<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)
RUSSELL D. PHILLIPS, JR.
(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:
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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:*
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4) Proposed maximum aggregate value of transaction:
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* 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:
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2) Form Schedule or Registration Statement No.:
-------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE> 2
[LOGO]
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 16, 1995
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 16, 1995, at
9:00 a.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 approve an amendment to the Company's Executive Incentive Plan to
provide for automatic stock option awards to nonemployee directors
who serve as chairmen of specified Board committees.
3. To ratify the appointment of independent 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 6, 1995
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/ WESTCOTT W. PRICE III
-------------------------------------
October 18, 1995 Westcott W. Price III
Vice Chairman of the Board,
President and Chief Executive Officer
<PAGE> 3
[LOGO]
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 November 16, 1995, at 9:00 a.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 20, 1995.
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. American Stock Transfer & Trust Company, New York,
NY has been engaged by the Company to assist in the solicitation of proxies for
an anticipated fee of approximately $1,000 plus out-of-pocket costs and
expenses.
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on October 6, 1995, the record date for
Stockholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding 40,292,907 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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<PAGE> 4
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 amendment to the Company's Executive Incentive 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 amended provisions of the
Executive Incentive 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 (the "ESOP")
are entitled to instruct the ESOP trustee on how to vote (i) all shares of
Common Stock allocated to participants' accounts under the ESOP and (ii) a
proportionate number of unallocated shares of Common Stock held by the ESOP 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 and footnotes set 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, 1995:
<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 831,758(2) 2.1%
Series A Preferred 2,771,794(2) 13.2%
Westcott W. Price III........... Common 397,459(3)(4)(5) 1.0%
Richard M. Burdge, Sr........... Common 275,130(5)(6) *
Series A Preferred 742,107(6) 3.5%
Burke F. Gumbiner............... Common 144,760(3)(4)(5) *
Warner Heineman................. Common 15,450(5) *
Robert W. Jamplis............... Common 2,500(5) *
Robert C. Maxson................ Common 0 *
Joseph F. Prevratil............. Common 22,500(5) *
R. Judd Jessup.................. Common 137,734(4)(5) *
Series A Preferred 51,248 *
Jack D. Massimino............... Common 36,906(4)(5) *
Eric D. Sipf.................... Common 134,569(4)(5)(7) *
Series A Preferred 144,405 *
22 directors and executive
officers as a group (including
those named above)............ Common 2,369,416(4)(5)(7)(8) 5.8%
Series A Preferred 3,709,554 17.6%
</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
held by Mr. Anderson's wife and 904,000 shares of Series A Preferred 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 ESOP. As of June 30, 1995, 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 -- 5,209 shares; Jack D. Massimino -- 3,156 shares; R. Judd Jessup -- 72
shares; Eric D. Sipf -- 275 shares; and all executive officers of the
Company as a group -- 33,854 shares.
(5) Includes stock options exercisable within 60 days after September 15, 1995,
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:
Westcott W. Price III -- 30,000 shares; Burke F. Gumbiner -- 41,000 shares;
Warner Heineman -- 9,200 shares; Joseph F. Prevratil -- 10,000 shares; Jack
D. Massimino -- 33,750 shares; R. Judd Jessup 122,000 shares; Eric D.
Sipf -- 47,281 shares; and all executive officers and directors of the
Company (22 persons) as a group -- 646,669 shares. Also includes stock
options exercisable within 60 days after September 15, 1995, which are
reported pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of
1934, as amended, subject to stockholder approval at the Annual Meeting with
respect
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<PAGE> 6
to the following persons: Richard M. Burdge -- 2,500 shares; Warner
Heineman -- 6,250 shares; Robert W. Jamplis -- 2,500 shares; and Joseph F.
Prevratil -- 12,500 shares.
(6) Includes 25,030 shares of Common Stock and 83,438 shares of Series A
Preferred held by Mr. Burdge's wife.
(7) Includes shares held by the trustee under the TakeCare Savings and
Retirement Plan.
(8) Includes shares held by Mark B. Hacken and Ryan M. Trimble, former executive
officers of the Company, who are named in the Summary Compensation Table
herein. As of June 30, 1995, the approximate number of shares allocated to
the ESOP accounts of Mark B. Hacken and Ryan M. Trimble were 108 shares and
3,199 shares, respectively. In addition, stock options exercisable within 60
days after September 15, 1995, which are reported pursuant to Rule
13d-3(d)(1) under the Securities and Exchange Act of 1934, as amended with
respect to these former executive officers were as follows: Mark B.
Hacken -- 200,000 shares and Ryan M. Trimble -- 30,500 shares.
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>
The Capital Group Companies, Inc................... 4,413,000(1) 11.0%
333 South Hope Street
Los Angeles, CA 90071
Heine Securities Corporation....................... 4,172,266(1) 10.4%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
FHP International Corporation...................... 3,850,653(2) 9.6%
Employee Stock Ownership Plan
9900 Talbert Avenue
Fountain Valley, CA 92708
Invista Capital Management, Inc.................... 2,036,166(1) 5.1%
1500 Hub Tower, 699 Walnut Street
Des Moines, IA 50309
</TABLE>
- ---------------
(1) Based upon a Schedule 13F for the quarter ended June 30, 1995, filed with
the Commission.
(2) Share ownership reported as of August 31, 1995.
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 8 members and there are 3
director positions in the class whose term of office expires in 1995. The Board
of Directors has designated Richard M. Burdge, Sr., Robert C. Maxson and Robert
W. Jamplis as nominees for election to 3-year terms expiring in 1998 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.
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.
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<PAGE> 7
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, 1995.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 1998 ANNUAL MEETING
RICHARD M. BURDGE, SR., age 68, joined the Board of Directors of the
Company in July, 1994 pursuant to the terms of an Agreement and Plan of Merger
("TakeCare Merger Agreement") whereby the Company acquired ownership of
TakeCare, Inc. ("TakeCare") 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 as Chairman of the Compensation
Committee and as a member of the Audit 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 served as Senior Executive Vice President
of INA Corporation from 1980 to 1982 and as Executive Vice President of INA
Corporation from 1975 to 1980. He also served as President and Chief Operating
Officer of the American Stock Exchange from 1972 to 1975.
ROBERT C. MAXSON, PH.D., age 59, joined the Board of Directors in August,
1995, when he filled a vacancy on the Board caused by the resignation of another
director. He currently serves on the Compensation Committee of the Board. Dr.
Maxson also serves on the Board of Directors of FHP Foundation. Dr. Maxson has
been President of California State University, Long Beach, since 1994. Dr.
Maxson served as the President of the University of Nevada, Las Vegas, from 1984
to 1994. He has also served on other corporate boards such as Bank of America
Nevada and Houston Security Bank.
ROBERT W. JAMPLIS, M.D., age 75, joined the Board of Directors in August,
1995, when he filled a vacancy on the Board caused by the resignation of another
director. He serves as Chairman of the Quality Assessment Committee of the
Board. He served on the Boards of Directors of TakeCare and two of its HMO
subsidiaries prior to the Company's acquisition of TakeCare in 1994. Dr. Jamplis
has been President and Chief Executive Officer of Palo Alto Medical Foundation
since 1981, was named Executive Director of the Palo Alto Clinic in 1966, and
joined the Clinic in 1954. Dr. Jamplis has written extensively and held
leadership positions with numerous medical, academic and business organizations.
He presently serves on the Boards of Directors of Children's Hospital at
Stanford, Santa Barbara Medical Foundation Clinic, and the American Cancer
Society -- California Division.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1996 ANNUAL MEETING
BURKE F. GUMBINER, age 44, 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 the Company's largest HMO
subsidiary, FHP, Inc. ("FHP") in 1972 and has served in several executive
capacities. He currently has responsibility for the Company's insurance
subsidiaries.
WARNER HEINEMAN, age 73, has been a member of the Board of Directors of the
Company since 1990 and is the Chairman of the Company's Audit Committee and a
member of the Compensation Committee. Mr. Heineman has served as a Senior
Advisor to First Business Bank since 1992. From 1989 to 1992, he served as
Senior Vice President of 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 Union Bank after 38 years of service with that
organization. Mr. Heineman is a trustee of Southwestern University School of
Law, a member of the Board of Advisors of UCLA Medical Center, member of the
Board of Visitors, UCLA School of Medicine, a member of the Board of Directors
of FHP Foundation and a director of Alexander Haagen Properties, Inc. and
Capital Market Fund, Inc.
JACK R. ANDERSON, age 70, 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. He was elected Chairman of
the Board of Directors of the Company in June, 1995 and is a member of the
Executive Committee of the Board. Mr. Anderson was Chairman of the Board of
Directors of TakeCare from 1988 to June of 1994. He has been President of Calver
Corporation, a health care consulting and investing firm and a
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<PAGE> 8
private investor since 1982. Mr. Anderson currently serves on the Boards of
Directors of Manor Care, Inc., Horizon Mental Health Management, Inc. and United
Dental Care, Inc.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1997 ANNUAL MEETING
WESTCOTT W. PRICE III, age 56, 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 Chief Executive Officer in
1990. He also serves as President of two of the Company's HMO subsidiaries,
having joined FHP in 1981 as a Senior Vice President. Mr. Price has been a
member of the Board of Directors of FHP Foundation since 1985.
JOSEPH F. PREVRATIL, age 57, has been a member of the Board of Directors of
the Company since 1991 and is Chairman of the Company's Executive Committee and
a member of its Audit and Compensation Committees. Mr. Prevratil also serves as
a Director and Chief Executive Officer of 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 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.
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 Executive, Audit
and Compensation Committees. The members of these standing committees are
elected by the Board of Directors and serve at the pleasure of the Board. The
committees of the Board were reconstituted in June, 1995. At that time, the
Board combined the functions of the Nominating Committee into the Executive
Committee.
The Company's Executive Committee is comprised of Joseph F. Prevratil
(Chairman), Jack R. Anderson and Westcott W. Price III. During the year ended
June 30, 1995, the Executive Committee (which at that time did not include Mr.
Anderson) met 10 times. In performing its nominating function, the Executive
Committee identifies and recommends director candidates to serve on the Board
and Board committees; establishes and periodically reviews criteria for Board
membership; develops policies on the optimum size and compensation of the Board
and Board committees; and establishes procedures for the director nomination
process.
The Company's Audit Committee is comprised of Warner Heineman (Chairman),
Joseph F. Prevratil and Richard M. Burdge. Mr. Burdge joined the Audit Committee
in June of 1995, replacing Mr. Anderson who had previously served as Chairman of
the Committee. The Audit Committee met 4 times during the year ended June 30,
1995. 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.
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<PAGE> 9
The Company's Compensation Committee is comprised of Richard M. Burdge
(Chairman), Joseph F. Prevratil and Warner Heineman. Mr. Burdge joined the
Compensation Committee in June of 1995, replacing Mr. Anderson. The Compensation
Committee held 7 meetings during the year ended June 30, 1995. See "Compensation
Committee Report on Executive Compensation" below. The Compensation Committee
administers the granting of stock options to employees under the Company's
Executive Incentive Plan; reviews and approves all compensation, including
incentive compensation for the CEO and most highly paid executives of the
Company; reviews and submits to the full Board recommendations concerning new
executive compensation and stock plans; and establishes and periodically reviews
the Company's policies regarding benefits.
Attendance at Meetings
The Board of Directors of the Company held 9 meetings and 3 times took
action by unanimous written consent during the year ended June 30, 1995. Each
director attended more than 75% of the meetings of the Board and Committees of
the Board on which the director served at any time during the year.
NONEMPLOYEE DIRECTOR COMPENSATION
Directors' Fees
During the fiscal year ended June 30, 1995, each member of the Board of
Directors received a retainer of $10,000 per quarter, each Executive Committee
member received $3,000 per quarter, and each Audit Committee member received
$3,000 per quarter. Warner Heineman also received $10,000 for serving on the
Board of Directors of one of the Company's subsidiaries.
Deferred Compensation
The Company has a Deferred Compensation Plan for Nonemployee Directors.
From July 1 through December 31, 1994, an amount equal to 12% of the nonemployee
directors' annual director fees was credited to their benefit on the Company's
books. The crediting rate was reduced to 8% beginning January 1, 1995. 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.
Set forth below are (1) the fees received during the fiscal year ended June
30, 1995 by the nonemployee directors of the Company for service as directors of
the Company and certain of its subsidiaries and (2) the deferral amounts
(including earnings) which were accrued on the Company's books for nonemployee
directors during the fiscal year ended June 30, 1995.
<TABLE>
<CAPTION>
FEES DEFERRAL AMOUNTS
------- ----------------
<S> <C> <C>
Jack R. Anderson........................ $52,000 $5,324
Richard M. Burdge....................... 40,000 4,096
Robert Gumbiner......................... 61,600 6,323
Warner Heineman......................... 62,000 6,225
Joseph F. Prevratil..................... 64,000 7,550
</TABLE>
Stock Options
The Company's Executive Incentive Plan provides for the automatic award of
nonqualified stock options to nonemployee directors according to the formula set
forth below. 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 the foregoing formula, a
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<PAGE> 10
nonqualified option was granted to Richard M. Burdge on July 5, 1994 to purchase
10,000 shares of the Company's Common Stock at an option exercise price of
$23.625 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
option becomes exercisable at the rate of 20% of the shares covered thereby for
each year thereafter that the optionee completes as a nonemployee director.
Based on the foregoing formula, a nonqualified option was granted to Joseph F.
Prevratil on December 1, 1994, to purchase 10,000 shares of the Company's Common
Stock at an option exercise price of $27.00 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 at the rate of 20% of the shares covered
thereby for each year thereafter that the optionee completes as a nonemployee
director. Based on the foregoing formula, a nonqualified option was granted to
Warner Heineman on October 3, 1994, to purchase 2,000 shares of the Company's
Common Stock at an option exercise price of $29.25 per share. In addition,
certain nonemployee directors received automatic stock option awards for serving
as Chairmen of specified Board committees which are subject to stockholder
approval at the Annual Meeting. See Proposal 2 herein.
Consulting Fees
Warner Heineman received $1,250 during the last fiscal year for briefly
serving as a consultant to one of the Company's subsidiaries.
Robert Gumbiner retired as the President and CEO of the Company and FHP,
Inc. in 1990 and, pursuant to his former employment agreement, continued to
serve as a consultant to FHP, Inc. until June 30, 1995. In that capacity, he
received compensation of $536,565 during the last fiscal year. Robert Gumbiner
resigned from the Company's Board of Directors on June 22, 1995.
8
<PAGE> 11
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the fiscal years shown of those persons ("Named Executive
Officers") who were, during the latest fiscal year (i) the chief executive
officers and (ii) the other four most highly compensated executive officers of
the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------------------
--------------------------------- ALL OTHER
FISCAL SALARY BONUS OTHER OPTION AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (1)($) (2)($) (3)($) (NUMBER OF SHARES) (4)($)
- --------------------------------------- ------ ------- ------- ------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
WESTCOTT W. PRICE III.................. 1995 499,990 -0- -- 275,000 9,582
Vice Chairman of the Board; 1994 428,922 95,514 -- 50,000 28,301
President and CEO 1993 360,000 186,600 -- 100,000 27,463
MARK B. HACKEN......................... 1995 456,740(5) -0- -- -0- 613,360(5)
Former President and CEO, 1994 271,636 61,532 -- 200,000 1,012
Office of the Chief Executive 1993 -0- -0- -0- 2,000 -0-
JACK D. MASSIMINO...................... 1995 450,008 -0- -- 25,000 10,492
Executive Vice President and 1994 345,482 151,226 -- 225,000 29,277
Chief Operating Officer 1993 250,000 152,500 -- 75,000 27,963
RYAN M. TRIMBLE(7)..................... 1995 400,005 -0- -- 20,000 9,793
Former Senior Vice President 1994 304,462 60,613 39,775(6) 120,000 29,017
1993 184,308 87,505 39,584(6) 50,000 24,000
ERIC D. SIPF........................... 1995 274,934 52,500 -0- -0- 10,498(9)
Senior Vice President 1994 1,181(8) --(10) -0- 40,000 --
1993 -- -- -- -- --
R. JUDD JESSUP......................... 1995 300,000 -0- 120,238(13) -0- 13,951(9)
Senior Vice President 1994 1,474(11) --(12) -0- 100,000 --
1993 -- -- -- -- --
</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 Employee Stock Ownership Plan 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 Employee Stock
Ownership Plan 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 1993.
(4) Includes the dollar value of taxable income from group term life insurance
coverage in excess of $50,000 purchased by the Company as follows: Westcott
W. Price III -- $582; Mark B. Hacken -- $1,647; Jack D.
Massimino -- $1,492; Ryan M. Trimble -- $739; Eric D. Sipf -- $241; and R.
Judd Jessup -- $201. Also includes Company contributions under the FHP
Money Purchase Pension Plan as follows: Westcott W. Price III -- $6,000;
Jack D. Massimino -- $6,000; and Ryan M. Trimble -- $6,000. Also includes
Company contributions under the Company's Employee Stock Ownership Plan as
follows: Westcott W. Price III -- $3,000; Jack D. Massimino -- $3,000; and
Ryan M. Trimble -- $3,000. The foregoing retirement plan contributions are
through December 31, 1994. Contributions are made
9
<PAGE> 12
annually on December 31st; therefore, no contributions were made for the
six-month period ended June 30, 1995. Eric D. Sipf and R. Judd Jessup
became participants in the retirement plans on January 1, 1995.
(5) Mr. Hacken entered into a two-year Employment Agreement with the Company as
of November 1, 1993. The Agreement provided for Mr. Hacken to receive an
initial base salary at a rate of $400,000 (later increased to $475,000) per
year and to receive a stock option to purchase 200,000 shares of common
stock. The option would become fully exercisable after two years and
terminate six years from the date of grant. The Board of Directors
terminated the employment of Mr. Hacken effective March 29, 1995 and,
pursuant to an agreement with Mr. Hacken, the Company paid him $611,713 and
accelerated the vesting of his stock option.
(6) Includes an automobile allowance of $9,600. $30,000 represents 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.
(7) Dr. Trimble separated from the Company effective June 30, 1995, and the
Company has agreed to (i) pay him his full salary and medical, dental and
life insurance benefits, and (ii) permit him to vest in and exercise
previously granted stock options through December 31, 1996.
(8) Following the acquisition of TakeCare on June 17, 1994, Mr. Sipf became an
employee of the Company and served as such during the last 13 days during
the fiscal year ended June 30, 1994. On an annualized basis, his salary for
fiscal year 1994 would have been approximately $189,000.
(9) Includes $10,257 paid to Mr. Sipf and $13,750 paid to Mr. Jessup in lieu of
certain welfare benefits which they were otherwise entitled to as employees
of TakeCare.
(10) Mr. Sipf received a bonus of $180,741 under the TakeCare Executive
Incentive Program for the period of January 1, 1994 through June 17, 1994.
(11) Following the acquisition of TakeCare, Mr. Jessup became an employee of the
Company and served as such during the last 13 days of the fiscal year ended
June 30, 1994. On an annualized basis, his salary for fiscal year 1994
would have been approximately $235,800.
(12) Mr. Jessup received a bonus of $158,422 under the TakeCare Executive
Incentive Program for the period of January 1, 1994 through June 17, 1994.
(13) Represents a reimbursement by the Company of expenses associated with Mr.
Jessup's relocation to southern California following the Company's
acquisition of TakeCare.
10
<PAGE> 13
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, 1995. In addition, in accordance with Commission
rules, there are shown the hypothetical gains or "option spreads" that would
exist for the respective options if they were exercised. 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
APPRECIATION FOR OPTION
NUMBER OF SHARES % OF TOTAL EXERCISE TERM(2)
UNDERLYING OPTIONS GRANTED PRICE ------------------------
OPTIONS TO EMPLOYEES PER EXPIRATION 5% 10%
NAME GRANTED(1) IN FISCAL YEAR SHARE(1) DATE ($38.6862) ($61.6014)
- ------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Westcott W. Price III.... 25,000(3) 3.1% $23.75 07/01/04 $ 373,405 $ 946,285
250,000(3) 30.8% $23.75 07/01/04 3,734,050 9,462,850
Mark B. Hacken........... -0- -0- NA NA NA NA
Jack D. Massimino........ 25,000(3) 3.1% $23.75 07/01/04 373,405 946,285
Ryan M. Trimble.......... 20,000(3) 2.5% $23.75 07/01/04 298,724 757,028
Eric D. Sipf............. -0- -0- NA NA NA NA
R. Judd Jessup........... -0- -0- NA NA NA NA
</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 may
become fully exercisable on the occurrence of a change of control as
described in the Company's Executive Incentive Plan.
(2) 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.
(3) Exercisable July 1, 2001, 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 (i) 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 (ii) 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.
11
<PAGE> 14
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
last 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 FY-END (#) SHARES AT FY-END ($)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------ ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Westcott W. Price III..... -0- -0- 30,000 395,000 146,875 440,625
Mark B. Hacken............ -0- -0- 218,800 -0- 592,510 -0-
Jack D. Massimino......... 18,750 193,359 32,500 288,750 -0- 330,469
Ryan M. Trimble........... -0- -0- 30,500 165,500 127,642 220,313
Eric D. Sipf.............. 43,281 1,007,636 4,000 122,562 4,500 1,942,159
R. Judd Jessup............ -0- -0- 122,000 90,000 1,953,750 101,250
</TABLE>
CHANGE IN CONTROL EMPLOYMENT AGREEMENTS
The Company has entered into agreements ("Employment Agreements") with
certain key executive officers, including several 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 20-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 Securities and Exchange 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 Timothy J. Brady did not file on a timely basis one report on Form 4
reflecting one security transaction.
12
<PAGE> 15
CERTAIN TRANSACTIONS
Robert W. Jamplis became a member of the Company's Board of Directors
effective August 7, 1995. During the fiscal year ended June 30, 1995, the
Company's HMO subsidiaries made payments totaling approximately $16.9 million to
the Palo Alto Medical Foundation for the provision of health care services to
approximately 20,000 of the Company's HMO members. Robert W. Jamplis currently
serves as President and Chief Executive Officer of the Palo Alto Medical
Foundation.
Robert Gumbiner resigned from the Board of Directors on June 22, 1995. 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, 1995, FHP paid rent totalling $404,498 under the lease. The
rental rate is adjusted annually based on changes in the consumer price index.
The lease expires in August, 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, 1983 and extends to December 31,
1995. During the fiscal year ended June 30, 1995, FHP paid rent totaling
$252,000 under the lease.
In 1992, Ryan M. Trimble borrowed $150,000 from FHP for the purpose of
purchasing a residence in California following his relocation from Arizona.
$60,000 of the borrowed amount was forgiven by July of 1995 and an additional
$40,000 of the borrowed amount would have been forgiven in installments of
$20,000 a year if Dr. Trimble remained employed with FHP 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. Effective June 30, 1995, Dr.
Trimble separated from the Company under an arrangement whereby he will continue
to receive his salary and employment benefits until December 31, 1996. During
this period, he will also continue to vest in and have the right to exercise
stock options previously granted to him. If Dr. Trimble continues to abide by
the terms of his separation arrangement with the Company, his loan from FHP will
be completely forgiven.
In 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 FHP through January of 1996. At
June 30, 1995, $75,000 of principal plus accrued interest had been forgiven and
the outstanding principal balance was $25,000. In the interim, the loan is
secured by a recorded second lien on Mr. Franklin's residence.
In 1995, Mr. Franklin borrowed an additional $100,000 from the Company for
the purpose of purchasing a new residence. The loan, which bears interest at the
rate of 7.96% per annum, is payable in five annual installments of $20,000 each
commencing on December 1, 1995. In the interim, the loan is secured by a
recorded second lien on Mr. Franklin's residence.
In 1992, Christobel E. Selecky, a Senior Vice President of the Company,
borrowed $95,000 from FHP for the purpose of purchasing a residence. At
September 30, 1995, the principal amount of this loan was $76,715. 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. Effective July 25,
1995, Ms. Selecky separated from the Company under an arrangement whereby this
loan will be repaid in installments on or before January 26, 1997.
In 1994, Kenneth S. Ord, Senior Vice President and Chief Financial Officer
of the Company, borrowed $100,000 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. At June 30, 1995, the loan had been forgiven, in part, by $20,000
plus accrued interest, and the outstanding principal balance was $80,000.
In 1994, Jeffrey H. Margolis, Senior Vice President and Chief Information
Officer of the Company, borrowed $150,000 from the Company for the purpose of
purchasing a residence in California following his
13
<PAGE> 16
relocation from Colorado. $100,000 of the loan, which bears interest at a rate
of 8.5% per annum, may be forgiven in installments of $20,000 per year if Mr.
Margolis remains employed with the Company through August 1, 1999. The remaining
$50,000 of principal, together with interest thereon, is due and payable on
August 1, 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
INTRODUCTION
The Compensation Committee of the Board of Directors of the Company (the
"Committee") consists of Richard Burdge (Chairman), Warner Heineman and Joseph
Prevratil. Mr. Prevratil served as Chairman of the Committee during most of the
fiscal year ended June 30, 1995. Mr. Burdge joined the Committee on June 15,
1995, replacing Mr. Anderson, who had served on the Committee during most of the
fiscal year. Mr. Heineman served on the Committee throughout the fiscal year.
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.
COMPENSATION PHILOSOPHY
The Company's executive compensation policies are designed to (i) provide
competitive levels of overall compensation in order to attract and retain
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,
executive incentives and stock options.
BASE SALARIES
Fiscal 1995 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
executives. Historically, increases in base salaries have been dependent on the
executives' and the Company's performance for the previous year.
In June, 1994, the Company acquired TakeCare, Inc., creating the fifth
largest HMO in the United States with annual revenue of $3.3 billion. In
contemplation of the acquisition, the Company instituted changes in the
operational and functional responsibilities of the executives and established
new base salaries as follows: Mr. Price, $500,000; Mr. Hacken, $475,000; Mr.
Massimino, $450,000; Mr. Trimble, $400,000; Mr. Jessup, $300,000; and Mr. Sipf,
$250,000. In establishing these base salaries, the Committee consulted with
William M. Mercer, Incorporated, an independent consultant specializing in such
matters. No changes were made to the foregoing base salaries of the named
executive officers during the course of fiscal year 1995.
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. For
fiscal year 1995, the Bonus Program provided for potential cash bonuses to
eligible participants based on a percentage of each participant's gross salary.
The highest
14
<PAGE> 17
percentage bonus payable to executive officers under the Bonus Program was 50%,
although additional discretionary awards were possible in recognition of
extraordinary individual performance.
Under the Bonus Program, the Board of Directors annually 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 1995, the Company's financial goals
were pre-tax income, return on assets and cash flow. The operational goals
included quality and service and productivity improvement. The
regional/functional goals were pre-tax income, quality and service and
productivity improvement. Each participant's final bonus is determined by
weighing his performance against certain pre-established financial and
operational objectives.
Fiscal 1995 Bonuses
In fiscal year 1995, the Company failed to achieve its financial goals
under the Bonus Program for pre-tax income, return on assets and cash flow.
Although several regions and divisions did achieve their objectives, failure to
meet the goals established for the Company as a whole resulted in no bonuses
being paid to most of the Named Executive Officers. The Compensation Committee
did award Eric D. Sipf a $52,500 bonus for his efforts in managing the Company's
Eastern Division HMO operations (covering the states of Colorado, Illinois, Ohio
and Texas) during fiscal year 1995.
LONG-TERM INCENTIVE PROGRAM
In 1992, the Committee approved a program providing for a series of grants
of nonqualified stock options spaced over four successive years (beginning July
1, 1992 and ending July 1, 1995) in which the vesting schedule of each option is
tied directly to growth in earnings per share ("EPS"). The optionees are
presented under each option with five annual opportunities for accelerated
vesting, which will be realized in a particular year only if EPS exceeds 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.
EPS increased in 1993 and 1994, resulting in the partial acceleration of
vesting of options previously granted under the four-year program described
above. During fiscal year 1995, however, the Company's EPS did not increase.
Therefore there was no additional acceleration of vesting of such options during
the last fiscal year.
No additional options have been awarded to any of the Named Executive
Officers during fiscal 1995 except for a grant for 250,000 shares to Mr. Price
at the very beginning of fiscal year 1995, which option was issued at an
exercise price equal to the fair market value of the Company's common stock as
of the date of grant. This award was the last of a separate series of special
one-time awards made to certain of the Named Executive Officers to recognize
their increased responsibilities following the merger with TakeCare in fiscal
1994.
PERFORMANCE OF THE CHIEF EXECUTIVE OFFICERS
During the first eight months of the 1995 fiscal year, Messrs. Price and
Hacken together served in the Office of the Chief Executive. On February 24,
1995, the Board of Directors terminated the Office of the Chief Executive, and
Mr. Hacken ceased to be an officer and employee of the Company. Westcott W.
Price III continued as the sole President and Chief Executive Officer. Mr.
Price's salary throughout the fiscal year continued at the level set during
fiscal year 1994 in connection with the TakeCare merger. Consistent with the
results applicable to the other executive officers described above, Mr. Price
did not receive any bonus under the Bonus Program for 1995, there was no
additional acceleration of vesting of the option's previously granted to him,
and he did not receive any new option awards (except as indicated above).
15
<PAGE> 18
Mr. Hacken's 1995 compensation was determined by the terms of his
employment agreement, which he entered into with the Company on November 1,
1993. This agreement provided for a minimum base salary of $400,000 per year
(increased to $475,000 in connection with the TakeCare merger) and for the award
of options for 200,000 shares of common stock, which were awarded in October,
1993. He did not receive any bonus for his period of employment during fiscal
year 1995.
Respectfully submitted,
RICHARD M. BURDGE, SR.
WARNER HEINEMAN
JOSEPH F. PREVRATIL
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company during
most of fiscal year ended June 30, 1995, consisted of Joseph F. Prevratil
(Chairman), Jack R. Anderson and Warner Heineman, each of whom is a nonemployee
Director of the Company.
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 Long Beach harbor in California. During
the fiscal year ended June 30, 1994, and a portion of fiscal year ended June 30,
1995, the Company's HMO and insurance subsidiaries provided health care coverage
to the Foundation's employees. During the fiscal year ended June 30, 1995 the
Foundation's largest outstanding account balance was $355,109 on which it agreed
to pay interest at the rate of 8.5% per annum. As of October 6, 1995, the
Foundation had no outstanding account balance.
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.
16
<PAGE> 19
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>
1990 100.0 100.0 100.0
1991 140.5 127.6 107.4
1992 106.9 144.0 121.7
1993 166.4 131.4 138.3
1994 146.6 135.1 140.2
1995 140.5 194.2 175.6
</TABLE>
Assumes $100 invested on June 30, 1990 in FHP Common Stock, S&P Health Care
Composite Index, and S&P 500 Index.
PROPOSAL TO APPROVE CHANGES IN THE
EXECUTIVE INCENTIVE PLAN RELATING TO
OPTIONS FOR DIRECTORS WHO SERVE AS
CHAIRMEN OF BOARD COMMITTEES
PROPOSAL 2
The Company's Executive Incentive Plan (the "Plan") is a key element for
attracting qualified persons to serve as directors and officers of the Company.
At the Annual Meeting, the stockholders will be asked to approve changes in the
Plan to provide for the grant of additional Option Rights to the Chairmen of
certain committees of the Board of Directors. The purpose of the proposed
changes is to reflect the importance of these critical positions and the
significant efforts required by nonemployee directors serving as Chairmen. No
other substantive changes in the Plan are being made at this time and no
increase is being proposed in the number of shares authorized for issuance under
the Plan.
A summary of the proposed changes is set forth below, followed by a summary
description of the material features of the Plan as amended (the "Amended
Plan"). The full text of the Amended Plan is annexed to this Proxy Statement as
Exhibit A, and the following summaries are qualified in their entirety by
reference to Exhibit A.
17
<PAGE> 20
SUMMARY OF CHANGES
The Plan has provided for automatic annual grants of nonqualified stock
options to nonemployee directors of the Company since 1989. The Amended Plan,
which was adopted, subject to shareholder approval, by the Board of Directors on
June 15, 1995, adds provisions for the grant of additional Option Rights to the
Chairmen of the Executive, Audit, Compensation and Quality Assessment Committees
if such Chairmen are nonemployee directors. Each nonemployee director who serves
as Chairman of the Executive Committee will be awarded an Option Right to
purchase 50,000 shares. Each nonemployee director who serves as Chairman of the
Audit Committee will be awarded an Option Right to purchase 25,000 shares. Each
nonemployee director who serves as Chairman of the Compensation Committee and
each nonemployee director who serves as Chairman of the Quality Assessment
Committee will receive Option Rights to purchase 10,000 shares.
In each case, the award will be granted on the date the director is first
elected to such position. The exercise price of such Option Rights will be equal
to the market value per share on the date of award. They will be exercisable 25%
as of the date of grant and 25% on the first three anniversaries thereof on
which such Chairman has continuously served as a nonemployee director of the
Company. These Option Rights will expire on the earlier of (i) ten years after
the date of grant, or (ii) one year after the applicable Chairman has ceased to
serve as a nonemployee director.
SUMMARY OF THE AMENDED PLAN
The Amended Plan authorizes the discretionary award of options to purchase
Common Stock ("Option Rights"), restricted shares and performance units to
employees. It also authorizes formula awards of Option Rights to nonemployee
directors. Since the Company has not awarded any restricted shares or
performance units in recent years, these types of awards are not described
below, but the terms that may be established by the Committee when making such
awards are set forth in detail in Exhibit A.
SHARES AVAILABLE UNDER THE PLAN
Subject to adjustment as provided in the Amended Plan, the number of shares
which may be (i) sold upon the exercise of Option Rights or (ii) awarded or sold
as restricted shares and released from substantial risk of forfeiture, is
6,000,000 shares of Common Stock on and after July 1, 1992. Between July 1, 1992
and September 15, 1995, 1,096,292 shares were issued upon the exercise of stock
options under the Plan. As of September 15, 1995, there were outstanding awards
of Option Rights for 3,935,315 shares under the Amended Plan and 968,393 shares
were available for future awards.
ELIGIBILITY AND ADMINISTRATION
Any person who is a director, officer, key employee, consultant or agent of
the company or its subsidiaries, or who has agreed to begin serving in any such
capacity within 90 days of the date of grant, may be selected by the
Compensation Committee, which administers the Amended Plan pursuant to authority
delegated by the Board of Directors, to receive benefits under the Amended Plan.
However, nonemployee directors are only eligible to receive benefits pursuant to
the provisions of the Amended Plan relating to the automatic award of option
rights to nonemployee directors.
OPTION RIGHTS -- DISCRETIONARY AWARDS
The Compensation Committee may grant Option Rights that entitle the
optionee to purchase shares of Common Stock at a price equal to or greater than
market value on the date of grant. Option Rights granted under the Amended Plan
may be Option Rights that are intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986 (the
"Code") or Option Rights that are not intended to so qualify. No Option Right is
transferable by a participant except by will or the laws of descent and
distribution. The option price is payable at the time of exercise in cash or by
check or by the transfer to the Company of shares of Common Stock that are
already owned by the optionee. The Compensation Committee has the authority to
specify at the time Option Rights are granted that shares of
18
<PAGE> 21
Common Stock will not be accepted in payment of the option price until they have
been owned by the optionee for a specified period. However, the Amended Plan
does not require any such holding period and would permit immediate sequential
exchanges of shares at the time of exercise of Option Rights.
The Compensation Committee will specify at the time of the grant the period
or periods of continuous service by the optionee with the Company or a
subsidiary which is required before the Option Rights or installments thereof
become exercisable. The Board may provide for earlier exercise of the Option
Rights in the event of retirement, death or disability or a change in control of
the Company as described in paragraph 13(e) of the Amended Plan. No Option Right
may be exercisable more than ten years from the date of grant.
OPTION RIGHTS -- AUTOMATIC AWARDS
In 1989, the Plan was first amended to establish automatic formula awards
of nonqualified stock options to nonemployee directors of the Company on a
one-time basis. In 1991, the Plan was amended again to provide for a formula for
the automatic grant of nonqualified stock options to nonemployee directors of
the Company on an ongoing basis. The formula provides that each person who first
becomes a nonemployee director of the Company will be awarded Option Rights to
purchase 10,000 shares of the Company's Common Stock on the date that person
becomes a director. Each of these Option Rights become exercisable in full only
after the optionee has completed two years of continuous services as a
nonemployee director, or upon a change in control, and will expire after the
earlier of ten years from the date the option is awarded or three months after
the optionee ceases to be a director.
The formula also 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 time will be awarded a nonqualified option to purchase 10,000
shares of Common Stock at a price equal to the market value of the Common Stock
on the date of the award. Each of these options becomes exercisable to the
extent of 20% of the shares covered thereby for each year of continuous service
that the optionee completes as a nonemployee director and will expire after the
earlier of ten years from the date the option is awarded or three months after
the optionee ceases to be a director.
The formula provides further that each person who has continuously served
as a nonemployee director of the Company or FHP, Inc. for a period of two years
after receiving the option award described in the preceding paragraph will
receive an Option Right to purchase 2,000 shares of Common Stock at an option
exercise price equal to the market value of the Common Stock on the date of the
award. Such Option Rights will be awarded annually for each year that the
director continues to serve in that capacity. Each of these Option Rights
becomes exercisable to the extent of 20% of the shares covered thereby for each
year of continuous service that the optionee completes as a nonemployee director
(or upon a change of control) and expires after the earlier of ten years from
the date the option is awarded or three months after the optionee ceases to be a
director.
Subject to approval by shareholders at the 1995 annual meeting, the Amended
Plan now provides for awards of additional Option Rights to certain Committee
Chairmen. Each nonemployee director who serves as Chairman of the Executive
Committee will be awarded an Option Right to purchase 50,000 shares. Each
nonemployee director who serves as Chairman of the Audit Committee will be
awarded an Option Right to purchase 25,000 shares. Each nonemployee director who
serves as Chairman of the Compensation Committee will receive Option Rights to
purchase 10,000 shares. Each nonemployee director who serves as the Chairman of
the Quality Assessment Committee will receive Option Rights to purchase 10,000
shares. Awards have been made to each of the individuals currently serving in
these positions, subject to shareholder approval, pursuant to the Amended Plan.
Future awards will be granted on the date the director is first elected to such
position. The exercise price of all these Option Rights is equal to the market
value of the Common Stock on the date of the award. They will be exercisable 25%
as of the date of grant and 25% on the first three anniversaries thereof on
which such Chairman has continuously served as a nonemployee director of the
company, or upon a change in control. These Option Rights will expire on the
earlier of (i) ten years after the date of grant, or (ii) one year after the
optionee has ceased to serve as a nonemployee director.
19
<PAGE> 22
AMENDMENTS AND MISCELLANEOUS
The Plan may be amended from time to time by the Board of Directors;
however, without further approval by the shareholders of the Company, no such
amendment may (i) increase the aggregate number of shares of Common Stock that
may be issued or transferred and covered by outstanding awards, (ii) change the
definition of "Eligible Participant", or (iii) cause Rule 16b-3 under the
Exchange Act to cease to be applicable to the Plan.
The Board of Directors may make or provide for such adjustments in the
maximum number of shares specified in the Amended Plan, in the number of shares
of Common Stock covered by outstanding Option Rights granted under the Amended
Plan and in the prices per share applicable to such Option Rights, as such Board
may determine is equitably required to prevent dilution or enlargement of the
rights of optionees that otherwise would result from any stock dividend, stock
split, recapitalization, merger or other corporate transaction.
With the consent of the affected optionee, the Compensation Committee may
cancel any agreement evidencing Option Rights. In the event of such
cancellation, the Board may authorize the granting of new Option Rights (which
may or may not cover the same number of shares subject to the prior agreement)
at such price and terms as would have been applicable under the Amended Plan had
the cancelled Option Rights not been granted.
NEW PLAN BENEFITS
It is not possible to determine the specific amounts that may be awarded to
various individuals in the future under the Amended Plan. However, the table
below sets forth certain information about awards of Option Rights made during
the fiscal year ended June 30, 1995, to the executive officers named in the
Summary Compensation Table, certain other key employees and certain nonemployee
Directors (including awards of Option Rights subject to stockholder approval).
NEW PLAN BENEFITS TABLE
FHP INTERNATIONAL CORPORATION AMENDED AND
RESTATED EXECUTIVE INCENTIVE PLAN
<TABLE>
<CAPTION>
OPTION RIGHTS
(NUMBER OF
NAME AND POSITION SHARES)
- -------------------------------------------------------------------------------- -------------
<S> <C>
Westcott W. Price III........................................................... 275,000
Mark B. Hacken.................................................................. -0-
Jack D. Massimino............................................................... 25,000
Ryan M. Trimble................................................................. 20,000
Eric D. Sipf.................................................................... -0-
R. Judd Jessup.................................................................. -0-
Executive Group (including above named executive officers)...................... 425,000
Non-Executive Director Group(1)................................................. 117,000
Non-Executive Officer Employee Group............................................ 270,100
</TABLE>
- ---------------
(1) Does not include Option Rights granted to Robert A. Maxson and Robert W.
Jamplis upon their joining the Board of Directors after June 30, 1995.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The only awards made under the Plan in recent years have been nonqualified
Option Rights. In general: (i) no income is recognized by an optionee at the
time a nonqualified Option Right is granted; (ii) at the time of exercise of a
nonqualified Option Right, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares if
20
<PAGE> 23
they are nonrestricted on the date of exercise; and (iii) at the time of sale of
shares acquired pursuant to the exercise of a nonqualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held. To the extent that a
participant recognizes ordinary income in the circumstances described above, the
Company or subsidiary for which the participant performs services will be
entitled to a corresponding deduction provided that, among other things: (i) the
income meets the test of reasonableness, is an ordinary and necessary business
expense and is not an "excess parachute payment" within the meaning of Section
280G of the Code and is not disallowed by the $1 million limitation on certain
executive compensation; and (ii) any applicable withholding obligations are
satisfied.
RECOMMENDATION
The Board of Directors believes that the approval of the Amended Plan is in
the best interests of the Company and the shareholders because the Amended Plan
will continue to enable the Company to provide competitive equity incentives to
the nonemployee directors to enhance the profitability of the Company and
increase shareholder value.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED PLAN.
APPOINTMENT OF INDEPENDENT AUDITORS
PROPOSAL 3
The Board of Directors has reappointed the firm of Deloitte & Touche LLP to
serve as independent auditors for the Company for the year ending June 30, 1996,
such appointment to continue at the pleasure of the Board of Directors and be
subject to the approval of the Stockholders. Deloitte & Touche LLP (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 LLP is expected to
be present at the Annual Meeting and available to respond 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 LLP.
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
21
<PAGE> 24
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 1996 ANNUAL MEETING
A Stockholder who intends to submit a proposal for inclusion in the proxy
statement for the 1996 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, 1996.
By Order of the Board of Directors
/S/ WESTCOTT W. PRICE III
-------------------------------------
Westcott W. Price III
Vice Chairman of the Board
President and Chief Executive Officer
October 18, 1995
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, 1995, 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.
22
<PAGE> 25
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
EXHIBIT A
FHP INTERNATIONAL CORPORATION
AMENDED & RESTATED
EXECUTIVE INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to attract and retain directors,
officers, executive personnel and other agents for FHP International Corporation
(the "Company") and its Subsidiaries and to provide to such persons incentives
and rewards for superior performance.
2. Definitions. As used in this Plan,
(a) The term "Common Stock" means Common Stock, par value $.05 per share,
of the Company or any security into which such Common Stock may be
changed by reason of any transaction or event of the type described in
Paragraph 9 of this Plan.
(b) The term "Date of Grant" means the date specified by the Board of
Directors on which a grant of Option Rights, Performance Units or a
grant or sale of Restricted Stock shall become effective (which date
shall not be earlier than the date on which the Board of Directors
takes action with respect thereto).
(c) The term "Eligible Participant" means a person who is selected by the
Board of Directors to receive benefits under this Plan and who is at
the time a director, officer, key employee, consultant or agent of the
Company or any of its Subsidiaries, or who has agreed to commence
serving in any such capacities within 90 days of the date of grant;
PROVIDED THAT NONEMPLOYEE DIRECTORS SHALL ONLY BE ELIGIBLE TO RECEIVE
BENEFITS PURSUANT TO PARAGRAPH 7 OF THIS PLAN.
(d) The term "Management Objectives" means the achievement objectives
established pursuant to Paragraph 6 of this Plan for Eligible
Participants who have received grants of Performance Units.
(e) The term "Market Value per Share" means, at any date, the mean of the
high and low sale prices of the Common Stock on that date (or, if there
are no sales on that date, the last preceding date on which there was a
sale) in the principal market in which the Common Stock is traded.
(f) The term "Optionee" means the optionee named in any agreement
evidencing an outstanding Option Right.
(g) The term "Option Right" means the right to purchase a share of Common
Stock upon exercise of an option granted pursuant to Paragraph 4 OR 7
of this Plan.
(h) The term "Performance Period" means, with respect to a Performance
Unit, a period of time established pursuant to Paragraph 6 of this Plan
within which the Management Objectives relating to such Performance
Unit are to be achieved.
(i) The term "Performance Unit" means a unit equivalent to $100 awarded
pursuant to Paragraph 6 of this Plan.
(j) The term "Restricted Stock" means shares of Common Stock granted or
sold pursuant to Paragraph 5 of this Plan as to which neither the
substantial risk of forfeiture nor the prohibition on transfers
referred to therein has expired.
(k) The term "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, not less than 75% of
the total combined voting power represented by all classes of stock
issued by such corporation.
3. Shares Available Under Plan. The shares of Common Stock which may be
(a) sold upon the exercise of Option Rights or (b) awarded or sold as Restricted
Stock and released from substantial risks of forfeiture thereof, shall be
6,000,000 shares from and after July 1, 1992, subject to adjustment as provided
in
A-1
<PAGE> 26
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
Paragraph 9 of this Plan. Such shares may be shares of original issuance or
treasury shares or a combination of the foregoing.
4. Option Rights. The Board of Directors may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Eligible Participants of options to purchase shares of Common Stock. Each such
grant may utilize any or all of the authorizations, and shall be subject to all
of the limitations, contained in the following provisions:
(a) Each grant shall specify the number of shares of Common Stock to which
it pertains.
(b) Each grant shall specify an option price per share not less than the
Market Value per share on the Date of Grant.
(c) Each grant shall specify that the option price shall be payable at the
time of exercise (i) in cash or by check acceptable to the Company, or
(ii) by the transfer to the Company of shares of Common Stock having a
value at the time of exercise equal to the total option price, or (iii)
by a combination of such methods of payment.
(d) Successive grants may be made to the same Eligible Participant whether
or not any Option Rights previously granted to such Eligible
Participant remain unexercised.
(e) Each grant shall specify the period or periods of continuous service by
the Optionee with the Company or any Subsidiary which is necessary
before the Option Rights or installments thereof will become
exercisable.
(f) Option Rights granted under this Plan may be (i) options which are
intended to qualify under particular provisions of the Internal Revenue
Code, as in effect from time to time, (ii) options which are not
intended to so qualify, or (iii) combinations of the foregoing.
(g) No Option Right shall be exercisable more than ten years from the Date
of Grant.
(h) Each grant of Option Rights shall be evidenced by an agreement executed
on behalf of the Company by any officer and delivered to the Optionee
and containing such terms and provisions, consistent with the Plan, as
the Board of Directors may approve.
(i) The aggregate fair market value (determined as of the Date of Grant) of
the stock for which any Eligible Participant may be granted Option
Rights in any calendar year which are intended to qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code (under
all plans of the Company and its parent and subsidiary corporations, if
any) shall not exceed $100,000 plus any unused limit carryover to such
year (such unused limit carryover to be determined as provided in said
Section 422A).
5. Restricted Stock. The Board of Directors may also authorize the
granting or sale to Eligible Participants of Restricted Stock. Each such grant
or sale may utilize any or all of the authorizations, and shall be subject to
all of the limitations, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of the
ownership of shares of Common Stock to the Eligible Participant in
consideration of the performance of services, entitling such Eligible
Participant to voting, dividend and other ownership rights, but subject
to the substantial risk of forfeiture and restrictions on transfer
referred to below.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Eligible Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the shares of Restricted
Stock covered by such grant or sale shall be subject, for a period of
not less than two years to be determined by the Board of Directors at
the Date of Grant, to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Internal Revenue Code and the regulations
of the Internal Revenue Service thereunder.
A-2
<PAGE> 27
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
(d) Each such grant or sale shall provide that during the period for which
such substantial risk of forfeiture is to continue, the transferability
of the Restricted Stock shall be prohibited or restricted in a manner
and to the extent prescribed by the Board of Directors at the Date of
Grant (which restrictions may include, without limiting the generality
of the foregoing, rights of repurchase or first refusal in the Company
or provisions subjecting the Restricted Stock to a continuing
substantial risk of forfeiture in the hands of any transferee).
(e) Each grant or sale of Restricted Stock shall be evidenced by an
agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Eligible Participant and shall
contain such terms and provisions, consistent with this Plan, as the
Board of Directors may approve.
6. Performance Units. The Board of Directors may also authorize the
granting of Performance Units which will become payable to an Eligible
Participant upon achievement of specified Management Objectives. Each such grant
may utilize any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
(a) Each grant shall specify the number of Performance Units to which it
pertains.
(b) The Performance Period with respect to each Performance Unit shall be
such period of time (not less than two years) commencing with the Date
of Grant as shall be determined by the Board of Directors at the time
of grant.
(c) Each grant shall specify the Management Objectives that are to be
achieved by the Eligible Participant, which may be described in terms
of Company-wide objectives or objectives that are related to
performance of the subsidiary, division, department or function within
the Company or a Subsidiary in which such Eligible Participant is
employed.
(d) Each grant shall specify a minimum acceptable level of achievement with
respect to the specified Management Objectives below which no payment
will be made and shall set forth a formula for determining the amount
of payment to be made if performance is at or above such minimum but
short of full achievement of the Management Objectives.
(e) Each grant shall specify the time and manner of payment of Performance
Units which have been earned.
(f) The Board of Directors may adjust Management Objectives and the
related minimum acceptable level of achievement if, in the sole
judgment of the Board, events or transactions have occurred after the
Date of Grant which are unrelated to the performance of the Eligible
Participant and result in distortion of the Management Objectives or
the related minimum.
(g) Each grant of a Performance Unit shall be evidenced by a notification
executed on behalf of the Company by any officer and delivered to and
accepted by the Eligible Participant, which notification shall
describe the Performance Units, state that such Performance Units are
subject to all the terms and conditions of this Plan, and contain such
other terms and provisions, consistent with this Plan, as the Board of
Directors may approve.
7. Automatic Award of Option Rights to Certain Persons.
(a) EXCEPT AS SET FORTH IN PARAGRAPH (E), Option Rights shall be awarded
to Patrick F. Cadigan, Robert Gumbiner, Mark Hacken, Warner Heineman
and Irene Sweeney only as set forth below under this paragraph (a):
(1) On October 1, 1991, and on October 1st of each year thereafter, so
long as each of Patrick F. Cadigan and Mark Hacken shall continue to
serve as a nonemployee Director of the Company or of FHP, Inc.,
there shall be awarded to such Director Option Rights with respect
to 2,000 shares of Common Stock. Such Option Rights shall provide
for an option price equal to the Market Value per Share on the date
of each award and shall become exercisable to the extent of
A-3
<PAGE> 28
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
20% of the shares covered thereby for each year of continuous
service by each Director after that date as a nonemployee Director
of the Company or FHP, Inc.
(2) On October 1, 1991, each of Warner Heineman and Irene C. Sweeney
shall be awarded Option Rights with respect to 10,000 shares of
Common Stock. Such Option Rights shall provide for an option price
equal to the Market Value per Share on the date of each award and
shall become exercisable to the extent of 20% of the shares covered
thereby for each year of continuous service by each Director after
that date as a nonemployee Director of the Company or FHP, Inc.
On October 1, 1993, and on October 1st of each year thereafter, so
long as each of Warner Heineman and Irene C. Sweeney shall continue
to serve as a nonemployee Director of the Company or of FHP, Inc.,
there shall be awarded to such Director Option Rights with respect to
2,000 shares of Common Stock. Such Option Rights shall provide for an
option price equal to the Market Value per Share on the date of each
award and shall become exercisable to the extent of 20% of the shares
covered thereby for each year of continuous service by each Director
after that date as a nonemployee Director of the Company or FHP, Inc.
(3) On October 1, 1991, Robert Gumbiner shall be awarded Option Rights
with respect to 10,000 shares of Common Stock. Such Option Rights
shall provide for an option price equal to the Market Value per
Share on October 1, 1991 and shall become exercisable in full only
after Robert Gumbiner shall have completed two years of continuous
service as a nonemployee Director of the Company or FHP, Inc. after
October 1, 1991.
So long as Robert Gumbiner shall continue to serve as a nonemployee
Director of the Company or FHP, Inc., there shall be awarded to him
on October 1, 1993, Option Rights with respect to an additional
10,000 shares of Common Stock. Such Option Rights shall provide for
an option price equal to the Market Value per Share on October 1,
1993 and shall become exercisable to the extent of 20% of the shares
covered thereby for each year of continuous service by Robert
Gumbiner after October 1, 1993, as a nonemployee Director of the
Company or FHP, Inc.
So long as Robert Gumbiner shall continue to serve as a nonemployee
Director of the Company or FHP, Inc., there shall also be awarded to
Robert Gumbiner on October 1, 1995, and on October 1st of each year
thereafter, Option Rights with respect to 2,000 shares of Common
Stock. Such Option Rights shall provide for an option price equal to
the Market Value per Share on the date of the award and shall become
exercisable to the extent of 20% of the shares covered thereby for
each year of continuous service by Robert Gumbiner after that date as
a nonemployee Director of the Company or FHP, Inc.
(b) There shall be awarded to each person who first becomes a nonemployee
Director of the Company or of FHP, Inc. on any date subsequent to
September 30, 1991, Option Rights with respect to 10,000 shares of
Common Stock. Such Option Rights shall provide for an option price
equal to the Market Value per Share on the date such person becomes a
Director and shall become exercisable in full only after the Director
shall have completed two years of continuous service as a Director
after that date.
(c) Except as provided in paragraph (a) above, Option Rights with respect
to 10,000 shares of Common Stock shall be awarded, on a one-time
basis, to each nonemployee Director of the Company or of FHP, Inc. who
has completed at least two years of service as a Director and who has
not received an award of Option Rights within the preceding two years.
Such Option Rights shall provide for an option price equal to the
Market Value per Share on the date of the award and shall become
exercisable to the extent of 20% of the shares covered thereby for
each year of continuous service by the Director after that date as a
nonemployee Director of the Company or FHP, Inc.
A-4
<PAGE> 29
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
(d) Except as provided in paragraph (a) above, there shall also be awarded
to each nonemployee Director of the Company or of FHP, Inc. on the date
the Director completes two years of continuous service as a Director
after being awarded Option Rights pursuant to the preceding paragraph
(c), and annually for each year of continuous service as a Director
after that date, Option Rights with respect to 2,000 shares of Common
Stock. Such Option Rights shall provide for an option price equal to
the Market Value per Share on the date of the award and shall become
exercisable to the extent of 20% of the shares covered thereby for each
year of continuous service by the Director after that date as a
nonemployee Director of the Company or FHP, Inc.
(E) THERE SHALL BE AWARDED (I) TO EACH NONEMPLOYEE DIRECTOR WHO SERVES IN
THE CAPACITY AS CHAIRMAN OF THE EXECUTIVE COMMITTEE AN OPTION RIGHT TO
PURCHASE 50,000 SHARES, (II) TO EACH NONEMPLOYEE DIRECTOR WHO SERVES
IN THE CAPACITY OF CHAIRMAN OF THE AUDIT COMMITTEE AN OPTION RIGHT TO
PURCHASE 25,000 SHARES, (III) TO EACH NONEMPLOYEE DIRECTOR WHO SERVES
IN THE CAPACITY OF CHAIRMAN OF THE COMPENSATION COMMITTEE AN OPTION
RIGHT TO PURCHASE 10,000 SHARES AND (IV) TO EACH NONEMPLOYEE DIRECTOR
WHO SERVES IN THE CAPACITY OF CHAIRMAN OF THE QUALITY ASSURANCE
COMMITTEE AN OPTION RIGHT TO PURCHASE 10,000 SHARES, IN EACH CASE TO
BE AWARDED ON THE DATE SUCH NONEMPLOYEE DIRECTOR IS FIRST ELECTED BY
THE BOARD OF DIRECTORS TO SUCH POSITION. SUCH OPTION RIGHTS SHALL EACH
PROVIDE AN OPTION EXERCISE PRICE EQUAL TO THE MARKET VALUE PER SHARE
ON THE DATE OF SUCH AWARD AND SHALL BE EXERCISABLE 25% ON THE DATE OF
GRANT AND 25% ON EACH OF THE FIRST THREE ANNIVERSARIES THEREOF ON
WHICH THE APPLICABLE CHAIRMAN HAS CONTINUOUSLY SERVED AS A NONEMPLOYEE
DIRECTOR OF THE COMPANY. OPTIONS RIGHTS AWARDED UNDER THIS PARAGRAPH
7(E) SHALL EXPIRE ON THE EARLIER OF TEN YEARS AFTER THE DATE ON WHICH
THEY ARE AWARDED OR 1 YEAR AFTER THE APPLICABLE CHAIRMAN HAS CEASED TO
SERVE AS A NONEMPLOYEE DIRECTOR.
All of the Option Rights awarded under this Section 7 (EXCEPTING THOSE
AWARDED PURSUANT TO PARAGRAPH (E)) shall expire on the earlier of ten
years after the date on which they are awarded or three months after the
Optionee shall cease to serve as a Director, and shall otherwise be
generally on the terms and conditions set forth in the form of
nonqualified stock option agreement theretofore utilized by the Company.
Notwithstanding the foregoing provisions of this Section 7, in the case
of Option Rights awarded under this Section 7 to an Optionee whose
transactions in the Company's Common Stock were not subject to Section
16(b) of the Securities Exchange Act of 1934 at the time of grant, for
so long as such Optionee continues to serve as a nonemployee Director of
the Company, FHP, Inc. or any of the Company's Subsidiaries, such Option
Rights shall continue to become exercisable in the installments set
forth above to the same extent as if such Optionee had continued to
serve as a nonemployee Director of the Company or FHP, Inc., and such
Option Rights shall expire on the earlier of ten years after the date on
which they were awarded or three months after such Optionee ceases to
serve as a nonemployee Director of the Company or any of its
Subsidiaries.
8. Transferability. No Option Right shall be transferable by an Optionee
other than by will or the laws of descent and distribution. Option Rights shall
be exercisable during the Optionee's lifetime only by him or by his guardian or
legal representative.
9. Adjustments. The Board of Directors may make or provide for such
adjustments in the maximum number of shares specified in Paragraph 3 of this
Plan, in the numbers of shares of Common Stock covered by outstanding Option
Rights granted hereunder, and in the prices per share applicable to such Option
Rights, as such Board in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of the rights
of Optionees that otherwise would result from any stock dividend, stock split,
combination of shares, recapitalization or other change in capital structure of
the Company, merger, consolidation, spin-off, reorganization, partial or
complete liquidation, issuance of rights or warrants to purchase securities, or
any other corporate transaction or event having an effect similar to any of the
foregoing.
A-5
<PAGE> 30
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
10. Fractional Shares. The Company shall not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Board of Directors
may provide for the elimination of fractions or for the settlement of fractions
in cash.
11. Withholding Taxes. The Company shall have the right to deduct from any
payment under this Plan an amount equal to the federal, state and local income
taxes required to be withheld by it with respect to such payment and, if the
cash portion of any such payment is less than the amount of taxes required to be
withheld, to require the Optionee or other person receiving such payment, as a
condition of and prior to such payment, to pay to the Company the balance of
such taxes so required to be withheld.
12. Administration of the Plan.
(a) This Plan shall be administered by the Board of Directors, which may
from time to time delegate all or any part of its authority under this
Plan to a Compensation Committee of not less than three nonemployee
Directors appointed by the Board of Directors, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 of the
Securities and Exchange Commission or any successor rule to the same
effect; to the extent of such delegation, references herein to the
"Board of Directors" shall include the Committee. A majority of the
Committee shall constitute a quorum, and the action of the members of
the Committee present at any meeting at which the quorum is present,
or actions unanimously approved in writing, shall be the acts of the
Committee.
(b) The interpretation and construction by the Board of Directors of any
provision of this Plan or of any agreement, notification or document
evidencing the grant of Option Rights, Restricted Stock or Performance
Units and any determination by the Board of Directors pursuant to any
provision of this Plan or of any such agreement, notification or
document shall be final and conclusive. No member of the Board of
Directors shall be liable for any such action or determination made in
good faith.
13. Amendments, Etc.
(a) This Plan may be amended from time to time by the Board of Directors,
but without further approval by the stockholders of the Company no
such amendment shall (i) increase the maximum number of shares
specified in Paragraph 3 of this Plan (except that adjustments
authorized by Paragraph 9 of this Plan shall not be limited by this
provision), (ii) change the definition of "Eligible Participant", or
(iii) cause Rule 16b-3 of the Securities and Exchange Commission (or
any successor rule to the same effect) to become inapplicable to this
Plan.
(b) The Board of Directors may, with the concurrence of the affected
Optionee, cancel any agreement evidencing Option Rights granted under
this Plan. In the event of such cancellation, the Board of Directors
may authorize the granting of new Option rights (which may or may not
cover the same number of shares which had been the subject of the prior
agreement) in such manner, at such option price and subject to the same
terms, conditions and discretions as would have been applicable under
this Plan had the cancelled Option Rights not been granted.
(c) In case of termination of employment by reason of death, disability or
retirement under a retirement plan of the Company or a Subsidiary of
an Eligible Participant who holds an Option Right not immediately
exercisable in full, or any Restricted Stock as to which the
substantial risk of forfeiture or the prohibition or restriction on
transfer has lapsed, or any Performance Units which have not been
fully earned, the Board of Directors may, in its sole discretion,
accelerate the time at which such Option Right may be exercised or the
time at which such substantial risk of forfeiture or prohibition or
restriction on transfer will lapse or the time at which such
Performance Units will be deemed to have been fully earned.
(d) This Plan shall not confer upon any Eligible Participant any right with
respect to continuance of employment or other service with the Company
or any Subsidiary, nor shall it interfere in any way
A-6
<PAGE> 31
* Bold face text reflects proposed amendments to the Executive Incentive Plan.
with any right the Company or any Subsidiary would otherwise have to
terminate such Eligible Participant's employment or other service at
any time.
(e) Upon the occurrence of any of the following events:
(1) a filing pursuant to any federal or state law in connection with any
tender offer for shares of the Company (other than a tender offer by
the Company) or the signing of any agreement for the merger or
consolidation of the Company with another corporation or for sale of
all or substantially all of the assets of the Company or adoption of
any resolution of reorganization or dissolution of the Company by
the stockholders or the occurrence of any other event or series of
events, which tender offer, merger, consolidation, sale,
reorganization, dissolution or other event or series of events, in
the opinion of the Board of Directors, will, or is likely to, if
carried out, result in a change of control of the Company, or
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Directors of the Company
cease for any reason to constitute a majority thereof (unless the
election, or the nomination for election by the Company's
shareholders, of each Director of the Company first elected during
such period was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors of the Company at
the beginning of any such period) then all outstanding Option Rights
shall become immediately exercisable in full and all substantial
risks of forfeiture and restrictions on transfer relating to
outstanding Restricted Stock shall immediately terminate,
notwithstanding Paragraphs 4(e), 5(c) and 5(d) of this Plan or any
provision of any agreement evidencing Option Rights or Restricted
Stock adopted pursuant thereto; provided, however, that in the case
of any event of the type described in subparagraph (1) above, the
Board of Directors by notice to the Optionee or grantee of
Restricted Stock may nullify the effect thereof and reinstate the
provisions adopted pursuant to Paragraphs 4(e), 5(c) and 5(d) of
this Plan if such notice is given within ten business days after the
Board of Directors first becomes aware of such event or, if the
transaction envisioned by such event is later abandoned, within ten
business days after the Board of Directors first becomes aware of
such abandonment, but without prejudice to any exercise of Option
Rights or disposition of Restricted Stock that may have occurred
prior to such nullification.
A-7
<PAGE> 32
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 16, 1995, 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 14,
1995.
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. 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 14, 1995.
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 18, 1995
<PAGE> 33
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 16, 1995, 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 14, 1995.
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 14, 1995.
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 VOTING INSTRUCTIONS TO THE TRUSTEE. IF YOU SIGN
AND TIMELY RETURN AN
<PAGE> 34
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 18, 1995
<PAGE> 35
VOTING INSTRUCTIONS TO TRUSTEE
FOR THE ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 16, 1995
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 16, 1995, 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.)
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 36
[X] Please mark your
votes as this
example
<TABLE>
<S> <C> <C> <C>
FOR all Nominees listed WITHHOLD AUTHORITY
below (Except as marked to vote for all
to the contrary below.) nominees listed below FOR AGAINST ABSTAIN
1. ELECTION OF [ ] [ ] 2. PROPOSAL TO APPROVE [ ] [ ] [ ]
DIRECTORS. AN AMENDMENT TO THE COMPANY'S
EXECUTIVE INCENTIVE PLAN.
(INSTRUCTION: To withhold authority to vote for any individual 3. PROPOSAL TO APPROVE [ ] [ ] [ ]
nominee strike a line through the nominee's name indicated below.) APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS FOR
Richard M. Burdge, Sr.; Robert C. Maxson and Robert W. Jamplis THE COMPANY.
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
18, 1995; (ii) the Proxy Statement dated October 18,
1995; and (iii) the Notice to Participants in the FHP
International Corporation ESOP dated October 18, 1995.
SIGNATURE ____________________________________ DATE _____________________, 1995
[ ] ALLOCATED SHARES ONLY
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such.
</TABLE>
<PAGE> 37
FHP INTERNATIONAL CORPORATION
9900 TALBERT AVENUE
P.O. BOX 8000
FOUNTAIN VALLEY, CA 92728-8000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Kenneth S. Ord 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 6,
1995, at the annual meeting of stockholders to be held on Thursday, November
16, 1995, or any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 38
[X] Please mark your
votes as this
example
<TABLE>
<S> <C> <C> <C>
FOR all Nominees listed WITHHOLD AUTHORITY
below (Except as marked to vote for all
to the contrary below.) nominees listed below FOR AGAINST ABSTAIN
1. ELECTION OF [ ] [ ] 2. PROPOSAL TO APPROVE [ ] [ ] [ ]
DIRECTORS. AN AMENDMENT TO THE COMPANY'S
EXECUTIVE INCENTIVE PLAN.
(INSTRUCTION: To withhold authority to vote for any individual 3. PROPOSAL TO RATIFY THE [ ] [ ] [ ]
nominee strike a line through the nominee's name indicated below.) APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS.
Richard M. Burdge, Sr.; Robert C. Maxson and Robert W. Jamplis
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 __________________________________________, 1995
______________________________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY ______________________________________________________
USING THE ENCLOSED ENVELOPE. Signature, if jointly held
</TABLE>
<PAGE> 39
VOTING INSTRUCTIONS TO TRUSTEE
FOR THE ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 16, 1995
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 Wells Fargo Bank ("Trustee"), to vote all shares of
common stock of FHP International Corporation (the "Company") allocated to the
accounts 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 16, 1995, 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.)
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 40
[X] Please mark your
votes as this
example
<TABLE>
<S> <C> <C> <C>
FOR all Nominees listed WITHHOLD AUTHORITY
below (Except as marked to vote for all
to the contrary below.) nominees listed below FOR AGAINST ABSTAIN
1. ELECTION OF [ ] [ ] 2. PROPOSAL TO APPROVE [ ] [ ] [ ]
DIRECTORS. AN AMENDMENT TO THE COMPANY'S
EXECUTIVE INCENTIVE PLAN.
(INSTRUCTION: To withhold authority to vote for any individual 3. PROPOSAL TO APPROVE [ ] [ ] [ ]
nominee strike a line through the nominee's name indicated below.) APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS FOR
Richard M. Burdge, Sr.; Robert C. Maxson and Robert W. Jamplis THE COMPANY.
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
18, 1995; (ii) the Proxy Statement dated October 18,
1995; and (iii) the Notice to Participants in the
TakeCare Savings and Retirement Plan dated October 18,
1995.
SIGNATURE ____________________________________ DATE _____________________, 1995
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such.
</TABLE>
