SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SPECIALTY CARE NETWORK, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
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:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
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/_/ 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
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*Set forth the amount on which the filing fee is calculated and state how it was
determined.
SPECIALTY CARE NETWORK, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
It is my pleasure to invite you to attend the 1997 Annual Meeting of
Stockholders of Specialty Care Network, Inc., to be held at United States Trust
Company of New York, 114 West 47th Street, New York, New York, on Friday,
September 12, 1997 at 9:00 a.m. Eastern Daylight Time. The meeting will be held
for the following purposes:
1. To elect 10 directors for the ensuing year.
2. To vote upon a proposal to approve the Company's 1996 Equity
Compensation Plan, as amended.
3. To act upon such other matters that may properly come before the
meeting.
Holders of the Company's Common Stock of record at the close of business on
July 21, 1997 are entitled to receive this notice and to vote at the meeting or
any adjournment.
Your vote is important. Whether you plan to attend the meeting or not, we
urge you to complete, sign and return your proxy card as soon as possible in the
envelope provided. This will ensure representation of your shares in the event
you are not able to attend the meeting. You may revoke your proxy and vote in
person at the meeting if you so desire.
Patrick M. Jaeckle
Executive Vice President
of Development/Finance and
Secretary
August 11, 1997
SPECIALTY CARE NETWORK, INC.
44 Union Boulevard
Suite 600
Lakewood, Colorado 80228
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed on or
about August 11, 1997 to stockholders in connection with the solicitation of
proxies on behalf of the Board of Directors of Specialty Care Network, Inc.
("SCN" or the "Company") for the 1997 Annual Meeting of Stockholders. Proxies
are solicited to give all stockholders of record on July 21, 1997 an opportunity
to vote on the matters that come before the meeting. Shares can be voted at the
meeting only if the stockholder is present or represented by proxy.
When your proxy card is returned properly signed, the shares represented
will be voted in accordance with your directions. You can specify your choices
by marking the appropriate boxes on the enclosed proxy card. If your proxy card
is signed and returned without directions, the shares will be voted for the
persons identified in this proxy statement as nominees for election to the Board
of Directors and for approval of the Company's 1996 Equity Compensation Plan, as
amended. The Board of Directors is not aware of any matters that will be brought
before the meeting other than those described in this Proxy Statement. However,
if any other matters properly come before the meeting, the persons named in the
enclosed proxy will vote in accordance with their best judgment on such matters.
You may revoke your proxy at any time before it is voted at the meeting by
executing a later-dated proxy or by voting by ballot at the meeting.
On July 21, 1997, 16,233,362 shares of SCN Common Stock were outstanding.
The holders of a majority of Common Stock entitled to vote, present in person or
represented by proxy, will constitute a quorum for the transaction of business.
Holders of Common Stock are entitled to one vote per share on all matters
properly brought before the meeting. Directors are elected by a plurality of the
votes cast. A plurality means that the nominees with the largest number of votes
are elected as directors up to the maximum number of directors to be chosen at
the meeting. All other matters submitted at the meeting will be determined by a
majority of votes cast. Generally, abstentions will have the same effect as a
vote "against" a matter brought before the meeting. Where brokers are prohibited
from exercising discretionary authority in voting shares for beneficial owners
who have not provided voting instructions (commonly referred to as "broker
non-votes"), those shares will not be included in vote totals.
1
Ownership of Company Common Stock by Certain Persons
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 21, 1997 by (i)
each person known to the Company to own beneficially more than 5 percent of the
Company's Common Stock (including such person's address), (ii) the Company's
five most highly paid executive officers listed under "Executive
Compensation--Summary of Cash and Certain Other Compensation," (iii) each
director of the Company and (iv) all directors and executive officers as a
group.
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned Outstanding Shares(1)
- ------------------------ ------------------ ---------------------
Richard H. Rothman, M.D., Ph.D. (2).................. 464,902 2.9%
Kerry R. Hicks (3)................................... 655,418 4.0
Patrick M. Jaeckle (4)............................... 605,418 3.7
William C. Behrens .................................. 276,645 1.7
Robert E. Booth, Jr., M.D............................ 549,300 3.4
James L. Cain, M.D................................... 132,721 *
Peter H. Cheesbrough................................. 0 *
Richard E. Fleming, Jr., M.D. (5).................... 158,454 *
Thomas C. Haney, M.D................................. 112,549 *
Leslie S. Matthews, M.D.............................. 295,088 1.8
Mats Wahlstrom....................................... 0 *
D. Paul Davis........................................ 85,899 *
Peter A. Fatianow (6)................................ 71,236 *
All directors and executive officers as a
group (17 persons) (7)............................ 3,331,259 20.5%
- ----------
* Less than one percent.
(1) Applicable percentage of ownership is based on 16,233,362 shares of Common
Stock outstanding on July 21, 1997. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
means voting or investment power with respect to securities. Shares of
Common Stock issuable upon the exercise of stock options exercisable
currently or within 60 days of July 21, 1997 are deemed outstanding and to
be beneficially owned by the person holding such option for purposes of
computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable
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community property laws, or as indicated in the footnotes to this table,
each stockholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.
(2) Does not include 200,000 shares of Common Stock held in the Richard H.
Rothman 1996 "SCN" Annuity Trust dated November 26, 1996 and 3,000 shares
of Common Stock held by each of the U/I/T of Richard H. Rothman dated
September 5, 1995 f/b/o Daniel Sheerr Kapp and the U/I/T of Richard H.
Rothman dated September 5, 1995 f/b/o Samuel Rothman Kapp, with respect to
which Dr. Rothman disclaims beneficial ownership.
(3) Includes 60,000 shares of Common Stock held in the Linda Wratten Trust,
20,000 shares of Common Stock in each of the Frank Nemick III Trust, the
William Nemick Trust and the Jeanette Baysinger Trust and 10,000 shares of
Common Stock in each of the Frank Nemick, Jr. Trust, the Julie Nemick Trust
and The David G. Hicks Irrevocable Children's Trust. Does not include
60,000 shares of Common Stock held by The Hicks Family Irrevocable Trust,
for which shares Mr. Hicks disclaims beneficial ownership.
(4) Does not include 100,000 shares of Common Stock held by The Patrick M.
Jaeckle Family Irrevocable Children's Trust, for which shares Mr. Jaeckle
disclaims beneficial ownership.
(5) Includes 20,382 shares and 5,095 shares of Common Stock held by the Fleming
Charitable Remainder Unitrust and the Fleming Family Foundation,
respectively. Does not include 2,547 shares of Common Stock held by each of
the Irrevocable Trust FBO M. Fleming and the Irrevocable Trust FBO A.
Fleming, respectively, for which Dr. Fleming disclaims beneficial
ownership.
(6) Does not include 15,000 shares of Common Stock held by the Fatianow Family
Irrevocable Children's Trust, for which shares Mr. Fatianow disclaims
beneficial ownership.
(7) Includes options to purchase 30,000 shares of Common Stock. Includes shares
held by Michael E. West, who became an executive officer of the Company in
July 1997.
ELECTION OF DIRECTORS
At the meeting, 10 directors will be elected to hold office until the
Annual Meeting of Stockholders in 1998 or until their successors have been
elected and qualified. Unless contrary instructions are given, the shares
represented by a properly executed proxy will be voted for the nominees listed
below. All of the nominees are currently members of the Board of Directors of
the Company.
If, at the time of the meeting, one or more of the nominees have become
unavailable to serve, shares represented by proxies will be voted for the
remaining nominees and for any substitute nominee or nominees designated by the
Board of Directors, unless the size of the Board is reduced. The Board of
Directors knows of no reason why any of the nominees will be unavailable or
unable to serve.
Certain information concerning the nominees for election as directors is
set forth below:
Richard H. Rothman, M.D., Ph.D., age 60, has been Chairman of the Board of
Directors of the Company since December 1996. Since 1970, Dr. Rothman has been
Chairman of The Rothman Institute, and since 1986, he has been Chairman of the
Department of Orthopaedic Surgery at Thomas Jefferson University. Dr. Rothman is
Editor-in-Chief of The Journal of Arthroplasty, a journal of joint replacement
surgery. Dr. Rothman received a B.A. degree from the University of Pennsylvania,
an M.D. degree from the University of Pennsylvania School of Medicine and a
Ph.D. degree from Jefferson Medical College.
3
Kerry R. Hicks, age 37, a founder of the Company, has served as President
and Chief Executive Officer and as a director of the Company since its inception
in December 1995. From 1985 to March 1996, Mr. Hicks served as Senior Vice
President of LBA Health Care Management ("LBA"), a developer of health care and
management information services. LBA provided management consulting services
(including orthopaedic projects) to medical centers to support the purchasing,
planning, marketing and delivery of health care. Mr. Hicks was principally
responsible for developing LBA's orthopaedic product line and its information
systems. LBA's orthopaedic product line established quality and cost benchmarks
and developed clinical protocols and patient care algorithms intended to enhance
both the quality and effectiveness of the delivery of orthopaedic care.
Patrick M. Jaeckle, age 38, a founder of the Company, has served as
Executive Vice President of Finance/Development and as a director of the Company
since its inception in December 1995. From February 1994 to March 1996, Dr.
Jaeckle served as director of health care corporate finance at Morgan Keegan &
Company, Inc., a regional investment banking firm. Prior to February 1994, Dr.
Jaeckle was a member of the health care investment banking groups at both Credit
Suisse First Boston Corporation (from June 1992 to February 1994) and Smith
Barney, Inc. (from May 1991 to June 1992). Dr. Jaeckle holds an M.B.A. degree
from Columbia Business School, a D.D.S. degree from Baylor College of Dentistry
and a B.A. degree from The University of Texas at Austin.
Robert E. Booth, Jr., M.D., age 54, has served as a director of the Company
since December 1996. Since July 1997, Dr. Booth has been an orthopaedic surgeon
with 3B Orthopaedics and is Chair of the Orthopaedic Hospital at Allegheny
University Hospitals -- Graduate and Professor of Orthopaedic Surgery at
Allegheny University of the Health Sciences. From 1977 to June 1997, Dr. Booth
was an orthopaedic surgeon at Reconstructive Orthopaedic Associates, Inc. and
its successor, Reconstructive Orthopaedic Associates II, P.C., at Pennsylvania
Hospital. Dr. Booth received a B.A. degree from Princeton University and an M.D.
degree from the University of Pennsylvania.
James L. Cain, M.D., age 57, has served as a director of the Company since
December 1996. Since 1976, Dr. Cain has been an orthopaedic surgeon at, and the
physician manager of, Vero Orthopaedics in Vero Beach, Florida. Dr. Cain
received a B.A. degree from Emory University and an M.D. degree from the Tulane
University School of Medicine.
Peter H. Cheesbrough, age 45, has served as a director of the Company since
December 1996. Since June 1993, Mr. Cheesbrough has been the Senior Vice
President-Finance and Chief Finance Officer of Echo Bay Mines Ltd., a company
engaged in precious metals mining. From April 1988 to June 1993, he was Echo Bay
Mines' Vice President and Controller. Mr. Cheesbrough is a Fellow of the
Institute of Chartered Accountants of England and Wales and also a chartered
accountant in Canada.
Richard E. Fleming, Jr., M.D., age 50, has served as a director of the
Company since December 1996. Since 1979, Dr. Fleming has been an orthopaedic
surgeon at Princeton Orthopaedic Associates II, P.A. and its predecessor,
Princeton Orthopaedic Associates, P.A. Dr. Fleming
4
received a B.A. degree from Princeton University and an M.D. degree from
Columbia University College of Physicians and Surgeons.
Thomas C. Haney, M.D., age 54, has served as a director of the Company
since December 1996. Since 1973, Dr. Haney has been an orthopaedic surgeon at
TOC Specialists and its predecessor, Tallahassee Orthopedic Clinic, Inc. Dr.
Haney received a B.A. degree from Florida State University and an M.D. degree
from Emory University School of Medicine.
Leslie S. Matthews, M.D., age 45, has served as a director of the Company
since December 1996. Since October 1994, Dr. Matthews has been an orthopaedic
surgeon at Greater Chesapeake Orthopaedic Associates, LLC, and since 1990, he
has been the Chief of Orthopaedic Surgery at Union Memorial Hospital. From July
1982 to October 1994, Dr. Matthews was also engaged in private practice. Dr.
Matthews received a B.A. degree from Johns Hopkins University and an M.D. degree
from the Baylor College of Medicine.
Mats Wahlstrom, age 42, has served as a director of the Company since March
1997. Mr. Wahlstrom has served in various capacities for Gambro AB and its
affiliated companies, which are engaged in the manufacture of equipment for
hemodialysis, cardiovascular surgery and blood component analysis and in the
provision of health care services. He has been Executive Vice President of
Gambro AB since 1990 and President of COBE Laboratories, Inc., a subsidiary of
Gambro AB engaged in the development and manufacture of hemodialysis products
and the operation of dialysis centers, since 1991.
Drs. Cain, Fleming, Haney, Matthews and Rothman were elected to the Board
of Directors pursuant to the terms of a Stockholders Agreement among holders of
the Company's Common Stock. Dr. Booth was elected to the Board of Directors
pursuant to an agreement between the Company and Dr. Booth. The provisions of
the agreements relating to election of these persons to the Board of Directors
are no longer in effect.
Kerry R. Hicks and David G. Hicks, the Company's Vice President of
Management Information Systems, are brothers.
Meetings and Committees of the Board of Directors
The Board of Directors held two meetings during 1996. The Board has an
Audit Committee and a Compensation Committee, each of which were formed in 1997.
The Board does not have a nominating committee.
The Audit Committee is authorized to consider the adequacy of internal
controls and the objectivity of financial reporting, to review with the
independent auditors the scope of their activities and findings, and to review
with appropriate Company officers, the Company's internal controls. The Audit
Committee also recommends the firm of independent auditors for appointment by
the Company. Messrs. Cheesbrough and Wahlstrom are the current members of the
Audit Committee.
5
The Compensation Committee is authorized to determine the terms and
conditions of the employment of the Company's executive officers and to
administer the Company's 1996 Equity Compensation Plan. Messrs. Cheesbrough and
Wahlstrom are the current members of the Compensation Committee.
Compensation of Directors
Each of the Company's non-employee directors, other than Messrs.
Cheesbrough and Wahlstrom, were granted options during 1996 to purchase 10,000
shares under the Company's 1996 Equity Compensation Plan. Such options all have
an exercise price of $8.00 per share (the initial public offering price of the
Company's Common Stock) and expire in December 2006. Messrs. Cheesbrough and
Wahlstrom, who are the current members of the Company's Audit and Compensation
Committees, were each granted options to purchase 20,000 shares of Common Stock,
which options have exercise prices of $8.00 per share and $9.375 per share and
expire in December 2006 and March 2007, respectively. Messrs. Cheesbrough's and
Wahlstrom's options were granted in 1996 and 1997, respectively. All directors'
options vest in substantially equal increments on each of the first three
anniversaries of the date of grant.
Directors who are also employees of the Company receive no compensation for
serving as directors.
Compensation Committee Interlocks and Insider Participation
During 1996, the Board of Directors did not have a Compensation Committee.
The compensation of the Company's executive officers was determined by Mr. Hicks
and Dr. Jaeckle, the Company's President and Executive Vice President of
Finance/Development, respectively, through December 1996. Options were granted
and cash annual incentive awards were approved in December 1996 by the Board of
Directors.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth certain information concerning the
compensation paid by the Company to the Chief Executive Officer of the Company
and the Company's only other executive officer during the fiscal year ended
December 31, 1995 and the Chief Executive Officer and the four other most highly
paid executive officers (collectively, the "Named Executive Officers") during
1996. No executive officer of the Company earned any salary or bonus for
services rendered during the year ended December 31, 1995.
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Summary Compensation Table
Long Term
Compensation
------------
Awards
Annual Compensation ------------
------------------- Stock
Name and Principal Position Year Salary Bonus Options
- --------------------------- ---- ------ ----- -------
Kerry R. Hicks
President and Chief Executive......................... 1996 $138,876 $140,625 75,000
1995 $ - $ - -
Patrick M. Jaeckle
Executive Vice President of Finance/Development....... 1996 $147,210 $140,625 75,000
1995 $ - $ - -
William C. Behrens
Executive Vice President of Practice Management(1) ... 1996 $ 83,516 $ 85,938 545,825
Peter A. Fatianow
Vice President of Development......................... 1996 $ 89,339 $ 67,500 30,000
D. Paul Davis
Vice President of Finance............................. 1996 $ 89,338 $ 67,500 30,000
- ---------------------
(1) Effective July 1, 1997, Mr. Behrens resigned from his positions as an
officer and director of the Company. In connection with Mr. Behrens'
resignation, options to purchase 345,825 shares of Common Stock were cancelled.
7
Option Exercises and Holdings
The following table sets forth certain information regarding stock
options granted during 1996 to the Named Executive Officers.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Option Grants in Last Fiscal Year Price Appreciation for
Individual Grants Option Term (1)
- ------------------------------------------------------------------------------------------------- ----------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(2) Fiscal Year Per Share(3) Date 5% 10%
- ---- ---------- -------------- ------------ ---------- -- ---
Kerry R. Hicks............. 75,000 6.0% $8.00 12/4/2006 $377,337 $956,245
Patrick M. Jaeckle......... 75,000 6.0% $8.00 12/4/2006 $377,337 $956,245
William C. Behrens(4)...... 500,000 40.1% $1.00 3/22/2006 $314,448 $796,871
45,825 3.7% $8.00 12/4/2006 $230,553 $584,266
D. Paul Davis.............. 30,000 2.4% $8.00 12/4/2006 $150,935 $382,498
Peter A. Fatianow.......... 30,000 2.4% $8.00 12/4/2006 $150,935 $382,498
- --------------------------------
(1) Based on the exercise price per share.
(2) The options vest in 20 percent increments on each of the first through
fifth anniversaries of the date of grant, except with respect to the option
to purchase 500,000 shares held by Mr. Behrens. In June 1997, Mr. Behrens
exercised that option with respect to 200,000 shares. The remaining shares
subject to Mr. Behrens' options were cancelled in June 1997. See Note 4.
(3) The options, other than the option to purchase 500,000 shares held by Mr.
Behrens, were initially granted at $6.00 per share. The exercise price per
share was later amended to $8.00, the initial public offering price per
share in the Company's initial public offering.
(4) Effective July 1, 1997, Mr. Behrens resigned from his positions as an
officer and director of the Company. In connection with Mr. Behrens'
resignation, options to purchase 345,825 shares of Common Stock were
cancelled.
The following table sets forth certain information regarding stock options
held as of December 31, 1996 by the Named Executive Officers. None of the Named
Executive Officers exercised stock options during 1996.
8
Fiscal Year End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End at Fiscal year-End ($)(1)
------------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Kerry R. Hicks............................ 0 75,000 0 0
Patrick M. Jaeckle........................ 0 75,000 0 0
William C. Behrens(2)..................... 0 545,825 0 $3,500,000
D. Paul Davis............................. 0 30,000 0 0
Peter A. Fatianow......................... 0 30,000 0 0
- -------------------
(1) There was no public trading market for the Common Stock as of December 31,
1996. These values have been calculated on the basis of $8.00 per share,
the initial public offering price per share of the Company's Common Stock
in its initial public offering minus the applicable per share exercise
price.
(2) Effective July 1, 1997, Mr. Behrens resigned from his positions as an
officer and director of the Company. In connection with Mr. Behrens'
resignation, options to purchase 345,825 shares of Common Stock were
cancelled. In June 1997, Mr. Behrens exercised an option as to 200,000
shares of Common Stock at an exercise price of $1.00 per share.
Employment Agreements
The Company has employment agreements with each of Mr. Hicks and Dr.
Jaeckle dated as of April 1, 1996. Each agreement has an initial term of five
years and is renewable automatically for one year periods unless terminated by
one of the parties. The agreements provide for an annual salary rate to each
officer of $187,500 for 1996, $215,000 for 1997 and $250,000 for 1998, with cost
of living increases for the years following 1998. In addition, the agreements
provide for annual incentive compensation to each officer equal to up to 100% of
his base salary based on performance targets established by the Board of
Directors, and on December 4, 1996, the Board of Directors approved annual
incentive compensation awards to each of Mr. Hicks and Dr. Jaeckle of $140,625.
The Company has an employment agreement with Mr. Fatianow dated as of March
1, 1996 and with Mr. Davis dated as of February 22, 1996. Each agreement has an
initial term of five years and is renewable automatically for one year periods
unless terminated by one of the parties. The agreements provide for an annual
salary rate to each officer of $108,000 for 1996, $125,000 for 1997 and $144,000
for 1998, with cost of living increases for the years following the third year.
In addition, the agreements provide for annual incentive compensation to each
officer equal to up to 75% of his base salary based on performance targets
established by the Board of Directors, and on December 4, 1996, the Board of
Directors approved annual incentive compensation awards to Mr. Fatianow in the
amount of $67,500 and to Mr. Davis in the amount of $64,125 (which was
subsequently increased to $67,500). In connection with Mr. Davis' appointment as
Senior Vice President, his base salary was increased to $150,000 per annum.
9
Under all of the employment agreements described above, in the event that
the officer is terminated without cause and there has been no change of control
of the Company, the Company will pay such officer his base salary for the
remaining term of the agreement and any earned but unpaid salary and incentive
compensation. In the event the officer is terminated with cause, regardless of
whether there has been a change of control of the Company, the Company will pay
such officer his base salary for 60 days following such termination. If the
officer is terminated without cause upon a change of control of the Company, he
is entitled to receive a lump sum payment upon such termination equal to 300% of
his base salary plus 300% of his annual incentive compensation for the prior
year. Each agreement contains certain confidentiality and non-competition
covenants.
CERTAIN TRANSACTIONS
During 1996, various executive officers and directors participated in the
Company's debt and equity financings. These financings are described below.
From January 1, 1996 through July 1, 1996, the Company sold 5% convertible
debentures in the aggregate principal amount of $1,870,000. On November 12,
1996, the convertible debentures, along with the accrued interest on the
debentures, were converted into 1,920,332 shares of Common Stock at a rate of
one share of Common Stock for each $1.00 of indebtedness. The securities were
issued to certain executive officers of the Company as follows: Mr. Hicks and
Dr. Jaeckle each converted $200,000 of convertible debentures and $5,418 in
accrued interest into 205,418 shares of Common Stock, Mr. Behrens converted
$75,000 of convertible debentures and $1,645 in accrued interest into 76,645
shares of Common Stock, Mr. Fatianow converted $35,000 in convertible debentures
and $1,236 of accrued interest into 36,236 shares of Common Stock and Mr. Davis
converted $35,000 of convertible debentures and $899 in accrued interest into
35,899 shares of Common Stock. In addition, securities were issued to certain
non-employee directors of the Company as follows: Dr. Rothman converted $233,333
of convertible debentures and $7,085 in accrued interest into 240,418 shares of
Common Stock and Dr. Booth converted $83,333 of convertible debentures and
$3,483 in accrued interest into 86,816 shares of Common Stock.
On October 1, 1996, the Company sold to Greater Chesapeake Orthopaedic
Associates, LLC ("GCOA") 5% convertible debentures in the aggregate principal
amount of $300,000. On November 12, 1996, the convertible debentures, along with
the accrued interest on the debentures of $1,707, were converted into 100,569
shares of Common Stock at a rate of one share of Common Stock for each $3.00 in
indebtedness. Dr. Matthews is a physician owner of GCOA.
On November 4, 1996, the Company sold to TOC Specialists, P.L. ("TOC")
100,000 shares of Common Stock for an aggregate purchase price of $300,000. Dr.
Haney is a physician owner of TOC.
On November 12, 1996, the Company, through a series of transactions (the
"Initial Affiliation Transactions"), including an asset purchase, a share
exchange and three mergers, acquired
10
substantially all of the assets and certain liabilities (including facilities
leases and vendor or supplier contracts) of GCOA and the four practices that
were predecessors to practices (together with GCOA, the "Initial Affiliated
Practices") with which the Company has affiliated through the entry into service
agreements. In connection with the Initial Affiliation Transactions, the Company
issued shares of Common Stock to the physician owners of the Initial Affiliated
Practices and entered into service agreements with the Initial Affiliated
Practices and their physician owners.
Under the service agreements, the Company, among other things, provides
facilities and management, administrative and development services, and employs
most non-medical personnel of the Initial Affiliated Practices in return for
management service fees. Such fees are payable monthly and consist of the
following: (i) service fees based on a percentage (the "Service Fee Percentage")
ranging from 20%-33% of the Adjusted Pre-Tax Income of the Initial Affiliated
Practices (defined generally as revenue of the Initial Affiliated Practices
related to professional services less amounts equal to certain clinic expenses
of the Initial Affiliated Practices ("Clinic Expenses," as defined more fully in
the service agreements), not including physician owner compensation or most
benefits to physician owners) and (ii) amounts equal to Clinic Expenses. For the
first three years following affiliation, however, the portion of the service
fees described under clause (i) is specified to be the greater of the amount
payable as described under clause (i) above or a fixed dollar amount (the "Base
Service Fee"), which was generally calculated by applying the respective Service
Fee Percentage of Adjusted Pre-Tax Income for GCOA and each of the predecessors
to the other four Initial Affiliated Practices for the twelve months prior to
affiliation. The annual Base Service Fees for the Initial Affiliated Practices
is approximately $9.5 million in the aggregate. In addition, with respect to its
management of an MRI center for TOC and an outpatient surgery center for
Princeton Orthopaedic Associates II, P.A. ("POA"), the Company receives fees
ranging from 2%-8% of the net revenue related to such facilities and services.
Each of the Company's physician directors are or were affiliated with one of the
Initial Affiliated Practices. Certain terms of the Initial Affiliation
Transactions are summarized below.
The Company entered into an Asset Exchange Agreement with GCOA and the
individual physicians who are owners of GCOA, including Dr. Matthews. Pursuant
to the terms of the agreement, the Company purchased certain assets of GCOA and
assumed certain liabilities relating to those assets. In connection with the
purchase, the Company issued 1,568,922 shares of its Common Stock, valued at $6
per share, including 280,721 shares to Dr. Matthews. The Company also entered
into a service agreement with GCOA and its physician owners. The Company leases
the facilities utilized by GCOA from an entity of which Dr. Matthews is a
partial owner, for an aggregate annual lease payment of approximately $300,000.
Payments by the Company under the lease in 1996 totaled $23,687.
The Company entered into a Stock Exchange Agreement with the individual
physicians who are members of Princeton Orthopaedic Associates II, P.A. ("POA"),
including Dr. Fleming. Pursuant to the terms of the agreement, the Company
purchased all of the outstanding shares of the predecessor of POA. In connection
with the purchase, the Company issued 1,196,793 shares of Common Stock, valued
at $6 per share, including 132,977 shares issued to Dr. Fleming. The
11
Company also entered into a service agreement with POA and its physician owners.
The Company leases the facilities utilized by POA from an entity of which Dr.
Fleming is a partial owner, for an aggregate annual lease payment of
approximately $1.3 million. Payments by the Company under the lease in 1996
totaled $228,384.
The Company entered into a Merger Agreement with a predecessor of
Reconstructive Orthopaedic Associates II, P.C. ("ROA"), whose owners included
Drs. Rothman and Booth, pursuant to which the predecessor of ROA merged with and
into Company, with the Company surviving the merger. Pursuant to the terms of
the agreement, the outstanding shares of common stock of the predecessor of ROA
were converted into 3,169,379 shares of Common Stock, valued at $6 per share,
and $1,387,462 in cash was paid to Drs. Rothman and Booth. In addition, $150,410
was paid by the Company in satisfaction of outstanding indebtedness of the
predecessor of ROA. The Company issued 462,484 shares of Common Stock and
$693,731 to each of Drs. Rothman and Booth. The Company also entered into a
service agreement with ROA and its physician owners. The Company leases the
facilities utilized by ROA from an entity of which Drs. Rothman and Booth are
partial owners, for an aggregate annual lease payment of approximately $160,000.
Payments by the Company under the lease in 1996 totaled $31,987. Effective July
1997, Dr. Booth discontinued practicing with ROA. While Dr. Booth remains
subject to the Service Agreement with ROA, the Company has entered into an
agreement with ROA and Dr. Booth and another physician pursuant to which Dr.
Booth and the other physician established an independent practice ("B3
Orthopaedics") which will enter into a new service agreement with the Company.
The Company is currently negotiating the new service agreement with B3
Orthopaedics.
The Company entered into a Merger Agreement with a predecessor of TOC
Specialists, P.L. ("TOC"), whose owners included Dr. Haney, pursuant to which
the predecessor of TOC merged with and into Company, with the Company surviving
the Merger. Pursuant to the terms of the agreement, the outstanding shares of
common stock of the predecessor of TOC were converted into an aggregate of
1,072,414 shares of Common Stock, valued at $6 per share, including 103,202
shares issued to Dr. Haney. The Company also entered into a service agreement
with TOC and its physician owners. The Company leases the facilities utilized by
TOC from an entity of which Dr. Haney is a partial owner, for an aggregate
annual lease payment of approximately $500,000. The Company made no payments
under the lease in 1996.
The Company entered into a Merger Agreement with a predecessor of Vero
Orthopaedics II, P.A. ("VO"), whose owners included Dr. Cain, pursuant to which
the predecessor of VO merged with and into the Company, with the Company
surviving the merger. Pursuant to the terms of the agreement, the outstanding
shares of common stock of the predecessor of VO were converted into an aggregate
of 651,607 shares of Common Stock, valued at $6 per share, including 103,410
shares issued to Dr. Cain. In addition, pursuant to the terms of the agreement,
one medical employee of the predecessor of VO was granted an option to purchase
50,000 shares of Common Stock at an exercise price of $6 per share. The Company
also entered into a Service Agreement with VO and its physician owners. The
Company leases, on a month-to-month basis, certain of the facilities utilized by
VO from an
12
entity of which Dr. Cain is a partial owner, for an aggregate monthly lease
payment of approximately $9,000. Payments by the Company under the lease in 1996
totaled $18,082.
PROPOSAL TO APPROVE THE COMPANY'S 1996 EQUITY COMPENSATION PLAN, AS AMENDED
The Company's 1996 Equity Compensation Plan (the "Plan") provides for
grants of stock options ("Stock Options") to employees of the Company and any
subsidiary, certain consultants and advisers, and non-employee members of the
Board of Directors of the Company ("Non-employee Directors"). Shares of Common
Stock of the Company, par value $.001 per share ("Shares"), may be issued upon
exercise of Stock Options. The Plan was designed to be an incentive to
participants to contribute materially to the growth of the Company, thereby
benefiting the Company's stockholders and aligning the economic interests of the
participants with those of the stockholders. The Plan was initially approved by
the Company's stockholders on October 15, 1996, prior to the Company's initial
public offering.
At the meeting, there will be presented to stockholders a proposal to
approve and adopt the Plan, as amended. At its June 5, 1997 meeting, the Board
of Directors voted to amend the Plan to increase the number of shares of Common
Stock reserved for issuance under the Plan from 2,000,000 to 4,000,000 and to
clarify certain other provisions of the Plan. The Plan is also being submitted
to the stockholders for approval to comply with the requirements of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), as
described below.
As of August 5, 1997, options to purchase 1,905,018 shares of Common Stock
were granted under the 1996 Equity Compensation Plan. In addition, prior to
December 4, 1996, options could be granted under the Company's 1996 Incentive
and Non-qualified Stock Option Plan (the "Former Plan"). The Former Plan
authorized the issuance of up to 5,000,000 shares of Common Stock. As of August
5, 1997, 220,715 shares have been issued pursuant to the exercise of options and
3,500 shares may be issued upon the exercise of outstanding options under the
Former Plan. The Former Plan was terminated on December 4, 1996, and no further
options may be granted under the Former Plan.
In the opinion of the Board of Directors, the ability to grant options has
been instrumental in the retention of its management and other key employees. In
addition, the Company has grown significantly since its formation in December
1995 and the number of its employees has also increased. Moreover, the shares
that would be available upon exercise of options granted under the Plan, if the
amendment is approved, will be less than the number of shares available under
the Former Plan had that plan not been terminated by the Board of Directors.
The Plan, as proposed for approval by the stockholders, is set forth in
Exhibit A to this Proxy Statement. The description of the Plan is qualified in
its entirety by reference to Exhibit A.
13
The key provisions of the Plan are as follows:
General. If the proposal is approved, the Plan will authorize up to
4,000,000 shares of Common Stock for issuance, subject to adjustment in certain
circumstances discussed below. If and to the extent Stock Options granted under
the Plan terminate, expire or are cancelled without being exercised, the shares
subject to such Stock Options will again be available for grant under the Plan.
No individual may receive grants of Stock Options for more than an aggregate of
500,000 shares in any calendar year during the term of the Plan.
Administration of the Plan. The Plan provides that it is to be administered
and interpreted by the Board of Directors or a committee of not less than two
persons appointed by the Board of Directors from among its members. The Board of
Directors or such committee is hereinafter referred to as the "Committee." The
Compensation Committee of the Board of Directors currently serves as the
Committee. However, with respect to the grant of Stock Options to Non-employee
directors and other members of the Committee, the Board of Directors exercises
the authority of the Committee. The Committee has the sole authority to
determine (i) persons to whom Stock Options may be granted under the Plan, (ii)
the type, number of underlying shares and other terms of each Stock Option,
(iii) the time when the grants of Stock Options will be made and (iv) any other
matters arising under the Plan.
The Committee will have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
conduct of its business as it deems necessary or advisable, in its sole
discretion.
Grants and Awards. All grants of Stock Options are subject to the terms and
conditions set forth in the Plan and to those other terms and conditions
consistent with the Plan as the Committee deems appropriate and as are specified
in writing by the Committee to the designated individual (the "Grant
Instrument"). The Committee must approve the form and provisions of each Grant
Instrument. Grants under the Plan need not be uniform as among other recipients
of the same type of Grant.
Eligibility for Participation. Subject to the terms of the Plan, the
Committee is responsible for designating the employees and consultants and
advisors of the Company and any subsidiary who may participate in the Plan. As
of August 5, 1997, approximately 680 employees were eligible for grants of Stock
Options under the Plan. The Committee is authorized to select the persons to
receive grants of Stock Options (the "Grantees") from among those eligible and
to determine the number of Shares that are subject to each grant of a Stock
Option. To be eligible, consultants and advisors must render bona fide services
and such services must not be in connection with the offer or sale of securities
in a capital raising transaction.
Grant of Stock Options. The Committee may grant stock options intended to
qualify as incentive stock options ("ISOs"), within the meaning of section 422
of the Code, or so-called "non-qualified stock options" that are not intended to
so qualify ("NQSOs"). Only employees may receive ISOs.
14
The Committee fixes the option price per share at the date of grant of the
Stock Option. The option price of any ISO granted under the Plan may not be less
than the fair market value of the underlying Shares on the date of grant, and
the option price of any NQSO may be equal to, less than or greater than the fair
market value of the underlying Shares on the date of grant. However, if the
Grantee of an ISO is a person who holds more than 10% of the combined voting
power of all classes of outstanding stock of the Company, the option price per
share of an ISO must be at least 110% of the fair market value of a Share on the
date of grant. To the extent that the aggregate fair market value of Shares,
determined on the date of grant, with respect to which ISOs granted under the
Plan and any other plan become exercisable for the first time by a Grantee
during any calendar year exceeds $100,000, such ISOs, to the extent of such
excess, must be treated as NQSOs. Currently, the measure of fair market value of
a Share on a particular date is the closing sale price of a Share as reported on
the Nasdaq National Market on that date. On August 5, 1997, the closing price
per share of the Company's Common Stock, as reported on Nasdaq, was $12.00.
Term of Stock Option. The Committee determines the term of each Stock
Option, which may not exceed ten years from the date of grant or, if the Grantee
of an ISO is a person who holds more than 10% of the combined voting power of
all classes of outstanding stock of the Company, five years from the date of
grant. Stock Options will be subject to earlier termination as described below
under "Termination of Stock Options as a Result of Termination of Employment or
Service, Disability or Death." The vesting period for Stock Options, if any,
will be as determined by the Committee, and specified in the Grant Instrument.
The Committee, in its sole discretion, may accelerate the exercisability of any
Stock Option.
Payment for Shares Underlying Stock Option. A Grantee may exercise a Stock
Option by delivering notice of exercise to the Company with accompanying payment
of the option price. The Grantee may pay the option price in cash or by check or
wire transfer in immediately available funds, or by delivering shares of Common
Stock already owned by the Grantee (subject to such restrictions as the
Committee deems appropriate) or by such other mode as the Committee may approve,
including payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. The Grantee must pay, at the time of
exercise, the option price and the amount of any federal, state or local
withholding tax due in connection with such Stock Option exercise.
Termination of Stock Options as a Result of Termination of Employment or
Service, Disability or Death. If a Grantee ceases to serve an employee,
director, consultant or advisor to the Company or its subsidiary for any reason
other than disability, death or "termination for cause" (as defined in the Plan)
such person's Stock Option will terminate 90 days following the date on which he
or she ceases to serve. If such person's service ceases due to the person
becoming disabled within the meaning of Section 22(e)(3) of the Code, such
person's Stock Option will terminate one year following the date on which he or
she ceases to serve. In the event of the death of such person, while providing
such service or within three months after he or she ceases to serve, such
person's personal representative may exercise the Stock Option until one year
from the date of death. However, in each case described above, the Committee may
specify a different termination date, but in any event
15
no later than expiration of the initial term of the Stock Option. If such
person's service ceases due to "termination for cause" by the Company as defined
in the Plan, such person's Stock Options will terminate immediately.
Restrictions on Transferability of Stock Options. Subject to the exceptions
set forth below, no Stock Option granted under the Plan may be transferred,
except by will or the laws of descent and distribution. However, (i) if
permitted in any specific case by the Committee in its sole discretion, an NQSO
may be transferred pursuant to a "qualified domestic relations order," within
the meaning of the Code or of Title I of ERISA and (ii) the Committee may
provide, in a Grant Instrument, that a Grantee may transfer Stock Options to his
or her family members or other persons or entities according to such terms as
the Committee may determine.
Amendment or Termination of the Plan. The Board of Directors may amend or
terminate the Plan at any time. Nevertheless, the Board of Directors may not
amend the Plan without shareholder approval if such approval is required by
Section 162(m) of the Code and the Plan is subject to Section 162(m). The Plan
will terminate on October 14, 2006 unless terminated earlier by the Board of
Directors or extended by the Board of Directors with approval of the
stockholders. The termination of the Plan will not impair the power and
authority of the Committee with respect to outstanding Stock Options.
Amendment and Termination of Outstanding Stock Options. A termination or
amendment of the Plan that occurs after a Grant is made will not result in the
termination or amendment of the Stock Option unless the Grantee consents;
provided, however, that the Committee may revoke any Stock Option the terms of
which are contrary to applicable law, or modify any Grant to bring it into
compliance with any valid and mandatory government regulation. Stock Options may
also be modified, replaced or exchanged under the "Change of Control" provisions
described below.
Adjustment Provisions. If there is any change in the number or kind of
shares of Company stock outstanding by reason of a stock dividend, spin off,
recapitalization, stock split, or combination or exchange of such shares, or
merger, reorganization or consolidation of the Company, reclassification or
change in the par value or similar event, or if the value of outstanding Shares
is substantially reduced as a result of a spin-off or the Company's payment of
an extraordinary dividend or distribution, the number of Shares available for
Stock Options, the maximum number of Shares for which any individual
participating in the Plan may receive Stock Options in any year, and the number
of Shares and option price per Share subject to outstanding Stock Options, will
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in kind or value of, issued shares of Company stock.
Change of Control Provisions. In the event of a "Change of Control," all
outstanding Stock Options will automatically accelerate and become immediately
exercisable, unless the Committee determines otherwise. In addition, subject to
certain exceptions, upon a Change of Control where the Company is not the
surviving corporation (or survives only as a subsidiary of another
16
corporation), unless the Committee determines otherwise, all outstanding Stock
Options that are not exercised will be assumed by, or replaced with comparable
options by, the surviving corporation.
In the event of a Change of Control, the Committee may require that
Grantees surrender their outstanding Stock Options in exchange for a payment by
the Company, in cash or Shares as determined by the Committee, in an amount
equal to the amount by which the then fair market value of the shares of Company
Stock subject to the Grantee's outstanding Options exceeds the option price.
The Plan limits the discretion of the Committee if its membership changes
following a Change of Control or if actions of the Committee could have certain
adverse accounting or tax effects.
Under the Plan, a "Change of Control" will be deemed to have occurred upon
the earliest to occur of the following events: (i) Any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) becomes
a beneficial owner of securities of the Company representing 35% or more of the
voting power of the then outstanding securities of the Company, except where the
acquisition is approved by the Board; (ii) The stockholders of the Company
approve (or, if stockholder approval is not required, the Board approves) an
agreement providing for (a) subject to certain exceptions, the merger or
consolidation of the Company with another corporation, (b) a sale or other
disposition of all or substantially all of the assets of the Company or (c) a
liquidation or dissolution of the Company; (iii) Any person has commenced a
tender offer or exchange offer for 35% or more of the voting power of the then
outstanding shares of the Company; or (iv) Directors are elected such that a
majority of the members of the Board of Directors will have been members of the
Board of Directors for less than two years, unless the election or nomination
for election of each new director who was not a director at the beginning of
such two year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 paid to the chief executive officer or to any of the other
four most highly compensated officers in any one year. Total remuneration
includes amounts received upon the exercise of stock options granted under the
Plan. An exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to a plan
approved by stockholders that meets certain requirements. The Plan is intended
to allow grants of options thereunder to meet the requirements of
"performance-based compensation."
Option grants, net of cancellations, to purchase the following number of
shares of Common Stock have been made under the Plan from inception of the Plan
through August 5, 1997: Kerry R. Hicks, 166,490 shares; Patrick M. Jaeckle,
166,490 shares; D. Paul Davis, 61,915 shares; Peter A. Fatianow, 56,596 shares;
current executive officers as a group, 825,428 shares; non-employee directors as
a group, 100,000 shares; all other employees as a group, 377,000 shares; and
physicians affiliated with the Company, 592,590 shares. Because options are
granted from time to time by the
17
Committee to those persons whom the Committee determines in its discretion
should receive options, the benefits and amounts that may be received in the
future by persons eligible to participate in the Plan are not presently
determinable.
Federal Tax Consequences. There are no federal income tax consequences to a
Grantee or to the Company upon the grant of an NQSO under the Plan. Upon the
exercise of an NQSO, a Grantee will recognize ordinary compensation income in an
amount equal to the excess of the fair market value of the Shares underlying the
NQSO at the time of exercise over the option price of the NQSO, and the Company
generally will be entitled to a corresponding federal income tax deduction. Upon
the sale of Shares acquired by the exercise of an NQSO, a Grantee will have a
capital gain or loss (long-term or short-term depending upon the length of time
the Shares were held) in an amount equal to the difference between the amount
realized upon the sale and the Grantee's adjusted tax basis in the Shares (the
option price plus the amount of ordinary income recognized by the Grantee at the
time of exercise of the NQSO).
A Grantee of an ISO will not recognize taxable income for purposes of the
regular income tax, upon either the grant or exercise of the ISO. However, for
purposes of the alternative minimum tax imposed under the Code, in the year in
which an ISO is exercised, the amount by which the fair market value of the
Shares acquired upon exercise exceeds the option price will be treated as an
item of adjustment and included in the computation of the recipient's
alternative minimum taxable income in the year of exercise. A Grantee who
disposes of the Shares acquired upon exercise of an ISO after two years from the
date the ISO was granted and after one year from the date such Shares were
transferred to him or her will recognize long-term capital gain or loss in the
amount of the difference between the amount realized on the sale and the option
price (or the Grantee's other tax basis in the Shares), and the Company will not
be entitled to any tax deduction by reason of the grant or exercise of the ISO.
As a general rule, if a Grantee disposes of the Shares acquired upon exercise of
an ISO before satisfying both holding period requirements (a "disqualifying
disposition"), his or her gain recognized on such a disposition will be taxed as
ordinary income to the extent of the difference between the fair market value of
such Shares on the date of exercise and the option price, and the Company will
be entitled to a deduction in that amount. The gain, if any, in excess of the
amount recognized as ordinary income on such a disqualifying disposition will be
long-term or short-term capital gain, depending upon the length of time the
Grantee held his or her Shares prior to the disposition.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSAL TO ADOPT THE
AMENDMENT TO THE PLAN.
18
OTHER MATTERS
The Company has been advised that the Department of Health and Human
Services is conducting an inquiry regarding Reconstructive Orthopaedic
Associates, Inc., a practice whose assets were acquired through merger with the
Company, and physicians formerly associated with that practice, including
Richard H. Rothman, M.D., Chairman of the Board of the Company, and Robert E.
Booth, Jr., M.D., a director of the Company. The inquiry appears to be concerned
with the submission of claims for Medicare reimbursement by the practice. The
Company has not been contacted by the Department of Health and Human Services in
connection with the inquiry.
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP to serve
as independent auditors for the Company for the current fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the meeting
and will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
It is expected that the 1998 Annual Meeting of Stockholders will be held in
May 1998. Proposals of stockholders intended to be presented at the Annual
Meeting of Stockholders in 1998 must be received by the Company at its principal
office in Lakewood, Colorado, no later than December 1, 1997 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
SOLICITATION OF PROXIES
The cost of solicitation of proxies for the Meeting will be paid by the
Company. In addition to the mailing of the proxy material, such solicitation may
be made in person or by telephone or telecopy by directors, officers or regular
employees of the Company.
ANNUAL REPORT ON FORM 10-K
The Company will provide without charge to each person solicited by this
proxy statement, on 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
schedule 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 Delinda Romero at the address of the Company appearing on the
first page of this proxy statement.
19
The above notice and proxy statement are sent by order of the Board of
Directors.
Patrick M. Jaeckle
Executive Vice President
of Development/Finance
and Secretary
Dated: August 11, 1997
20
EXHIBIT A
SPECIALTY CARE NETWORK, INC.
1996 EQUITY COMPENSATION PLAN
As Amended on June 5, 1997
As Amended on July 25, 1997
The purpose of the Specialty Care Network, Inc. 1996 Equity Compensation
Plan (the "Plan") is to provide (i) designated employees (including employees
who are also officers or directors) of Specialty Care Network, Inc. (the
"Company") and its subsidiaries,(ii) certain consultants and advisors to the
Company or its subsidiaries and (iii) non-employee members of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants of
incentive stock options and nonqualified stock options ("Options"). The Company
believes that the Plan will encourage the participants to contribute materially
to the growth of the Company, thereby benefitting the Company's shareholders,
and will align the economic interests of the participants with those of the
shareholders.
1. Administration
(a) The Plan may be administered by the Board or by a committee (the
"Committee") or two or more directors appointed by the Board. Notwithstanding
the foregoing, the Board of Directors shall exercise the powers of the Committee
with respect to the grant of options to members of the Board who are not
employees of the Company or its subsidiaries or who are members of the Committee
("Non-Employee Directors"). If no administrative committee is appointed, all
references in the Plan to the "Committee" shall be deemed to refer to the Board.
(b) The Committee shall have the sole authority to (i) determine the
individuals to whom Options shall be granted under the Plan, (ii) determine the
type, size and terms of the Options to be granted to each such individual, (iii)
determine the time when the Options will be granted and the duration of any
applicable exercise period, including the criteria for exercisability and the
acceleration of exercisability and (iv) deal with any other matters arising
under the Plan.
(c) The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interest in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company,
not as a fiduciary, and in keeping with the objectives of the Plan and need not
be uniform as to similarly situated individuals.
2. Options
Options granted under the Plan may be incentive stock options ("Incentive
Stock Options") or nonqualified stock options ("Nonqualified Stock Options") as
described in Section 5. All Options shall be subject to the terms and conditions
set forth herein and to such other terms and conditions consistent with the Plan
as the Committee deems appropriate and as are specified in writing by the
Committee to the individual in a grant instrument (the "Grant Instrument") or an
amendment to the Grant Instrument. The Committee shall approve the form and
provisions of each Grant Instrument.
3. Shares Subject to the Plan
(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company ("Company Stock") that may be issued under
the Plan is 4,000,000 shares. If the Company Stock becomes publicly traded as a
result of a public offering under the Securities Act of 1933, as amended, the
maximum aggregate number of shares of Company Stock that shall be subject to
Options granted under the Plan to any individual during any calendar year shall
be 500,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options granted under the Plan terminate, expire, or are canceled, forfeited,
exchanged or surrendered without having been exercised, the shares subject to
such Options shall again be available for purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company Stock
outstanding (i) by reason of a stock dividend, spin off, recapitalization, stock
split, or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation in which the Company is the surviving
corporation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the maximum number of shares of Company Stock for
which any individual participating in the Plan may receive Options in any year,
the number of shares covered by outstanding Options, the kind of shares issued
under the Plan, and the price per share of such Options shall be appropriately
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares of Company Stock to preclude,
to the extent practicable, the enlargement or dilution of rights and benefits
under such Options; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
2
4. Eligibility for Participation
(a) All employees of the Company and its subsidiaries ("Employees"),
including Employees who are officers or members of the Board, and Non-Employee
Directors shall be eligible to participate in the Plan. Consultants and advisors
who perform services to the Company or any of its subsidiaries ("Key Advisors")
shall be eligible to participate in the Plan if the Key Advisors render bona
fide services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction. The term "Key Advisors" shall
include personnel of medical practices that have entered into and remain subject
to management agreements with the Company or any subsidiary, and the provision
of services to those practices shall be considered the performance of services
with respect to the Company for purposes of the Plan.
(b) The Committee shall select the Employees, Non-Employee Directors and
Key Advisors to receive Options and shall determine the number of shares of
Company Stock subject to a particular grant in such manner as the Committee
determines. Employees, Key Advisors and Non-Employee Directors who receive
Options under this Plan shall hereinafter be referred to as "Grantees".
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of shares of
Company Stock that will be subject to each grant of Options to Employees,
Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or Nonqualified Stock
Options that are not intended so to qualify, or any combination of Incentive
Stock Options and Nonqualified Stock Options, all in accordance with the terms
and conditions set forth herein. Incentive Stock Options may be granted only to
Employees. Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock subject
to an Option shall be determined by the Committee and may be equal to, greater
than, or less than the Fair Market Value (as defined below) of a share of such
Stock on the date the Option is granted; provided, however, that (x) the
Exercise Price of an Incentive Stock Option shall be equal to, or greater than,
the Fair Market Value of a share of Company Stock on the date the Incentive
Stock Option is granted and (y) an Incentive Stock Option may not be granted to
an Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, unless the Exercise
3
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.
(iii) If Company Stock is publicly traded, then the Fair Market Value
per share shall be determined as follows: (x) if the principal trading market
for the Company Stock is a national securities exchange or the Nasdaq National
Market, the last reported sale price thereof on the relevant date or, if there
were no trades on that date, the latest preceding date upon which a sale was
reported, or (y) if the Company Stock is not principally traded on such exchange
or market, the mean between the last reported "bid" and "asked" prices of
Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly traded, not subject to reported transactions or "bid" or "asked"
quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Option. The
term of any Option shall not exceed ten years from the date of grant. However,
an Incentive Stock Option that is granted to an Employee who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised while the
Grantee is employed by, or providing service to, the Company as an Employee, Key
Advisor or member of the Board. In the event that a Grantee ceases to be
employed by, or provide service to, the Company for any reason other than
"disability", death, or "termination for cause", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within 90 days of
the date on which the Grantee ceases to be employed by, or provide service to,
the Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Unless otherwise specified by the Committee, any portion of the Grantee's
Option that is not otherwise exercisable as of the date on which the Grantee
ceases to be employed by or provide service to the Company shall terminate as of
such date.
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a "termination for cause" by the Company,
any Option held by the Grantee shall terminate as of the date the Grantee ceases
to be employed by, or provide service to, the Company.
4
(iii) In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee is "disabled", any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options which are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by, or provide service
to, the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to be
employed, or provide service, on account of a termination of employment or
service specified in Section 5(e)(i) above (or within such other period of time
as may be specified by the Committee), any Option that is otherwise exercisable
by the Grantee shall terminate unless exercised within one year after the date
on which the Grantee ceases to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Any of the Grantee's Options that are not otherwise exercisable as of the
date on which the Grantee ceases to be employed by, or provide service to, the
Company shall terminate as of such date.
(v) For purposes of this Section 5(e):
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations. With request to personnel employed by medical
practices that have entered into, and remain subject to, management
agreements with the Company or any subsidiary, the term "Company"
shall include any such medical practice, but only so long as the
practice remains subject to such management agreement.
(B) "Employed by, or providing service to, the Company" shall
mean employment as an Employee or the provision of services to the
Company as a Key Advisor or member of the Board (so that, for purposes
of exercising Options, a Grantee shall not be considered to have
terminated employment or ceased to provide services until the Grantee
ceases to be an Employee, Key Advisor and member of the Board).
(C) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean a finding by the Committee
that the Grantee has breached his or her employment or service
contract with the Company, or has been engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or
her employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to
receive such information. In the event a Grantee's employment or
service is terminated for
5
cause, in addition to the immediate termination of all Options, the
Grantee shall automatically forfeit all shares underlying any
exercised portion of an Option for which the Company has not yet
delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares.
(f) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option (i) in cash or by check or wire transfer in immediately
available funds, (ii) by delivering shares of Company Stock owned by the Grantee
(including Company Stock acquired in connection with the exercise of an Option,
subject to such restrictions as the Committee deems appropriate) and having a
Fair Market Value on the date of exercise equal to the Exercise Price or (iii)
by such other method as the Committee may approve, including payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board. Shares of Company Stock used to exercise an Option shall have
been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 6) at the time of exercise. Shares of Company Stock shall not be
issued upon exercise of an Option until the Exercise Price is fully paid and any
required withholding is made.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code). If and to the extent that an Option designated as
an Incentive Stock Option fails so to qualify under the Code, the Option shall
remain outstanding according to its terms as a Nonqualified Stock Option.
6. Withholding of Taxes
(a) Required Withholding. All Options under the Plan shall be granted
subject to any applicable federal (including FICA), state and local tax
withholding requirements. The Company shall have the right to deduct from wages
paid to the Grantee any federal, state or local taxes required by law to be
withheld with respect to Options, or the Company may require the Grantee or
other person receiving shares upon exercise of an Option to pay to the Company
the amount of any such taxes that the Company is required to withhold.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee may
elect to satisfy the Company's income tax withholding obligation with respect to
an Option by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal
6
(including FICA), state and local tax liabilities. The election must be in a
form and manner prescribed by the Committee and shall be subject to the prior
approval of the Committee.
7. Transferability of Options
(a) Except as provided below, only the Grantee or his or her authorized
representative may exercise rights under an Option. A Grantee may not transfer
those rights except by will or by the laws of descent and distribution or, with
respect to Nonqualified Options, if permitted in any specific case by the
Committee in its sole discretion, pursuant to a qualified domestic relations
order (as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder). When a Grantee dies,
the representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.
(b) Notwithstanding the foregoing, the Committee may provide, in a Grant
Instrument, that a Grantee may transfer Nonqualified Stock Options to family
members or other persons or entities according to such terms as the Committee
may determine.
8. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) After the effective date of the Plan, any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes a "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more of the voting
power of the then outstanding securities of the Company, except where the
acquisition is approved by the Board;
(b) The shareholders of the Company approve (or, if shareholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to a majority of all votes to which all shareholders
of the surviving corporation would be entitled in the election of directors, or
where the members of the Board, immediately prior to the merger or
consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the board of directors of the surviving corporation,
(ii) a sale or other disposition of all or substantially all of the assets of
the Company, or (iii) a liquidation or dissolution of the Company;
(c) Any person has commenced a tender offer or exchange offer for 35% or
more of the voting power of the then outstanding shares of the Company; or
7
(d) After this Plan is approved by the shareholders of the Company,
directors are elected such that a majority of the members of the Board shall
have been members of the Board for less than two years, unless the election or
nomination for election of each new director who was not a director at the
beginning of such two-year period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
such period.
9. Consequences of a Change of Control
(a) Upon a Change of Control, unless the Committee determines otherwise,
(i) the Company shall provide each Grantee with outstanding Options written
notice of such Change of Control and (ii) all outstanding Options shall
automatically accelerate and become fully exercisable.
(b) In addition, upon a Change of Control described in Section 8(b)(i)
where the Company is not the surviving corporation (or survives only as a
subsidiary of another corporation), unless the Committee determines otherwise,
all outstanding Options that are not exercised shall be assumed by, or replaced
with comparable options by, the surviving corporation. Any replacement options
shall entitle the Grantee to receive the same amount and type of securities as
the Grantee would have received as a result of the Change of Control had the
Grantee exercised the Options immediately prior to the Change of Control.
(c) Notwithstanding the foregoing, subject to subsection (d) below, in the
event of a Change of Control, the Committee may require that Grantees surrender
their outstanding Options in exchange for a payment by the Company, in cash or
Company Stock as determined by the Committee, in an amount equal to the amount
by which the then Fair Market Value of the shares of Company Stock subject to
the Grantee's outstanding Options exceeds the Exercise Price of the Options.
(d) Notwithstanding the foregoing, the Committee making the determinations
under this Section 9 following a Change of Control must be comprised of the same
members as those on the Committee immediately before the Change of Control. If
the Committee members do not meet this requirement, the automatic provisions of
Subsections (a) and (b) shall apply, and the Committee shall not have discretion
to vary them.
(e) Notwithstanding anything in the Plan to the contrary, in the event of a
Change of Control, the Committee shall not have the right to take any actions
described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interest accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company intends
to use such treatment with respect to the Change of Control.
8
10. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that if the Company Stock becomes publicly traded, the Board
shall not amend the Plan without shareholder approval if such approval is
required by Section 162(m) of the Code and if Section 162(m) is applicable to
the Plan.
(b) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date unless terminated earlier
by the Board or unless extended by the Board with the approval of the
shareholders.
(c) Termination and Amendment of Outstanding Options. A termination or
amendment of the Plan that occurs after an Option is granted shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 17(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Option. Whether or not the Plan has terminated, an outstanding Option may be
terminated or modified under Sections 9 and 17(b) or may be amended by agreement
of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
11. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Options under this Plan. In no event shall interest be
paid or accrued on any Options.
12. Rights of Participants
Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted an Option under this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or any
other employment rights.
13. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Option. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
9
14. Requirements for Issuance of Shares
No Company Stock shall be issued or transferred in connection with any
Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Option granted to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation thereof
and certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and interpretations, including any
requirement that a legend or legends be placed thereon.
15. Headings
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
16. Effective Date of the Plan.
Subject to the approval of the Company's shareholders, this Plan shall be
effective on October 15, 1996. The Plan was subsequently amended on June 5,
1997.
17. Miscellaneous
(a) Options in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to grant Options under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including options granted to
employees thereof who become Employees of the Company, or for other proper
corporate purpose, or (ii) limit the right of the Company to grant stock options
or make other awards outside of this Plan. Without limiting the foregoing, the
Committee may grant Options to an employee of another corporation who becomes an
Employee by reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company or any of its
subsidiaries in substitution for a stock option or restricted stock grant made
by such corporation. The Committee shall prescribe the provisions of the
substitute Options.
(b) Compliance with Law. The Plan, the grant and exercise of Options, and
the obligations of the Company to issue or transfer shares of Company Stock
under Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Committee may revoke
any Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also
10
adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no rights
as a shareholder with respect to any shares of Company Stock covered by an
Option until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and effect of
the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Delaware.
11
SPECIALTY CARE NETWORK, INC.
ANNUAL MEETING OF STOCKHOLDERS SEPTEMBER 12, 1997
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints KERRY R. HICKS and PATRICK M. JAECKLE with
full power of substitution, proxies of the undersigned to represent the
undersigned and to vote all shares of Common Stock of Specialty Care Network,
Inc. which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Stockholders of Specialty Care Network, Inc. to be held at
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, at 9:00 A.M. Eastern Daylight Time on September 12, 1997 and at any
adjournment thereof, subject to the directions indicated on the reverse.
(Continued and to be signed on reverse side)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
SPECIALTY CARE NETWORK, INC.
September 12, 1997
Please Detach and Mail in the Envelope Provided
A /X/ Please mark your
votes as in this
example.
WITHHOLD
FOR AUTHORITY
all nominees to vote for
listed at right nominees
1. Election of / / / /
Directors:
To WITHHOLD AUTHORITY to vote for any individual
nominee(s), place an X in the box below and indicate
the name of the nominee(s) on the line below.
/ /
-------------------------------------------------
Nominees: Richard H. Rothman, M.D., Ph.D
Kerry R. Hicks
Patrick M. Jaeckle
Robert E. Booth, Jr., M.D.
James L. Cain, M.D.
Peter H. Cheesbrough
Richard E. Fleming, Jr., M.D.
Thomas C. Haney, M.D.
Leslie S. Mathews, M.D.
Mats Wahlstrom
FOR AGAINST ABSTAIN
2. Proposal to adopt the Specialty / / / / / /
Care Network, Inc. 1996 Equity
Compensation Plan, as amended
3. To vote on such other matters that may properly come before
the meeting.
Note: THIS PROXY MUST BE SIGNED AND DATED ON THE
REVERSE SIDE.
It no directions are given, the shares will be voted FOR the election of the
listed nominees for director and FOR the proposal to approve the Specialty Care
Network, Inc. 1996 Equity Compensation Plan, as amended. This Proxy also
delegates discretionary authority to vote with respect to any other matters that
may properly come before the meeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF SPECIALTY CARE NETWORK, INC.
Signature Signature Date:
----------------------- -------------------------- -------
NOTE: Please sign this proxy exactly as name(s) appear hereon. When signing as
attorney-in-fact, executor, administrator, trustee. or guardian, please
add your title as such, and if signed as a corporation, please sign with
full corporate name by duly authorized officer or officers and affix the
corporate seal. Where stock is issued in the name of two or more persons,
all such persons should sign.