid officers. The Company has not
adopted a policy with respect to executive compensation in excess of $1,000,000
a year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
Mr. Colloton and Drs. Schaffer and Sherman comprise the Compensation
Committee. None of the foregoing individuals serving on the Compensation
Committee are or have been officers or employees of any entity on which any
executive officer of the Company or its subsidiaries serves as a director or a
member of the compensation committee.
CERTAIN TRANSACTIONS
The Company and Lawrence R. Muroff, M.D., former Chairman of the Board
of the Company and former Senior Vice President of Physician Affairs, entered
into a consulting agreement in October 1997 pursuant to which Dr. Muroff
received annual compensation of $112,500 (prorated for actual months worked) in
exchange for rendering consulting services to the Company. This agreement was
terminated on July 1, 1998.
The Company and Michael L. Sherman, M.D., a director and a director
nominee of the Company, entered into a consulting agreement in August 1996. On
January 26, 1998, the Company granted Dr. Sherman 5,000 options with an exercise
price of $12.00 per share. Dr. Sherman receives annual compensation of $100,000
pursuant to the consulting agreement. The Company also agreed to nominate Dr.
Sherman for election to the Board at the 1998 and 1999 annual meetings of
stockholders.
During fiscal year 1998, Advanced Radiology, P.A., Ide Imaging Group,
P.C. and PIC Medical Group, Inc. paid the Company $43,774,250, $19,389,823, and
$8,407,082 in service fees pursuant to the Service Agreements between the
Company and each respective practice.
STOCKHOLDER PROPOSALS
Pursuant to the rules of the Commission, in order for stockholder
proposals to receive consideration for inclusion in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders, such proposals must be
received by the Company at its principal executive offices no later than
December 21, 1999. Such proposals should be directed to American Physician
Partners, Inc., 3600 Chase Tower, 2200 Ross Avenue, Dallas, Texas 75201,
Attention: Chief Executive Officer. We will consider a stockholder proposal
submitted outside Rule 14a-8 untimely if we receive the proposal after February
27, 2000.
20
<PAGE> 22
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Common
Stock over the period commencing November 21, 1997 (the first day after the
effective date of the IPO) and ending December 31, 1998, with PPM Industry
Index, Single Specialty PPM Index and the S & P 500. Each index assumes $100
invested at the close of trading on November 21, 1997 and reinvestment of
dividends. The Company believes that the information provided has only limited
relevance due to the very short period of time during which the Company has been
public.
<TABLE>
<CAPTION>
AMERICAN
MEASUREMENT PERIOD PHYSICIAN PPM INDUSTRY SINGLE SPECIALTY
(FISCAL YEAR COVERED) PARTNERS, INC. INDEX PPM INDEX S & P 500
<S> <C> <C> <C> <C>
11/21/97 100.0% 100.0% 100.0 100.0
12/31/97 88.5 91.1 101.7 101.2
6/30/98 58.3 69.4 86.7 118.2
12/31/98 52.6 39.7 57.7 128.2
</TABLE>
<TABLE>
<CAPTION>
11/21/97 12/31/97 6/30/98 12/31/98
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
APPM .............................. $ 12.00 $ 20.57 $ 17.79 $ 958.98
PPM Industry Index ................ 10.63 18.74 18.09 970.43
Single Specialty PPM Index ........ 7.00 14.27 15.42 1,133.84
S & P 500 ......................... 6.31 8.16 10.27 1,229.23
</TABLE>
[CHART]
21
<PAGE> 23
GENERAL
The 1998 Annual Report to Stockholders, which includes the Company's
Report on Form 10-K, has been mailed to the stockholders with this mailing.
Copies of any exhibit(s) to the Form 10-K will be furnished on request and upon
the payment of the Company's expenses in furnishing such exhibit(s). Any request
for exhibits should be in writing addressed to Paul M. Jolas, General Counsel,
Senior Vice President and Secretary, American Physician Partners, Inc., 3600
Chase Tower, 2200 Ross Avenue, Dallas, Texas 75201. The Annual Report does not
form any part of the material for the solicitation of proxies.
The expense of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, directors, officers and employees of the
Company may solicit proxies personally or by telephone or telegram. The Company
may request brokers, dealers or other nominees to send proxy materials to and
obtain proxies from their principals and the Company may reimburse such persons
for their reasonable expenses.
OTHER BUSINESS
Management knows of no other matter that will come before the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the shares
they represent as the Company may recommend.
BY ORDER OF THE BOARD OF DIRECTORS,
Paul M. Jolas
General Counsel, Senior Vice President
and Secretary
April __, 1999
<PAGE> 24
AMERICAN PHYSICIAN PARTNERS, INC.
3600 CHASE TOWER
2200 ROSS AVENUE
DALLAS, TEXAS 75201
ANNUAL MEETING OF STOCKHOLDERS - MAY 5, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder(s) of American Physician Partners, Inc., a
Delaware corporation (the "Company"), hereby appoints Mark L. Wagar and Paul M.
Jolas, and each of them, attorneys-in-fact and proxies of the undersigned, with
full power of substitution, to represent and to vote all shares of common stock
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held at 2200 Ross Avenue, 39th Floor, Dallas, Texas 75201,
at 10:30 A.M., local time, on Wednesday, May 5, 1999, and at any adjournment
thereof.
(continued on reverse side)
*FOLD AND DETACH HERE*
<PAGE> 25
Please mark
your votes as [X]
indicated in
this example
<TABLE>
<S> <C> <C> <C>
Election of Directors
WITHHOLD NOMINEES: Less T. Chafen, M.D.; John W. Colloton; Ratification of the appoint-
FOR all nominees AUTHORITY John Pappajohn; Derace L. Schaffer, ment of Arthur Andersen LLP
listed to the right to vote for all M.D.; Michael L. Sherman, M.D.; as independent auditors of the
(except as marked nominees listed and Mark L. Wagar Company for the fiscal year
to the contrary) to the right ending December 31, 1999.
INSTRUCTION: To withhold authority to vote for
[ ] [ ] any individual nominee, write that nominee's
name in the space provided below. FOR AGAINST ABSTAIN
--------------------------------------------------- [ ] [ ] [ ]
Amend the Company's Restated Certificate of Incorporation Amend the Company's 1996 Stock In their discretion, such
to authorize the Board of Directors to adopt, alter or amend Option Plan to increase the attorneys-in-fact and proxies
the Company's Amended and Restated Bylaws. number of shares reserved for are authorized to vote upon
issuance thereunder by such other business as
FOR AGAINST ABSTAIN 1,000,000 shares. properly may come before
the meeting.
[ ] [ ] [ ] FOR AGAINST ABSTAIN
[ ] [ ] [ ]
----- I will [ ] will not [ ] be attending
- the meeting
-
- YOU ARE REQUESTED TO COMPLETE, DATE, SIGN,
AND RETURN THIS PROXY PROMPTLY, ALL JOINT
OWNERS MUST SIGN, PERSONS SIGNING AS
EXECUTORS, ADMINISTRATORS, TRUSTEES,
CORPORATE OFFICERS, OR IN OTHER
REPRESENTATIVE CAPACITIES SHOULD SO
INDICATE.
Date: 1999
------------------------------------,
---------------------------------------------
Signature
---------------------------------------------
Signature
o FOLD AND DETACH HERE o
</TABLE>
