<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 /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
FPA MEDICAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FPA MEDICAL MANAGEMENT, INC.
[LOGO] 3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 24, 1997
------------------------
The 1997 Annual Meeting of Stockholders (the "Meeting") of FPA Medical
Management, Inc., a Delaware corporation (the "Company"), will be held on July
24, 1997, at 9:00 a.m. Pacific Time, at 3636 Nobel Drive, Suite 200, San Diego,
California for the following purposes:
1. To elect one director to hold office until the Annual Meeting of
Stockholders in the year 2000 and until his successor is duly elected
and qualified.
2. To consider and take action upon a proposal to amend the Company's 1995
Non-Employee Directors' Non-Qualified Stock Option Plan (the "Directors'
Plan") (i) to increase (from 5,000 to 15,000) the number of shares of
the Company's Common Stock ("Common Stock") that may be purchased
pursuant to the automatic grant of an option to each non-employee
director following each annual meeting of stockholders of the Company;
(ii) to increase (from 2,500 to 7,500) the number of shares of Common
Stock that may be purchased pursuant to an option automatically granted
to any non-employee director who is elected after the date of an annual
meeting of stockholders of the Company to fill a vacancy on the Board of
Directors; (iii) to grant to each non-employee director annually the
option to purchase an additional 2,500 (3,500 if a committee
chairperson) shares of Common Stock for each committee of the Board of
Directors on which such non-employee director serves; and (iv) to
require approval by the Company's stockholders of any amendments or
modifications thereto only as required by applicable laws and
regulations.
3. To consider and take action upon a proposal to amend the Company's
Amended Omnibus Stock Option Plan (the "Omnibus Plan") (i) to increase
from 6,500,000 to 8,500,000 the number of shares of the Company's Common
Stock for which options may be granted under the Omnibus Plan; and (ii)
to require approval by the Company's stockholders of any amendments or
modifications thereto only as required by applicable laws and
regulations.
4. To consider and take action upon a proposal to ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the year
ending December 31, 1997.
5. To transact such other business as may properly come before the Meeting
and any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on June 18, 1997 as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Meeting. Only stockholders of record at that time are entitled to
notice of, and to vote at, the Meeting and any and all adjournments or
postponements thereof.
<PAGE> 3
Whether or not you expect to attend the Meeting, please complete, date,
sign and promptly return the enclosed proxy in the envelope enclosed for your
convenience.
By Order of the Board of Directors,
/s/ JAMES A. LEBOVITZ
JAMES A. LEBOVITZ
Secretary
San Diego, California
July 1, 1997
<PAGE> 4
FPA MEDICAL MANAGEMENT, INC.
3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, JULY 24, 1997
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of FPA Medical Management, Inc., a Delaware
corporation (the "Company"), for use at the Company's 1997 Annual Meeting of
Stockholders (together with any and all adjournments or postponements thereof,
the "Meeting") which is scheduled to be held on July 24, 1997, at 9:00 a.m.
Pacific Time, at 3636 Nobel Drive, Suite 200, San Diego, California, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement, the foregoing Notice and the enclosed proxy are first
being mailed to stockholders on or about July 1, 1997.
At the Meeting, stockholders will be asked to (i) elect one director to
hold office until the Annual Meeting of Stockholders in the year 2000 and until
his successor is duly elected and qualified; (ii) amend the Company's 1995
NonEmployee Directors' Non-Qualified Stock Option Plan (the "Directors' Plan")
to (a) increase (from 5,000 to 15,000) the number of shares of the Company's
Common Stock ("Common Stock") that may be purchased pursuant to the automatic
grant of an option to each non-employee director following an annual meeting of
stockholders of the Company, (b) increase (from 2,500 to 7,500) the number of
shares of Common Stock that may be purchased pursuant to an option automatically
granted to any non-employee director who is elected after the date of an annual
meeting of stockholders of the Company to fill a vacancy on the Board of
Directors, (c) grant to each non-employee director the option to purchase an
additional 2,500 (3,500 if a committee chairperson) shares of Common Stock for
each committee of the Board on which such non-employee director serves and (d)
require approval by the Company's stockholders of any amendments or
modifications thereto only as required by applicable laws and regulations; (iii)
amend the Company's Amended Omnibus Stock Option Plan (the "Omnibus Plan") to
(a) increase from 6,500,000 to 8,500,000 the number of shares of the Company's
Common Stock for which options may be granted under the Omnibus Plan and (b)
require approval by the Company's stockholders of any amendments or
modifications thereto only as required by applicable laws and regulations; (iv)
ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors for the year ending December 31, 1997; and (v) transact such other
business as may properly come before the Meeting and any and all adjournments or
postponements thereof.
The Board of Directors knows of no other matters which are likely to be
brought before the Meeting. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If the
enclosed proxy is properly executed and returned prior to voting at the Meeting,
the shares represented thereby will be voted in accordance with the instructions
marked thereon. In the absence of instructions, executed proxies will be voted
FOR the nominee of the Board of Directors for election as director, FOR the
amendments to the Directors' Plan, FOR the amendments to the Omnibus Plan and
FOR the ratification of the selection of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1997.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be
<PAGE> 5
specified on all proposals except the election of director and will be counted
as present for purposes of determining the existence of a quorum. The proposals
to amend the Directors' Plan and the Omnibus Plan require the affirmative vote
of a majority of shares present in person or by proxy and entitled to vote.
Because abstentions are treated as shares present at the Meeting and entitled to
vote, they will have the same effect as a negative vote on the proposals to
amend the Directors' Plan and the Omnibus Plan. Broker non-votes are not
entitled to vote at the Meeting and therefore will have no effect on the outcome
of the proposals to amend the Directors' Plan or the Omnibus Plan.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing, by delivering a duly executed proxy bearing
a later date or by attending the Meeting and voting in person.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting. Only stockholders of record at the close of business on June 18, 1997
(the "Record Date"), will be entitled to notice of, and to vote at, the Meeting.
As of the Record Date, there were 30,934,157 shares of Common Stock issued and
outstanding and entitled to vote at the Meeting. Holders of Common Stock as of
the Record Date are entitled to one vote for each share held. Holders of Common
Stock are not entitled to cumulative voting rights.
ELECTION OF DIRECTORS
The Company's Board of Directors is classified into three classes.
Directors are elected by the stockholders of the Company at each annual meeting
of stockholders and serve until the third annual meeting of stockholders
following their election and until their successors are elected and qualified or
until their earlier removal or resignation. At the Meeting, the stockholders
will elect one director to hold office until the annual meeting of stockholders
in the year 2000 and until his successor is duly elected and qualified. The
nominee of the Board of Directors for election as a director is Dr. Sol
Lizerbram. Unless contrary instructions are given, the shares represented by the
enclosed proxy will be voted FOR the election of the nominee. The nominee has
consented to be named and has indicated his intent to serve if elected. If a
nominee at the time of election is unable or unwilling to serve or is otherwise
unavailable for election and, as a result, another nominee is designated, the
persons named in the enclosed proxy or other substitutes will have discretion
and authority to vote for or to refrain from voting for the other nominee in
accordance with their judgment. The nominee of the Board of Directors for
election as a director, along with those directors continuing in such capacity
following the Meeting, together with certain information about them, are listed
below. The offices referred to in the table are offices of the Company, unless
otherwise indicated.
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME A
NAME AND AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ---------------------------- -------- -----------------------------------------------------
<S> <C> <C>
NOMINEES FOR THE BOARD OF DIRECTORS:
Dr. Sol Lizerbram, 49 1986 Chairman of the Board since 1986 and President from
1986 until October 31, 1996.
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS -- TERMS EXPIRING IN 1998:
Dr. Kevin Ellis, 40 1988 Chief Medical Officer since April 1995; Chief
Operating Officer from 1988 until April 1995.
Dr. Herbert A. Wertheim, 57 1996 Founder, Chairman and Chief Executive Officer, Brain
Power Incorporated, a manufacturer of optical
instruments and chemicals, since 1971. Director,
Bacou USA, Inc. and Trustee, Florida International
University.
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME A
NAME AND AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ---------------------------- -------- -----------------------------------------------------
<S> <C> <C>
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS -- TERMS EXPIRING IN 1999:
Dr. Seth Flam, 38 1986 Chief Executive Officer since 1986 and President
since November 1, 1996.
Dr. Howard Hassman, 40 1986 Executive Vice President -- Corporate Development
since September 1994; Chief Financial Officer from
1986 to September 1994.
Sheldon Derezin, 49 1995 Managing Partner, Derezin, Breier & Company, a public
accounting firm, since 1982.
Dr. Stephen J. Dresnick, 46 1996 Vice Chairman of the Board since November 1, 1996 and
President and Chief Executive Officer, Sterling
Healthcare Group, Inc. since 1987. Director, Embassy
Acquisition Corp. and Trustee, Florida International
University.
</TABLE>
Pursuant to the terms of the Agreement and Plan of Merger dated May 19,
1996 by and among the Company, Sterling Acquisition Corporation and Sterling
Healthcare Group, Inc., Dr. Dresnick and Dr. Wertheim were appointed to the
Board of Directors until the dates of the 1999 and 1998 annual meetings of
stockholders of the Company, respectively.
Directors are elected by a plurality of votes of the shares of Common
Stock, present or represented at the Meeting and constituting a quorum.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee, a Long Term
Strategy Committee and a Nominating Committee. These committees were formed in
January 1995 following the Company's initial public offering.
The Audit Committee, comprising Drs. Wertheim (Chair) and Hassman, and Mr.
Derezin, reviews, with the Company's independent auditors, the scope and results
of such auditors' engagement, the Company's internal audit function and the
adequacy of the Company's management information systems and internal accounting
controls. The Audit Committee held one meeting in 1996.
The Compensation Committee consists of Mr. Derezin (Chair) and Dr.
Wertheim. The Compensation Committee reviews and approves the compensation of
the Company's executive officers and administers the Omnibus Plan. The
Compensation Committee held one meeting in 1996.
The Long Term Strategy Committee consists of Drs. Flam (Chair), Lizerbram
and Michael Feinstein (whose term as a director expires at the Meeting) and is
responsible for strategic planning for the Company. The Long Term Strategy
Committee held one meeting in 1996.
The Nominating Committee consists of Drs. Lizerbram (Chair), Ellis and
Flam. The Nominating Committee will consider written recommendations from
stockholders for nominees for election to the Board of Directors, provided that
such recommendations, together with (i) such information regarding each nominee
as would be required to be included in a proxy statement filed pursuant to the
Securities Exchange Act of 1934, (ii) a description of all arrangements or
understandings among the recommending stockholder and each nominee and any other
person with respect to such nomination and (iii) the consent of each nominee to
serve as a director of the Company if so elected, are received by the Secretary
of the Company by, in the case of an annual meeting of stockholders, not later
than the date specified in the most recent proxy statement of the Company as the
date by which stockholder proposals for consideration at the next annual meeting
of stockholders must be received and, in the case of a special meeting of
stockholders, not later than the tenth day after the giving of notice of such
meeting. The Nominating Committee held one meeting in 1996.
3
<PAGE> 7
The Board of Directors held eight meetings in 1996. During 1996, each
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and committees on which he served during his tenure as a director.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
service on the Board of Directors. Non-employee directors currently receive
$1,000 per Board of Directors or committee meeting attended. The Company also
reimburses directors for expenses incurred in connection with attendance at
meetings of the Board of Directors and committees.
In addition, under the Company's current Directors' Plan, non-employee
directors receive an annual grant of an option to purchase 5,000 shares of
Common Stock (following each annual meeting of stockholders) at a price equal to
the fair market value of Common Stock on the date the option is granted. A
proposal for consideration at the Meeting would increase the number of shares of
Common Stock subject to such annual option grants from 5,000 to 15,000. Each
option generally expires upon the earlier of twelve months after the optionee
ceases to be a director of the Company or ten years after the date of grant. The
purpose of the Director's Plan is to attract and retain independent directors
and to strengthen the mutuality of interests between such directors and the
Company's stockholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of April 1, 1997 by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors who owns shares of
Common Stock, (iii) each executive officer named in the table under the caption
"Executive Compensation" and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON STOCK BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OWNED
------------------------------------------------- ------------------ ------------
<S> <C> <C>
Sol Lizerbram(2)................................. 380,113 1.2%
Seth Flam........................................ 396,175 1.3%
Howard Hassman (3)............................... 396,600 1.3%
Kevin Ellis...................................... 410,600 1.3%
Michael Feinstein................................ 408,100 1.3%
Stephen Dresnick (4)............................. 1,869,159 6.0%
Sheldon Derezin.................................. 25,500 *
Steven Lash...................................... 140,692 *
Herbert Wertheim................................. 203,894 *
Foundation Health Corporation(5)................. 4,076,087 13.2%
All officers and directors as a group (11
persons)....................................... 4,267,383 13.8%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each of the persons named above
is in care of the Company at 3636 Nobel Drive, Suite 200, San Diego,
California 92122. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from April 1,
1997 upon the exercise of options or warrants. Each beneficial owner's
number of shares is determined by assuming that options or warrants that are
held by such person (but not those held by any other person) and that are
exercisable within 60 days from April 1, 1997 have been exercised. The total
outstanding shares used to calculate each beneficial owner's percentage
includes such options and warrants. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.
4
<PAGE> 8
(2) Shares attributable to Dr. Lizerbram are held by the Lizerbram Family Trust,
of which Dr. Lizerbram is Trustee and, together with his wife, the sole
beneficiaries.
(3) Shares attributable to Dr. Hassman are held by Hassman, L.P., a limited
partnership of which Clinical Partners Medical Group, P.C. is the General
Partner, of which Dr. Hassman is the sole shareholder.
(4) Shares attributable to Dr. Dresnick are held by a corporation and a limited
partnership in which Dr. Dresnick or a corporation owned by him is the sole
stockholder or limited and general partners.
(5) Foundation Health Corporation ("FHC") and the Company entered into a voting
agreement as of November 29, 1996 pursuant to which FHC has agreed to vote
its shares of Common Stock in accordance with the recommendation of the
Board of Directors of the Company as to all matters with respect to which
the Board makes a recommendation, except with respect to (a) any sale,
lease, assignment, transfer or other conveyance of all or substantially all
of the assets or capital stock of the Company, or any consolidation or
merger involving the Company, or any reclassification or other change of any
stock, or any recapitalization of the Company, and (b) any amendment of the
Certificate of Incorporation or By-laws of the Company if such amendment
would change any of the rights, preferences or privileges of Common Stock.
FHC sold all of the shares indicated subsequent to April 1, 1997.
5
<PAGE> 9
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth certain information regarding compensation
from the Company which was awarded to, earned by or paid to the Company's Chief
Executive Officer and certain of the other most highly compensated executive
officers in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
--------------------------------------------- SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) OPTIONS/SARS(#) COMPENSATION($)(3)
- ------------------------------- ---- ------------ --------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Seth Flam...................... 1994 $172,500 $ 4,953 50,000 $750,000
President, Chief Executive 1995 201,000 18,226 60,000 3,606
Officer and Director(4) 1996 296,048 800,000 14,727 671,000 1,204
Sol Lizerbram.................. 1994 150,000 7,010 50,000 757,030
Chairman of the Board of 1995 189,750 16,214 60,000 16,397
Directors(5) 1996 296,048 800,000 22,091 671,000 19,404
Stephen J. Dresnick............ 1994 262,000 205,635(6) 300,000
Vice Chairman of the Board 1995 325,000 303,349(7) 252,000
of Directors and President, 1996 330,208 1,592,859 722,502(8) 481,250
Sterling Healthcare Group,
Inc.
Steven Lash(9)................. 1994 68,974 3,676 269,274 773
Executive Vice President 1995 205,000 50,000 11,645 20,000 7,246
and Chief Financial Officer 1996 257,583 800,000 8,431 437,250 113,125
Howard Hassman................. 1994 150,000 7,368 50,000 754,941
Executive Vice President -- 1995 174,750 16,815 60,000 6,566
Corporate Development and 1996 232,465 800,000 22,150 303,000 7,026
Director
</TABLE>
- ---------------
(1) Includes compensation accrued for the benefit of Drs. Flam, Lizerbram,
Dresnick and Hassman of $68,546, $68,546, $42,706 and $32,965, respectively,
and $47,583 for the benefit of Mr. Lash as of December 31, 1996, that was
paid in March 1997.
(2) Includes payment by the Company of auto expenses.
(3) Includes a stock dividend received by Drs. Flam, Lizerbram and Hassman,
which stock was subsequently redeemed for $750,000. Includes stock received
by Mr. Lash in 1996 valued at $106,500 and taxable income resulting from the
exercise of non-qualified stock options received by Dr. Dresnick in 1996 in
the amount of $481,250. Also includes life and disability insurance premiums
paid on behalf of each such officer.
(4) Dr. Flam was elected President effective November 1, 1996.
(5) Dr. Lizerbram served as President until November 1, 1996.
(6) $80,635 of such amount was accrued for Dr. Dresnick's benefit as of December
31, 1994 and paid to Dr. Dresnick in February 1995.
(7) $68,807 of such amount was accrued for Dr. Dresnick's benefit as of December
31, 1995 and paid to Dr. Dresnick in April 1996.
(8) Includes 572,502 options granted by the Company after completion of the
merger with Sterling Healthcare Group, Inc. to replace options previously
granted to Dr. Dresnick by Sterling Healthcare Group, Inc.
(9) Mr. Lash commenced employment with the Company on September 1, 1994.
6
<PAGE> 10
STOCK OPTION GRANTS IN 1996
The following table sets forth information concerning stock options granted
to the named executive officers in 1996.
OPTION GRANTS DURING 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
SHARES OPTIONS/SARS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM(3)
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) DURING YEAR ($/SH)(2) DATE 5%($) 10%($)
- -------------------- ------------ ------------ -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Seth Flam........... 100,000(A) 2.26% $10.8125 3/12/06 $ 679,992 $ 1,723,234
51,000(B) 1.15 13.7500 7/10/06 440,859 1,117,137
120,000(C) 2.72 17.0000 7/26/06 1,282,945 3,251,234
400,000(D) 9.05 19.0625 11/29/06 4,795,322 12,152,286
Sol Lizerbram....... 100,000(A) 2.26 10.8125 3/12/06 679,992 1,723,234
51,000(B) 1.15 13.7500 7/10/06 440,860 1,117,137
120,000(C) 2.72 17.0000 7/26/06 1,282,945 3,251,235
400,000(D) 9.05 19.0625 11/29/06 4,785,322 12,152,286
Stephen J.
Dresnick.......... 95,100(E) 2.15 21.2300 9/08/01 308,522 898,266
95,100(F) 2.15 14.4600 5/06/07 1,692,236 3,626,956
1,902(F) 0.04 13.1400 6/01/00 18,764 26,708
95,100(F) 2.15 11.4400 4/03/00 1,082,683 1,457,566
285,300(F) 6.46 12.6200 10/31/06 5,374,489 10,690,662
150,000(D) 3.39 19.0625 11/29/06 1,796,246 4,557,107
Steven Lash......... 80,000(A) 1.81 10.8125 3/12/06 543,994 1,376,587
47,250(B) 1.07 13.7500 7/10/06 408,444 1,034,995
60,000(C) 1.36 17.0000 7/26/06 641,473 1,625,617
250,000(D) 5.66 19.0625 11/29/06 2,997,076 7,595,179
Howard Hassman...... 60,000(A) 1.36 10.8125 3/12/06 407,996 1,033,940
45,000(B) 1.02 13.7500 7/10/06 388,993 985,709
48,000(C) 1.09 17.0000 7/26/06 513,178 1,300,494
150,000(D) 3.39 19.0625 11/20/06 1,798,246 4,557,107
</TABLE>
- ---------------
(1) A. One-fourth of these options vest on each of March 12, 1998, 1999, 2000
and 2001.
B. One-third of these options vest on each of August 1, 1997, 1998 and
1999.
C. One-third of these options vest on each of July 26, 1999, 2000 and
2001.
D. One-tenth of these options vest on each of the first through tenth
anniversaries of the date of grant, November 29, 1996, upon achievement
of earnings per share targets.
E. One-half of these options have vested and the balance vest on September
6, 1997.
F. These options have vested.
(2) The option exercise price may be paid in shares of Common Stock, in cash, or
in any other form of valid consideration or a combination of any of the
foregoing, as determined by the Compensation Committee of the Company's
Board of Directors in its discretion.
(3) The potential realizable value portion of the foregoing table illustrates
value that might be realized should the granted options be exercised
immediately prior to their expiration date and assumes the respective rates
of appreciation on Common Stock of the Company compound annually until such
exercise. These figures make no allowance for any reduction of potential
value which may be caused because of the termination of the options
following termination of employment, nontransferability or vesting over
periods of up to 10 years.
7
<PAGE> 11
AGGREGATED STOCK OPTION EXERCISES IN 1996 AND STOCK OPTION VALUES AT DECEMBER
31, 1996
The following tables set forth information concerning the number of stock
options granted during 1996 and the value of unexercised options to purchase
Common Stock held by the named executive officers at December 31, 1996. None of
the named executive officers exercised any stock options during 1996.
OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBERS OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS
ACQUIRED ON VALUE YEAR END (#) AT YEAR END ($)(1)
EXERCISE REALIZED --------------------------- -----------------------
NAME (#) (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Seth Flam..................... 0 $0 37,000 744,000 $ 597,063 $4,614,000
Sol Lizerbram................. 0 0 37,000 744,000 597,063 4,616,000
Stephen J. Dresnick........... 0 0 524,952 197,550 4,171,533 982,376
Steven Lash................... 0 0 131,456 595,068 2,261,332 5,130,052
Howard Hassman................ 0 0 37,000 376,000 597,063 2,907,625
</TABLE>
- ---------------
(1) The closing price for Common Stock as reported on the Nasdaq National Market
on December 31, 1996 was $22.375. Value is calculated on the basis of the
difference, if any, between the option exercise price and $22.375,
multiplied by the number of shares of Common Stock issuable upon exercise of
the option.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Committee") made
all recommendations regarding salaries and incentive compensation for the
executive officers during 1996.
The Committee is composed entirely of outside, nonmanagement directors. No
member of the Committee is a former or current officer of the Company. The
Committee employed in 1996, and the Committee will employ in 1997, the following
policies for determining compensation for the Company's executive officers.
Goals
The goals of the Company's compensation program continue to be to attract
and retain executive officers, motivate such officers to achieve the Company's
business objectives and to contribute to the long-term success of the Company,
foster teamwork and reward officers for the achievement of such goals. The
Company utilizes salary and performance-based bonuses and stock options to meet
these goals.
Specifically, the Company seeks to:
- provide rewards which are closely linked to Company, team and individual
performance;
- align the interests of the Company's employees with those of its
stockholders; and
- ensure that compensation and benefits are at levels which enable the
Company to attract and retain high-quality employees.
The Company applies these objectives and policies to most employees through
a combination of base salaries, performance-based cash incentive opportunities
and stock option grants based upon pre-established revenue and profit targets,
significant corporate achievements and other subjective job performance
criteria.
The Company has considered and will continue to consider the potential
impact of Section 162(m) of the Internal Revenue Code adopted under the Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any
publicly held corporation for individual compensation exceeding $1 million in
any taxable year for the named executive officers, unless compensation is
performance-based. Since any options granted under the Company's stock option
plan will meet the requirements for being performance-based, the Company
believes that the impact of this section will not be material to the Company.
The Company's policy
8
<PAGE> 12
is to qualify to the maximum extent possible its executives' compensation for
deductibility under applicable tax laws, while maintaining appropriate
flexibility in administration of the Company's overall compensation program.
Base Salary and Bonus
Executive officer base salary and individual performance-based bonus awards
are determined by reference to Company-wide and individual performance for the
previous fiscal year, based on a wide range of quantitative and qualitative
measures which permit comparisons with competitors' performance and internal
earnings and market share targets set before the start of each year. In addition
to Company-wide measures of performance, the Company considers those performance
factors particular to each executive officer, the performance of the group or
groups for which such officer had management responsibility and individual
managerial accomplishments.
The Company relies heavily, but not exclusively, on these quantitative and
qualitative measures in setting compensation for all officers and, in
particular, the executive officers. The Company also exercises subjective
judgment and discretion in light of these measures and in view of the Company's
compensation objectives and policies described above to determine base salaries,
overall bonus funds and individual bonus awards.
Stock Options and Stock Grants
In addition to base salary and bonus, the Company may utilize stock options
and stock grants to motivate and retain executive officers. The Company believes
that this form of compensation closely aligns the officers' interests with those
of stockholders and provides a major incentive to officers in building
stockholder value. Options are granted annually and are subject to vesting
provisions to encourage officers to remain employed with the Company. During the
past fiscal year, each executive officer received stock options in amounts based
upon a determination of that officer's relative position, responsibilities,
performance during the previous fiscal year and anticipated performance in the
upcoming year. The Company also reviews the total holdings of the executive
officers and the prior level of grants to the officers and other members of
senior management, including the number of shares which continue to be subject
to vesting under outstanding options, in setting the level of options to be
granted to the executive officers.
Compensation of the Chief Executive Officer
The Company's approach in establishing Dr. Flam's annual compensation was
governed by the Company's overall compensation strategy as discussed above.
This report was provided by the following members of the Compensation
Committee for 1996:
Sheldon Derezin
Dr. Herbert Wertheim
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYEE AND CHANGE IN CONTROL
ARRANGEMENTS
The Company entered into employment agreements with Drs. Flam, Lizerbram
and Hassman and Mr. Lash as President and Chief Executive Officer; Chairman;
Executive Vice President - Corporate Development; and Executive Vice President
and Chief Financial Officer, respectively, each effective as of October 1, 1996
and terminating on December 31, 2002, subject to two automatic one-year
extensions unless notice by either party is given. Pursuant to these agreements
as amended, Drs. Flam, Lizerbram and Hassman and Mr. Lash receive annual base
salaries, commencing October 1, 1996, of $425,000, $425,000, $250,000 and
$325,000, respectively. Such salaries will be subject to annual increases after
1997 as determined subjectively by the Compensation Committee of the Company's
Board of Directors based on individual performance and the Company's results of
operations. In addition, each of the executives will be entitled to a bonus
calculated as a percentage of base salary based on pre-established performance
targets for each year.
The employment agreements generally provide that if the executive is
terminated other than for cause, the executive is entitled to full salary and
benefits through December 31, 2002. In the event of a change in
9
<PAGE> 13
control of the Company, each of the executives will be entitled to payments
equal to approximately three times the previous year's base salary and bonus.
The employment agreements also provide each of the executives with a car
allowance, professional fees, term life insurance, vacation, medical insurance,
disability insurance and liability insurance. In addition, each of the
employment agreements contains a covenant of the executive not to compete with
the Company during employment and for five years thereafter.
Dr. Dresnick has entered into an employment agreement, terminating on
October 31, 1999, pursuant to which he receives an annual base salary of
$325,000, which salary is subject to annual increases at the discretion of the
Board of Directors of Sterling Healthcare Group, Inc., and an annual bonus based
on the net income, before taxes, of Sterling Healthcare Group, Inc. Dr. Dresnick
is not entitled to any compensation in the event of a change in control or
nonrenewal of his employment agreement upon termination. The employment
agreement provides Dr. Dresnick with a car allowance, vacation and medical
insurance and contains a covenant of Dr. Dresnick not to compete with Sterling
Healthcare Group, Inc. during employment and for two years thereafter.
10
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following performance graph compares the performance of Common Stock
(the Company is listed on the Nasdaq National Stock Market under the symbol
"FPAM") to the Nasdaq Stock Market U.S. Index and the Nasdaq Stock Market Health
Services Index (the "Indices") from October 20, 1994, the date of the Company's
initial public offering of Common Stock, until December 31, 1996. The graph is
based on publicly available information. The graph assumes an investment of $100
in Common Stock and in each of the Indices on October 20, 1994 and assumes
reinvestment of dividends.
Nasdaq Health
FPAM Nasdaq (US) Service Stocks
---- ----------- ---------------
"10/20/94" 100 100 100
"12/30/94" 125 98.27 97.74
"3/31/95" 225 107.13 107.1
"6/30/95" 200 122.54 91.18
"9/29/95" 185 137.3 107.03
"12/29/95" 187.5 138.97 124.13
"3/19/96" 250 145.46 129.44
"6/28/96" 311.25 157.34 141.1
"9/30/96" 527.5 162.93 140.57
"12/31/96" 447.5 170.92 124.28
11
<PAGE> 15
AMENDMENTS TO 1995 NON-EMPLOYEE DIRECTORS'
NON-QUALIFIED STOCK OPTION PLAN
At the Meeting, a proposal will be presented to the stockholders to approve
an amendment to the Directors' Plan to increase "formula" grants to directors
and members of committees for full and partial year service, and to require
stockholder approval of amendments on modifications to the Directors' Plan only
when required by applicable laws or regulations (the "Amendment"). The text of
the Amendment is set forth in full at Exhibit A hereto.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THIS AMENDMENT.
The proposal to approve the Amendment to the Directors' Plan will become
effective if it receives the affirmative vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy and entitled to
vote at the Meeting.
INCREASE IN ANNUAL GRANTS TO INCUMBENT DIRECTORS
The Amendment will increase (from 5,000 to 15,000) the number of shares of
Common Stock that may be purchased pursuant to the automatic grant of an option
(an "Annual Option") to each non-employee director after an annual meeting of
stockholders of the Company. On April 15, 1997, each of Mr. Derezin and Dr.
Wertheim were granted, subject to stockholder approval of the Amendment, options
to purchase 10,000 shares of Common Stock. As the current non-employee directors
of the Company, following the Meeting Mr. Sheldon Derezin and Dr. Herbert A.
Wertheim would also each receive an Annual Option to purchase 15,000 shares of
Common Stock, subject to the approval of the stockholders of the Amendment.
INCREASE IN ANNUAL GRANTS TO NON-INCUMBENT DIRECTORS
The Amendment will increase (from 2,500 to 7,500) the number of shares of
Common Stock that may be purchased pursuant to the automatic grant of an option
to each non-employee director elected after an annual meeting of stockholders of
the Company to fill a vacancy on the Board of Directors.
The event of future vacancies on the Board of Directors, if any, is not
determinable. As a result, the benefits and amounts that may be received by
non-employee directors elected to fill such vacancies are not presently
identifiable.
ANNUAL GRANTS FOR COMMITTEE SERVICE
The Amendment provides for the grant to each non-employee director of an
option (a "Committee Option") to purchase an additional 2,500 (3,500 if a
committee chairperson) shares of Common Stock for each committee of the Board of
Directors on which such non-employee director serves.
The Committee Options would be granted following each annual meeting of
stockholders with an exercise price equal to the fair market value of Common
Stock on the date any such option is granted. Each Committee Option generally
would expire upon the earlier of from one month to twelve months after the
optionee ceases to be a director of the Company, depending upon the
circumstances, or ten years after the date of grant.
On April 15, 1997, each of Mr. Derezin and Dr. Wertheim were granted,
subject to stockholder approval of the Amendment, options to purchase 6,000
shares of Common Stock. As the current non-employee directors of the Board of
Directors, Mr. Derezin would also receive Committee Options to purchase 6,000
shares of Common Stock for the one committee for which he is a member and the
one committee for which he is a chairperson and Dr. Wertheim would also receive
Committee Options to purchase 6,000 shares of Common Stock for the one committee
for which he is a member and the one committee for which he is a chairperson.
12
<PAGE> 16
STOCKHOLDER APPROVAL OF AMENDMENTS AND MODIFICATIONS
Currently, the Directors' Plan requires stockholder approval for any plan
amendment that (i) materially increases the aggregate number of shares of Common
Stock that may be issued under the Directors' Plan, (ii) materially modifies the
requirements as to eligibility to participate in the Directors' Plan, or (iii)
materially increases the benefits accruing to non-employee directors under the
Directors' Plan. These provisions were originally included in the Directors'
Plan in order to satisfy certain conditions for an exemption then available
under Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934 (the
"1934 Act") with respect to application of the short-swing profit recovery rules
of the 1934 Act to grants of options or awards under the Directors' Plan. In
light of subsequent amendments to Rule 16b-3, such provisions are no longer
necessary to satisfy an exemption under the 1934 Act.
Pursuant to the Amendment, stockholder approval for any amendment to the
Directors' Plan would be solicited only as required to comply with applicable
laws or regulations such as the regulations of the Nasdaq National Stock Market
or for tax purposes under the Internal Revenue Code of 1986, as amended.
GENERAL DESCRIPTION
The Directors' Plan was approved by the stockholders of the Company on July
13, 1995. The purpose of the Directors' Plan is to enable the Company to attract
and retain independent directors and to strengthen the mutuality of interests
between such directors and the Company's stockholders. The options granted under
the Directors' Plan are nonqualified stock options. The Plan is administered by
the Board of Directors and the maximum aggregate number of shares that may be
issued under the Plan, subject to certain limited exceptions, is 200,000 shares
of Common Stock.
The amended Directors' Plan provides that, under the terms of the amended
Directors' Plan, the option exercise price shall be the fair market value of the
underlying stock on the date of the grant and the option expires upon the
earlier of from one month to twelve months after a director's termination of
service, depending upon the circumstances, or ten years from the date of grant.
The Company has undertaken not to "re-price" any options once granted under the
Directors' Plan due to changes in market price for the Common Stock. Options
granted pursuant to the Director's Plan generally become exercisable on the
first anniversary of the date of the grant. On April 1, 1997, the closing price
of Common Stock on the Nasdaq National Market was $19.81. On April 1, 1997, the
Company had two non-employee directors, both of whom were eligible to receive
options under the Directors' Plan.
Under the Directors' Plan, the price payable upon exercise of options may
be paid in cash or check acceptable to the Company, or by any other
consideration as the Board of Directors deems acceptable. The exercise price may
also be paid in shares of Common Stock duly owned by the optionee and having a
fair market value equal to the option price on the date of exercise.
At April 1, 1997, options to purchase 25,000 shares of Common Stock
pursuant to the Directors' Plan were outstanding, and options to purchase 5,000
shares had been exercised. Options are typically granted on an automatic,
non-discretionary basis to each non-employee director for service on the Board
of Directors. If the proposal noted above regarding committee service is
approved, such grants will also be made for service by non-employee directors on
committees of the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options. The grant by the Company of a non-qualified
stock option to a non-employee director for service to the Company is not a
taxable event to the optionee. Generally, such an optionee will recognize
ordinary income on the date option shares are issued pursuant to an exercise of
the option in an amount equal to the "spread" (the excess of the fair market
value of the shares on the date of exercise date over the exercise price). Any
further gain or loss on disposition of the shares may be capital gain or loss if
the shares are held by the optionee as a capital asset.
The Company will be entitled to deduct for federal income tax purposes any
amount the optionee is required to include in ordinary income at the time such
amount is so includable, provided that such amount is
13
<PAGE> 17
not deemed to be an "excess parachute payment" (i.e., payment payable upon a
change of control of the Company that is in excess of reasonable compensation).
AMENDMENT TO AMENDED OMNIBUS STOCK OPTION PLAN
At the Meeting, a proposal will be presented to the stockholders to approve
an amendment to the Omnibus Plan (i) to increase from 6,500,000 to 8,500,000 the
number of shares of the Company's Common Stock for which options may be granted
under the Omnibus Plan and (ii) to require stockholder approval of any
amendments or modifications to the Omnibus Plan only as required by applicable
laws or regulations. The Omnibus Plan was approved by the stockholders of the
Company on March 4, 1994 and amended by the stockholders on September 21, 1994,
July 13, 1995, June 6, 1996, October 31, 1996 and March 17, 1997. The text of
the proposed amendment to the Omnibus Plan is set forth in full at Exhibit B
hereto.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THIS AMENDMENT.
The proposal to approve the amendment to the Omnibus Plan will become
effective if it receives the affirmative vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy and entitled to
vote at the Meeting.
Currently, the Omnibus Plan requires stockholder approval for any plan
amendment that (i) materially increases the aggregate number of shares of Common
Stock that may be issued under the Omnibus Plan, (ii) materially modifies the
requirements as to eligibility to participate in the Omnibus Plan, or (iii)
materially increases the benefits accruing to participants under the Omnibus
Plan. These provisions were originally included in the Omnibus Plan in order to
satisfy certain conditions for an exemption then available under Rule 16b-3 with
respect to application of the short-swing profit recovery rules of the 1934 Act
to certain grants of options or awards under the Omnibus Plan. In light of
subsequent amendments to Rule 16b-3, such provisions are no longer necessary to
satisfy the terms of an exemption under the 1934 Act.
Pursuant to the amendment, stockholder approval for any amendments to the
Omnibus Plan will be obtained only as required to comply with applicable laws or
regulations such as the regulations of the Nasdaq National Stock Market or for
tax purposes under the Internal Revenue Code of 1986, as amended.
The purpose of the Omnibus Plan is to enable the Company to attract, retain
and reward employees and directors of, and consultants to, the Company and to
strengthen the mutuality of interests between such persons and the Company's
stockholders. The Omnibus Plan is administered by the Compensation Committee of
the Board of Directors which committee consists of two or more members, all of
whom are "non-employee directors" for purposes of Rule 16b-3.
Under the amended Omnibus Plan, options to purchase up to 8,500,000 shares
of Common Stock may be granted to employees and directors of, and consultants
to, the Company and certain of its subsidiaries. The Omnibus Plan provides for
the grant of both incentive stock options (options that satisfy the requirements
of Section 422 of the Internal Revenue Code) and nonqualified options. Under the
terms of the amended Omnibus Plan, the option exercise price may not be less
than the fair market value of the underlying stock at the time the option is
granted and the option expires upon the earlier of from one month to twelve
months after the employee's termination, depending upon the circumstances, an
expiration date fixed by the Compensation Committee and set forth in each
individual option agreement, or ten years from the date of grant. Options
granted pursuant to the Omnibus Plan will be exercisable at such times as the
Compensation Committee shall determine. The Company has undertaken not to
"re-price" any options once granted under the Omnibus Plan due to changes in
market price for the Common Stock. On April 1,1997, the closing price of Common
Stock on the Nasdaq National Market was $19.81. On April 1, 1997, the Company
had approximately 4,000 employees, all of whom were eligible to receive options
under the Omnibus Plan.
Under the amended Omnibus Plan, the price payable upon exercise of options
may be paid in cash or check acceptable to the Company, or by any other
consideration as the Committee deems acceptable. The exercise price may also be
paid in shares of Common Stock duly owned by the optionee having a fair market
value equal to the option price on the date of exercise.
14
<PAGE> 18
At April 1, 1997, options to purchase 5,860,059 shares of Common Stock
pursuant to the Omnibus Plan were outstanding, and options to purchase 309,388
shares had been exercised. The individuals who receive options and the number of
shares of Common Stock included in each grant are within the discretion of the
Compensation Committee. Certain information regarding grants that were made
under the Omnibus Plan since January 1, 1996 are shown below:
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
OPTIONS GRANTED
NAME OR GROUP SINCE JANUARY 1, 1996
- --------------------------------------------------------------------- ---------------------
<S> <C>
Dr. Seth Flam........................................................ 671,250
Dr. Sol Lizerbram.................................................... 671,250
Dr. Stephen J. Dresnick.............................................. 722,502
Steven M. Lash....................................................... 437,250
Dr. Howard Hassman................................................... 303,250
Executive Officers (as a group)...................................... 3,345,252
Non-Executive Officers (as a group).................................. -0-
Directors and Nominees for Election as Directors..................... 2,817,853
Associates of Directors, Nominees or Executive Officers (as a
group)............................................................. -0-
Persons Who Received or Are to Receive 5% of Options................. 3,108,752
Other Employees...................................................... 1,308,969
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. It is intended that certain options granted under
the Omnibus Plan will qualify as "incentive stock options" to the degree
possible under the Code. This means that the optionee will not realize taxable
income upon the grant or exercise of the option. However, any excess of the fair
market value of the option stock on the date of exercise over the option price
will constitute an item of tax preference for purposes of the alternative
minimum tax and may cause the optionee to incur a liability for such tax in the
year of exercise.
If the optionee holds the stock purchased on exercise of the option until
at least (a) one year after it is purchased and (b) two years after the option
is granted, any profit or loss recognized on disposition of the stock will be
treated as a long-term capital gain or loss. If, however, the optionee disposes
of the stock within either the one or two-year period, the optionee generally
will be required to include in ordinary taxable income upon disposition of the
stock an amount equal to the lesser of (a) the amount, if any, by which the fair
market value of such stock on the date the option was exercised exceeded the
option price, or (b) the amount, if any, by which the amount realized from such
disposition exceeds the option price; any additional gain would be long-term or
short-term capital gain, depending upon how long the stock was held. But, for
certain dispositions of stock made within either the one or two-year period by
way of gift or by way of sale to a person or entity related to the optionee, the
optionee may be required to include in ordinary taxable income the full amount
described in (a), regardless of the amount realized from such disposition.
The one and two-year requirements do not apply to the disposition of stock
after an optionee's death by (a) the optionee's estate or (b) a person who
acquires the right to exercise the option by reason of the optionee's death. In
such cases, the stock may be disposed of any time after receipt and receive
preferential tax treatment subject to the general holding period rules for
capital gains.
Options granted under the Omnibus Plan may be exercised by the transfer to
the Company of shares of Common Stock with a fair market value equal to the
option's exercise price. If the optionee transfers incentive stock option shares
to the Company before both the one and two-year holding periods have expired,
the transfer will be treated as a disposition of such shares with the tax
consequences described above. If the shares so transferred are not incentive
stock option shares or, if they are such shares and both the one and two-year
periods have expired, such transfer to the Company will not be a taxable event.
15
<PAGE> 19
Generally, the Company will not be entitled to any tax deduction in
connection with the grant or exercise of an incentive stock option. If, however,
the optionee disposes of stock acquired upon exercise of such an option before
the one and two-year periods have expired, the Company will be entitled to
deduct, when the optionee disposes of the stock, any amount the optionee is
required to include in ordinary taxable income.
Non-Qualified Stock Options. As discussed above with respect to the
Directors' Plan, the grant by the Company of non-qualified stock options to
persons serving the Company is not a taxable event to the optionee. Generally,
an optionee recognizes ordinary income on the date option shares are issued
pursuant to the exercise of the option in an amount equal to the "spread" (the
excess of the fair market value of the shares on that date over the exercise
price). Any further gain or loss on disposition of the shares will be capital
gain or loss if the shares are held by the optionee as a capital asset.
The Company will be entitled to deduct for federal income tax purposes any
amount the optionee is required to include in ordinary income at the time such
amount is so includable, provided that such amount is not deemed to be an
"excess parachute payment" (i.e., payment payable upon a change of control of
the Company that is in excess of reasonable compensation).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the directors, certain officers of
the Company and beneficial owners of more than ten percent of Common Stock to
file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission. Based solely upon a review of the copies of
such forms furnished to the Company and the representations made by such persons
to the Company, the Company believes that during the last fiscal year its
directors, officers and ten percent beneficial owners complied with all
reporting requirements under Section 16(a) of the 1934 Act.
CERTAIN TRANSACTIONS
Dr. Samuel Lizerbram, the brother of Dr. Sol Lizerbram, and Dr. Joseph
Hassman, the father of Dr. Howard Hassman, are the President and a member of the
Board of Directors, respectively, of the Greater Delaware Valley Independent
Physicians Association, Inc., a group of approximately 400 physicians providing
services for the Company's affiliated professional corporations in Pennsylvania
and New Jersey. Dr. Joseph Hassman is a non-shareholder physician with
PrimeCare, Inc. a majority-owned subsidiary of the Company, and, as such,
received certain options in connection with the Company's acquisition of
PrimeCare, Inc.
Effective October 1, 1996, one of the Company's affiliated professional
corporations and the Company acquired substantially all of the assets and
assumed certain liabilities of Family Practice Associates of San Diego, an
Osteopathic Corporation ("FPASD"), for aggregate consideration of approximately
$4,200,000. FPASD is owned by Drs. Flam, Lizerbram, Hassman, Feinstein and
Ellis. The purchase price was supported by an independent valuation and approved
by a committee of the independent directors of the Company. During 1995, FPA
entered into a loan agreement with FPASD under which FPASD was permitted to
borrow a maximum of $650,000 for working capital purposes. This loan replaced a
previous loan with a maximum balance of $155,000. At December 31, 1995 and 1996,
the balance was $300,086 and $0, respectively.
RATIFICATION OF APPOINTMENT OF AUDITORS
Deloitte & Touche LLP has been selected by the management of the Company to
continue as its independent auditors for the fiscal year ending December 31,
1997. Services provided to the Company and its subsidiaries by Deloitte & Touche
LLP for the year ended December 31, 1996 included the examination of the
Company's consolidated financial statements, timely interim reviews with limited
procedures of quarterly reports, third party review, services related to filings
with the Securities and Exchange Commission and consultation on various tax
matters. Representatives of Deloitte & Touche LLP are expected to be present at
the Meeting, will have the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions and to
make such statements as they may desire.
16
<PAGE> 20
Ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1997 will require the
affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Meeting. In the
event stockholders do not ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current year, such appointment will be
considered by the Audit Committee and the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL.
OTHER MATTERS
Management does not know of any matters other than those referred to in
this Proxy Statement that may come before the Meeting. However, if any other
matters should properly come before the Meeting, the persons named in the
accompanying proxy will have discretionary authority to vote all proxies with
respect to such matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the annual meeting of
stockholders in 1998 must be received by the Secretary of the Company at the
Company's principal office in San Diego, California, prior to March 1, 1997 in
order to be considered for inclusion in the Company's proxy statement and form
of proxy relating to that meeting. Proposals must be in writing and sent via
registered, certified or express mail. Facsimile or other forms of electronic
submissions will not be accepted.
EXPENSES OF PROXY SOLICITATION
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and regular
employees of the Company or its subsidiaries may solicit proxies by written
communication, telephone, telegraph or personal call. Such persons are to
receive no special compensation for any solicitation activities. The Company
will reimburse banks, brokers and other persons holding Common Stock in their
names, or those of their nominees, for their expenses in forwarding proxy
solicitation materials to beneficial owners of Common Stock.
17
<PAGE> 21
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON SOLICITED BY THIS
PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND THE
SCHEDULES THERETO, BUT EXCLUDING EXHIBITS) AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD
BE DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT AT THE ADDRESS OF THE COMPANY
APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
By Order of the Board of Directors,
/s/ JAMES A. LEBOVITZ
JAMES A. LEBOVITZ
Secretary
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO
COMPLETE, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING
ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY
EVEN THOUGH THEY HAVE SENT THEIR PROXIES.
18
<PAGE> 22
EXHIBIT A
AMENDMENT TO NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
(i) The second sentence of Section 6.2 of the Company's 1995 Non-Employee
Directors' Non-Qualified Stock Option Plan, as amended, will be amended to read
in full as follows:
Thereafter, for as long as the Plan remains in effect, each Director(1)
shall automatically be granted Stock Options on the thirteenth trading day
after the date of the annual meeting of stockholders of the Company to
purchase 15,000 shares of Common Stock; provided, however, that an
individual who ceases to be a Director on such date shall not be entitled
to receive any Stock Options.
(ii) The third sentence of Section 6.2 of the Company's 1995 Non-Employee
Directors' Non-Qualified Stock Option Plan, as amended, will be amended to read
in full as follows:
If a new Director is elected after the date of the annual meeting of
stockholders to fill a vacancy on the Board, such new Director shall
automatically be granted Stock Options for 7,500 shares of Common Stock on
the date of such election.
(iii) Section 6.2 of the Company's 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan, as amended, will be amended by adding as the
last sentence thereto the following:
Each Director shall automatically be granted Stock Options on the
thirteenth trading day after the date of the annual meeting of stockholders
of the Company to purchase (1) 2,500 shares of Common Stock for each
committee upon which he/she serves as a member and (2) 3,500 shares of
Common Stock for each committee upon which he/she serves as chairperson.
(iv) Section 7.1 of the Company's 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan, as amended, will be amended to read in full as
follows:
7.1 Termination or Amendment of the Plan. The Board may at any time amend,
discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX); provided, however, that,
unless otherwise required by law, the rights of a Director with respect to
Awards granted prior to such amendment, discontinuance or termination, may
not be impaired without the consent of such Director and, provided further,
that no amendment may be made without the approval of the Company's
stockholders if such stockholder approval is required by applicable laws or
regulations.
- ---------------
1The term "Director" as defined in the 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan means any individual who is a member of the
Board who is not otherwise an officer or employee of the Company's subsidiaries
for a period of at least one year prior to the date of the grant of any Stock
Option pursuant to the Plan.
A-1
<PAGE> 23
EXHIBIT B
AMENDMENT TO OMNIBUS STOCK OPTION PLAN
(i) Section 7.1 of the Company's Omnibus Stock Option Plan, as amended,
will be amended to read in full as follows:
7.1 Termination or Amendment of the Plan. The Committee may at any time
amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX); provided, however, that,
unless otherwise required by law, the rights of a Participant with respect
to Awards granted prior to such amendment, discontinuance or termination,
may not be impaired without the consent of such Participant and, provided
further, that no amendment may be made without the approval of the
Company's stockholders if such stockholder approval is required by
applicable laws or regulations.
(ii) Section 4.1 of the Company's Omnibus Stock Option Plan, as amended,
will be amended to read in full as follows:
4.1 Shares. The maximum aggregate number of shares of Common Stock which
may be issued under the Plan shall be 8,500,000 shares of Common Stock
(subject to any increase or decrease pursuant to Section 4.2), which may be
either authorized and unissued Common Stock or issued Common Stock
reacquired by the Company. If any Option granted under the Plan shall
expire, terminate or be canceled for any reason without having been
exercised in full, the number of unpurchased shares shall again be
available for the purposes of the Plan.
B-1
<PAGE> 24
FPA MEDICAL MANAGEMENT, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
JULY 24, 1997, 9:00 A.M.
The undersigned hereby appoints Dr. Seth Flam, Steven Lash and James A.
Lebovitz and or any of them, each with full power of substitution, as the
lawful proxies and agents of the undersigned with full power to vote, as
designated below, all of the shares of Common Stock of FPA Medical Management,
Inc. ("FPA") that the undersigned would, if personally present, be entitled to
vote at the Annual Meeting of Stockholders of FPA to be held at 9:00 a.m.
Pacific Daylight Time on July 24, 1997, and at any adjournments or
postponements thereof:
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 25
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
FOR WITHHOLD AUTHORITY
1. Election of Director [ ] [ ] Election of Dr. Sol Lizerbram
as a Director to serve until
the Annual Meeting of
Stockholders in 2000 and
until his successor is duly
elected and qualified.
FOR AGAINST ABSTAIN
2. Approval and adoption of the proposed amendment to [ ] [ ] [ ]
the FPA 1995 Non-Employee Directors' Non-Qualified
Stock Option Plan (i) to increase the number of
shares of Common Stock that may be purchased
pursuant to the automatic grant of an option to
each non-employee director following each annual
meeting of stockholders; (ii) to increase the
number of shares of Common Stock that may be
purchased pursuant to an option automatically
granted to any non-employee director who is elected
after the date of an annual meeting of stockholders
to fill a vacancy on the Board of Directors; (iii)
to grant to each non-employee director annually the
option to purchase additional shares of Common
Stock for each committee of the Board on which such
non-employee director serves; and (iv) to require
approval by the FPA stockholders of any amendments
or modifications thereto only as required by
applicable laws and regulations.
3. Proposed amendment to the FPA Amended Omnibus Stock [ ] [ ] [ ]
Option Plan (i) to increase the number of shares of
the Company's Common Stock for which options may be
granted under the Omnibus Plan; and (ii) to require
approval by the FPA stockholders of any amendments
or modifications thereto only as required by
applicable laws and regulations.
4. Proposal to ratify the selection of Deloitte & [ ] [ ] [ ]
Touche LLP as independent auditors for the year
ending December 31, 1997.
5. The undersigned confers upon the proxies discretion to act upon all other
matters that may properly be brought before the Annual Meeting or any
adjournments or postponements thereof.
Please mark, sign, date and return this proxy card promptly, using the enclosed
envelope.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED. IF NO
DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ABOVE FOUR PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement relating to the meeting. Please sign your
name or names exactly as the name or names appear hereon. All joint owners
should sign. Trustees, executors, administrators and other acting in
representative capacities should indicate the capacity in which they are
signing. If a corporation, sign in full corporate name by authorized offer.
If a partnership, sign in partnership name by authorized person.
SIGNATURE(S) _______________________________________ DATED: _____________, 1997
Please date and sign your proxy and return it promptly whether or not you plan
to attend the Special Meeting. If you do attend, you may still vote in person
if you desire.
