<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
Physician Reliance Network, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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
PHYSICIAN RELIANCE NETWORK, INC.
TWO LINCOLN CENTRE, SUITE 900
5420 LBJ FREEWAY
DALLAS, TEXAS 75240
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
As a shareholder of Physician Reliance Network, Inc. (the "Company"),
you are hereby given notice of and invited to attend in person or by proxy the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
at the Westin Galleria Dallas, 13340 Dallas Parkway, Dallas, Texas, on May 12,
1998, at 9:00 a.m., local time, for the following purposes:
1. To elect nine directors for a one-year term and until their
successors are duly elected and qualified;
2. To consider and vote upon an amendment to the Company's 1993
Stock Option Plan to increase the number of shares of Common Stock
reserved and authorized for issuance pursuant to the plan; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 25,
1998 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof. Only shareholders of record at the close of business on the
Record Date are entitled to notice of and to vote at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT
YOU EXPECT TO ATTEND THE ANNUAL MEETING, MANAGEMENT DESIRES TO HAVE THE MAXIMUM
REPRESENTATION AT THE ANNUAL MEETING AND RESPECTFULLY REQUESTS THAT YOU DATE,
EXECUTE, AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED STAMPED ENVELOPE
FOR WHICH NO ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. A
proxy may be revoked by a shareholder at any time prior to its use as specified
in the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS,
GEORGE P. MCGINN, JR.
SECRETARY
Dallas, Texas
April 13, 1998
<PAGE> 3
PHYSICIAN RELIANCE NETWORK, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
To Our Shareholders:
This Proxy Statement is furnished to shareholders of Physician Reliance
Network, Inc. (the "Company") for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at the date, time, and place and for the purposes
set forth in the accompanying Notice of Annual Meeting of Shareholders, and at
any adjournment or adjournments thereof. The record of shareholders entitled to
vote at the Annual Meeting was taken at the close of business on March 25, 1998
(the "Record Date"). The approximate date on which this Proxy Statement and the
enclosed proxy are first being sent to shareholders is April 13, 1998.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
As of April 6, 1998, there were 50,827,795 shares of common stock, no
par value per share (the "Common Stock"), outstanding and entitled to vote at
the Annual Meeting. Each share of Common Stock is entitled to one vote on the
matters to be voted on at the Annual Meeting. The following table sets forth, as
of the date hereof, the beneficial ownership of (i) each director nominee
(including the current directors); (ii) each of the executive officers named in
the Summary Compensation Table on page 6 hereof (the "Named Executive
Officers"); (iii) the current directors and executive officers as a group; and
(iv) each shareholder known by management to beneficially own in excess of 5% of
the outstanding shares of Common Stock. Under the rules of the Securities and
Exchange Commission (the "SEC"), a person is deemed to be a "beneficial owner"
of a security if he or she has or shares the power to vote or direct the voting
of such security or the power to dispose of or to direct the disposition of such
security. Accordingly, more than one person may be deemed to be a beneficial
owner of the same security. Shares of Common Stock subject to options held by
directors and executive officers that are exercisable within 60 days of the date
hereof are deemed outstanding for the purpose of computing such director's or
executive officer's beneficial ownership and the beneficial ownership of all
directors and executive officers as a group. Unless otherwise indicated, the
Company believes that the beneficial owner set forth in the following table has
sole voting and investment power.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ----------------------------------------------------------------------------------
<S> <C> <C>
John T. Casey(1)(2) 10,000 *
Merrick H. Reese, M.D.(1)(2) 1,083,960(3) 2.1
Joseph S. Bailes, M.D.(1)(2) 225,502(4) *
Michael N. Murdock(1) 30,000(5) *
George P. McGinn, Jr.(1) 115,500(6) *
Pam J. Burgess(1)(7) -- *
Nancy G. Brinker(2) 52,424(8) *
Robert W. Daly(2) 42,370(9) *
Boone Powell, Jr.(2) 54,192(10) *
J. Taylor Crandall(11)(12) 2,802,500(13) 5.5
Terrence J. Mulligan(11) -- *
Burton S. Schwartz, M.D.(11) 9,274 *
FW Investors(12) 3,296,000(14) 6.5
Kaufmann Fund, Inc.(15) 3,731,800(16) 7.3
Texas Oncology, P.A.(17) 9,446,845(18) 18.6
Current directors and executive
officers as a group (9 persons) 11,044,793(19) 21.5
</TABLE>
<PAGE> 4
- -----------------------------------
* Less than one percent.
(1) Named Executive Officer
(2) Current director and nominated for re-election at the Annual Meeting
(3) Includes 110,000 shares subject to options granted by the Company. Does
not include shares beneficially owned by Texas Oncology, P.A. ("TOPA"),
for which Dr. Reese serves as president and a director. See Note 18.
(4) Includes 84,238 shares subject to options granted by the Company and
10,000 shares subject to options granted by TOPA. See Note 18.
(5) Shares subject to options granted by the Company. (6) Includes 95,000
shares subject to options granted by the Company.
(7) Ms. Burgess resigned as Executive Vice President and Chief Operating
Officer of the Company in October 1997. See "Executive Compensation --
Severance Agreement."
(8) Includes 43,424 shares subject to options granted by the Company.
(9) Includes 40,776 shares subject to options granted by the Company and
1,594 shares representing Mr. Daly's pro rata ownership of a
partnership.
(10) Includes 34,192 shares subject to options granted by the Company. Does
not include 2,548,568 shares beneficially owned by Baylor University
Medical Center ("BUMC"), for which Mr. Powell serves as president and
chief executive officer, as to which Mr. Powell disclaims beneficial
ownership.
(11) Nominated for election as a director at the Annual Meeting.
(12) Address: 201 Main Street, Fort Worth, TX 76102.
(13) All shares are beneficially owned by FW Physicians Investors, L.P., an
investment limited partnership ("FW Physicians"). Mr. Crandall serves
as the president of Group 31, Inc. ("Group 31"), the general partner
of FW Physicians. See Note 14.
(14) Includes 2,802,500 shares beneficially owned by FW Physicians and
493,500 shares beneficially owned by Keystone, Inc., an investment
company ("Keystone"). Based upon information set forth in a Schedule
13D filed on May 5, 1997 with the SEC by FW Physicians, Group 31, Mr.
Crandall, Keystone, and Robert M. Bass, who serves as president of
Keystone (collectively referred to herein as the "FW Investors"). Mr.
Crandall serves as vice president and chief financial officer of
Keystone. See Note 13.
(15) Address: 140 East 45th Street, 43rd Floor, New York, NY 10017.
(16) Based solely upon information set forth in Amendment No. 1 to Schedule
13G filed on January 29, 1998 with the SEC by The Kaufmann Fund, Inc.,
a mutual fund.
(17) Address: Two Lincoln Centre, Suite 900, 5420 LBJ Freeway, Dallas, TX
75240.
(18) Does not include 3,126,164 shares beneficially owned by persons
currently and formerly employed by TOPA, which shares TOPA has options
to purchase upon the occurrence of certain events, including
termination of employment. These options expire with respect to
1,103,562 of such shares in 1998; 866,750 of such shares in 1999; and
the balance of such shares in 2000. Includes 2,396,986 shares subject
to options granted by TOPA to certain persons, including Dr. Bailes.
See Note 4.
(19) Includes 437,630 shares subject to options granted by the Company and
shares beneficially owned by TOPA. See Note 18. Does not include shares
beneficially owned by BUMC.
2
<PAGE> 5
PROPOSAL ONE - ELECTION OF DIRECTORS
Nine directors are to be elected at the Annual Meeting for a term of
one year and until their successors are duly elected and qualified. Election of
directors requires a majority of the votes cast in such election. It is intended
that shares represented by the enclosed proxy will be voted FOR the election of
the nominees named below unless a contrary choice is indicated.
In April 1998, the Board of Directors determined to increase the size
of the Board of Directors from six to nine directors effective as of the date of
the Annual Meeting. Messrs. Casey, Daly, and Powell, Drs. Reese and Bailes, and
Ms. Brinker are presently directors of the Company. Messrs. Crandall and
Mulligan and Dr. Schwartz have been nominated by the Board of Directors for
election by the shareholders to fill the vacancies created by the increase in
the size of the Board of Directors. Management believes that all the nominees
will be available and able to serve as directors. If for any reason any of the
director nominees named below should not be available or able to serve, it is
intended that such shares will be voted for such substitute nominees as may be
proposed by the Board of Directors of the Company. Certain information as of the
date hereof with respect to each nominee for election as director is set forth
below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES SET
FORTH HEREIN.
- --------------------------------------------------------------------------------
John T. Casey Director since 1997 Age 52
Mr. Casey has been Chairman of the Board and Chief Executive Officer of the
Company since October 1997. Mr. Casey has been active in health care leadership
roles for over 25 years. Mr. Casey served as president and chief operating
officer of American Medical International ("AMI") from 1991 until 1995, when
that company was acquired by Tenet Healthcare Corporation. Prior to 1991, Mr.
Casey served as chief executive officer of several large regional healthcare
systems, including Samaritan Health Services in Phoenix, Arizona; Methodist
Health Systems in Memphis, Tennessee; and Presbyterian/St. Luke' s Medical
Center in Denver, Colorado. From 1995 until joining the Company, Mr. Casey was
chairman and chief executive officer of InteCare LLC, an entrepreneurial
venture. Mr. Casey currently serves as a director of MedQuist Inc. ("MedQuist")
and Unison Healthcare Corporation.
- --------------------------------------------------------------------------------
Merrick H. Reese, M.D. Director since 1993 Age 60
Dr. Reese has been a Director of the Company since its formation in June 1993
and Vice Chairman of the Company since October 1997. Dr. Reese served as
Chairman of the Board, President, and Chief Executive Officer of the Company
from its formation until October 1997. Dr. Reese has been president and a
director of TOPA, a physician professional association and an affiliate of the
Company, since 1983. See "Certain Transactions -- TOPA Transactions." Dr. Reese
received his medical degree from The University of Texas Southwestern Medical
School at Dallas in 1963 and is a board certified medical oncologist.
- --------------------------------------------------------------------------------
3
<PAGE> 6
- --------------------------------------------------------------------------------
Joseph S. Bailes, M.D. Director since 1993 Age 41
Dr. Bailes has been a Director, Executive Vice President, and National Medical
Director of the Company since its formation in June 1993. Since 1986, Dr. Bailes
has been employed as a medical oncologist by TOPA. See "Certain Transactions --
TOPA Transactions." Dr. Bailes received his medical degree from The University
of Texas Southwestern Medical School at Dallas in 1981 and is a board certified
medical oncologist. Dr. Bailes is a director of ILEX Oncology, Inc.
- --------------------------------------------------------------------------------
Nancy G. Brinker Director since 1994 Age 51
Ms. Brinker has been a Director of the Company since September 1994. Since
February 1995, Ms. Brinker has been chief executive officer of In Your Corner,
Inc., a provider of health and wellness products and services. Ms. Brinker is
the founder of the Susan G. Komen Breast Cancer Foundation, one of the leading
sponsors of breast cancer research and awareness programs in the nation. Ms.
Brinker served as an independent pharmaceutical consultant from 1992 to 1994.
- --------------------------------------------------------------------------------
Robert W. Daly Director since 1993 Age 46
Mr. Daly has been a Director of the Company since October 1993. Mr. Daly has
been a managing director of Medical Equity, LLC, a health care venture capital
firm, since December 1997. Mr. Daly served as a managing director of TA
Associates, a venture capital firm, from January 1994 until October 1997. Mr.
Daly was a general partner of TA Associates from July 1984 to December 1993.
- --------------------------------------------------------------------------------
Boone Powell, Jr. Director since 1994 Age 61
Mr. Powell has been a Director of the Company since September 1994. Mr. Powell
has been the president and chief executive officer of Baylor Health Care System
and BUMC since 1980. See "Certain Transactions -- BUMC Lease." Mr. Powell serves
as an active member of Voluntary Hospitals of America. He is a director of
Abbott Laboratories and Comerica Bank - Texas and is a fellow of the American
College of Health Care Executives.
- --------------------------------------------------------------------------------
J. Taylor Crandall Director Nominee Age 44
Mr. Crandall has been vice president and chief financial officer of Keystone, an
investment company, since October 1986. Mr. Crandall is a director of a number
of business organizations, including Signature Resorts, Inc., Washington Mutual,
Inc., Integrated Orthopaedics, Inc., Specialty Foods, Inc., Bell & Howell
Operating Company, and Quaker State Corporation.
- --------------------------------------------------------------------------------
4
<PAGE> 7
- --------------------------------------------------------------------------------
Terrence J. Mulligan Director Nominee Age 52
Mr. Mulligan served in various capacities for Baxter International, Inc., a
manufacturer and marketer of health care products and services, from 1971 until
his retirement in 1996, including as group vice president - health systems from
1994 to 1996, group vice president - multi-hospital systems from 1993 to 1994,
and senior vice president - corporate sales and marketing from 1988 to 1993. Mr.
Mulligan is a director of MedQuist.
- --------------------------------------------------------------------------------
Burton S. Schwartz, M.D. Director Nominee Age 56
Dr. Schwartz has served as the president and medical director of Minnesota
Oncology Hematology, P.A., a medical oncology practice and affiliated physician
group of the Company ("Minnesota Oncology"), since February 1995. See "Certain
Transactions -- Minnesota Oncology Transactions." Dr. Schwartz served as
president and medical director of Oncologic Consultants, P.A., a medical
oncology practice, from April 1992 until February 1995. Dr. Schwartz received
his medical degree from Meharry Medical College in 1968 and is a board certified
medical oncologist.
- --------------------------------------------------------------------------------
The Board of Directors holds regular quarterly meetings and meets on
other occasions when required by special circumstances. Certain directors also
devote their time and attention to the Board's principal standing committees.
The Board of Directors does not have a standing nominating committee. The
standing committees, their primary functions, and their memberships are as
follows:
Audit Committee -- This committee makes recommendations to the Board of
Directors with respect to the Company's financial statements and the
appointment of independent auditors, reviews significant audit and
accounting policies and practices, meets with the Company's independent
public accountants concerning, among other things, the scope of audits
and reports, and reviews the performance of the overall accounting and
financial controls of the Company. Members of the Audit Committee are
Messrs. Daly and Powell.
Compensation Committee -- This committee has the responsibility for
reviewing and approving the salaries, bonuses, and other compensation
and benefits of executive officers, advising management regarding
benefits and other terms and conditions of compensation, and
administering the Company's 1993 Stock Option Plan (the "Employee
Option Plan") and 401(k) plan. Members of the Compensation Committee
are Ms. Brinker and Messrs. Daly and Powell.
Mr. Powell was elected as a director of the Company in September 1994
pursuant to an agreement between BUMC and the Company. Under such agreement, the
Company is required to use its best efforts to cause Mr. Powell to be
recommended to the shareholders for election to the Board of Directors until
July 31, 1999, provided BUMC and its affiliates own at least 50% of the shares
of Common Stock initially issued to BUMC in 1994 (at least 1,529,284 shares of
Common Stock). During such period, TOPA has agreed to vote its shares in favor
of Mr. Powell in an election of directors.
The Board of Directors held seven meetings during the year ended
December 31, 1997. The Compensation Committee and the Audit Committee held one
and two meetings, respectively, during 1997. Each of the directors attended at
least 75% of the aggregate number of meetings of the Board of Directors and the
committees on which he or she served.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid or accrued
by the Company on behalf of the Chief Executive Officer and each of the other
Named Executive Officers of the Company. The Company has employment agreements
with certain of its executive officers. See "-- Employment Agreements."
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------- -------------------------------
Name and Principal Position Year Salary($) Bonus($) Securities Underlying Options(#) All Other Compensation($)
- ---------------------------- -------- --------- ---------- -------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
John T. Casey, 1997(1) 67,308 50,000(2) 700,000 1,615(3)
Chief Executive Officer
Merrick H. Reese, M.D., 1997 275,000 -- 100,000 --
Vice Chairman(4) 1996 275,000 68,750 -- --
1995 258,333 -- 160,000 --
Joseph S. Bailes, M.D., 1997 225,000 -- 160,000 --
Executive Vice President and 1996 224,900 25,000 -- --
National Medical Director 1995 220,000 125,000 80,000 --
George P. McGinn, Jr., 1997 205,000 -- 130,000 4,750(3)
Executive Vice President, 1996 203,973 29,166 120,000(5) 4,750
General Counsel, and Secretary 1995(6) 159,998 -- 120,000 15,000
Michael N. Murdock, 1997(7) 139,432 -- 250,000 4,750(3)
Executive Vice President and
Chief Financial Officer
Pam J. Burgess, 1997 205,789 -- 50,000 4,750(3)
Executive Vice President and 1996 164,905 15,000 70,000(5) 4,750
Chief Operating Officer(8)
</TABLE>
- ------------------------
(1) Mr. Casey commenced employment with the Company in October 1997.
(2) Paid by the Company upon commencement of employment.
(3) Contribution by the Company under the profit sharing plan.
(4) Dr. Reese served as President and Chief Executive Officer of the Company
until October 1997.
(5) Reflects the number of shares subject to options granted in 1995 and
repriced in November 1996.
(6) Mr. McGinn commenced employment with the Company in May 1995.
(7) Mr. Murdock commenced employment with the Company in June 1997.
(8) Ms. Burgess resigned as Executive Vice President and Chief Operating Officer
in October 1997. See "-- Severance Agreement."
6
<PAGE> 9
OPTION GRANTS TABLE
The following table provides information as to options granted to the Named
Executive Officers by the Company during 1997. No separate stock appreciation
rights ("SARs") have ever been granted by the Company.
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities Percent of Total Price Appreciation for
Underlying Options Granted Exercise of Option Term($)
Options to Employees in Base Expiration -------------------------------
Name Granted(#) 1997 Price($/Sh) Date 5% 10%
- ---------------------- ---------------- ----------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John T. Casey 700,000(1) 35.1% 10.50 9/24/07 4,622,376 11,714,007
Merrick H. Reese, M.D. 100,000(1) 5.0% 10.50 9/24/07 660,339 1,673,430
Joseph S. Bailes, M.D. 35,000(1) 8.25 5/21/07 181,593 460,193
125,000(1) 10.50 9/24/07 825,424 2,091,787
-----------
160,000 8.0%
George P. McGinn, Jr. 40,000(1) 8.25 5/21/07 207,535 525,935
90,000(1) 10.50 9/24/07 594,305 1,506,087
-----------
130,000 6.5%
Michael N. Murdock 150,000(2) 7.625 6/2/07 719,298 1,822,843
100,000(1) 10.50 9/24/07 660,339 1,673,430
-----------
250,000 12.5%
Pam J. Burgess 50,000(1) 2.5% 10.50 9/24/07(3) 330,170 836,715
</TABLE>
- -------------------------
(1) The option vests and becomes exercisable ratably over four years from the
date of grant.
(2) The option vests and becomes exercisable ratably over five years from the
date of grant.
(3) The option expired in accordance with its terms upon Ms. Burgess's
resignation.
AGGREGATED YEAR-END OPTION VALUE TABLE
The following table provides information as to options exercised by the
Named Executive Officers during 1997 and options issued by the Company that were
held by the Named Executive Officers as of December 31, 1997. None of the Named
Executive Officers has held or exercised SARs.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at Options at December 31,
December 31, 1997(#) 1997($)(1)
Shares Acquired --------------------------------- -----------------------------
Name on Exercise(#) Value Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ----------------- ----------------- -------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John T. Casey -- -- -- 700,000 -- --
Merrick H. Reese, M.D. 25,488 207,600 80,000 180,000 53,750 53,750
Joseph S. Bailes, M.D. -- -- 65,488 200,000 217,257 87,813
George P. McGinn, Jr. -- -- 60,000 190,000 232,470 319,970
Michael N. Murdock -- -- -- 250,000 -- 421,875
Pam J. Burgess -- -- 28,000 -- 108,486 --
</TABLE>
- ----------------------
(1) The aggregate dollar value of the unexercised options held at fiscal year
end are calculated as the difference between the fair market value of the
Common Stock on December 31, 1997 ($10.44 per share as reported on the
Nasdaq Stock Market (the "Nasdaq Stock Market")) and the exercise price of
the stock options (ranging from $2.36 per share to $17.75 per share).
7
<PAGE> 10
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for serving as a director of the Company. Non-employee directors of
the Company are entitled to a retainer equal to $1,000 per quarter; $1,000 for
each board meeting attended in person; $500 for each board meeting in which the
director participates by telephone; and $500 for each committee meeting attended
in person. All directors are entitled to reimbursement for their actual
out-of-pocket expenses incurred in connection with attending meetings. In
addition, non-employee directors participate in the Company's 1994 Stock Option
Plan for Outside Directors (the "Director Option Plan"). In accordance with the
terms of the Director Option Plan, each outside director receives an option to
purchase 38,232 shares of Common Stock upon his or her initial election to the
Board of Directors and annual grants of options to purchase 5,096 shares upon
his or her re-election to the Board of Directors. Options issued under the
Director Option Plan have an exercise price per share equal to the closing price
of the Common Stock on the Nasdaq Stock Market on the day prior to the date of
grant and become exercisable in full on the first anniversary of the date of
grant.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its
executive officers except Dr. Reese. Generally, the employment agreements
establish the executive's base salary and contain a noncompetition agreement for
a period of one year following termination. The employment agreement can be
terminated at any time by the Company for "cause," as defined in the employment
agreement, and by the employee upon 60 days written notice. Each agreement can
also be terminated if the employee is disabled or unable to perform his or her
assigned duties for a period of 90 consecutive days. In the event the employee
is terminated by the Company without cause, or in the event that the employee
terminates his or her employment within 180 days of a "change of control," the
Company will continue to pay the employee a salary for the duration of the
agreement. A "change of control" occurs for purposes of the employment
agreements if (i) a person, entity, or group (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than
the Company, a wholly-owned subsidiary of the Company, any employee benefit plan
of the Company or any of its subsidiaries, or TOPA becomes the beneficial owner
of the Company's securities having 25% or more of the combined voting power of
the then outstanding securities of the Company that may be cast for the election
of directors of the Company (other than as a result of an issuance of securities
initiated by the Company in the ordinary course of business); (ii) if a cash
tender or exchange offer, merger, or other business combination, sale of all or
substantially all of the assets of the Company, or other capital reorganization
results in the transfer or exchange of more than 25% of the voting shares of the
Company; or (iii) if the Company sells all or substantially all of its assets to
another entity that is not a subsidiary of the Company. The term of each
employment agreement will automatically be extended for a period of two years
upon a "change of control."
SEVERANCE AGREEMENT
Effective as of October 31, 1997, Ms. Burgess resigned as Executive
Vice President and Chief Operating Officer of the Company. Pursuant to the terms
of a Severance Agreement between Ms. Burgess and the Company, the Company will
pay Ms. Burgess $205,000, less all applicable withholding and employment taxes.
The payments commenced on November 14, 1997 and will be paid in equal bi-weekly
installments in accordance with the Company's payroll schedule through October
31, 1998. In addition, the Company accelerated the vesting of stock options held
by Ms. Burgess with respect to 14,000 shares of Common Stock. The Severance
Agreement also provides for the continuation, at Ms. Burgess's option and at the
Company's expense, of Ms. Burgess's health insurance benefits through March 1,
1998 and contains a noncompetition agreement for a period of one year following
Ms. Burgess's resignation.
8
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is reviewed and
approved annually by the Compensation Committee. The Compensation Committee is
currently composed of Ms. Brinker and Messrs. Daly and Powell, none of whom at
any time has been an officer or employee of the Company. In addition to
reviewing and approving executive officers' salary and bonus arrangements, the
Compensation Committee administers the awards of stock options pursuant to the
Employee Option Plan and administers the Company's 401(k) plan.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS FOR 1997
The objectives of the Company's executive compensation program are to
(i) attract, motivate, and retain key executives responsible for the success of
the Company; (ii) reward key executives based on corporate and individual
performance; and (iii) provide incentives designed to maximize shareholder
value. The three primary components of the executive officer compensation
program are base salaries, annual cash bonuses, and equity awards in the form of
stock options.
The base salary of each of the Company's executive officers, other than
Dr. Reese, is established pursuant to an employment agreement that has been
approved by the Compensation Committee. Base salaries are reviewed annually by
the Compensation Committee and may be increased, but not decreased, in the
Committee's discretion. Dr. Reese's base salary is established by the
Compensation Committee. For 1997, the salary of one of the executive officers
was increased by 6.5%. None of the other executive officers received salary
increases in 1997.
Each executive is entitled to receive such bonuses or other incentive
compensation as the Compensation Committee determines in its sole discretion.
The Compensation Committee establishes a minimum earnings per share target for
purposes of establishing whether bonuses will be paid to certain of the
Company's executive officers, including the Chief Executive Officer. For 1997,
upon achievement of such targets, bonuses would have been paid to such
executives in amounts determined in the subjective discretion of the
Compensation Committee based, in part, on such executives' leadership, teamwork,
and relationships with contracting physicians. Because the Company did not meet
the earnings per share targets established by the Compensation Committee for the
last two years, no bonuses were paid to the National Executive Officers in 1997
for services rendered in 1996, and no bonuses will be paid in 1998 for services
rendered in 1997. The Compensation Committee has approved a bonus program for
1998 whereby bonuses of up to a maximum of 50% of the base salary of certain
executive officers will be paid based upon the attainment of an earnings per
share target. In the event the earnings per share target is met, such executive
officers would receive a bonus equal to 25% of his base salary, with an
additional bonus of up to 25% of the executive officer's base salary to be paid
in the discretion of the Compensation Committee.
In order to align the long-term interests of executive officers with
those of shareholders, the Compensation Committee, in its subjective discretion,
from time to time considers the award of stock options. The terms of these
options, including the sizes of the grants, are determined by the Compensation
Committee based on its subjective judgment and without regard to any specific
performance criteria. Awards of stock options to executive officers have been
historically at then-current market prices and with periodic vesting over four
or five years.
9
<PAGE> 12
CEO COMPENSATION
In evaluating the compensation of Dr. Reese, the Company's Chief
Executive Officer from January 1997 until October 1997, the Compensation
Committee utilized the same compensation policies applicable to executive
officers in general. Dr. Reese did not receive an increase in his base salary in
1997. In addition, because the Company did not meet the earnings per target
established by the Compensation Committee for the last two years, Dr. Reese did
not receive a bonus in 1997 for services rendered in 1996 and will not receive a
bonus in 1998 for services rendered in 1997.
In October 1997, Mr. Casey was named Chief Executive Officer of the
Company. The Compensation Committee set Mr. Casey's annual base salary at
$350,000. In addition, Mr. Casey received a cash bonus of $50,000 and an option
to purchase 700,000 shares of Common Stock at the then-current market price in
connection with his initial employment with the Company. In evaluating Mr.
Casey's compensation, the Compensation Committee considered the compensation
level necessary to attract a highly qualified Chief Executive Officer.
FEDERAL INCOME TAX DEDUCTIBILITY LIMITATION
Section 162(m) of the Internal Revenue Code of 1986, as amended,
enacted as part of the Omnibus Budget Reconciliation Act of 1993, generally
disallows a tax deduction to public companies for compensation over $1.0 million
paid to the Company's Chief Executive Officer and four other most highly paid
executive officers. Under the regulations, certain "performance based"
compensation is not subject to the deduction limit. Grants of options pursuant
to the Employee Option Plan should be considered "performance based." Other
forms of compensation provided by the Company to its executives, however, are
not excluded from such limit. Because the Company does not believe it is in any
immediate danger of losing any deductions, no definitive determinations have
been made by the Compensation Committee as to whether it will approve any
compensation arrangements that will cause the $1.0 million limit to be exceeded
in the future.
NANCY G. BRINKER ROBERT W. DALY BOONE POWELL, JR.
CERTAIN TRANSACTIONS
TOPA TRANSACTIONS
The Company and TOPA entered into an Amended and Restated Service
Agreement (the "TOPA Service Agreement"), effective January 1, 1996. Pursuant to
the TOPA Service Agreement, the Company provides TOPA with facilities,
equipment, non-physician personnel, and administrative, management, and
non-medical advisory services, as well as services relating to the purchasing
and administering of supplies. During 1997, TOPA paid the Company an aggregate
of approximately $230.9 million pursuant to the TOPA Service Agreement. Dr.
Reese, a Director and Vice Chairman of the Company, is president and a director
of TOPA. Dr. Bailes, a Director and Executive Vice President and National
Medical Director of the Company, is employed by TOPA. TOPA beneficially owns
approximately 18.6% of the outstanding Common Stock.
During 1997, the Company advanced approximately $5.3 million to TOPA
for working capital purposes, including amounts used by TOPA for the development
of new markets and physician salaries and bonuses. At December 31, 1997, TOPA
was indebted to the Company in the aggregate amount of $13.9 million, which was
the largest amount of indebtedness of TOPA to the Company during 1997. The
advances bear interest at a rate negotiated by the Company and TOPA that
approximates the prime lending rate (8.50% at December 31, 1997).
10
<PAGE> 13
In May 1997, the Company and TOPA entered into a Practice Development
Agreement whereby TOPA agreed to develop an integrated outpatient oncology
practice in Wichita Falls, Texas. The practice, which will consist of three
medical oncologists and one radiation oncologist, will be completed by January
1, 2000. In consideration of TOPA developing this practice, the Company agreed
to pay TOPA an aggregate of $1.7 million upon the attainment of certain
development targets. Of this amount, $550,000 was paid in 1997. The Company may
enter into additional practice development agreements with TOPA during 1998.
BUMC LEASE
The Company leases certain facilities on the BUMC hospital campus in
Dallas, Texas from an affiliate of BUMC (the "BUMC Lease"). Mr. Powell, a
Director of the Company, is president and chief executive officer of BUMC. Rent
is payable monthly on the basis of square footage subject to the BUMC Lease. The
primary term of the BUMC Lease expires December 31, 2005 and the Company has two
five-year renewal options. At December 31, 1997, the Company leased
approximately 105,000 square feet from BUMC pursuant to the BUMC Lease. During
1997, total rental payments by the Company to BUMC pursuant to the BUMC Lease
were approximately $1.9 million. In connection with the BUMC Lease, the Company
contracts with BUMC to provide certain services, including telecommunications
and maintenance of common areas. During 1997, the Company paid BUMC an aggregate
of $700,000 for these services.
MINNESOTA ONCOLOGY TRANSACTIONS
The Company and Minnesota Oncology entered into a Service Agreement
(the "Minnesota Service Agreement") effective July 1, 1996. Dr. Schwartz, a
nominee to be a director of the Company, is president and medical director of
Minnesota Oncology. Pursuant to the Minnesota Service Agreement, the Company
provides Minnesota Oncology with offices, facilities, equipment, non-physician
personnel, and administrative, management, and non-medical advisory services, as
well as services relating to the purchasing and administering of supplies.
During 1997, Minnesota Oncology paid the Company an aggregate of approximately
$27.1 million pursuant to the Minnesota Service Agreement.
As part of the consideration for Minnesota Oncology entering into the
Minnesota Service Agreement, the Company is required to make quarterly payments
of $463,996 to Minnesota Oncology through July 1, 2000. During 1997, the Company
paid Minnesota Oncology an aggregate of $1,855,984 pursuant to such quarterly
payments. In addition, the Company is required to issue a prescribed number of
shares of Common Stock to Minnesota Oncology on July 1 of each year through July
1, 2001. During 1997, the Company issued 59,893 shares of Common Stock to
Minnesota Oncology pursuant to such yearly issuances.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the cumulative returns of $100 invested on
November 23, 1994 (the date of the Company's initial public offering) in (a) the
Company; (b) the CRSP Index for the Nasdaq Stock Market (the "Nasdaq U.S.
Companies"); and (c) the CRSP Index for Nasdaq Health Stocks (the "Nasdaq Health
Services"), assuming reinvestment of all dividends.
<TABLE>
<CAPTION>
11/23/94* 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C>
Physician Reliance Network, Inc. $100 $118 $245 $95 $129
Nasdaq U.S. Companies $100 $102 $145 $178 $218
Nasdaq Health Services $100 $99 $126 $126 $128
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, the
Company's executive officers, and persons who beneficially own more than ten
percent of the Common Stock to file reports of ownership and changes in
ownership with the SEC. Such directors, officers, and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms
furnished to the Company, or written representations from certain reporting
persons, the Company believes that during 1997 its officers, directors, and
greater than ten percent beneficial owners were in compliance with all
applicable filing requirements, except that TOPA filed four late reports
relating to an aggregate of eleven transactions.
12
<PAGE> 15
PROPOSAL TWO - AMENDMENT TO EMPLOYEE OPTION PLAN
INTRODUCTION
The Employee Option Plan was originally adopted by the Company's
shareholders in September 1994 and was amended by the Company's shareholders on
May 8, 1996. The Employee Option Plan currently authorizes 3,274,402 shares of
Common Stock for issuance. The Board of Directors has reviewed the Company's
stock-based incentive compensation arrangements and concluded, particularly
because of the awards made in 1997 as an inducement to the employment of new
executive officers, that the Employee Option Plan does not currently authorize a
sufficient number of shares to provide flexibility with respect to stock-based
compensation or to establish appropriate long-term incentives to achieve the
Company's objectives.
As of the date hereof, options to purchase an aggregate of 2,717,538
shares are outstanding under the Employee Option Plan and options to purchase an
aggregate of 412,660 shares have been exercised. Accordingly, 144,204 shares of
Common Stock are available for issuance under the Employee Option Plan. In order
to provide the Company with greater flexibility to adapt to changing economic
and competitive conditions, and to implement long range goals and expansion
plans through stock-based compensation strategies that will attract and retain
those employees who are important to the long-term success of the Company, the
Board of Directors has proposed the adoption of an amendment to the Employee
Option Plan to increase the number of shares of Common Stock authorized for
issuance under the Employee Option Plan to 5,000,000 shares, an increase by
1,725,598 shares, or approximately 3.4% of the shares of Common Stock
outstanding on April 6, 1998.
SUMMARY OF MATERIAL PROVISIONS OF THE EMPLOYEE OPTION PLAN, AS AMENDED
If approved by shareholders, the amendment will become effective as of
May 12, 1998, the date of the Annual Meeting. The proposed amendment would
increase the number of shares reserved and authorized for issuance under the
Employee Option Plan to 5,000,000 shares, an increase by 1,725,598 shares.
The following is a summary of the material provisions of the Employee
Option Plan, as proposed to be amended, and is qualified in its entirety by
reference to the proposed amendment and the text of the Employee Option Plan,
copies of which may be obtained by contacting George P. McGinn, Jr., Executive
Vice President, General Counsel, and Secretary, Physician Reliance Network,
Inc., Two Lincoln Centre, Suite 900, 5420 LBJ Freeway, Dallas, Texas 75240
(972/392-8700).
The primary purpose of the Employee Option Plan is to provide
incentives to employees that are directly linked to the price of the Common
Stock. The Employee Option Plan provides for the participation by employees of
the Company and its subsidiaries. The Compensation Committee is responsible for
determining which employees participate in the Employee Option Plan and for
making grants thereunder. The Employee Option Plan permits the granting of both
incentive and nonqualified stock options.
The total number of shares of Common Stock available for issuance under
the Employee Option Plan is 5,000,000, of which 2,717,538 shares had been
reserved for issuance pursuant to outstanding options and options to purchase an
aggregate of 412,660 shares have been exercised as of March 25, 1998. Shares of
Common Stock subject to options that expire unexercised or are forfeited again
become available for issuance under the Employee Option Plan. No person is
eligible to receive pursuant to the Employee Option Plan options entitling the
recipient to purchase in excess of 200,000 shares of Common Stock during any
one-year period (unless the exercisability of options is accelerated in
accordance with the other provisions of the Employee Option Plan).
13
<PAGE> 16
The exercise price for any incentive stock option must be no less than
the fair market value of the Common Stock, and for a nonqualified stock option
must be no less than 85% of the fair market value of the Common Stock, on the
date the option is granted. The Compensation Committee may determine when and in
what amounts options become exercisable and the terms of options need not be the
same for all optionees. The price payable upon exercise of an option granted
under the Employee Option Plan may be satisfied either with cash or unrestricted
shares of Common Stock or both.
In general, in the event an optionee's employment is terminated for
reasons other than death, disability, or retirement, all unexercised options
will immediately terminate. In the event of the death of the optionee, the
optionee's heirs may exercise the option, in whole or in part, at any time
within 12 months of the optionee's death. In the event the optionee's employment
is terminated because of disability or retirement, the option is exercisable,
generally, within three months of such event. Options granted under the Employee
Option Plan are nontransferable, other than by will or the laws of descent and
distribution, and in no event are exercisable later than ten years after the
date of grant.
The Employee Option Plan further provides for the acceleration of the
exercisability of an outstanding option in the event of (i) a dissolution or
liquidation of the Company; (ii) a sale of all or substantially all of the
assets of the Company; (iii) a merger or share exchange in which the Company is
not the surviving corporation; or (iv) any other capital reorganization in which
more than 50% of the voting shares of the Company are exchanged.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTION GRANTS
The following is a brief summary of the Federal income tax aspects of
option awards made under the Employee Option Plan based upon the Federal income
tax laws in effect on the date hereof. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
Incentive Stock Options. Neither the grant nor the exercise of an
incentive stock option will result in taxable income to the employee. The tax
treatment on the sale of the Common Stock acquired upon exercise of an incentive
stock option depends on whether the holding period requirement is satisfied. The
holding period requirement is met if the disposition by the employee occurs (i)
at least two years after the date of grant of the option; (ii) at least one year
after the date the shares were transferred to the employee; and (iii) while the
employee remains employed by the Company or not more than three months after his
or her termination of employment (or not more than one year in the case of a
disabled employee). In the case of a deceased employee, the incentive stock
option may be exercised by the deceased employee's legal representative provided
the deceased employee had satisfied the holding period requirement at the time
of his or her death. The Employee Option Plan limits, however, the right of the
legal representative of any deceased employee to exercise an option to twelve
months following death. If the holding period is satisfied, the excess of the
amount realized upon sale of the Common Stock over the price paid for these
shares will be treated as a capital gain, provided the stock qualifies as a
capital asset in the hands of the employee. If the employee disposes of the
Common Stock before the expiration of the holding period (a "disqualifying
disposition"), the excess of the fair market value of the shares on the date of
exercise or, if less, the fair market value on the date of disposition, over the
exercise price will be taxable as ordinary income to the employee at the time of
disposition, and the Company will be entitled to a corresponding deduction. The
balance of the gain, if any, will be a capital gain for the employee. Any
capital gain realized by the employee will be a long-term capital gain if the
employee's holding period for the Common Stock at the time of disposition is
more than eighteen months, a mid-term capital gain if the employee's holding
period is more than one year but less than eighteen months, and a short-term
capital gain if the employee's holding period is less than one year.
14
<PAGE> 17
Although the exercise of an incentive stock option will not result in
taxable income to the employee, the excess of the fair market value of the
shares on the date of exercise over the exercise price will be included in the
employee's "alternative minimum taxable income" under Section 56 of the Code.
This inclusion might subject the employee to, or increase his or her liability
for, the alternative minimum tax under Section 55 of the Code.
Nonqualified Stock Options. There will be no federal income tax
consequences to the Company or to the grantee upon the grant of a nonqualified
stock option. Except as noted below, however, upon exercise of the nonqualified
stock option the grantee will realize ordinary income for federal income tax
purposes in an amount equal to the excess of the fair market value of the shares
purchased over the exercise price. The company will generally be entitled to a
tax deduction at such time and in the same amount that the employee realizes
ordinary income. If the Common Stock so acquired is later sold or exchanged, the
difference between the sales price and the fair market value of such stock on
the date of exercise of the option is generally taxable as long-term, mid-term,
or short-term capital gain or loss depending upon whether the Common Stock
qualifies as a capital asset in the hands of the employee and how long it has
been held after such date.
Exercise with Shares. A grantee who pays the exercise price upon
exercise of an incentive stock option or nonqualified stock option, in whole or
in part, by delivering shares of the Company's stock already owned by him or her
will realize no gain or loss for federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above.
Shares acquired upon exercise which are equal in number to the shares
surrendered will have a basis equal to the basis of the shares surrendered, and
(except as noted below with respect to disqualifying dispositions) the holding
period of such shares will include the holding period of the shares surrendered.
In the case of a nonqualified stock option, the basis of additional shares
received upon exercise of the nonqualified stock option will be equal to the
fair market value of such shares on the date of exercise, and the holding period
for such additional shares will commence on the date the option is exercised. In
the case of an incentive stock option, the basis of the additional shares
received will be zero, and the holding period for such shares will commence on
the date of the exchange. If any of the shares received upon exercise of the
incentive stock option are disposed of within two years of the date of grant of
the incentive stock option or within one year after exercise, the shares with
the lowest basis (i.e., zero basis) will be deemed to be disposed of first, and
such disposition will be a disqualifying disposition giving rise to ordinary
income as previously discussed above.
The Employee Option Plan is not intended to be a "qualified plan" under
Section 401(a) of the Code.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE COMMON STOCK
PRESENT IN PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING, AND
THAT VOTE FOR OR AGAINST OR EXPRESSLY ABSTAIN WITH RESPECT TO THE VOTE, IS
REQUIRED TO APPROVE THE AMENDMENT TO THE EMPLOYEE OPTION PLAN. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL TWO.
15
<PAGE> 18
PERSONS MAKING THE SOLICITATION
The enclosed form of proxy is solicited on behalf of the Board of
Directors of the Company. The cost of soliciting proxies in the accompanying
form will be borne by the Company. In addition to the use of mail, employees of
the Company may solicit proxies by telephone or telecopy. Upon request, the
Company will reimburse brokers, dealers, banks, and trustees, or their nominees,
for reasonable expenses incurred by them in forwarding proxy materials to
beneficial owners of the Common Stock.
REVOCABILITY OF PROXY
Shares represented by valid proxies will be voted in accordance with
instructions contained therein, or, in the absence of such instructions, in
accordance with the recommendations of the Board of Directors. Any shareholder
of the Company has the unconditional right to revoke his or her proxy at any
time prior to the voting thereof by any action inconsistent with the proxy,
including notifying the Secretary of the Company in writing, executing a
subsequent proxy, or personally appearing at the Annual Meeting and casting a
contrary vote. However, no such revocation will be effective unless and until
such notice of revocation has been received by the Company at or prior to the
Annual Meeting.
METHOD OF COUNTING VOTES
Unless a contrary choice is indicated, all duly executed proxies will
be voted in accordance with the instructions set forth on the back side of the
proxy card. Abstentions and broker non-votes will be counted as present for
purposes of determining a quorum. A broker non-vote occurs when a broker holding
shares registered in street name is permitted to vote, in the broker's
discretion, on routine matters without receiving instructions from the client,
but is not permitted to vote without instructions on non-routine matters, and
the broker returns a proxy card with no vote (the "non-vote") on the non-routine
matter. Abstentions and non-votes will not be considered in the election of
directors. Abstentions will be counted as votes against the proposed amendment
to the Employee Option Plan; non-votes, however, will not be considered in the
vote.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder in accordance with
applicable rules and regulations for presentation at the Company's Annual
Meeting of Shareholders in 1999 and received at the Company's executive offices
no later than December 14, 1998 will be included in the Company's Proxy
Statement and form of proxy relating to such Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth herein. Should any
other matter requiring a vote of shareholders arise, the proxies in the enclosed
form confer upon the person or persons entitled to vote the shares represented
by such proxies discretionary authority to vote the same in accordance with
their best judgment in the interest of the Company.
16
<PAGE> 19
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to serve as
independent auditors for the current fiscal year. Such firm has served as the
independent auditors for the Company and its predecessor entities since January
1992. Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will be given the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.
FINANCIAL STATEMENTS
A copy of the Company's 1997 Annual Report containing audited financial
statements for 1997 accompanies this Proxy Statement. The Annual Report does not
constitute a part of the proxy solicitation material.
April 13, 1998
17
<PAGE> 20
APPENDIX A
PROPOSED AMENDMENT TO THE
1993 STOCK OPTION PLAN
The first paragraph of Section 4 is hereby amended and restated in its
entirety as follows:
"4. The Stock. The stock subject to the options and other provisions of
the Plan shall be shares of the Company's authorized and unissued Common Stock,
or reacquired Common Stock held in the treasury. The total number of shares of
Common Stock that may be transferred pursuant to the exercise of stock options
under the Plan shall not exceed in the aggregate 5,000,000 shares; provided,
that no person shall be eligible to receive pursuant to the Plan options
entitling such person to purchase in excess of 200,000 shares of Common Stock
during any one-year period (unless the exercisability of options is accelerated
in accordance with the other provisions of the Plan). Shares subject to options
which terminate or expire prior to exercise shall be available for further
option hereunder."
<PAGE> 21
Appendix B
PROXY PHYSICIAN RELIANCE NETWORK, INC. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS OF PHYSICIAN RELIANCE NETWORK, INC. (THE "COMPANY") TO BE HELD ON
MAY 12, 1998
The undersigned hereby appoints John T. Casey and George P. McGinn, Jr., and
each of them, as proxies, with full power of substitution, to vote all shares of
the undersigned as shown below on this proxy at the Annual Meeting of
Shareholders of Physician Reliance Network, Inc. to be held at the Westin
Galleria Dallas, 13340 Dallas Parkway, Dallas, Texas, on Tuesday, May 12, 1998
at 9:00 a.m., local time, and any adjournments thereof.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO CHOICE IS
SPECIFIED, SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR THE
AMENDMENT TO THE 1993 STOCK OPTION PLAN.
[ ] Check here for address change.
New Address: ________________________________
_____________________________________________
_____________________________________________
(Please date and sign this proxy on the reverse side.)
PHYSICIAN RELIANCE NETWORK, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Election of Directors--
Nominees: John T. Casey, Merrick H. Reese, Joseph S. Bailes, Nancy G.
Brinker, Robert W. Daly, Boone Powell, Jr., J. Taylor Crandall, Terrence J.
Mulligan, and Burton S. Schwartz
FOR [ ] WITHHOLD [ ] FOR ALL [ ]
(Except Nominee(s) written below)
_________________________________
2. Proposed amendment to the Company's 1993 Stock Option Plan.
3. In their discretion on any other matter that may properly come before said
meeting or any adjournments thereof.
PLEASE SIGN HERE AND RETURN PROMPTLY
Dated: ______________________, 1998
Signature(s) ___________________________
________________________________________
Please sign exactly as your name appears
at left. If registered in the names of two
or more persons, each should sign.
Executors, administrators, trustees,
guardians, attorneys, and corporate
officers should show their full titles.
