<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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
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.
3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
------------------------
LOGO
The 1998 Annual Meeting of Stockholders (the "Meeting") of FPA Medical
Management, Inc., a Delaware corporation (the "Company"), will be held on June
4, 1998, at 9:00 a.m. Pacific Time, at 3636 Nobel Drive, Suite 200, San Diego,
California for the following purposes:
1. To elect two directors to hold office until the Annual Meeting of
Stockholders in the year 2001 and until their successors are duly
elected and qualified.
2. 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, 1998.
3. 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 April 27, 1998 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.
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,
SIGNATURE
JAMES A. LEBOVITZ
Secretary
San Diego, California
May 5, 1998
<PAGE> 3
FPA MEDICAL MANAGEMENT, INC.
3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1998
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 1998 Annual Meeting of
Stockholders (together with any and all adjournments or postponements thereof,
the "Meeting") which is scheduled to be held on June 4, 1998, 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 May 5, 1998.
At the Meeting, stockholders will be asked to (i) elect two directors to
hold office until the Annual Meeting of Stockholders in the year 2001 and until
their successors are duly elected and qualified; (ii) ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the year ending
December 31, 1998; and (iii) 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 nominees of the Board of Directors for election as directors and FOR the
ratification of the selection of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1998.
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 specified on all
proposals except the election of directors and will be counted as present for
purposes of determining the existence of a quorum. Broker non-votes will be
counted for purposes of determining a quorum but are not entitled to vote at the
Meeting and therefore will have no effect on the outcome of the proposals.
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 of the Company, $.002 par value per share
(the "Common Stock"), is necessary to constitute a quorum at the Meeting. Only
stockholders of record at the close of business on April 27, 1998 (the "Record
Date") will be entitled to notice of, and to vote at, the Meeting. As of the
Record Date, there were 47,533,234 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.
<PAGE> 4
ELECTION OF DIRECTORS
The Company's Board of Directors is divided 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 two directors to hold office until the Annual Meeting of Stockholders in
the year 2001 and until their successors are duly elected and qualified. The
nominees of the Board of Directors for election as directors until the year 2001
are Dr. Kevin Ellis and Dr. Herbert Wertheim. Dr. Howard Hassman, who currently
serves on the Board of Directors of the Company and whose term expires in the
year 1999, will resign as Director as of the date of the Meeting. Fewer nominees
are named (two) than the number of vacancies on the Board of Directors, because
the Company has not yet determined whether to fill those positions and, if so,
who will be invited to join the Board. Unless contrary instructions are given,
the shares represented by the enclosed proxy will be voted FOR the election of
the nominees. The nominees have consented to be named and have indicated their
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 nominees of
the Board of Directors for election as directors, along with those directors
continuing in such capacity following the Meeting, together with certain
information about them, are listed below. The officers referred to in the table
are officers of the Company, unless otherwise indicated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF EACH OF THE NOMINEES NAMED BELOW
<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 -- TERMS EXPIRING IN 2001:
Kevin Ellis, D.O., 41 1988 Executive Vice President -- Chief Medical
Officer of the Company since April 1995; Chief
Operating Officer of the Company from 1988
until April 1995.
Herbert A. Wertheim, O.D., 58 1996 Vice Chairman of the Board of Directors of the
Company since March 1998; Founder, Chairman and
Chief Executive Officer of Brain Power
Incorporated, an ophthalmic research and
manufacturing company, since 1971. Director,
Bacou USA, Inc. and Trustee, Florida
International University.
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS -- TERMS EXPIRING IN 1999:
Sheldon Derezin, 51 1995 Managing Partner, Derezin, Breier & Company, a
public accounting firm since 1982.
Stephen J. Dresnick, M.D., 48 1996 President and Chief Executive Officer of the
Company since March 1998; Chief Executive
Officer and President, Sterling Healthcare
Group, Inc. since 1987; Vice Chairman of the
Board of Directors of the Company from November
1996 until March 1998. Chairman of the Board of
Directors of Orthodontix, Inc. and Trustee,
Florida International University.
CONTINUING MEMBER OF THE BOARD OF DIRECTORS -- TERM EXPIRING IN 2000:
Sol Lizerbram, D.O., 50 1986 Chairman of the Board of Directors of the
Company since 1986; President of the Company
from 1986 until November 1996. Director, Spiros
Development Corporation II, Inc.
</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. ("Sterling"), Dr. Dresnick
2
<PAGE> 5
and Dr. Wertheim were appointed to the Board of Directors until 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 and a
Nominating Committee.
The Audit Committee consists of Mr. Derezin (Chair) and Dr. Wertheim. The
Audit Committee 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 information systems and internal accounting
controls. The Audit Committee held two meetings in 1997.
The Compensation Committee consists of Dr. Wertheim (Chair) and Mr.
Derezin. The Compensation Committee reviews and approves the compensation of the
Company's executive officers and administers the Company's Amended Omnibus Stock
Option Plan (the "Omnibus Plan"). The Compensation Committee held one meeting in
1997 and took certain actions by written consent without a meeting.
The Nominating Committee consists of Drs. Dresnick (Chair), Lizerbram,
Ellis and Wertheim. 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 (the
"Exchange Act"), (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 no meetings in 1997.
The Board of Directors held 10 meetings in 1997. During 1997, 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 1995 Non-Employee Directors' Non-Qualified
Stock Option Plan (the "Directors' Plan"), non-employee directors receive an
annual grant of an option to purchase 15,000 shares of Common Stock (on the
thirteenth trading day after the date of each annual meeting of stockholders) at
a price equal to the fair market value of Common Stock on such date. 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 Directors' Plan is to attract and retain independent directors and to
strengthen the mutuality of interests between such directors and the Company's
stockholders.
3
<PAGE> 6
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain biographical information with
respect to the current executive officers of the Company. Please refer to the
information contained under the heading "Election of Directors" for biographical
information of executive officers who are also directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen J. Dresnick, M.D 48 President and Chief Executive Officer
Sol Lizerbram, D.O 50 Chairman of the Board of Directors
Herbert A.Wertheim, O.D. 58 Vice Chairman of the Board of Directors
Kevin Ellis, D.O. 41 Executive Vice President -- Chief Medical Officer
Steven M. Lash 43 Executive Vice President
James A. Lebovitz 40 Executive Vice President, General Counsel and
Secretary
Douglas E. Kerner 40 Vice President, Treasurer and Acting Chief Financial
Officer
Michael P. Morris 51 Vice President, Finance and Chief Accounting Officer
</TABLE>
Mr. Lash has been Executive Vice President of the Company since March 1998
and was Executive Vice President and Chief Financial Officer of the Company from
September 1994 until March 1998. Mr. Lash was Executive Vice President for
Institutional Care at Sharp Healthcare, a health care system providing medical
services throughout San Diego, California from April 1993 to September 1994.
Prior thereto, Mr. Lash was Senior Vice President of Business Affairs and Chief
Financial Officer of San Diego Hospital Association, doing business as Sharp
Healthcare, from 1981 to April 1993. Mr. Lash is a director of IDX Corporation,
a health care information technology company.
Mr. Lebovitz has been Executive Vice President, General Counsel and
Secretary of the Company since March 1998 and was Senior Vice President, General
Counsel and Secretary of the Company from March 1996 until March 1998. Prior
thereto, Mr. Lebovitz was a partner in the law firm of Ballard Spahr Andrews &
Ingersoll, LLP, Philadelphia, Pennsylvania from 1991 until March 1996.
Mr. Kerner has been Vice President, Treasurer and Acting Chief Financial
Officer of the Company since March 1998 and was Vice President, Treasurer of the
Company from February 1998 to March 1998. Prior thereto, Mr. Kerner held various
positions with Total Petroleum (North America) Ltd., including Vice President
and Treasurer from 1994 through 1997, Marketing Controller from 1993 to 1994,
Director of Tax and Internal Audit from 1992 to 1993 and Director of Tax from
1991 to 1992.
Mr. Morris has been Vice President, Finance and Chief Accounting Officer of
the Company since September 1997 and was Corporate Controller of the Company
from March 1997 until September 1997. Mr. Morris was Chief Financial Officer of
Nugget Market, Inc., a private holding company, from May 1994 through February
1997 and Controller from April 1991 through April 1994. Prior thereto, Mr.
Morris was a partner in the public accounting firm of KPMG Peat Marwick.
4
<PAGE> 7
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 27, 1998 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 directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) STOCK BENEFICIALLY OWNED
--------------------------------------- --------- ------------------
<S> <C> <C>
Stephen J. Dresnick, M.D.(2)..................... 1,884,569 3.92%
Sol Lizerbram, D.O.(3)........................... 470,797 *
Seth Flam, D.O.(4)............................... 1,031,250 2.13
Kevin Ellis, D.O.(5)............................. 377,858 *
Howard Hassman, D.O.(6).......................... 734,750 1.53
Sheldon Derezin(7)............................... 42,000 *
Steven Lash(8)................................... 270,788 *
Herbert Wertheim, O.D.(9)........................ 222,394 *
All directors and executive officers as a group
(11 persons)(10)............................... 5,075,406 10.11%
</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 of April 27,
1998 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 of April 27, 1998 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.
(2) Shares attributable to Dr. Dresnick are held by several corporations and
limited partnerships in which Dr. Dresnick or a corporation owned by him is
the sole stockholder and limited and general partners. Includes options to
acquire 587,502 shares of Common Stock within 60 days of April 27, 1998.
(3) 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 and by Davmar LP, of which Dr. Lizerbram is general
partner. Includes options to acquire 183,584 shares of Common Stock within
60 days of April 27, 1998.
(4) Shares attributable to Dr. Flam are held by Dr. Flam as sole shareholder of
the corporate managing partner of J & J Flam, L.P., record holder. Includes
options to acquire 981,250 shares of Common Stock within 60 days of April
27, 1998.
(5) Includes options to acquire 81,584 shares of Common Stock within 60 days of
April 27, 1998
(6) 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. Includes options to
acquire 364,250 shares of Common Stock within 60 days of April 27, 1998.
(7) Includes options to acquire 23,500 shares of Common Stock within 60 days of
April 27, 1998.
(8) Includes options to acquire 247,788 shares of Common Stock within 60 days
of April 27, 1998.
(9) Includes options to acquire 162,101 shares of Common Stock within 60 days
of April 27, 1998.
(10) Includes options to acquire shares of Common Stock within 60 days of April
27, 1998 as follows: Dr. Dresnick, 587,502; Dr. Lizerbram, 183,584; Dr.
Flam, 981,250; Dr. Ellis, 81,584; Dr. Hassman,
5
<PAGE> 8
364,250; Mr. Derezin, 23,500; Mr. Lash, 247,788; Dr. Wertheim, 162,101; and
all directors and executive officers as a group, 2,670,559.
EXECUTIVE 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 then
Chief Executive Officer and the four other most highly compensated executive
officers during the years ended December 31, 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
----------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION(1)
--------------------------- ---- -------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen J. Dresnick, M.D. ...... 1995 $325,000 $ 234,542 -- --
Vice Chairman of the Board of 1996 325,000(2) 1,819,180 722,502(3) $481,250
Directors, President, 1997 325,000 1,487,500 75,000 34,809
Sterling Healthcare Group,
Inc.
Sol Lizerbram, D.O., ........... 1995 189,750 -- 60,000 16,397
Chairman of the Board 1996 237,646(4) 1,133,123 671,000 14,474
of Directors 1997 446,978(5) 665,522 200,250 16,900
Seth Flam, D.O., ............... 1995 300,000 -- 60,000 3,608
President and Chief Executive 1996 237,646(6) 1,133,123 671,000 1,204
Officer 1997 446,978(7) 665,522 200,250 9,549
Steven Lash, ................... 1995 205,000 50,000 20,000 2,933
Executive Vice President and 1996 215,417(8) 1,084,584 437,250 113,125(9)
Chief Financial Officer 1997 361,705(10) 500,795 100,000 6,626
Howard Hassman, D.O., .......... 1995 174,750 -- 60,000 6,566
Executive Vice President -- 1996 201,604(11) 1,052,251 303,000 7,026
Corporate Development 1997 271,417(12) 403,584 250 9,726
</TABLE>
- ---------------
(1) Includes life and disability insurance premiums paid by the Company on
behalf of each such officer. For Dr. Dresnick includes taxable income
resulting from the exercise of non-qualified stock options received by Dr.
Dresnick in 1996 in the amount of $418,250.
(2) Includes deferred compensation of $37,500.
(3) Includes 572,502 options granted by FPA after completion of the merger with
Sterling to replace options previously granted to Dr. Dresnick by Sterling.
(4) Includes deferred compensation of $66,548.
(5) Includes $9,500 deferred pursuant to the Company's 401(k) Savings Plan.
(6) Includes deferred compensation of $66,548.
(7) Includes $9,500 deferred pursuant to the Company's 401(k) Savings Plan.
(8) Includes deferred compensation of $47,584.
(9) Includes shares of Common Stock received by Mr. Lash in 1996 valued at
$106,500.
(10) Includes $9,500 deferred pursuant to the Company's 401(k) Savings Plan.
(11) Includes deferred compensation of $32,965.
(12) Includes $9,500 deferred pursuant to the Company's 401(k) Savings Plan.
6
<PAGE> 9
STOCK OPTION GRANTS
The following table sets forth information concerning stock options granted
to the named executive officers in 1997.
OPTION GRANTS DURING 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
SHARES % OF TOTAL ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM(3)
GRANTED EMPLOYEES PRICE EXPIRATION ------------------------------
NAME (#)(1) DURING YEAR ($/SH)(2) DATE 5% 10%
---- ---------- ----------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Dresnick, 75,000(A) 3.32% $23.5625 7/23/07 $1,111,375 $2,816,442
M.D....................
Sol Lizerbram, D.O....... 250(A) .01 20.25 1/20/07 3,184 8,068
200,000(B) 8.85 19.75 5/30/07 2,484,134 6,295,283
Seth Flam, D.O........... 250(A) .01 20.25 1/20/07 3,184 8,068
200,000(B) 8.85 19.75 5/30/07 2,484,134 6,295,283
Steven Lash.............. 100,000(B) 4.42 19.75 5/30/07 1,242,067 3,147,641
Howard Hassman, D.O...... 250(A) .01 20.25 1/20/07 3,184 8,068
</TABLE>
- ---------------
(1) (A) Grant vests in equal amounts over a three-year period.
(B) Grant vests in equal amounts over a five-year period based on attainment
of certain agreed upon performance targets.
(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 Board of
Directors of the Company in its discretion.
(3) The potential realizable value portion of the foregoing table illustrates
the value that might be realized should the granted options be exercised
immediately prior to their expiration date and assumes that the respective
rates of appreciation on Common Stock 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 five years.
STOCK OPTION EXERCISES IN 1997 AND STOCK OPTION VALUES
The following tables set forth information concerning the number of stock
options granted during 1997 and the value of unexercised options to purchase
Common Stock held by the named executive officers at December 31, 1997.
OPTIONS EXERCISED DURING 1997 AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR END AT YEAR END(1)
ACQUIRED ON --------------------------- ---------------------------
NAME EXERCISE VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Dresnick, -- -- 587,502 210,000 $2,922,394 --
M.D.....................
Sol Lizerbram, D.O........ -- -- 118,500 862,750 853,438 $1,747,938
Seth Flam, D.O............ -- -- 118,500 862,750 853,438 1,747,938
Steven Lash............... 79,000 $1,478,094 192,170 555,354 2,152,671 1,692,037
Howard Hassman, D.O....... 49,000 972,937 42,500 321,750 205,000 1,269,938
</TABLE>
- ---------------
(1) The fair market value (defined in the Omnibus Plan as the average of the
high and low sales price) for the Common Stock as reported on the NASDAQ
National Market on December 31, 1997 was $18.875. Value is calculated on the
basis of the difference, if any, between the option exercise price and
$18.875, multiplied by the number of shares of Common Stock issuable upon
exercise of the option.
7
<PAGE> 10
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Effective as of March 25, 1998, Dr. Dresnick was elected President and
Chief Executive Officer of the Company. The Company is a party to an amended
employment agreement with Dr. Dresnick (the "Dresnick Employment Agreement"),
effective as of October 31, 1996, pursuant to which Dr. Dresnick receives an
annual base salary of $325,000, which salary is subject to annual increases, and
an annual bonus calculated as a percentage of base salary based on
pre-established performance targets of the Company and Sterling. Upon
termination of the Dresnick Employment Agreement for reasons other than cause or
Dr. Dresnick's voluntary termination or upon a change of control, Dr. Dresnick
is entitled to full salary, plus bonus based on the two prior fiscal years
payable in a lump sum at the time of termination. The Dresnick Employment
Agreement provides Dr. Dresnick with specified periodic lump sum payments, a car
allowance, vacation benefits and medical insurance and contains a covenant not
to compete during employment and for two years thereafter.
The Company is a party to an employment agreement with Dr. Lizerbram as
Chairman of the Board of Directors effective as of October 1, 1996, as amended
as of March 25, 1998 (such agreement, as amended, is referred to herein as the
"Lizerbram Employment Agreement"). Pursuant to the Lizerbram Employment
Agreement, Dr. Lizerbram is entitled to base salary of $1,112,500 for services
rendered from March 25, 1998 until March 25, 1999. The Lizerbram Employment
Agreement terminates on September 30, 2001, except that on September 30, 2000
and on each subsequent anniversary thereof, the term shall be extended for a
one-year period, unless no later than six months prior to such date, either the
Company or Dr. Lizerbram has provided notice that it does not wish to extend the
Lizerbram Employment Agreement. Notwithstanding the preceding sentence, the term
of the Lizerbram Employment Agreement shall not be extended beyond September 30,
2003 without the prior consent of both the Company and Dr. Lizerbram. If the
Lizerbram Employment Agreement is not extended as of September 30, 2003, Dr.
Lizerbram is entitled to severance benefits as described below; provided,
further, that if Dr. Lizerbram's employment is terminated for any reason
(including cause) between March 25, 1998 and March 31, 1999, (a) Dr. Lizerbram
shall resign his position as Chairman and director of the Company, (b) the
Lizerbram Employment Agreement shall be terminated, (c) the Company shall make a
lump sum payment to Dr. Lizerbram equal to $1,112,500 minus aggregate payments
made between March 25, 1998 and the date of termination and, (d) in the event
Dr. Lizerbram executes a release, he shall be entitled to severance benefits as
described below (including the acceleration of vesting of all of Dr. Lizerbram's
options) and shall serve as a consultant for a period of eight (8) months after
the termination date. Dr. Lizerbram shall receive $1,000,000 as compensation for
such consulting services. Upon termination of the Lizerbram Employment
Agreement, Dr. Lizerbram shall be entitled to severance payments of $3,337,500
payable in equal monthly payments over 36 months. If a change of control, as
defined in the Lizerbram Employment Agreement, occurs within six months after
the termination of Dr. Lizerbram's employment, Dr. Lizerbram shall receive in
lieu of the severance payment described above, a lump sum equal to approximately
three times the previous year's salary and bonus and shall be entitled to
certain gross-up payments. Upon termination of employment, Dr. Lizerbram has
agreed not to compete with the Company for a period of 18 months. The Lizerbram
Employment Agreement also provides Dr. Lizerbram with payment of professional
fees, vacation benefits and term life, medical, disability and liability
insurance.
The Company is a party to an employment agreement with Mr. Lash as
Executive Vice President effective as of October 1, 1996, as amended as of March
25, 1998 (such agreement, as amended, is referred to herein as the "Lash
Employment Agreement"). Pursuant to the Lash Employment Agreement, Mr. Lash is
entitled to an annual base salary of $345,000 and a maximum annual bonus of up
to 150% of base salary based on pre-established performance targets for each
year and certain subjective determinations. The Lash Employment Agreement
terminates on September 30, 2001, except that on September 30, 2000 and on each
subsequent anniversary thereof, the term shall be extended for a one-year
period, unless no later than six months prior to such date, either the Company
or Mr. Lash has provided notice that it does not wish to extend the Lash
Employment Agreement. Notwithstanding the preceding sentence, the term of the
Lash Employment Agreement shall not be extended beyond September 30, 2003
without the prior consent of both the Company and Mr. Lash. If the Lash
Employment Agreement is not extended as of September 30, 2003, Mr. Lash shall be
entitled to severance benefits as described below; provided, further, that if
Mr. Lash's employment is terminated for any reason (including cause) between
March 25, 1998 and September 15, 1999,
8
<PAGE> 11
(a) Mr. Lash shall resign his position as Executive Vice President of the
Company, (b) the Lash Employment Agreement shall be terminated and (c) in the
event Mr. Lash executes a release, he shall be entitled to severance benefits as
described below (including the acceleration of vesting of all of Mr. Lash's
options) and shall serve as a consultant for a period of eight (8) months after
the termination date. Mr. Lash shall receive $1,000,000 as compensation for such
consulting services. Upon termination of the Lash Employment Agreement, Mr. Lash
shall be entitled to severance payments of $2,587,500 payable in equal monthly
payments over 36 months. If a change of control, as defined in the Lash
Employment Agreement, occurs within six months after the termination of Mr.
Lash's employment, Mr. Lash shall receive in lieu of the severance payment
described above, a lump sum equal to approximately three times the previous
year's salary and bonus and shall be entitled to certain gross-up payments. Upon
termination of employment, Mr. Lash has agreed not to compete with the Company
so long as Mr. Lash is receiving the payments described above. The Lash
Employment Agreement also provides Mr. Lash with payment of professional fees,
vacation benefits and term life, medical, disability and liability insurance.
CONSULTING AND SETTLEMENT AGREEMENTS
The Company entered into a Consulting and Settlement Agreement with Dr.
Flam (the "Flam Consulting Agreement") as of March 25, 1998 (the "Flam
Termination Date") pursuant to which Dr. Flam resigned as the President and
Chief Executive Officer and a director of the Company. Commencing six months
after the Flam Termination Date, Dr. Flam shall be entitled to severance
payments under the Employment Agreement entered into between the Company and Dr.
Flam as of October 1, 1996 (as amended by the Flam Consulting Agreement, the
"Flam Employment Agreement"), including $3,337,500 payable in 36 equal monthly
installments, acceleration of vesting of all options and payment of professional
fees, vacation benefits and term life, medical, disability and liability
insurance. Pursuant to the Flam Consulting Agreement, Dr. Flam was paid $213,942
within 20 days of the Flam Termination Date. During the period commencing on the
Flam Termination Date and ending 14 months thereafter, Dr. Flam has agreed to
render consulting services to the Company and its affiliates and not to compete
with the Company for a period commencing on the Flam Termination Date and
continuing for a period of 18 months thereafter. In consideration of the
consulting and non-competition agreements, Dr. Flam shall be entitled to receive
$1,250,000, payable in six monthly payments of $41,667 and a lump sum payment of
$1,000,000 on the date which is the six month anniversary of the Flam
Termination Date. If a change of control, as defined in the Flam Employment
Agreement, occurs within six months after the Flam Termination Date, Dr. Flam
shall receive, in lieu of the severance payment described above, a lump sum
equal to approximately three times the previous year's salary and bonus and
shall be entitled to certain gross-up payments.
The Company entered into a Consulting and Settlement Agreement with Dr.
Hassman (the "Hassman Consulting Agreement") as of April 1, 1998 (the "Hassman
Termination Date") pursuant to which Dr. Hassman resigned as Executive Vice
President -- Corporate Development and agreed to resign as a director of the
Company as of the date of the Meeting. As of the Hassman Termination Date, Dr.
Hassman shall be entitled to severance payments under the Employment Agreement
entered into between the Company and Dr. Hassman as of October 1, 1996 (as
amended by the Hassman Consulting Agreement, the "Hassman Employment
Agreement"), including $2,025,000 payable in 36 equal monthly installments,
acceleration of vesting of all options and payment of professional fees,
vacation benefits and term life, medical, disability and liability insurance.
Pursuant to the Hassman Consulting Agreement, Dr. Hassman was paid $127,212
within 20 days of the Hassman Termination Date. During the period commencing on
the Hassman Termination Date and ending 17 months thereafter, Dr. Hassman has
agreed to render consulting services to the Company and its affiliates and not
to compete with the Company for a period commencing on the Hassman Termination
Date and continuing for a period of 18 months thereafter. In consideration of
the consulting and non-competition agreements, Dr. Hassman shall receive
$1,250,000, payable $250,000 within 20 days of the Hassman Termination Date and
$1,000,000 on the date which is the six month anniversary of the Hassman
Termination Date. If a change of control, as defined in the Hassman Employment
Agreement, occurs within six months after the Hassman Termination Date, Dr.
Hassman shall receive, in lieu of the severance payment described above, a lump
sum equal to approximately three times the previous year's salary and bonus and
shall be entitled to certain gross-up payments.
9
<PAGE> 12
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 1997.
The Committee is composed entirely of outside, non-management directors. No
member of the Committee is a former or current officer of the Company. The
Committee employed in 1997, and the Committee will employ in 1998, 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:
O provide rewards which are closely linked to Company, team and individual
performance;
O align the interests of the Company's employees with those of its
stockholders; and
O 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, profit and earnings
per share 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 is to qualify to the maximum extent possible its
executives' compensation for deductibility under applicable tax laws, while
maintaining appropriate flexibility in the 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.
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<PAGE> 13
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 in
1997 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 1997:
Sheldon Derezin
Dr. Herbert Wertheim
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<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, 1997. 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.
<TABLE>
<CAPTION>
Measurement Period Nasdaq Health
(Fiscal Year Covered) FPAM Nasdaq (US) Services Stocks
<S> <C> <C> <C>
10/24/94 100.00 100.00 100.00
12/30/94 125.00 98.47 97.74
3/31/95 225.00 107.35 107.09
6/30/95 200.00 122.79 92.18
9/29/95 185.00 137.59 107.03
12/29/95 187.50 139.27 124.15
3/29/96 250.00 145.76 129.44
6/28/96 311.25 157.65 141.00
9/30/96 527.50 163.27 140.20
12/31/96 447.50 171.29 124.21
3/31/97 385.00 162.01 115.98
6/30/97 473.75 191.71 129.45
9/30/97 687.50 224.14 140.84
12/31/97 372.50 210.25 126.59
</TABLE>
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<PAGE> 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the directors, certain officers
of the Company and beneficial owners of more than ten percent of the shares 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
Exchange Act.
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,
1998. Services provided to the Company and its subsidiaries by Deloitte & Touche
LLP for the year ended December 31, 1997 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.
Ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1998 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" RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS
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 1999 must be received by the Secretary of the Company at the
Company's principal office in San Diego, California, prior to January 1, 1999 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.
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<PAGE> 16
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. The Company expects to pay
up to $15,000 in solicitation fees plus expenses. 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 will 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.
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,
SIGNATURE
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.
14
