<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
[AMENDMENT NO. . . . . . .]
FILED BY THE REGISTRANT / /
FILED BY A PARTY OTHER THAN THE REGISTRANT /X/
CHECK THE APPROPRIATE BOX:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
FHP INTERNATIONAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ROBERT F. MURPHY
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2) Aggregate number of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3) Per unit price or other underlying value of transaction computed to
Exchange Act Rule 0-11:*
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4) Proposed maximum aggregate value of transaction:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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
FHP INTERNATIONAL CORPORATION
9900 TALBERT AVENUE
P. O. BOX 8000
FOUNTAIN VALLEY, CA 92708-8000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 17, 1994
The Annual Meeting of Stockholders of FHP International Corporation, a
Delaware corporation (the "Company"), will be held at the FHP Hospital, 9920
Talbert Avenue, Fountain Valley, California on Thursday, November 17, 1994, at
4:00 p.m., local time, to consider and vote on the following matters described
in the attached proxy statement:
1. To elect three directors to hold office for three-year terms.
2. To ratify and approve the Company's Employee Stock Purchase Plan.
3. To ratify and approve the appointment of independent public
auditors.
4. To transact such other business as may properly come before the
meeting, or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on October 7, 1994
as the record date for determining stockholders entitled to receive notice of
and to vote at the meeting and at any adjournment or postponement thereof. All
stockholders are cordially invited to attend the meeting in person. Whether or
not you plan to attend the Annual Meeting, you are urged to mark, date and sign
the enclosed proxy card and return it at your earliest convenience in the
enclosed envelope. If you attend the Annual Meeting and wish to vote your own
shares in person, you may withdraw your proxy at that time.
By Order of the Board of Directors
/s/ ROBERT GUMBINER
Robert Gumbiner
Chairman of the Board
October 13, 1994
<PAGE> 3
FHP INTERNATIONAL CORPORATION
9900 TALBERT AVENUE
P. O. BOX 8000
FOUNTAIN VALLEY, CA 92708-8000
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
This Proxy Statement is furnished by the Board of Directors of FHP
International Corporation, a Delaware corporation (the "Company"), in connection
with its solicitation of proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Thursday, November 17, 1994, at 4:00 p.m.,
local time at the FHP Hospital, 9920 Talbert Avenue, Fountain Valley, California
and at any and all adjournments or postponements thereof. This Proxy Statement
and accompanying proxy card are first being mailed to the Company's Stockholders
on or about October 17, 1994.
PROXY PROCEDURES
The persons named to serve as proxyholders were selected by the Board of
Directors of the Company. If a proxy card is properly executed and returned
before the Annual Meeting, and not revoked, all shares represented thereby will
be voted at the Annual Meeting, including any adjournments thereof. If a proxy
card specifies the manner in which shares are to be voted, the shares will be
voted in accordance with such specifications. If no such specification is made
on a proxy card which is signed and returned, such shares will be voted as
recommended in this Proxy Statement by the Board of Directors. As to any other
business which may properly come before the meeting, the persons named in the
accompanying proxy card will vote the shares in accordance with their best
judgment. The Company does not presently know of any other business to come
before the meeting.
Execution of a proxy card will not in any way affect a Stockholder's right
to attend the meeting and vote in person, and any person giving a proxy has the
right to revoke it at any time before it is exercised by filing with the
Secretary of the Company an instrument revoking it or a duly executed proxy
bearing a later date or by attending the meeting and voting in person.
The cost of solicitation of proxies will be paid by the Company. In
addition, the Company may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for expenses incurred in forwarding
solicitation material to the beneficial holders of stock held of record by such
persons. Although it is contemplated that proxies will be solicited primarily
through the mail, the Company may use its directors, officers and employees,
without additional compensation, to conduct solicitation by telephone,
telecopier and other means. Chemical Bank, New York, NY has been engaged by the
Company to assist in the solicitation of proxies for an anticipated fee of
approximately $4,500.
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on October 7, 1994, the record date for
Stockholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding 39,601,558 shares of the Company's common stock, par value $.05 per
share (the "Common Stock"). Only the holders of Common Stock on the record date
are entitled to vote at the Annual Meeting and each share of Common Stock is
entitled to one vote on each matter
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to be voted upon. A majority of the shares of Common Stock entitled to vote will
constitute a quorum for the transaction of business at the meeting.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the persons appointed by the Company to act as election inspectors for the
Annual Meeting. The election inspectors will treat shares represented by proxies
that reflect abstentions as shares that are present and entitled to vote, for
purposes of determining the presence of a quorum and for purposes of determining
the outcome of any matter submitted to the stockholders for a vote. Abstentions,
however, do not constitute votes "for" or "against" any matter and thus will be
disregarded and have no effect in the calculation of "votes cast."
The election inspectors will treat shares referred to as "broker non-votes"
(i.e., shares identified as held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote,
that the broker or nominee does not have discretionary power to vote on a
particular matter) as shares that are present and entitled to vote for purposes
of determining the presence of a quorum. However, for purposes of determining
the outcome of any matter as to which the broker or nominee has physically
indicated on the proxy that it does not have discretionary authority to vote,
those shares will be treated as not present and not entitled to vote with
respect to that matter (even though those shares are considered entitled to vote
for quorum purposes and may be entitled to vote on other matters).
Directors will be elected by a plurality of the votes cast. Each other
matter to be submitted to a vote of the Stockholders at the Annual Meeting must
receive an affirmative vote by a majority of the votes cast to be approved. In
addition, if the Company's Employee Stock Purchase Plan is approved by an
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on the matter, then transactions in Common Stock
resulting from purchases of Common Stock under the Plan will be entitled to
exemption from Section 16(b) of the Securities Exchange Act of 1934. For the
sole purpose of determining whether the exemption from Section 16(b) is met,
abstentions will have the same effect as votes cast against the matter, but
broker non-votes will not be included in the tabulation.
Participants in the Company's Employee Stock Ownership Plan are entitled to
instruct the Plan trustee on how to vote (i) all shares of Common Stock
allocated to participants' accounts under the Plan, and (ii) a proportionate
number of unallocated shares of Common Stock held by the Plan for future
allocation to participants' accounts. Participants will receive separate voting
instruction cards to direct the trustee to vote both allocated and unallocated
shares. If the trustee receives an instruction card on a timely basis from a
participant, it will vote the participant's allocated shares and a proportionate
number of the unallocated shares as the participant instructs. If the trustee
does not receive a timely instruction card from a participant, the trustee will
not vote that participant's allocated shares and will vote that participant's
proportionate share of the unallocated shares in accordance with the
instructions of the other participants who provide voting instructions to the
trustee on a timely basis. If a participant signs and timely returns an
instruction card without indicating a vote, the trustee will vote that
participant's allocated shares and his proportionate share of the unallocated
shares in accordance with the recommendations of the Board of Directors.
Participants in the TakeCare Savings and Retirement Plan are entitled to
instruct the trustee, by means of a separate voting instruction card, as to how
to vote shares of the Company's Common Stock allocated to their respective
accounts. If the trustee receives an instruction card on a timely basis from a
participant, the trustee will vote the participant's shares in accordance with
the participant's instructions. If the trustee does not receive an instruction
card from a participant or if a participant signs and returns an instruction
card without indicating a vote, the trustee will vote that participant's shares
proportionally in accordance with the instructions of the other participants who
provide timely instructions to the trustee.
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<PAGE> 5
BENEFICIAL OWNERSHIP OF COMPANY SHARES
EQUITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to each director,
director nominee, the six executive officers named in the Summary Compensation
Table herein and the executive officers and directors as a group as to
beneficial ownership of shares of the Company's Common Stock and Series A
Cumulative Convertible Preferred ("Series A Preferred") Stock, all as of
September 15, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENT
BENEFICIAL OWNER CLASS OF STOCK OWNERSHIP(1) OF CLASS
----------------- -------------------- ----------------- --------
<S> <C> <C> <C>
Jack R. Anderson................ Common 831,538(2) 2.1%
Series A Preferred 2,771,794(2) 13.6%
Robert Gumbiner................. Common 678,038(3)(5) 1.7%
Series A Preferred 800(3) *
Richard M. Burdge, Sr........... Common 222,630(6) *
Series A Preferred 742,103(6) 3.7%
Westcott W. Price III........... Common 427,282(3)(4)(5) 1.1%
Burke F. Gumbiner............... Common 133,078(3)(4)(5) *
Mark B. Hacken.................. Common 18,800(5) *
Warner Heineman................. Common 6,400(5) *
Joseph F. Prevratil............. Common 0 *
Jack D. Massimino............... Common 31,665(4)(5) *
Michael J. Weinstock............ Common 28,022(4)(5) *
Ryan M. Trimble................. Common 20,750(4)(5) *
23 directors and executive
officers as a group (including
those named above)............ Common 2,732,360(4)(5)(7) 6.9%
Series A Preferred 3,514,697(7) 17.3%
</TABLE>
- ---------------
* Less than 1.0%.
(1) Reported in accordance with the beneficial ownership rules of the Securities
and Exchange Commission (the "Commission"). Subject to community property
laws, where applicable, voting power or investment power with respect to
shares reflected in the table is not shared with others.
(2) Includes 137,202 shares of Common Stock held by Mr. Anderson's wife and
271,200 shares of Common Stock held by trusts of which Mr. Anderson's
relatives are beneficiaries. Includes 457,340 shares of Series A Preferred
Stock held by Mr. Anderson's wife and 904,000 shares of Series A Preferred
Stock held by trusts of which Mr. Anderson's relatives are beneficiaries.
Mr. Anderson disclaims beneficial ownership of these shares.
(3) Includes shares held under a revocable trust controlled by the named
individual.
(4) Includes shares held by the trustee under the Company's Employee Stock
Ownership Plan ("ESOP"). As of June 30, 1994, the approximate number of
shares of Common Stock allocated to the ESOP accounts of the named executive
officers were as follows: Westcott W. Price III -- 5,032 shares; Mark B.
Hacken -- no shares; Jack D. Massimino -- 2,915 shares; Ryan M. Trimble --
3,000 shares; Michael J. Weinstock -- 2,522 shares; Burke F. Gumbiner --
3,578 shares; and all executive officers of the Company as a group -- 37,936
shares.
(5) Includes stock options exercisable within 60 days after September 15, 1994,
which are reported pursuant to Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934, as amended with respect to the following persons:
Robert Gumbiner -- 12,000 shares; Westcott W. Price III -- 30,000 shares;
Burke F. Gumbiner -- 29,500 shares; Warner Heineman -- 6,400 shares; Mark B.
Hacken -- 18,800 shares; Jack D. Massimino -- 28,750 shares; Ryan M. Trimble
-- 17,750 shares; Michael J. Weinstock -- 14,500 shares; and all executive
officers and directors of the Company (23 persons) as a group -- 404,016
shares.
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<PAGE> 6
(6) Includes 25,030 shares of Common Stock and 83,435 shares of Series A
Preferred Stock held by Mr. Burdge's wife.
(7) Includes shares held by the Trustee under the TakeCare Savings and
Retirement Plan.
COMMON STOCK OWNED BY OTHERS
The following table sets forth information with respect to each other
person believed by the Company to be the beneficial owner of more than five
percent of the Company's Common Stock as of the dates noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT
---------------------- ------------------ -------
<S> <C> <C>
Wellington Management Company....................... 3,664,920(1) 9.7%
75 State Street
Boston, MA 02109
FHP International Corporation....................... 3,490,231(2) 8.9%
Employee Stock Ownership Plan
9900 Talbert Avenue
Fountain Valley, CA 92708
Brinson Holdings, Inc............................... 2,894,300(1) 7.7%
209 South LaSalle
Chicago, Illinois 60604-1295
The Capital Group, Inc.............................. 2,667,600(1) 7.1%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ---------------
(1) Based upon a Schedule 13F for the quarter ended June 30, 1994, filed with
the Commission.
(2) Share ownership reported as of August 31, 1994.
ELECTION OF DIRECTORS
PROPOSAL 1
The Bylaws of the Company provide that the Board of Directors shall be
classified into three classes as nearly equal in number as possible, such that
approximately one-third of the members of the Board shall be elected at each
annual meeting of Stockholders and each director shall serve for a 3-year term.
The Board of Directors is presently comprised of eight members. (As a
result of the resignation of a director in 1994, a vacancy exists in the class
of directors to be elected at the 1995 Annual Meeting. The Nominating Committee
of the Board of Directors is currently conducting a search to fill this
vacancy.) There are three director positions in the class whose term of office
expires in 1994. The Board of Directors has designated Westcott W. Price III,
Joseph F. Prevratil and Mark B. Hacken as nominees for election to 3-year terms
expiring in 1997 and until their successors are elected and qualified. Each
nominee has consented to being named in this Proxy Statement and to serve as a
director if elected. All nominees presently serve on the Board and have
previously been elected to the Board by the Company's Stockholders.
Management proxies will be voted FOR the election of the above named
nominees, unless the Stockholders indicate that their proxies shall not be voted
for them. If for any reason any nominee should decline or be unable to serve as
a director, an event not now anticipated, the named proxies will vote for such
substitute nominee, if any, as may be recommended by the existing Board of
Directors.
Biographical information follows for each person nominated and each person
whose term of office as a Director will continue after the Annual Meeting.
Directors' ages are as of September 15, 1994.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 1997 ANNUAL MEETING
WESTCOTT W. PRICE III, age 55, has been Vice Chairman of the Board of
Directors of the Company since 1986, and a director of the Company since 1984.
Mr. Price became President of the Company in 1989 and
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Chief Executive Officer in 1990 and currently serves in the Company's Office of
the Chief Executive with Mark B. Hacken. He also serves as President of most of
the Company's HMO subsidiaries, having joined the Company's oldest HMO, FHP,
Inc. ("FHP") in 1981 as a Senior Vice President. Mr. Price has been a member of
the Board of Directors of the FHP Foundation since 1985.
JOSEPH F. PREVRATIL, age 56, has been a member of the Board of Directors of
the Company since 1991 and is Chairman of the Company's Compensation Committee
and a member of its Audit and Nominating Committees. Mr. Prevratil also serves
on the Board of Directors of the FHP Foundation. From 1982 to 1988, Mr.
Prevratil served as President of Wrather Port Properties, Inc., an entertainment
and hotel complex that included the Queen Mary oceanliner and Spruce Goose
airplane attractions in Long Beach, California. In 1988 and 1989 he served as
Executive Director of the Port of Long Beach. From 1989 to 1993, Mr. Prevratil
was President of his own business, providing contracted consulting and
management services to the leisure-time industry and the Redevelopment Agency of
the City of Long Beach. In 1993, Mr. Prevratil became President of the RMS
Foundation, Inc., a nonprofit corporation operating the Queen Mary oceanliner
attraction. Mr. Prevratil also serves as Chairman of the Board of IDM
Corporation.
MARK B. HACKEN, age 59, has been a member of the Board of Directors of the
Company since 1992 and the Board of Directors of FHP since 1986. Mr. Hacken
served as a consultant to FHP on a periodic basis for several years and in
October of 1993, joined Mr. Price as President and CEO in the Office of the
Chief Executive of the Company. From 1989 to 1991, Mr. Hacken served as Senior
Vice President in charge of jewelry merchandising of Best Products Co., Inc.
Best Products Co., Inc. entered into Chapter 11 bankruptcy in 1991. Mr. Hacken
has also been President of Thrifty Jr. Drug Stores and President and Chief
Executive Officer of Drug King, Inc. and Elliott's Drugs.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1995 ANNUAL MEETING
ROBERT GUMBINER, M.D., age 71, has been the Chairman of the Board of
Directors of the Company since its inception in 1984 and serves as Chairman of
the Company's Nominating and Executive Committees. He is also the founder of FHP
and he served as Chairman of the Board of Directors of FHP from 1961 to 1994. He
was President of the Company from its inception until 1989 and President of FHP
from its inception in 1961 until 1989. In 1990, Dr. Gumbiner retired as Chief
Executive Officer of the Company and FHP and became a consultant to FHP. Dr.
Gumbiner has been Chairman of the Board of the FHP Foundation since 1985.
RICHARD M. BURDGE, SR., age 67, joined the Board of Directors of the
Company in July, 1994 pursuant to the terms of an Agreement and Plan of Merger
(the "TakeCare Merger Agreement") whereby the Company acquired ownership of
TakeCare, Inc. and agreed to add Mr. Burdge to the Company's Board of Directors
and to renominate him at the Annual Meeting of Stockholders in November, 1995.
Mr. Burdge currently serves on the Strategic Planning and Policy Committee and
the Ethics Committee of the Board of Directors. Mr. Burdge retired in 1984 as
Executive Vice President of CIGNA Corporation, a position he held from 1982 to
1984. He also served as Senior Executive Vice President of INA Corporation from
1980 to 1982. From 1975 to 1980, Mr. Burdge served as Executive Vice President
of INA Corporation. He also served as President and Chief Operating Officer of
the American Stock Exchange from 1972 to 1975.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1996 ANNUAL MEETING
BURKE F. GUMBINER, age 43, has been a director of the Company since 1984.
He was a Vice President of the Company from 1984 to 1989, and in 1989 he became
a Senior Vice President. Mr. Gumbiner joined FHP in 1972 and has served in
several executive capacities. He currently has oversight of the Company's
insurance subsidiaries. Mr. Gumbiner is the son of Robert Gumbiner.
WARNER HEINEMAN, age 72, has been a member of the Board of Directors of the
Company since 1990 and is a member of the Company's Audit and Compensation
Committees. Mr. Heineman has also served as a director of FHP. He currently
serves as a director of two of the Company's insurance subsidiaries. Mr.
Heineman joined the First Business Bank in 1992 and currently serves as a Senior
Advisor. From 1989 to 1992, he served as Senior Vice President of the Bank of
Los Angeles. He also served as a Senior Vice President of City National Bank
from 1981 to 1988. In 1981, he retired as Vice Chairman and Director of
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<PAGE> 8
Union Bank after 38 years of service with that organization. Mr. Heineman is a
Trustee of Southwestern University School of Law, Member of the Board of
Advisors of UCLA Medical Center, Member of the Board of Visitors, UCLA School of
Medicine and a director of Alexander Haagen Properties, Inc. and Capital Market
Fund, Inc.
JACK R. ANDERSON, age 69, joined the Board of Directors of the Company in
June, 1994 pursuant to the TakeCare Merger Agreement whereby the Company agreed
to add Mr. Anderson to the Company's Board of Directors and to renominate him at
the Annual Meeting of Stockholders in November, 1996. Mr. Anderson was Chairman
of the Board and a Director of TakeCare, Inc. from 1988 to June of 1994. He has
been the President of Calver Corporation, a health care consulting and investing
firm and a private investor since 1982. Mr. Anderson currently serves as
Chairman of the Company's Audit Committee and a member of the Compensation
Committee of the Board of Directors. Mr. Anderson currently serves on the Boards
of Directors of Manor Care, Inc., Navistar International Corporation, Horizon
Mental Health Management, Inc. and United Dental Care, Inc.
COMMITTEES OF THE BOARD AND BOARD ATTENDANCE
Committees of the Board
To assist in the discharge of its responsibilities, the Board of Directors
of the Company has established several committees, including Audit, Compensation
and Nominating Committees. The members of these standing committees are elected
by the Board of Directors at its organizational meeting following the Annual
Meeting of Stockholders. Each member serves at the pleasure of the Board for a
one-year term or until his successor is elected.
The Company's Audit Committee is comprised of Jack R. Anderson (Chairman),
Joseph F. Prevratil and Warner Heineman. Mr. Anderson joined the Audit Committee
in July of 1994. The Audit Committee met six times during the year ended June
30, 1994. The Audit Committee recommends to the Board the retention or discharge
of the Company's independent auditors; reviews the engagement of the independent
auditors including the scope, extent and procedures of the audit and the fees to
be paid therefor; reviews, in consultation with the independent auditors, the
audit results and their opinion letter or proposed report of audit and related
management letter, if any; reviews the independence of the independent auditors
and, in this connection, reviews and approves the engagement of the independent
auditors for services of a non-audit nature; reviews and approves the audited
financial statements; consults with the independent auditors, the Company's
internal auditors and the Company's management (together or separately) on the
adequacy of internal accounting controls and reviews the results thereof;
directs and supervises investigations into matters within the scope of the Audit
Committee's duties; and performs such other functions as may be necessary in the
efficient discharge of its duties.
The Company's Compensation Committee is comprised of Joseph F. Prevratil
(Chairman), Jack R. Anderson and Warner Heineman. Mr. Anderson joined the
Compensation Committee in July of 1994. The Compensation Committee held 7
meetings during the year ended June 30, 1994. See "Compensation Committee Report
on Executive Compensation" below.
The Company's Nominating Committee is composed of Robert Gumbiner
(Chairman), Joseph F. Prevratil and Warner Heineman. The Nominating Committee
met in August, 1994 and recommended that the three director candidates be
elected at the Annual Meeting. The Nominating Committee does not plan to
consider nominees recommended by Stockholders.
Attendance at Meetings
The Board of Directors of the Company held 24 meetings during the year
ended June 30, 1994. With the exception of Jack Anderson, who joined the Board
of Directors on June 17, 1994 (less than two weeks before the end of the fiscal
year), each director attended more than 75% of the meetings of the Board and
Committees of the Board which the director served at any time during the year.
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<PAGE> 9
NONEMPLOYEE DIRECTOR COMPENSATION
Directors' Fees
During the fiscal year ended June 30, 1994, those nonemployees who served
on the Board of Directors of the Company received fees of $10,000 per quarter,
those nonemployees who served on the Executive Committee of the Company (Robert
Gumbiner, Joseph Prevratil and Richard Rodnick) also received $3,000 per
quarter, and Warner Heineman received an additional $1,750 per quarter for
serving on the Board of Directors of another subsidiary. On April 22, 1994, an
Ad Hoc Committee of the Board of Directors composed solely of executives of the
Company approved the payment of a $50,000 special director's fee to the
nonemployee directors in recognition of their special efforts in connection with
the negotiation, analysis and approval of the acquisition of TakeCare, Inc.,
including their review of copious materials relating to TakeCare, Inc. and the
proposed transaction, their extensive travel in connection with the acquisition
and their participation in numerous special meetings of the Company's Board of
Directors held throughout the course of the transaction.
Set forth below are the fees received during the fiscal year ended June 30,
1994 by the nonemployee directors of the Company for service as directors of the
Company and certain of its direct and indirect subsidiaries:
<TABLE>
<S> <C>
Robert Gumbiner................................................... $102,000
Joseph F. Prevratil............................................... 102,000
Richard M. Rodnick................................................ 102,000
Warner Heineman................................................... 97,000
Mark B. Hacken.................................................... 12,065*
</TABLE>
- ---------------
* Mark B. Hacken served as a nonemployee director until October 19, 1993 when he
became employed as President and Chief Executive Officer, Office of the Chief
Executive.
Deferred Compensation
The Company and certain of its subsidiaries have adopted a Deferred
Compensation Plan for Nonemployee Directors pursuant to which an amount equal to
12% of a nonemployee director's annual director's fees is credited each year on
the Company's books. Such funds, together with earnings (credited at the same
rate that the Company earns on its cash and cash equivalent investments), vest
at the rate of 50% per year for each year that participants serve as nonemployee
directors and are payable to the participants when they cease to be nonemployee
directors. During the fiscal year ended June 30, 1994, deferral amounts
(including earnings) were accrued on the Company's books for the nonemployee
directors as follows: Robert Gumbiner -- $12,605; Joseph F. Prevratil --
$12,604; Richard M. Rodnick -- $12,538; Warner Heineman -- $12,028; and Mark B.
Hacken -- $1,672.
Stock Options
The Company's Executive Incentive Plan provides for the automatic award of
nonqualified stock options to nonemployee directors according to the following
formula: Each person who first becomes a nonemployee director of the Company is
awarded a nonqualified option to purchase 10,000 shares of the Company's Common
Stock at an option exercise price equal to the market value of the Common Stock
on the date that person becomes a director. This option becomes exercisable in
full only after the optionee has completed two years of continuous service as a
nonemployee director. Based on this formula, a nonqualified option was granted
to Jack R. Anderson on June 17, 1994 to purchase 10,000 shares of the Company's
Common Stock at an option exercise price of $24.75 per share.
The Executive Incentive Plan further provides that a person who has
continuously served as a nonemployee director of the Company for two years and
has not received an option award during that period, is awarded a nonqualified
option to purchase 10,000 additional shares of the Company's Common Stock. This
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<PAGE> 10
option becomes exercisable to the extent of 20% of the shares covered thereby
for each year thereafter that the optionee completes as a nonemployee director.
Based on this formula, a nonqualified option was granted to Robert Gumbiner on
October 1, 1993 to purchase 10,000 shares of the Company's Common Stock at an
option exercise price of $20.875 per share.
The Executive Incentive Plan also provides that a person who continuously
serves as a nonemployee director of the Company for a period of two years after
receiving the option award described in the preceding paragraph, receives an
option to purchase 2,000 additional shares of Company's Common Stock annually
for each year that the director continues to serve in that capacity. Each of
these options becomes exercisable to the extent of 20% of the shares covered
thereby for each year thereafter that the optionee completes as a nonemployee
director. Based on this formula, a nonqualified option was granted to Warner
Heineman on October 1, 1993 to purchase 2,000 shares of the Company's Common
Stock at an option exercise price of $20.875 per share.
Consulting Fees
Warner Heineman received $8,000 during the fiscal year for serving as a
consultant to one of the Company's subsidiaries.
Robert Gumbiner and Mark B. Hacken served as consultants to another
subsidiary during the fiscal year ended June 30, 1994. See "Compensation
Committee Interlocks and Insider Participation" below.
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the fiscal years shown of those persons ("Named Executive
Officers") who were, during the latest fiscal year (i) the chief executive
officers, and (ii) the other four most highly compensated executive officers of
the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
-------------------------------- SHARES UNDERLYING ALL OTHER
FISCAL SALARY BONUS OTHER OPTIONS (NUMBER COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (1)($) (2)($) (3)($) OF SHARES) (4)($)
- -------------------------------------------- ------- --------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
WESTCOTT W. PRICE III....................... 1994 428,922 95,514 -- 50,000 28,301
Vice Chairman of the Board; President and 1993 360,000 186,600 -- 100,000 27,463
CEO, Office of the Chief Executive 1992 359,375 -0- -- -0- --
MARK B. HACKEN(5)........................... 1994 271,636 61,532 -- 200,000 1,012
President and CEO, Office of the Chief 1993 -0- -0- -- 2,000 -0-
Executive 1992 -0- -0- -- 2,000 --
JACK D. MASSIMINO........................... 1994 345,482 151,226 -- 225,000 29,277
Executive Vice President and Chief Operating 1993 250,000 152,500 -- 75,000 27,963
Officer 1992 217,462 100,000 -- 5,000 --
RYAN M. TRIMBLE............................. 1994 304,462 60,613 39,775(6) 120,000 29,017
Senior Vice President 1993 184,308 87,505 39,584(6) 50,000 24,000
1992 137,597 29,000 -- -0- --
MICHAEL J. WEINSTOCK........................ 1994 227,288 103,897 -- 60,000 28,301
Senior Vice President, General Counsel and 1993 190,000 59,928 -- 40,000 27,463
Secretary 1992 189,519 75,000 -- 20,000 --
BURKE F. GUMBINER........................... 1994 260,114 56,572 -- 60,000 28,340
Senior Vice President 1993 210,000 30,000 -- 50,000 25,200
1992 204,210 -0- -- -0- --
</TABLE>
- ---------------
(1) Includes the base salary earned by the Named Executive Officer during the
fiscal year covered and any voluntary salary reduction resulting from
contributions for the fiscal year by the Named Executive Officer to (a) the
Company's ESOP under Internal Revenue Code Section 401(k), and (b) the FHP,
Inc. Deferred Compensation Plan for Executives and Physicians.
(2) Includes the cash value of bonus earned by the Named Executive Officer
during the fiscal year covered and the cash value of voluntary bonus
reductions resulting in contributions to (a) the Company's
8
<PAGE> 11
ESOP under Internal Revenue Code Section 401(k) and (b) the FHP, Inc.
Deferred Compensation Plan for Executives and Physicians.
(3) Excludes perquisites and other personal benefits if the value did not exceed
the lesser of $50,000 or 10% of both salary and bonus. In accordance with
the transitional provisions applicable to the revised rules on executive
officer compensation disclosure adopted by the Commission, amounts of Other
Annual Compensation and All Other Compensation are excluded for fiscal year
1992.
(4) Includes Company contributions under the FHP Money Purchase Pension Plan as
follows: Westcott W. Price -- $18,867; Jack D. Massimino -- $18,867; Ryan M.
Trimble -- $18,867; Michael J. Weinstock -- $18,867 and Burke F. Gumbiner --
$18,867. Also includes Company contributions under the Company's ESOP as
follows: Westcott W. Price -- $9,434; Jack D. Massimino -- $9,434; Ryan M.
Trimble -- $9,434; Michael J. Weinstock -- $9,434; and Burke F. Gumbiner --
$9,434. Also includes the dollar value of taxable income from group term
life insurance coverage in excess of $50,000 purchased by the Company.
(5) Mr. Hacken became employed by the Company on October 19, 1993 and entered
into a two-year Employment Agreement as of November 1, 1993. The Agreement
provided for Mr. Hacken to receive an initial base salary of $400,000 per
year, to participate in the Company's executive bonus plan and to receive a
stock option to purchase 200,000 shares of common stock. The option becomes
fully exercisable after two years and terminates six years from the date of
grant. See "Option Grants in Last Fiscal Year" below. The Employment
Agreement may be renewed for two successive two-year periods if the Company
and Mr. Hacken agree in writing. If the Employment Agreement is so extended,
Mr. Hacken will receive an additional stock option to purchase 200,000
shares of the Company's common stock for each successive two-year term of
employment. In the event of termination of Mr. Hacken's employment without
cause, his stock option will be subject to partial acceleration of
exercisability based on the period of his service with the Company. Mr.
Hacken also served as a consultant to a subsidiary of the Company prior to
October 19, 1993. See "Compensation Committee Interlocks and Insider
Participation" below.
(6) Includes an automobile allowance of $9,600, and $30,000 representing a
portion of the principal amount of a loan forgiven during the fiscal year
ended June 30, 1994. Includes an automobile allowance of $7,643, a
reimbursement by the Company of $11,827 in expenses associated with Dr.
Trimble's relocation to California, and $20,000 representing a portion of
the principal amount of a loan forgiven during the fiscal year ended June
30, 1993. See "Certain Transactions" below.
9
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides details regarding stock options granted under
the Company's Executive Incentive Plan to the Named Executive Officers during
the fiscal year ended June 30, 1994. In addition, in accordance with Commission
rules, there are shown the hypothetical gains or "option spreads" that would
exist for the respective options. These gains are based on assumed rates of
compound stock price appreciation of 5% and 10% from the date the options were
granted over the full option term. In assessing these values it should be kept
in mind that no matter what theoretical value is placed on a stock option, its
ultimate value will depend on the market value of the Company's stock at a
future date. The Company's Executive Incentive Plan does not provide for the
grant of stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
NUMBER OF SHARES % OF TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED PRICE TERM(5)
OPTIONS TO EMPLOYEES PER EXPIRATION ------------------------
NAME GRANTED(1) IN FISCAL YEAR SHARE(1) DATE 5% 10%
- ------------------------ ---------------- ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Westcott W. Price III... 50,000(2) 2.7% $27.25 07/01/03 $ 856,869 $2,171,474
Mark B. Hacken.......... 200,000(3) 10.7% $20.375 10/19/03 2,562,746 6,494,501
Jack D. Massimino....... 25,000(2) 1.3% $27.25 07/01/03 428,434 1,085,737
200,000(4) 10.7% $24.1875 05/02/04 3,042,278 7,709,729
Ryan M. Trimble......... 20,000(2) 1.1% $27.25 07/01/03 342,748 868,590
100,000(4) 5.4% $24.1875 05/02/04 1,521,139 3,854,865
Michael J. Weinstock.... 20,000(2) 1.1% $27.25 07/01/03 342,748 868,590
40,000(4) 2.1% $24.1875 05/02/04 608,456 1,541,946
Burke F. Gumbiner....... 20,000(2) 1.1% $27.25 07/01/03 342,748 868,590
40,000(4) 2.1% $24.1875 05/02/04 608,456 1,541,946
</TABLE>
- ---------------
(1) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the option grant date. All options will
become immediately exercisable on the occurrence of an attempted tender
offer or a change of control as described in the Company's Executive
Incentive Plan.
(2) Exercisable July 1, 2000, but subject to accelerated incremental vesting as
to 10%, 15%, 20%, 25%, and 30% of the total number of option shares granted,
respectively, each year subsequent to the date of the grant if the
consolidated earnings per share ("EPS") of the Company for the fiscal year
ending on the June 30 immediately preceding such accelerated vesting date
exceed both EPS for the preceding fiscal year, and the average EPS for the
two preceding fiscal years, and if the Optionee shall have been in the
continuous employ of the Company or any subsidiary from the date of grant of
this option through such accelerated vesting date. If accelerated vesting
does not occur the percentage will be carried forward and added to the
percentage which becomes eligible for accelerated vesting with respect to
the next anniversary date.
(3) Exercisable after two years of service, but subject to partial acceleration
of exercisability prior to two years if employment is terminated without
cause or because of death or disability. Does not include a 2,000 share
option which was granted to Mr. Hacken on October 1, 1993, shortly before he
became an employee on October 19, 1993, because that option required that
Mr. Hacken continue to serve as a non-employee director in order to vest.
(4) Exercisable incrementally over four years as to 10%, 20%, 30% and 40% of the
total number of option shares granted.
(5) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information concerning the exercise of options
during the last fiscal year and unexercised options held as of the end of the
fiscal year by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTION SHARES AT IN-THE-MONEY OPTION
ACQUIRED ON VALUE FISCAL YEAR-END (#) SHARES AT FISCAL YEAR-END ($)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------ ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Westcott W. Price III..... 110,000 $2,212,250 10,000 140,000 $ 66,250 $596,250
Mark B. Hacken............ -0- -0- 18,800 200,000 56,610 700,000
Jack D. Massimino......... 8,250 148,256 13,750 301,250 49,688 447,188
Ryan M. Trimble........... 5,000 52,045 8,250 167,750 64,923 325,031
Michael J. Weinstock...... 16,500 305,625 30,260 98,500 458,770 238,500
Burke F. Gumbiner......... -0- -0- 20,000 120,000 33,125 298,125
</TABLE>
CHANGE IN CONTROL EMPLOYMENT AGREEMENTS
On March 12, 1994, the Company entered into agreements ("Employment
Agreements") with certain key executive officers, including each of the Named
Executive Officers, providing for benefits in the event of a "Change of Control"
of the Company. For the purposes of the Employment Agreements, a Change of
Control occurs when: (i) another party, other than a Company sponsored employee
benefit plan, acquires (other than directly from the Company) beneficial
ownership of 20% or more of the Company's stock or voting securities; (ii) there
is a change in a majority of the current Board of Directors (the "Incumbent
Board") (excluding any persons approved by a vote of the Incumbent Board other
than in connection with an actual or threatened proxy contest); or (iii) there
is a consummation of a complete liquidation or dissolution of the Company or a
merger, consolidation or sale of all or substantially all of the Company's
assets (collectively, a "Business Combination") other than a Business
Combination in which all or substantially all of the stockholders of the Company
received 70% or more of the stock of the Company resulting from the Business
Combination and at least a majority of the board of directors of the resulting
corporation were members of the Incumbent Board.
The Employment Agreements provide that the executive's employment shall
continue for three years following a Change of Control on equivalent terms
(including position, duties, compensation and benefits) to those existing
immediately prior to the Change of Control. If during this three-year period the
executive's employment is terminated other than for "Cause," or if the executive
terminates his employment for "Good Reason" (as defined in the Employment
Agreements), or voluntarily during a 30-day period following the first
anniversary of the Change of Control, the executive is entitled to receive an
accrued salary and annual incentive payment through the date of termination and,
except in the event of death or disability, a lump-sum severance payment equal
to three times the sum of the executive's base salary and annual bonus (and
certain pension credit and insurance and other welfare plan benefits). Further,
an additional "Gross-Up" payment is required in such amount that after the
payment of all income and excise taxes, the executive will be in the same
after-tax position as if no excise tax under the Internal Revenue Code of 1986,
as amended, has been imposed.
FILING DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and directors and persons who own more
than 10% of the Company's Common Stock to file reports of ownership and changes
in ownership with the Commission and to furnish the Company with copies.
Based upon its review of the copies of such forms received by it, or
written representation from certain reporting persons, the Company believes
that, during the last fiscal year, all filing requirements applicable to its
officers, directors, and greater than 10% beneficial owners were complied with,
except that, due to clerical error, an initial report on Form 3 required to be
filed when Eric Sipf became a Senior Vice President of the Company was filed
after such report was due to be filed.
11
<PAGE> 14
CERTAIN TRANSACTIONS
In 1992, Ryan M. Trimble, a Senior Vice President of the Company, borrowed
$150,000 from FHP for the purpose of purchasing a residence in California
following his relocation from Arizona. $40,000 of the borrowed amount was
forgiven by July of 1994 and an additional $60,000 of the borrowed amount may be
forgiven in installments of $20,000 a year if Dr. Trimble remains employed with
the Company through July of 1997, at which time the remaining $50,000 principal
balance, together with interest at the rate of 6.5% a year will be due and
payable. In the interim, the loan is secured by a recorded second lien on Dr.
Trimble's residence.
In December 1990, Robert N. Franklin, a Senior Vice President of the
Company, borrowed $100,000 from FHP for the purpose of purchasing a residence in
California following his relocation from New Mexico. The loan, which bears
interest at the rate of 9% per annum, may be forgiven in installments of $25,000
a year if Mr. Franklin remains employed with the Company through September of
1996. In the interim, the loan is secured by a recorded second lien on Mr.
Franklin's residence.
In March 1992, Christobel E. Selecky, a Senior Vice President of the
Company, borrowed $95,000 for the purpose of purchasing a residence. At June 30,
1994, the principal amount of this loan was $85,886 and as of September 30,
1994, the principal amount was $75,886. The loan, which is secured by a recorded
second lien against Ms. Selecky's residence, accrues interest at a rate of 7.5%
per annum until maturity on September 30, 1995.
In June 1994, Kenneth S. Ord, Senior Vice President and Chief Financial
Officer of the Company, borrowed $100,000 from the Company for the purpose of
purchasing a residence in California following his relocation from Michigan. The
loan, which bears interest at a rate of 8.5% per annum, may be forgiven in
installments of $20,000 a year if Mr. Ord remains employed with the Company
through February 14, 1999. In the interim, the loan is secured by a recorded
second lien on Mr. Ord's residence.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation Committee of the Board of Directors of the Company (the
"Committee") consists of Joseph F. Prevratil (Chairman), Warner Heineman and
Jack R. Anderson. Mr. Anderson joined the Committee after the fiscal year ended
June 30, 1994. All members of the Committee are nonemployee directors who are
not eligible to participate in any of the executive compensation programs. The
Committee has responsibility for administration of the Company's executive
compensation programs, including the Management Compensation Program (the
"Salary Program"), under which salaries of senior management personnel are
determined; the Management Incentive Plan (the "Bonus Program"), which provides
for cash bonuses to salaried employees; and the Executive Incentive Plan, which
authorizes grants of stock options, restricted stock and performance units. The
following is the report of the Committee describing compensation policies and
rationale applicable to the Company's executive officers with respect to the
compensation paid to such executive officers for the fiscal year ended June 30,
1994.
COMPENSATION PHILOSOPHY
The Company's executive compensation policies are designed to (i) provide
competitive levels of overall compensation in order to attract and retain the
most qualified executives in the industry, (ii) motivate executive officers to
achieve the Company's business objectives, and (iii) reward executive officers
for their achievements on behalf of the Company. To achieve these goals, the
Committee and the Board of Directors have followed an executive compensation
program primarily consisting of three integrated components -- base salaries,
bonuses and stock options.
12
<PAGE> 15
BASE SALARIES
Fiscal 1994 Salaries
It is the policy of the Committee to establish and maintain executive
salary levels that reflect position responsibilities, are competitive with
salary structures for health care executive groups having similar operating
responsibilities and are capable of attracting, retaining and motivating
competent executives. Increases in base salaries have been dependent on the
executives' and the Company's performance for the previous year.
In establishing base salaries for fiscal year 1994, the Committee noted
that the base salaries had not been changed in any material respect for fiscal
year 1993, except in the case of increases associated with promotions. This was
because the Company's financial performance for fiscal year 1992 was judged less
than satisfactory by the CEO and the Committee.
Company performance for fiscal year 1993 was satisfactory and demonstrated
improvement. Based on this improved financial performance, the Committee
approved increases in base salaries for the Named Executive Officers, effective
July 1, 1993 as follows: Mr. Price, $420,000; Mr. Massimino, $325,000; Dr.
Trimble, $250,000; Mr. Weinstock, $225,000; and Mr. Gumbiner, $250,000. Mr.
Hacken was employed on October 19, 1993 at an annual base salary of $400,000.
In May, 1994, the Company initiated a major reorganization of the
operational and functional activities of the Company into three areas:
Healthcare Delivery, Insurance and Support Services, and Health Plans. In June,
1994, the Company accomplished the acquisition of TakeCare, Inc., creating one
of the largest HMOs in the United States with annual revenue over $3.25 billion.
In recognition of the assignment of new roles and responsibilities of the
executives, managing a more complex organization, and the added responsibility
of integrating the TakeCare acquisition, base salaries were adjusted, effective
May 1, 1994, as follows: Mr. Price, $500,000; Mr. Hacken, $475,000; Mr.
Massimino, $450,000; Dr. Trimble, $400,000; Mr. Weinstock, $250,000; and Mr.
Gumbiner, $290,000.
In making its decisions to adjust base salaries, the Committee consulted
with William M. Mercer, Incorporated ("Mercer"), an independent consultant
specializing in such matters. In September, 1993, the Committee requested Mercer
to conduct a study comparing the base salaries, bonuses and other benefits paid
to the Company's senior executives with those paid to executives holding
comparable positions in the health care industry and other HMOs that the Company
treats as its principal competitors. Recently, Mercer was asked to update its
study in consideration of the reorganization and the TakeCare acquisition.
Salary Considerations for Fiscal 1995
It is currently anticipated that there will be no salary increases for
fiscal year 1995, based on the salary increases which took place in May, 1994 to
account for the added responsibility of the reorganization and the TakeCare
acquisition.
ANNUAL INCENTIVES
The Company has for many years utilized its Bonus Program to provide annual
incentives to executive personnel of the Company and its subsidiaries. The Bonus
Program provides for potential cash bonuses to eligible participants based on a
percentage of each participant's gross salary. The highest percentage bonus
payable to executive officers under the Bonus Program is 50%, although
additional discretionary awards are possible in recognition of extraordinary
individual performance.
For each fiscal year, the Board of Directors establishes financial and
operational goals for the Company as a whole and separately establishes
appropriate performance targets for each geographical region and for each major
corporate function (sales and marketing; finance; human resources; etc.) within
the Company. For fiscal year 1994, the Company's financial goals were pretax
income, return on assets and cash flow. The operational goals included quality
and service and productivity improvement. The regional/functional goals were
pretax income, quality and service and productivity improvement. The final bonus
was determined by a
13
<PAGE> 16
relative weighting of various factors in which the interplay of achievement
levels of financial measures and operational measures, as compared with target
performance, determined the bonus payable to each participant.
Fiscal 1994 Bonuses
In fiscal year 1994, the Company achieved its financial and operational
objectives. Accordingly, bonuses were paid totaling approximately $5,125,000, of
which the named executive officers received an aggregate of $529,354. The
bonuses received by Mr. Price and Mr. Hacken comprised approximately 18% of
their total cash compensation for the year and the bonuses of the other Named
Executive Officers ranged from approximately 31% to 17% of their total cash
compensation. The Committee believes that the executive officers' cash
compensation should be subject to significant annual variation depending on
whether or not the performance targets under the Bonus Program have been
achieved.
LONG-TERM INCENTIVE PROGRAM
In 1992, the Committee approved a program (described in detail in last
year's Compensation Committee Report on Executive Compensation) for a series of
grants of nonqualified stock options spaced over four successive years
(beginning July 1, 1992) in which the vesting schedule of each option is tied
directly to growth in EPS. The optionees are presented under each option with
five annual opportunities for accelerated vesting which will be realized only if
the senior managers produce EPS which exceed both EPS of the previous year and
average EPS for the two previous years. Because of the four-year schedule for
the granting of options, this challenge is presented to the optionees each year
for eight continuous years from 1993 to the year 2000. This provides incentives
for continued service with the Company while establishing a new option price for
each grant that should reflect the Company's recent performance.
The merger with TakeCare and the reorganization of the Company provided the
executives with significant new responsibilities and an opportunity to add
shareholder value by penetrating new markets, capturing economies of scale and
providing greater market stability and recognition. To ensure that executives
were focused on such opportunities, to recognize their increased
responsibilities following the merger, and to provide incentive to accelerate
the changes required to meet the demands of the marketplace, the Committee
approved a special one-time stock option grant to certain of the Named Executive
Officers as follows: Mr. Price, 250,000 shares; Mr. Massimino, 200,000 shares;
Dr. Trimble, 100,000 shares; Mr. Weinstock, 40,000 shares; and Mr. Gumbiner,
40,000 shares. The option grant to Mr. Price was made in fiscal year 1995; the
option grants to the other named executives were made in fiscal year 1994. Mr.
Hacken received a stock option grant of 200,000 shares pursuant to his
employment agreement and was therefore not awarded any additional options due to
the merger and reorganization. All options were issued at an exercise price
equal to the fair market value of the Company's common stock as of the date of
grant. The number of option shares granted were determined after the Committee
had reviewed the stock option grant practices of peer organizations evaluated in
Mercer's 1993 study.
PERFORMANCE OF THE OFFICE OF THE CHIEF EXECUTIVE
In October, 1993, Mark Hacken became employed by the Company after serving
for several years as a consultant and nonemployee member of the Board. Mr.
Hacken, together with Westcott W. Price III, form the Office of the Chief
Executive of the Company (the "Chief Executives"). In setting the base salaries
of the Chief Executives, and in determining whether the Chief Executives have
met the operational and financial criteria under the Bonus Program, the
Committee has taken note of management's progress toward the Board's objectives
of increasing the HMO membership base and revenue, broadening the range of
services offered to individuals and employer groups, and achieving better
control over costs in a recessionary environment (in California) while
maintaining the quality of health care services. The Committee also takes
qualitative factors into account, such as effectiveness of leadership and
managing the development and execution of the Company's strategic plan.
14
<PAGE> 17
Among the performance factors the Committee took into account for fiscal
year 1994, it was noted that revenue increased 23.3%, HMO membership (exclusive
of that from the TakeCare acquisition) increased by 10.5%, net income increased
by 34% and EPS by 29%. In addition, the Company made improvement in controlling
the cost of health care from 83.8% of total revenue in fiscal year 1993 to 83.2%
of total revenue in fiscal year 1994. The Committee also took into account the
accomplishment of the TakeCare acquisition.
Respectfully submitted,
JOSEPH F. PREVRATIL
WARNER HEINEMAN
JACK R. ANDERSON
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company during
the fiscal year ended June 30, 1994 consisted of Joseph F. Prevratil (Chairman)
and Warner Heineman, each of whom is a non-employee Director of the Company.
Mark Hacken also served on the Committee until October 17, 1993, shortly before
becoming an employee of the Company. Robert Gumbiner served on the Committee
until November 18, 1993, when Richard Rodnick took his place until the end of
the fiscal year.
Robert Gumbiner is a founder of both the Company and FHP and served for
approximately 29 years as the President and Chief Executive Officer of those
companies. He retired in 1990 and he continues to serve FHP as a consultant
under an agreement which extends to June 30, 1995. In that capacity he received
compensation of $536,565 during the last fiscal year.
FHP presently leases improved real property from Plaza Land Corporation,
the sole shareholder of which is Robert Gumbiner. The property is located in
Long Beach, California, and is the site of FHP's Plaza Medical Building. During
the fiscal year ended June 30, 1994, FHP paid rent totaling $400,493 under the
lease. The rental rate is adjusted annually based on changes in the consumer
price index. The lease expires in August of 1999, at which time FHP has an
option to purchase the property for 90% of its then appraised value.
Since 1983, FHP has leased improved real property from a limited
partnership, the general partner of which is Robert Gumbiner. The property is
located in Long Beach, California, and is the site of FHP's Long Beach Senior
Center. The lease was entered into in October of 1983 and extends to December
31, 1995. During the fiscal year ended June 30, 1994, FHP paid rent totaling
$288,000 under the lease.
During the fiscal year ended June 30, 1994, FHP provided health care
coverage to the employees of the Sheraton Riverside Hotel ("Hotel") and received
payments from the Hotel totaling $237,000. The Hotel conducts its business as a
partnership. The general partner of the Hotel is a corporation in which Joseph
Prevratil owns a 50% interest. Mr. Prevratil also owns a 7% interest in the
limited partner of the Hotel. In addition, Mr. Prevratil owns a 50% interest in
the management company that presently manages the Hotel.
Mr. Prevratil is the President of the RMS Foundation, Inc. (the
"Foundation") which manages the day-to-day operations of the Queen Mary
oceanliner tourist attraction located in the Long Beach harbor in California.
During the fiscal year ended June 30, 1994, the Company's HMO and insurance
subsidiaries billed the Foundation $701,000 for the provision of health care
coverage to the Foundation's employees and the HMO and insurance subsidiaries
received payments from the Foundation totaling $357,000. During the fiscal year
ended June 30, 1994 the Foundation's largest outstanding account balance was
$339,000. On September 30, 1994, the Foundation had an outstanding account
balance with the HMO and insurance subsidiaries of $362,000.
Prior to becoming an employee of the Company on October 19, 1993, Mark B.
Hacken served as a consultant to FHP on various projects during the fiscal year
ended June 30, 1994 for which he received compensation of $61,873, including
reimbursements for out-of-pocket expenses.
15
<PAGE> 18
No executive officer of the Company during the last fiscal year served as a
member of a compensation committee or director of another for-profit entity in a
situation in which an executive officer of such other entity served as a member
of the Compensation Committee or Director of the Company.
PERFORMANCE GRAPH
The following graph demonstrates the performance of the cumulative total
return to the stockholders of the Company's Common Stock during the previous
five fiscal years in comparison to the cumulative total return of the Standard &
Poor's (S&P) Health Care Composite Index and the S&P 500 Stock Index.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) FHPC S&P Health S&P 500
<S> <C> <C> <C>
1989 100 100 100
1990 124.8 135.3 116.4
1991 175.2 169.5 125.0
1992 133.3 185.5 141.7
1993 207.6 163.9 160.9
1994 182.9 164.3 163.2
</TABLE>
Assumes $100 invested on June 30, 1989 in FHP Common Stock, S&P Health Care
Composite Index and S&P 500 Index.
APPROVAL OF FHP INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL 2
The Board of Directors has adopted, subject to shareholder approval, the
FHP International Corporation Employee Stock Purchase Plan (the "Plan"). Under
the Plan, one million shares of the Company's Common Stock would be offered for
purchase by eligible employees electing to participate, subject to certain
adjustments. Such shares will be issued by the Company either from treasury
stock or from authorized and unissued shares. The employees would be entitled
periodically to purchase Common Stock of the Company, by means of after-tax
payroll deductions, at a discount from the market price of the Company's Common
Stock. The Board of Directors believes that the Plan would provide an additional
incentive to employees to achieve business goals that would increase stock
values and to remain in the employment of the Company.
SUMMARY DESCRIPTION OF THE PLAN
The following summary of the material provisions of the Plan is qualified
in its entirety by reference to the text of the Plan, a copy of which is set
forth as Exhibit A to this Proxy Statement.
16
<PAGE> 19
Operations of the Plan. Prior to the beginning of each offering effective
date (the "Grant Date"), Eligible Employees (as defined below) will be given the
opportunity to participate in the Plan. Participating Eligible Employees
("Participants") will designate a certain amount of their after-tax compensation
to be set aside through payroll deductions over a specified number of months to
purchase the Company's Common Stock. On the last day of the offering period (the
"Offering Exercise Date"), the total amount set aside by each Participant will
be used to purchase Common Stock. The purchase price of each share of Common
Stock for a particular offering will be established by the Compensation
Committee. However, in no event will the purchase price of each share of Common
Stock be less than 85% of the average of the high and low prices for a share of
Common Stock on the Grant Date or the Offering Exercise Date, whichever is
lower, as reported by the stock exchange or market on which the Common Stock is
publicly traded. On or shortly after the Offering Exercise Date, the Company
will deliver to a stock brokerage firm for the accounts of Participants in the
Plan a stock certificate representing the number of whole shares purchased under
the Plan (Participants will be refunded cash in lieu of fractional shares). If
the Plan is approved by shareholders of the Company, the initial offering will
commence on January 1, 1995 and end on December 18, 1995.
Eligibility. Only Eligible Employees will participate in the Plan. For
purposes of the initial offering, an "Eligible Employee" is an employee of the
Company or any of its subsidiaries who has completed two years of continuous
service with the Company or a subsidiary prior to January 1, 1995. As of August
30, 1994, there were approximately 7,600 Eligible Employees. The Compensation
Committee has the authority to exclude all or any number of highly compensated
employees from participating in the Plan and has decided to exclude the Chief
Executive Officers, the Chief Operating Officer and all Senior Vice Presidents
from participating in the initial offering.
Limitations on Amount of Shares Purchased. The fair market value of stock
purchased by any Participant may not exceed a certain value as established under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code") in any
calendar year. For the initial offering, the Compensation Committee has
established that value at $10,000 per Participant.
Term of the Plan. The Plan shall be effective from January 1, 1995 through
the date that all of the shares subject to the Plan have been purchased.
Withdrawal from the Plan. A Participant may voluntarily withdraw from the
Plan at any time up to two weeks before an Offering Exercise Date. Upon such a
withdrawal, a Participant must elect to either (i) withdraw all amounts in his
Option Account or (ii) leave all amounts in his Option Account to be applied to
purchase Stock on the Offering Exercise Date. In addition, in the event that a
Participant ceases for any reason to be an Eligible Employee, he or she will be
deemed to have withdrawn from the Plan and shall receive a refund in cash of the
balance credited to his or her account during the offering. A Participant who
withdraws or who is deemed to withdraw from the Plan will generally be able to
participate on the first day of the next offering provided he or she is then an
Eligible Employee.
Termination of Employment. The Plan does not restrict the Company's or a
subsidiary's right to terminate the employment of Participants. If a
Participant's employment terminates for any reason, the Participant will be
deemed to have withdrawn from the Plan and he or she (or, in the event of the
Participant's death, his or her beneficiary) shall be refunded the balance of
the funds credited to the Participant's account for that offering. Termination
of employment has no effect on shares previously purchased under the Plan.
Amendment or Termination of the Plan. The Board of Directors may amend,
modify or terminate the Plan at any time without notice, provided that the
existing rights of Participants are not adversely affected thereby. However, the
prior approval of shareholders is required for any amendment that would (i)
increase the number of shares subject to the Plan (except for adjustments to
reflect changes in the Company's capitalization, (ii) change the employees (or
classes of employees) to be included in the Plan, or (iii) require shareholder
approval under any applicable provision of law or regulation.
Administration. The Plan will be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee will have the
power to make, amend and repeal rules for the interpretation and administration
of the Plan that are consistent with applicable tax and securities laws.
17
<PAGE> 20
Federal Income Tax Consequences. The Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code.
Under the Code, no taxable income is recognized by a Participant either as
of the first day of an offering (the "Grant Date") or as of the last day of an
offering when the shares are purchased (the "Offering Exercise Date"). Depending
upon the length of time the acquired shares are held by the Participant, the
federal income tax consequences will vary. If the shares are not disposed of
within the two-year period after the Grant Date and within the one-year period
after the Offering Exercise Date (the "Required Period"), and are subsequently
sold at a price in excess of the purchase price paid by the Participant for the
shares, the gain on the sale of the shares will be taxed as ordinary income to
the Participant to the extent of the lesser of (i) the amount by which the fair
market value of the shares on the Grant Date exceeded the purchase price, or
(ii) the amount by which the fair market value of the shares at the time of
their sale exceeded the purchase price. Any portion of the gain not taxed as
ordinary income will be treated as long-term capital gain. If the shares are
held for the Required Period and are sold at a price less than the purchase
price paid by the Participant for the shares, the loss on the sale will be
treated as long-term capital loss to the Participant. The Company will not be
entitled to any deduction for federal income tax purposes for shares held for
the Required Period that are subsequently sold by the Participant, whether at a
gain or loss.
If a Participant disposes of shares within the Required Period, the
Participant will recognize ordinary income in an amount equal to the difference
between the purchase price paid by the Participant for the shares and the fair
market value of the shares on the Offering Exercise Date, and the Company will
be entitled to a corresponding deduction for federal income tax purposes. In
addition, if a Participant disposes of shares within the Required Period at a
price in excess of the purchase price paid by the Participant for the shares,
the Participant will recognize a short-term capital gain in an amount equal to
the difference between the selling price of the shares and the fair market value
of the shares on the Exercise Date. Alternatively, if such shares are disposed
of during the Required Period at a price less than the fair market value of the
shares on the Exercise Date, the Participant will recognize a short-term capital
loss in an amount equal to the difference between the fair market value of the
shares on the Exercise Date and the selling price of the shares. The Company
will not receive a deduction for federal income tax purposes with respect to any
short-term capital gain recognized by a Participant who sells shares within the
Required Period.
The foregoing tax summary is based upon federal income tax laws in effect
as of September 30, 1994.
The benefits that would be received by or allocated to executive officers
of the Company participating in the Plan and to other Eligible Employees cannot
be determined at this time because an Eligible Employee's participation in the
Plan and the amount of funds set aside to purchase shares under the Plan
(subject to the limitations discussed above) are entirely within the discretion
of the Participant. The last price of the Company's Common Stock on September
30, 1994, furnished by the NASD through the NASDAQ National Reporting System was
$29.25 per share.
Proxies solicited by the Board of Directors will be voted in favor of the
Plan unless shareholders specify otherwise in their proxies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION AND APPROVAL OF
THE PLAN.
APPOINTMENT OF INDEPENDENT AUDITORS
PROPOSAL 3
The Board of Directors has reappointed the firm of Deloitte & Touche to
serve as independent auditors for the Company for the year ending June 30, 1995,
such appointment to continue at the pleasure of the Board of Directors and be
subject to the approval of the Stockholders. Deloitte & Touche (including the
predecessor firm Deloitte, Haskins & Sells) has served as independent auditors
for the Company since 1986.
A proposal to ratify this appointment will be presented to the stockholders
at the Annual Meeting. A representative of Deloitte & Touche is expected to be
present at the Annual Meeting and available to respond
18
<PAGE> 21
to appropriate questions and, although that firm has indicated that no statement
will be made, an opportunity for a statement will be provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION AND APPROVAL OF
THE APPOINTMENT OF DELOITTE & TOUCHE.
ADDITIONAL INFORMATION
The Company does not intend to present any other business for action at the
meeting and does not know of any other business intended to be presented by
others.
The Company's Bylaws require that, for nominations of persons for election
to the Board of Directors or for other business to be properly brought before an
annual meeting by a stockholder, the Secretary of the Company must have received
written notice thereof not later than the 60th day nor earlier than the 90th day
prior to the first anniversary of the preceding year's annual meeting. The
notice must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a Director all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
and Rule 14a-11 thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Company's books, and of such beneficial owner and (ii) the
class and number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner.
STOCKHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
A Stockholder who intends to submit a proposal for inclusion in the proxy
statement for the 1995 Annual Meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, must send the proposal so as to be received by
the Corporate Secretary at the principal executive offices of the Company, 9900
Talbert Avenue, P.O. Box 8000, Fountain Valley, California, 92708-8000, no later
than June 20, 1995.
By Order of the Board of Directors
/s/ ROBERT GUMBINER
-----------------------------------
Robert Gumbiner
Chairman of the Board
October 13, 1994
Stockholders are urged to specify their choices and date, sign and return
the enclosed proxy in the envelope provided. Prompt response is helpful and your
cooperation will be appreciated.
A copy of the Company's Annual Report on Form 10-K to the Securities and
Exchange Commission for the fiscal year ended June 30, 1994, excluding certain
of the exhibits thereto, may be obtained without charge, by writing to FHP
International Corporation, Investor Relations Department, 9900 Talbert Avenue,
P.O. Box 8000, Fountain Valley, California 92708-8000.
19
<PAGE> 22
EXHIBIT A
FHP INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. OBJECTIVES.
The FHP International Corporation Employee Stock Purchase Plan is
intended to encourage employees of FHP International Corporation and
its subsidiaries (together, as more fully defined herein, the
"Company") to remain in the employ of the Company and to acquire a
proprietary interest in the Company through the purchase of common
stock of FHP International Corporation. The Plan is intended to
constitute an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986, as amended. Pursuant
to the Plan, Eligible Employees will be able to purchase common stock
of FHP International Corporation from funds accumulated through payroll
deductions within a period of not more than 27 months from an Offering
Effective Date under the Plan.
2. DEFINITIONS.
(a) "Board" -- The Board of Directors of FHP.
(b) "Code" -- The Internal Revenue Code of 1986, as amended from time to
time.
(c) "Committee" -- The Compensation Committee of the Board or such other
committee or officer of FHP as may be designated by the Board or the
Compensation Committee to administer the Plan.
(d) "Company" -- FHP and its Subsidiaries whose employees are eligible to
participate in the Plan. Unless otherwise specified by the Committee in
an Offering, employees of all Subsidiaries of FHP shall be eligible to
participate in this Plan.
(e) "Eligible Employee" -- Any person who is an active employee of the
Company and who meets the eligibility requirements set forth in Section
3 hereof.
(f) "FHP" -- FHP International Corporation.
(g) "Fair Market Value" -- The average of the high and low prices of the
Stock on the principal exchange or market in which the Stock is traded
for the date in question, provided that, if no sales of Stock were made
on said exchange or market on that date, the average of the high and
low prices of Stock as reported for the most recent preceding day on
which sales of Stock were made on said exchange or market.
(h) "Offering" -- Any offering made by FHP, in accordance with the terms
and conditions of the Plan and applicable laws and regulations, to
Eligible Employees to purchase Stock under the Plan.
(i) "Offering Effective Date" -- The first day of each calendar year
beginning on or after January 1, 1995 or such other date specified in
each Offering.
(j) "Offering Exercise Date" -- Such date specified in each Offering on
which Options granted to Eligible Employees pursuant to this Plan shall
be exercised. Such date shall not be later than 27 months from the
Offering Effective Date of any Offering.
(k) "Option" -- The right of an Eligible Employee to purchase Stock by
participating in an Offering.
(l) "Option Account" -- The bookkeeping account established for a
Participant under Section 8.
(m) "Participant" -- An Eligible Employee who elects to receive an Option
by authorizing payroll deductions pursuant to Section 6 hereof.
(n) "Plan" -- FHP International Corporation Employee Stock Purchase Plan.
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<PAGE> 23
(o) "Plan Agent" -- Such person or entity as may be designated from time to
time by the Committee to fulfill the custody and record-keeping
requirements under the Plan. A Plan Agent may consist of one or more
employees of the Company or one or more third parties.
(p) "Stock" -- Authorized and issued or unissued Common Stock, $.05 par
value per share, of FHP.
(q) "Stock Account" -- The bookkeeping account, if any, established for a
Participant under Section 9.
(r) "Subsidiary" -- Any entity constituting a subsidiary corporation of FHP
within the meaning of Section 424(f) of the Code.
3. ELIGIBILITY.
All employees who are employed by the Company on an Offering Effective
Date shall be eligible to purchase Stock under the Plan pursuant to an
Offering; except that the Committee, in its discretion, may exclude the
following employees from any Offering:
(a) Employees who have been employed by the Company for less than two years
on an Offering Effective Date;
(b) Employees whose customary employment is for twenty hours or less per
week or five months or less per calendar year;
(c) All or any number of highly compensated employees (as defined in
Section 414(q) of the Code); and
(d) Employees who are described in Section 7(f) hereof.
Any determination of an Eligible Employee's status shall be made by the
Committee. The Committee's determination shall be final and binding on
all parties. Notwithstanding anything else contained herein, the
Committee shall have the right to designate from time to time the
Subsidiaries whose employees may be eligible to participate in the Plan
and such designations shall not constitute an amendment to the Plan
requiring shareholder approval in accordance with Treasury Regulation
Section 1.423-2(c)(4).
4. STOCK AVAILABLE FOR OFFERINGS.
The number of shares of Stock that may be sold pursuant to all
Offerings under the Plan is one million, subject to adjustment as
contemplated by Section 10. The Company shall take whatever actions are
necessary to file required documents with the Securities and Exchange
Commission and any other appropriate government authorities and stock
exchanges to make shares of Stock available for issuance pursuant to
the Plan. Shares of Stock related to Options that are forfeited,
terminated, expire unexercised or are settled in such manner that all
or some of the shares covered by such Options are not issued to a
Participant shall immediately become available for Offerings.
5. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall
have full and exclusive power and discretion to construe and interpret
the Plan, and generally to determine any and all questions arising
under the Plan. Subject to the express requirements and provisions of
the Plan, the Committee shall have the exclusive power to determine and
fix the terms of Offerings and Options, including, but not limited to,
the Subsidiaries whose employees are eligible, the employees who are
eligible, the Option price, the maximum dollar amount or percentage of
pay which an Eligible Employee may contribute to the Plan and the
maximum number of shares or the maximum Fair Market Value of Stock an
Eligible Employee may purchase. The Committee may from time to time
designate one or more Plan Agents to fulfill the custody and record
keeping requirements under the Plan.
A-2
<PAGE> 24
6. OFFERINGS; OPTIONS; PAYROLL DEDUCTIONS.
Offerings may be made from time to time to all Eligible Employees. Each
Offering shall be established by the Committee and announced by the
Company. Every Eligible Employee who elects to participate in the Plan
on the Offering Effective Date shall be deemed to have been granted an
Option on such Offering Effective Date pursuant to the terms of that
Offering. All Eligible Employees granted an Option shall have the same
rights and privileges except as otherwise provided in the Option,
subject to the limitations of Section 423(b)(5) of the Code.
Each Eligible Employee shall be entitled to become a Participant and to
purchase Stock pursuant to the terms of an Offering by filing an
election to participate in that Offering with the Corporate Employee
Benefits Department of FHP. Such election shall be made on a form
prescribed by such Department, shall include a payroll deduction
authorization, and shall be filed within such times as may be specified
in such Offering.
Payroll deductions shall:
(i) commence with the first regular payroll period beginning on or after
the Offering Effective Date, or at such other time as may be specified
in such Offering; and
(ii) end with the last regular payroll period ending before the Offering
Exercise Date or, if earlier, upon the termination of the employment
of a Participant by the Company or the Participant's election to stop
payroll deductions.
Except as otherwise specified in an Offering and in Section 8, an
Eligible Employee may not change the rate of his payroll deductions
during the term of the Offering.
7. TERMS AND CONDITIONS OF OFFERINGS AND OPTIONS.
Except as provided in paragraphs (e) and (f) of this Section 7, all
Eligible Employees shall have the same rights and privileges.
(a) Number of Shares. Each Offering shall specify the maximum payroll
deduction by a Participant, subject to the aggregate number of shares
set aside under Section 4 of this Plan and to the limitations of
paragraphs (e) and (f) of this Section 7. Each Participant shall
receive a notice that he has been granted an Option to purchase Stock
hereunder.
(b) Option Price. Each Offering shall state the price per share at which
Stock may be purchased thereunder. Such price shall be determined by
the Committee and shall not be less than the lesser of:
(i) 85% of the Fair Market Value on the date the Option is granted,
or
(ii) 85% of the Fair Market Value on the Offering Exercise Date.
(c) Medium and Time of Payment. Payment for Stock purchased by any
Participant pursuant to an Offering shall be made on the Offering
Exercise Date from the funds credited to the Participant's Option
Account during the Offering. Except as otherwise determined by the
Committee and specified in an Offering, all amounts credited to the
Option Account shall be accumulated through payroll deductions from the
salary or wages (including bonuses) paid to the Participant by the
Company. Fractional shares of Stock may not be purchased under the
Plan; any amount in a Participant's Option Account that is not applied
to purchase whole shares of Stock shall be paid to the Participant in
cash as soon as practicable after the Offering Exercise Date.
(d) Term of Offering. The Offering Effective Date and Offering Exercise
Date of each Offering shall be specified in such Offering, but in no
event shall the Offering Exercise Date be more than 27 months after the
Offering Effective Date.
(e) Accrual Limitation. Notwithstanding any other provision of the Plan,
no Eligible Employee may be granted an Option which permits his rights
to purchase Stock under this Plan (and all plans of the
A-3
<PAGE> 25
Company which comply with Section 423 of the Code) to accrue at a rate
which exceeds the maximum amount permitted under Section 423(b)(8) of
the Code.
(f) Ownership Limitation. Notwithstanding any other provisions of the
Plan, no Eligible Employee shall be granted an Option if such Eligible
Employee, immediately after such Option is granted, would own (or be
deemed to own under the rules of Section 423(b)(3) of the Code, and
including all Stock which the Eligible Employee may purchase under this
Plan or any other plan) stock possessing 5% or more of the total
combined voting power or value of all classes of stock of FHP or of any
Subsidiaries. If the effect of the granting of an Option to an Eligible
Employee is such that such ownership limitation would be exceeded, such
Option shall be entirely void as if it had never been granted.
(g) Nontransferability of Options. An Option shall not be transferable by
the Participant to whom it has been granted otherwise than by will or
the laws of descent and distribution and shall be exercisable, during
such Participant's lifetime, only by such Participant.
(h) Approval of Stockholders. The Plan and the issuance of any Stock
hereunder is conditioned upon the approval of the Plan by the
stockholders within 12 months before or 12 months after the date the
Plan is adopted by the Board. Such approval must comply with all
applicable provisions of the FHP corporate charter and bylaws and with
applicable State law prescribing the method and degree of stockholder
approval required for the issuance of stock or options. In the event
the stockholders shall not approve the Plan in accordance with the
requirements of the Code, then all funds in all Option Accounts
established hereunder shall be returned to Participants as soon as
reasonably practicable. In no event shall the Company, any member of
the Committee, any officer of the Company, or any Plan Agent be liable
for any loss resulting from or incurred in connection with or by reason
of any delay or failure of the stockholders to approve the Plan.
(i) Other Provisions. Each Offering shall contain such other provisions as
the Committee shall deem advisable, including restrictions, if any, on
the resale of Stock purchased through an Offering, provided that no
such provision may in any way conflict, or be inconsistent, with the
terms of the Plan as amended from time to time.
8. OPTION ACCOUNTS.
The Company shall maintain an Option Account for each Participant, to
which his payroll deduction contributions shall be credited during the
term of the Offering.
Except as otherwise specified in an Offering, a Participant who has not
terminated employment may, at any time prior to two weeks before the
Offering Exercise Date, for any reason, elect to withdraw from the
Offering. Upon such a withdrawal, a Participant shall elect to either
(i) withdraw all amounts in his Option Account or (ii) leave all
amounts in his Option Account to be applied to purchase Stock on the
Offering Exercise Date. Except as otherwise specified in the Offering,
partial withdrawals shall not be permitted. Withdrawal requests must be
on forms prescribed and be timely received by the Corporate Employee
Benefits Department of FHP to become effective. In the event that a
Participant ceases for any reason to be an Eligible Employee, he will
be deemed to have withdrawn from the Plan and will receive a refund in
cash of the balance credited to his Option Account during the Offering.
If a Participant's employment with the Company terminates for any
reason (including permanent disability or death) before the Offering
Exercise Date, his participation shall terminate and all amounts in his
Option Account shall be refunded to him.
No Participant shall have any rights as a stockholder of FHP with
respect to any Option and no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such Participant becomes a stockholder of record.
A-4
<PAGE> 26
Notwithstanding anything else contained herein, a Participant's Option
Account is a liability on the Company's financial records and amounts
credited to a Participant's Option Account remain the general,
unpledged, unrestricted assets of the Company.
9. STOCK ACCOUNTS.
The Committee shall determine and shall specify in each Offering
whether Stock transferred to Participants under the Offering shall be
held by a Plan Agent in a Stock Account established and maintained for
the Participant, or transferred to the Participant in certificate form,
or whether Stock will be held in a Stock Account or issued in
certificates at the election of the Participant.
Unless otherwise specified under the terms of an Offering, a
Participant will possess all of the rights and privileges of a
stockholder under the Plan with respect to Stock issued and credited to
his Stock Account, including the right to pledge, sell, transfer and
vote such Stock, and will receive all distributions and stockholder
communications with respect to such Stock. The Committee may specify in
an Offering that the Participant may not transfer his Stock purchased
under the Plan for a period of up to one year after the date of
purchase or may impose any such other restrictions or limitations as
may be required under applicable law in accordance with Section 11.
10. ADJUSTMENTS.
If FHP shall be the surviving corporation in any merger, consolidation
or reorganization, each outstanding Option shall pertain to and apply
to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled. In the event of a
dissolution or liquidation of FHP, or any merger, consolidation or
reorganization in which FHP is not the surviving corporation, the
Committee, at its election, may cause each outstanding Option to
terminate, provided, however, that each Participant shall, in such
event, subject to such rules and limitations of uniform application as
the Committee may prescribe, be entitled to the rights of a terminating
Participant provided in Section 8.
In the event of any change in the outstanding Stock of FHP by reason of
a stock split, stock dividend, combination or reclassification of
shares, recapitalization or similar event, the Committee shall adjust
proportionally (or as may otherwise be equitable in the judgement of
the Committee):
(a) the number of shares of Stock
(i) reserved under the Plan,
(ii) offered pursuant to any Offerings, and
(iii) covered by outstanding Options;
(b) the stock prices related to outstanding Options; and
(c) the appropriate Fair Market Value and other price determinations for
such Options.
Notwithstanding the foregoing, no adjustment shall be made which would
cause any Option to fail to qualify as an Option granted under an
"employee stock purchase plan" as defined in Section 423 of the Code.
11. LEGAL REQUIREMENTS.
The Plan, the granting and exercising of Options thereunder and the
other obligations of the Company under the Plan shall be subject to all
applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental agency as may be required.
FHP, in its discretion, may postpone the granting and exercising of
Options, the issuance or delivery of Stock under any Options or any
other action permitted under the Plan to permit the Company, with
reasonable diligence, to complete such stock exchange listing or
registration or qualification of such Stock or other required action
under any federal or state law, rule or regulation and may require any
Participant to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or
delivery of Stock in compliance with applicable laws, rules and
regulations. FHP reserves the right to deny the
A-5
<PAGE> 27
exercise of any Options or to otherwise sell or issue Stock if, in the
opinion of legal counsel to FHP, it would result in violation of any
rules, laws or regulations. In such event, the Participant's accrued
payroll deductions shall be returned as soon as practicable.
12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or
for any other purpose permitted by law; provided that, subject to any
changes in laws or other legal requirements that would permit
otherwise, the Plan may not be amended:
(a) in any respect that would cause any Option to fail to qualify as an
option granted under an "employee stock purchase plan" as defined in
Section 423 of the Code;
(b) without shareholder approval, as specified in Section 7(h), to change
the provisions of the Plan relating to the aggregate number of shares
of Stock to be issued under the Plan or the employees (or class of
employees) eligible to receive Options under the Plan;
(c) without the approval of the Participant holding such Option, to change
the terms of any outstanding Option in any respect that is adverse to
the interests of the Participant; and
(d) without shareholder approval, to modify the Plan in any manner which
requires shareholder approval under any applicable provision of law or
regulation, including Rule 16b-3 promulgated under the Securities
Exchange Act of 1934.
Subject to the foregoing, the Board may delegate to the Committee the
authority to amend the Plan, as necessary, solely for the purpose of
ensuring ongoing compliance with any laws, rules or regulations.
13. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant
thereto, except to the extent otherwise governed by the laws of the
United States, shall be governed by the laws of the State of California
and construed accordingly.
14. EFFECTIVE AND TERMINATION DATES.
The Plan shall become effective on January 1, 1995, subject to
stockholder approval under Section 7(h). The Plan shall terminate when
all Stock authorized to be offered has been transferred to Participants
pursuant to the Plan, subject to the earlier termination by the Board
pursuant to Section 12, after which no Offerings may be made under the
Plan, but any such termination shall not affect Options then
outstanding or the authority of the Committee to continue to administer
the Plan; notwithstanding the foregoing, the Plan may be amended at any
time by increasing the number of Shares available for issuance under
the Plan, subject to stockholder approval under Section 7(h).
A-6
<PAGE> 28
(COPY FOR PROXY CARD)
PROXY
<TABLE>
<S> <C>
(LOGO) FHP INTERNATIONAL CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
9900 TALBERT AVENUE OF DIRECTORS.
P.O. BOX 8000
FOUNTAIN VALLEY, CA 92728-8000 The undersigned hereby appoints Kenneth S. Ord, Robert F. Murphy and
Russell D. Phillips, Jr. as Proxies, each with the power to appoint his
substitute and authorizes them to represent and vote, as designated below,
the Common Stock of FHP International Corporation (the "Company") owned or
held by the undersigned on October 7, 1994, at the annual meeting
of stockholders to be held on Thursday, November 17, 1994, or any
adjournment thereof.
1. ELECTION OF DIRECTORS.
For all Nominees listed below WITHHOLD AUTHORITY to vote for all nominees
(Except as marked to the listed below.
contrary below.)
[ ] [ ]
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name indicated below).
Westcott W. Price III, Joseph F. Prevratil and Mark B. Hacken
2. RATIFY AND APPROVE THE COMPANY'S EMPLOYEES STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFY AND APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT
AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 29
4. TO VOTE IN THEIR DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY 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 THROUGH 3.
Please date and sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name and give title of authorized
officer. If a partnership, please sign in partnership name by authorized
person.
Dated _________________, 1994 ___________________________
Signature
___________________________
Signature, if jointly held
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE> 30
NOTICE TO PARTICIPANTS
IN THE
FHP INTERNATIONAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
LADIES AND GENTLEMEN:
As a Participant in the FHP International Corporation Employee Stock
Ownership Plan (the "Plan"), you have certain ownership rights in stock of the
Company. This entitles you to exercise "voting rights" as described below.
Proxy materials relating to the Annual Meeting of Stockholders of FHP
International Corporation (the "Company") to be held on November 17, 1994, are
enclosed. Please be sure to review this Notice describing your voting rights and
the Proxy materials and return the enclosed voting instruction card as described
below no later than November 15, 1994.
Wells Fargo Bank is the Trustee of the Plan and holds all shares of stock
of the Company now in the Plan (the "Shares"). The Plan requires the Trustee to
solicit voting instructions from you and to vote the Shares in accordance with
your instructions. Under the Plan, you are designated as a "named fiduciary" for
voting purposes and, as a named fiduciary, you are entitled to instruct the
Trustee as to how to vote (1) all Shares allocated to your Plan account
(including your shares in the FHP Stock Fund) and (2) a proportionate number of
unallocated Shares held by the Plan for future allocation to Participants'
accounts. You may direct the Trustee to vote both the allocated and unallocated
Shares by completing, signing and returning the enclosed voting instruction
card. If you want your voting instructions to be limited only to the shares
allocated to your account, you should mark the box on the instruction card
labelled "ALLOCATED SHARES ONLY."
You should understand that by signing and returning the enclosed
instruction card, you are accepting the designation as a named fiduciary of the
Plan. Accordingly, you should exercise your voting rights prudently and, with
respect to unallocated Shares, in a manner intended to benefit all Participants.
CONFIDENTIAL INSTRUCTIONS
For your information, as explained in the Proxy Materials the Board of
Directors recommends a vote "FOR" Items 1 through 3. However, the Trustee makes
no recommendation with respect to your voting decisions. IN YOUR COMPLETE
DISCRETION, YOU MAY FOLLOW THE BOARD'S RECOMMENDATIONS OR YOU MAY VOTE
DIFFERENTLY ON ANY OR ALL ISSUES. As provided in the Plan, your voting
instructions will be kept confidential and will not be disclosed by the Trustee
to any person, except as may be necessary to tabulate your voting instructions.
COMPLETING YOUR VOTING
American Stock Transfer & Trust Company has been asked to receive and
tabulate your voting instructions to the Trustee. In order for your voting
instructions to the Trustee to be effective, you must complete, sign and date
the enclosed card and return the enclosed card to AMERICAN STOCK TRANSFER &
TRUST COMPANY in the enclosed pre-addressed envelope. Your instruction card must
be received no later than the close of business on November 15, 1994.
HOW THE VOTES ARE COUNTED
IF THE TRUSTEE RECEIVES AN INSTRUCTION CARD FROM YOU ON TIME, IT WILL VOTE
YOUR ALLOCATED SHARES AND A PROPORTIONATE SHARE OF THE UNALLOCATED SHARES AS YOU
INSTRUCT. IF THE TRUSTEE DOES NOT RECEIVE AN INSTRUCTION CARD FROM YOU ON TIME,
THE TRUSTEE WILL NOT VOTE YOUR ALLOCATED SHARES AND WILL VOTE YOUR PROPORTIONATE
SHARE OF THE UNALLOCATED SHARES IN ACCORDANCE WITH THE INSTRUCTIONS OF THE OTHER
PARTICIPANTS WHO PROVIDE TIMELY
<PAGE> 31
VOTING INSTRUCTIONS TO THE TRUSTEE. IF YOU SIGN AND TIMELY RETURN AN INSTRUCTION
CARD WITHOUT INDICATING A VOTE, THE TRUSTEE WILL VOTE YOUR ALLOCATED SHARES AND
YOUR PROPORTIONATE SHARE OF THE UNALLOCATED SHARES IN ACCORDANCE WITH THE
BOARD'S RECOMMENDATIONS LISTED ABOVE.
As an example of proportionate voting of unallocated Shares, assume on a
particular issue the Trustee receives a total of 40 "FOR" votes and 60 "AGAINST"
votes from all of the Participants who complete and return instruction cards on
time. The Trustee will vote 40% of the unallocated Shares as a "FOR" vote and
60% of the unallocated Shares as an "AGAINST" vote on that issue.
Dated: October 13, 1994
<PAGE> 32
[SIDE 1]
VOTING INSTRUCTIONS TO TRUSTEE
FOR THE ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 17, 1994
THE TRUSTEE SOLICITS THESE VOTING INSTRUCTIONS
FROM PARTICIPANTS IN THE FHP INTERNATIONAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
The undersigned Participant in the FHP International Corporation ESOP (the
"Plan") hereby instructs Wells Fargo Bank ("Trustee"), to vote all shares of
common stock of the Company allocated to the accounts of the undersigned under
the Plan and a proportionate number of shares not yet allocated to
Participant's accounts ("Shares") in accordance with the instructions on this
card, and to act in its discretion upon such other business as may properly
come before the meeting, and to represent the undersigned at the Annual Meeting
of Stockholders of the Company to be held on November 17, 1994, and at any
adjournments thereof.
PLEASE CAREFULLY REVIEW THE ENCLOSED NOTICE TO ESOP PARTICIPANTS BEFORE
COMPLETING AND MAILING THIS CARD.
(Please specify your choice on each proposal, date and sign (on the reverse
side of this card) and return in the enclosed envelope.)
<PAGE> 33
[SIDE 2]
1. ELECTION OF DIRECTORS.
For all Nominees listed below WITHHOLD AUTHORITY to vote for all nominees
(Except as marked to the listed below.
contrary below.)
[ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name indicated below.)
Westcott W. Price III, Joseph F. Prevratil and Mark B. Hacken
2. RATIFY AND APPROVE THE COMPANY'S EMPLOYEES STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFY AND APPROVE APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT
AUDITORS FOR THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION THE PROXIES MAY VOTE UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
The undersigned hereby acknowledges receipt of (i) the Notice of Annual Meeting
of Stockholders dated October 13, 1994; (ii) the Proxy Statement dated October
13, 1994; and (iii) the Notice to Participants in the FHP International
Corporation ESOP dated October 13, 1994.
Dated: _________________, 1994
______________________________
(Signature)
[ ] ALLOCATED SHARES ONLY
<PAGE> 34
NOTICE TO PARTICIPANTS
IN THE
TAKECARE SAVINGS AND RETIREMENT PLAN
LADIES AND GENTLEMEN:
As a Participant in the TakeCare Savings and Retirement Plan (the "Plan"),
you have certain ownership rights in stock of FHP International Corporation (the
"Company"). This entitles you to exercise "voting rights" as described below.
Proxy materials relating to the Annual Meeting of Stockholders of the
Company to be held on November 17, 1994, are enclosed. Please be sure to review
this Notice describing your voting rights and the Proxy materials and return the
enclosed voting instruction card as described below no later than November 15,
1994.
Comerica Bank -- California is the Trustee of the Plan and holds all shares
of stock of the Company now in the Plan (the "Shares"). The Plan requires the
Trustee to solicit voting instructions from you and to vote the Shares in
accordance with your instructions. You may direct the Trustee to vote your
Shares by completing, signing and returning the enclosed voting instruction
card.
CONFIDENTIAL INSTRUCTIONS
For your information, as explained in the Proxy Materials the Board of
Directors recommends a vote "FOR" Items 1 through 3. However, the Trustee makes
no recommendation with respect to your voting decisions. IN YOUR COMPLETE
DISCRETION, YOU MAY FOLLOW THE BOARD'S RECOMMENDATIONS OR YOU MAY VOTE
DIFFERENTLY ON ANY OR ALL ISSUES. As provided in the Plan, your voting
instructions will be kept confidential and will not be disclosed by the Trustee
to any person, except as may be necessary to tabulate your voting instructions.
COMPLETING YOUR VOTING
American Stock Transfer & Trust Company has been asked to receive and
tabulate your voting instructions to the Trustee. In order for your voting
instructions to the Trustee to be effective, you must complete, sign and date
the enclosed card and return the enclosed card to AMERICAN STOCK TRANSFER &
TRUST COMPANY in the enclosed pre-addressed envelope. Your instruction card must
be received no later than the close of business on November 15, 1994.
HOW THE VOTES ARE COUNTED
IF THE TRUSTEE RECEIVES AN INSTRUCTION CARD FROM YOU ON TIME, IT WILL VOTE
YOUR SHARES AS YOU INSTRUCT. IF THE TRUSTEE DOES NOT RECEIVE AN INSTRUCTION CARD
FROM YOU ON TIME OR IF YOU SIGN AND TIMELY RETURN AN INSTRUCTION CARD WITHOUT
INDICATING A VOTE, THE TRUSTEE WILL VOTE YOUR SHARES PROPORTIONALLY IN
ACCORDANCE WITH THE INSTRUCTIONS OF THE OTHER PARTICIPANTS WHO PROVIDE TIMELY
VOTING INSTRUCTIONS TO THE TRUSTEE.
Dated: October 13, 1994
<PAGE> 35
[SIDE 1]
VOTING INSTRUCTIONS TO TRUSTEE
FOR THE ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 17, 1994
THE TRUSTEE SOLICITS THESE VOTING INSTRUCTIONS
FROM PARTICIPANTS IN THE TAKECARE SAVINGS AND RETIREMENT PLAN
The undersigned Participant in the TakeCare Savings and Retirement Plan
(the "Plan") hereby instructs Comerica Bank - California ("Trustee"), to vote
all shares of common stock of FHP International Corporation (the "Company")
allocated to the account of the undersigned under the Plan ("Shares") in
accordance with the instructions on this card, and to act in its discretion
upon such other business as may properly come before the meeting, and to
represent the undersigned at the Annual Meeting of Stockholders of the Company
to be held on November 17, 1994, and at any adjournments thereof.
PLEASE CAREFULLY REVIEW THE ENCLOSED NOTICE TO PARTICIPANTS IN THE PLAN
BEFORE COMPLETING AND MAILING THIS CARD.
(Please specify your choice on each proposal, date and sign (on the
reverse side of this card) and return in the enclosed envelope.)
<PAGE> 36
[SIDE 2]
1. ELECTION OF DIRECTORS.
For all Nominees listed below WITHHOLD AUTHORITY to vote for all nominees
(Except as marked to the listed below.
contrary below.)
[ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name indicated below.)
Westcott W. Price III, Joseph F. Prevratil and Mark B. Hacken
2. RATIFY AND APPROVE THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFY AND APPROVE APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT
AUDITORS FOR THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION THE PROXIES MAY VOTE UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
The undersigned hereby acknowledges receipt of (i) the Notice of Annual Meeting
of Stockholders dated October 13, 1994; (ii) the Proxy Statement dated October
13, 1994; and (iii) the Notice to Participants in the TakeCare Savings and
Retirement Plan dated October 13, 1994.
Dated: _________________, 1994
______________________________
(Signature)
