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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
-----------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________________ to ________________________
Commission file number 0-22019
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Specialty Care Network, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1623449
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
44 Union Boulevard, Suite 600, Lakewood, Colorado 80228
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 716- 0041
---------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 Days. Yes X No
--- ---
On July 31, 1998, 17,739,393 shares of the Registrant's common stock, $.001
par value, were outstanding.
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<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Index
Part I. Financial Information:
Item 1. Consolidated Condensed Balance Sheets -
June 30, 1998 and December 31, 1997.............................1
Consolidated Statements of Income -
Three Months Ended June 30, 1998 and 1997
Six Months Ended June 30, 1998 and 1997.........................2
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997.........................3
Notes to Consolidated Condensed Financial Statements............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................8
Item 3. Quantitative and Qualitative Disclosure About Market Risk .....10
Part II. Other Information:
Item 2. Changes in Securities..........................................11
Item 4. Submission of Matters to a Vote of Security Holders ..........11
Item 6. Exhibits and Reports on Form 8-K...............................12
<PAGE>
Part I. Financial Information
Specialty Care Network, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
------------ ------------
June 30 December 31
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,204,167 $ 3,444,517
Accounts receivable, net 33,853,060 25,957,367
Loans to physician stockholders 1,045,007 914,737
Prepaid expenses and other 1,699,217 796,903
Prepaid income tax 210,451 --
------------ ------------
Total current assets 38,011,902 31,113,524
Property and equipment, net 9,875,927 5,276,219
Intangible assets, net 967,756 1,137,808
Management service agreements, net 115,483,047 100,732,431
Equity investment -- 400,000
Advances to affiliates 1,675,249 522,022
Other assets 2,009,819 1,119,646
------------ ------------
Total assets $168,023,700 $140,301,650
============ ============
Liabilities and stockholders' equity
Current portion of capital lease obligations $ 148,599 $ 263,007
Accounts payable 60,439 701,087
Accrued payroll, incentive compensation
and related expenses 1,495,564 1,350,825
Accrued expenses 2,817,956 2,171,130
Income taxes payable -- 944,632
Due to affiliated physician practices 4,554,389 2,885,602
Deferred income taxes 1,254,237 872,855
------------ ------------
Total current liabilities 10,311,184 9,189,138
Convertible note payable 5,579,439 --
Line-of-credit 46,225,000 33,000,000
Capital lease obligations, less current portion 881,118 885,141
Deferred income taxes 31,432,180 32,115,476
------------ ------------
Total liabilities 94,448,921 75,189,755
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000
shares authorized, no shares issued
or outstanding -- --
Common stock, $ 0.001 par value, 50,000,000
shares authorized, 17,739,393 and
17,703,293 shares issued and outstanding in
1998 and 1997, respectively 17,739 17,703
Common stock subscribed for issuance to
physician group 470 --
Additional paid-in capital 65,956,950 60,995,177
Retained earnings 7,599,620 4,099,015
------------ ------------
Total stockholders' equity 73,574,779 65,111,895
------------ ------------
Total liabilities and stockholders' equity $168,023,700 $140,301,650
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Service fees $ 19,270,799 $ 8,890,297 $ 36,484,602 $ 16,183,053
Other 467,833 649,001 2,514,477 653,798
------------ ------------ ------------ ------------
19,738,632 9,539,298 38,999,079 16,836,851
Costs and expenses:
Clinic expenses 13,489,202 5,986,627 25,723,749 10,765,911
General and administrative
expenses 3,379,811 1,760,332 6,021,961 3,053,209
------------ ------------ ------------ ------------
16,869,013 7,746,959 31,745,710 13,819,120
Income from operations 2,869,619 1,792,339 7,253,369 3,017,731
Other:
Interest income 56,856 211,439 118,176 369,959
Interest expense (977,679) (327) (1,643,703) (57,309)
------------ ------------ ------------ ------------
Income before income taxes 1,948,796 2,003,451 5,727,842 3,330,381
Income tax expense 734,514 818,789 2,227,237 1,362,789
------------ ------------ ------------ ------------
Net income $ 1,214,282 $ 1,184,662 $ 3,500,605 $ 1,967,592
============ ============ ============ ============
Net income per common share
(basic) $ 0.07 $ 0.08 $ 0.19 $ 0.14
============ ============ ============ ============
Weighted average common
shares outstanding (basic) 18,197,911 15,182,757 17,965,904 13,991,495
============ ============ ============ ============
Net income per common
share (diluted) $ 0.07 $ 0.08 $ 0.19 $ 0.14
============ ============ ============ ============
Weighted average number of
common shares and common
share equivalents used in
computation (diluted) 18,579,726 15,457,149 18,427,192 14,227,709
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
----------------------------
<S> <C> <C>
Operating activities
Net income $ 3,500,605 $ 1,967,592
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 913,768 447,468
Amortization 1,791,428 137,891
Gain on sale of equity investment (1,228,701) --
Deferred income tax benefit (301,914) (314,078)
Non-cash compensation expense-stock options 55,002 97,862
Changes in operating assets and liabilities, net of the
non-cash effects of the acquisitions of the
net assets of physician groups:
Accounts receivable, net (2,795,694) (3,646,574)
Prepaid expenses and other assets (1,000,249) (809,988)
Accounts payable and accrued expenses (23,864) (994,958)
Accrued payroll, incentive compensation and
related expenses (7,766) 494,241
Income taxes payable and prepaid and
recoverable income taxes, net (1,155,083) (641,883)
Due to affiliated physicians practices 1,668,787 2,442,744
------------ ------------
Net cash provided by (used in) operating activities 1,416,319 (819,683)
Investing activities
Purchases of property and equipment (4,807,318) (707,414)
Proceeds from sale of equity investment 1,075,000 --
Increase in other assets (16,472) --
Increase in intangible assets (92,998) --
Equity investment and related advances (1,473,226) --
Acquisitions of physician groups (11,549,305) (3,788,158)
------------ ------------
Net cash used in investing activities (16,864,319) (4,495,572)
Financing activities
Proceeds from initial public offering, net of
current period offering costs -- 22,939,338
Proceeds from line-of-credit agreement 13,225,000 1,400,000
Principal repayments on line of credit agreement -- (5,577,681)
Principal repayments on capital lease obligations (118,431) (117,805)
Loans to physician stockholders (130,269) (131,095)
Exercise of common stock options 231,350 220,714
------------ ------------
Net cash provided by financing activities 13,207,650 18,733,471
Net (decrease) increase in cash and cash equivalents (2,240,350) 13,418,216
Cash and cash equivalents at beginning of period 3,444,517 1,444,007
------------ ------------
Cash and cash equivalents at end of period $ 1,204,167 $ 14,862,223
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
------------ ------------
<S> <C> <C>
Supplemental cash flow information
Interest paid $ 1,545,610 $ 87,701
============ ============
Income taxes paid $ 3,596,309 $ 2,318,750
============ ============
Supplemental schedule of noncash investing and
financing activities
Effects of the acquisitions of the net of physician
groups:
Assets acquired $ 21,992,643 $ 19,329,639
Liabilities assumed (280,482) (495,629)
Income tax liabilities assumed -- (7,748,408)
Convertible note payable issued (5,579,439) --
Cash outlay (11,549,305) (3,788,158)
------------ ------------
Common stock issued to effect acquisitions $ 4,583,417 $ 7,297,444
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited)
June 30, 1998
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of
Specialty Care Network, Inc. and subsidiaries (collectively the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, these statements include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of the interim periods reported herein.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
New Accounting Pronouncements
Disclosures about Segments of an Enterprise and Related Information:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997, and therefore the Company will adopt the new requirements retroactively as
of December 31, 1998. Management has not completed its review of SFAS No. 131,
but does not anticipate that the adoption of this statement will have a
significant effect on the Company's financial statement disclosures.
5
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
Reporting Comprehensive Income:
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), Reporting Comprehensive Income, during the first quarter of 1998.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (e.g., revenue, expenses, gains, loss, etc.) in a full
set of general purpose financial statements. SFAS No. 130 requires companies to
report a total for comprehensive income in condensed financial statements of
interim periods issued to shareholders with no similar requirement for
disclosure of its components. As the Company has no comprehensive income
amounts, the adoption of SFAS No. 130 currently has no impact on the Company's
financial presentation. If the Company has items of comprehensive income in
future periods, these items will be reported and displayed in accordance with
SFAS No. 130.
Earnings Per Share:
In 1997, Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
Earnings Per Share, was issued. SFAS No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to fully diluted earnings per share under the
previous method of reporting earnings per share. All earnings per share amounts
for all periods have been presented, and where appropriate, restated to conform
to SFAS No. 128 requirements.
Change in Accounting Estimate
Beginning June 1, 1998, the Company reduced the amortizable lives of its
long-term management service agreements by assigning specific lives to each
management service agreement based on factors such as practice market share,
length of operating history and other factors. The lives range from 5 to 30
years. Previously, the Company amortized such service agreements over the term
of the underlying agreements, which is generally forty years. This action was
taken in response to viewpoints expressed by certain financial organizations and
regulatory agencies regarding the amortization periods used by the physician
practice management industry in general. The change in accounting estimate
resulted in additional amortization expense for the quarter ended June 30, 1998
of approximately $130,000.
6
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
NOTE 2 - Physician Practice Affiliation
Effective March 31, 1998, in connection with the acquisition, by asset purchase,
of substantially all of the assets and certain liabilities of Orlin & Cohen
Associates LLP ("OCOA"), the Company issued to OCOA 470,094 shares of common
stock and a promissory note in the principal amount of $5,579,000, and paid cash
in the amount of $11,125,000. In addition, the Company paid a finders fee
of $114,000 in connection with the acquisition. The promissory note is due in
full on March 31, 2001, with annual interest payments due at the rate of 5%. The
holder of the note may convert the note, prior to maturity, into common
stock of the Company at the conversion ratio of one share of common stock for
approximately $14.24 of note principal and accrued interest. In addition to the
consideration described above, the Company may pay additional contingent
consideration to OCOA based on certain growth parameters achieved by OCOA within
the first three years of the service agreement.
NOTE 3 - Gain on Sale of Equity Investment
In 1997, the Company purchased 50% of the outstanding membership interests in
West Central Ohio Group, Ltd. ("WCOG"), an Ohio limited liability company
that was formed to construct an ambulatory surgery center in Lima, Ohio, from
the physician owners of a practice affiliated with the Company (the "Ohio
Physician Owners"). In March 1998, the Company sold its entire interest in WCOG
to the Ohio Physician Owners and a company ("the Acquiring Company") for total
consideration of approximately $1,950,000. In addition, the Company was relieved
of its obligation to pay an amount equal to 25% of WCOG's first $6,000,000 of
net income as contingent consideration in connection with the initial purchase
of its investment in WCOG. The sale resulted in a pre-tax gain of approximately
$1,200,000, which has been included in other revenue in the accompanying
consolidated financial statements. An officer and 50% stockholder of the
Acquiring Company is the brother of the President and Chief Executive Officer of
the Company, (see also Note 4).
NOTE 4 - Subsequent Event
During the third quarter of 1998, the Company acquired Provider Partnerships,
Inc. ("PPI") in exchange for 420,000 shares of Company common stock. PPI is a
recently formed company that provides consulting services to physicians and
hospitals to increase their operating performance, with a specific focus on the
musculoskeletal and cardiac areas. One of the principals of PPI, who has been
elected to serve as Executive Vice President - Provider Businesses of the
Company, is the brother of the President and Chief Executive Officer of the
Company.
7
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this section, including statements concerning the sufficiency
of funds available under the Company's line of credit, cash flows from
operations, adequacy of Company efforts to address Year 2000 issues and costs of
Year 2000 initiatives are "forward looking statements." Actual events or results
may differ materially from those discussed in forward looking statements as a
result of various factors, including insufficient personnel and capital
resources, competition for payor contracts, shortage of qualified physicians,
changes in the regulatory environment, inadequacy of efforts to remediate Year
2000 issues and unanticipated costs related to year 2000 initiatives and other
factors discussed below and in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, particularly under "Risk Factors" in item 1.
General
Specialty Care Network, Inc. (the "Company" or "SCN") is a health care
management services company that provides physician practice management
services, as well as consulting services to hospitals and physicians.
Traditionally, SCN's affiliations with physicians have been achieved through
long-term service agreements with physician practices following the acquisition
by SCN of certain assets and liabilities of those practices or their
predecessors. The Company also offers an MSA arrangement which involves a
short-term management service agreement and does not involve the acquisition of
practice assets by SCN. The Company provides practice management services to 183
physicians in 24 practices (the "Affiliated Practices") located in 12 states
(including 21 physicians in two states who have contracted under MSA
arrangements.) In addition, the Company also manages two outpatient surgery
centers, five physical therapy operations and one occupational medicine
operation.
Accounting Treatment
Costs of obtaining long-term management service agreements are amortized using
the straight-line method over estimated lives of 5 - 30 years, (see Note 1 to
the Consolidated Condensed Financial Statements for discussion of the change in
accounting estimate related to the amortization period for the Company's
long-term management service agreements). Under the service agreements between
the Company and each of the Affiliated Practices, the Company has the exclusive
right to provide management, administrative and development services during the
term of the agreement.
Results of Operations
Revenue. The Company's service fees revenue, including reimbursement of clinic
expenses, increased by $20.3 million to $36.5 million for the six months ended
June 30, 1998 compared to $16.2 million for the same period in 1997. For the
three months ended June 30, 1998, service fees revenue, including reimbursement
of clinic expenses was $19.3 million compared with $8.9 million for the same
period of 1997. These increases were primarily the result of an increase in
affiliation transactions during the latter part of 1997 and the first quarter of
1998. Other revenue for the six months ended June 30, 1998 was $2.5 million
compared to $.7 million for the same period in 1997. This increase occurred
primarily because of a pre-tax gain of $1.2 million from the sale of an equity
investment in March 1998 (see Note 3 to the Consolidated Condensed Financial
Statements).
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Costs and expenses. For the six months ended June 30, 1998, total clinic
expenses were $25.7 million compared to $10.8 million for the same period of
1997. Clinic expenses were $13.5 million for the three months ended June 30,
1998 compared to $6.0 million for the same period of 1997. These increases were
primarily due to increased affiliation transactions during the latter part of
1997 and the first quarter of 1998. General and administrative expenses
increased by $2.9 million to $6.0 million for the six months ended June 30, 1998
compared to $3.1 million for the same period in 1997. For the three months ended
June 30, 1998, general and administrative expenses were $3.4 million compared
with $1.8 million for the same period of 1997. These increases were primarily
due to increased amortization expense related to the increase in the Company's
long-term management service agreements and additions in personnel required for
the provision of services to the practices that affiliated with the Company
during the latter part of 1997 and the first quarter of 1998.
Interest expense. During the six months ended June 30, 1998, the Company
incurred interest expense of $1.6 million compared to $57,000 for the same
period of 1997. Interest expense for the three months ended June 30, 1998 was
$1.0 million with no comparable amount for the same period of 1997. The increase
is primarily the result of additional borrowings under the Company's credit
facility with a bank (the "Credit Facility"), which were made to fund the
Company's affiliation transactions. At June 30, 1998, $46.2 million was
outstanding under the Credit Facility.
Liquidity and Capital Resources
At June 30, 1998, the Company had $27.7 million in working capital, an increase
of $5.9 million from $21.9 million as of December 31, 1997. For the first six
months of 1998, cash flow provided by operations was $1.4 million compared to
cash flow used in operations of $.8 million for the same period of 1997.
During the six months ended June 30, 1998, the Company invested in property and
equipment of $4.8 million, related primarily to the purchase of magnetic
resonance imaging units at the affiliated practices. The Company borrowed $13.2
million under the Credit Facility, primarily to fund the cash requirements of
its practice affiliation with Orlin & Cohen Associates LLP, which was effective
March 31, 1998. The total cash used in connection with the practice affiliation
of $11.2 million was paid in April 1998.
The Company's Credit Facility permits maximum borrowing of $75 million, subject
to certain limitations. The Credit Facility may be used (i) to fund the cash
portion of affiliation transactions and (ii) for the development of
musculoskeletal focused surgery centers and other ancillary service
capabilities. As of June 30, 1998, the Company's effective rate of interest
under the Credit Facility was approximately 7.91% per annum.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management believes that funds available under the Credit Facility and cash flow
from operations will be sufficient to fund the Company's operations at its
current level for at least the next twelve months. However, the Company
anticipates that it will require additional funds to finance capital
expenditures relating to expansion of its business. The Company expects that
capital expenditures during 1998 will relate primarily to (i) the development of
ancillary facilities, (ii) expansion and replacement of medical and office
equipment for the Affiliated Practices and (iii) the purchase of equipment for
expansion of corporate offices. The Company anticipates that, in order to fund
expansion of its business, it may incur from time to time additional short- and
long-term bank indebtedness and may issue equity or debt securities, the
availability and terms of which will depend on market and other conditions.
There can be no assurance that sufficient funds will be available on terms
acceptable to the Company, if at all. If funds are unavailable when needed, the
Company may be compelled to modify its expansion plans.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using the "00" as the year 1900
rather than the Year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities.
The Company has initiated an internally-managed Year 2000 program designed to
ensure that there is no adverse effect on the Company's core business operations
and transactions with customers, suppliers and financial institutions. The
Company has determined that it will need to modify or replace some portions of
the practice management systems at its Affiliated Practices so that the systems
will function properly with respect to dates in the year 2000 and beyond. The
cost of these Year 2000 initiatives is not expected to be material to the
Company's results of operations or financial position. However, the Company
seeks to expand its business through additional affiliations, and there can be
no assurance that systems at practices that affiliate with the Company in the
future will be Year 2000 compliant or, if not Year 2000 compliant, will be
converted on a timely basis. The Company also has initiated discussions with its
significant suppliers to determine whether those parties will be subject to the
Year 2000 issue where their systems interface with the Company's systems or
otherwise have an impact on Company operations. The Company is assessing the
extent of which its operations are vulnerable should its suppliers fail to
remediate properly their computer systems.
While the Company believes its planned efforts are adequate to address its Year
2000 concerns with respect to its internal systems and those of its Affiliated
Practices, there can be no guarantee that the systems of other entities on which
the Company's systems and operations rely will be converted on a timely basis.
The failure of such other entities to remediate any Year 2000 issue on a timely
basis could have a material adverse effect on the Company.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
None.
10
<PAGE>
PART II. Other Information
Item 2. Changes in Securities
Reference is made to the description of the Company's affiliation transaction in
Note 2 of the Notes to Consolidated Condensed Financial Statements included in
this report. The Company effected the foregoing transaction in reliance on the
exemption from registration provided under Section 4(2) of the Securities Act of
1933. In this regard, the Company believes the transactions complied with the
requirements of Rule 506 under the Act.
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1998, the Company held its annual meeting of stockholders. At the
meeting, the stockholders voted on the election of nine members of the Board of
Directors and on approval of a proposal to amend the Company's 1996 Equity
Compensation Plan.
The voting results on the two matters are set forth below.
1. Election of Directors:
Name of Nominee For Withheld
--------------- --- --------
Robert E. Booth, Jr., M.D. 11,410,154 236,311
James L. Cain, M.D. 11,625,665 20,800
Peter H. Cheesbrough 11,625,665 20,800
Richard E. Fleming, Jr., M.D. 11,625,665 20,800
Kerry R. Hicks 11,625,665 20,800
Patrick M. Jaeckle 11,545,977 100,488
Leslie S. Matthews, M.D. 11,625,665 20,800
Richard H. Rothman, M.D., Ph.D. 10,986,966 659,499
Mats Wahlstrom 11,625,665 20,800
2. Proposal to amend the Specialty Care Network, Inc. 1996 Equity
Compensation Plan:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
6,588,909 2,935,371 932,075 1,190,110
</TABLE>
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- The following is a list of exhibits filed as part of this
quarterly report on Form 10-Q.
Exhibit
Number Description
- ------ -----------
10 Specialty Care Network, Inc. 1996 Equity Compensation Plan, as amended
11 Statement re: computation of per share earnings
27 Summary financial data schedule
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
period covered by this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECIALTY CARE NETWORK, INC.
Date: August 14,1998 By /s/ D. Paul Davis
------------------- -----------------
D. Paul Davis
Senior Vice President, Finance
(Chief Financial Officer)
13
<PAGE>
Specialty Care Network, Inc. and Subsidiaries
Exhibit Index
Exhibit 10 Specialty Care Network, Inc. 1996 Equity Compensation
Plan, as amended ....................................15
Exhibit 11 Computation of Per Share Earning.....................26
Exhibit 27 Summary Financial Data Schedule......................27
14
<PAGE>
EXHIBIT 10
SPECIALTY CARE NETWORK, INC.
1996 EQUITY COMPENSATION PLAN
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.
15
<PAGE>
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 6,000,000 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.
16
<PAGE>
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
17
<PAGE>
the Exercise 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
18
<PAGE>
Grantee shall terminate as of the date the Grantee ceases to be employed by, or
provide service to, the Company.
(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 respect 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,
19
<PAGE>
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 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.
20
<PAGE>
(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 (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;
21
<PAGE>
(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
(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
22
<PAGE>
of Control would qualify for such treatment and the Company intends to use such
treatment with respect to the Change of Control.
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.
23
<PAGE>
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.
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.
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
24
<PAGE>
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 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.
Amended: June 5, 1997
July 24, 1997
September 12, 1997
March 20, 1998
June 5, 1998
25
Specialty Care Network, Inc. and Subsidiaries
Exhibit 11 - Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the For the For the For the
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 18,197,911 15,182,757 17,965,904 13,991,495
Effect of dilutive securities:
Employee stock options 381,815 274,392 461,288 236,214
---------- ---------- ---------- ----------
Weighted average number of
common shares and common
share equivalents used in
computation 18,579,726 15,457,149 18,427,192 14,227,709
========== ========== ========== ==========
Net income $ 1,214,282 $ 1,184,662 $ 3,500,605 $ 1,967,592
========== ========== ========== ==========
Net income per common share
(basic) $ 0.07 $ 0.08 $ 0.19 $ 0.14
========== ========== ========== ==========
Net income per common share
(diluted) $ 0.07 $ 0.08 $ 0.19 $ 0.14
========== ========== ========== ==========
26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,204
<SECURITIES> 0
<RECEIVABLES> 76,370
<ALLOWANCES> 42,517
<INVENTORY> 0
<CURRENT-ASSETS> 38,012
<PP&E> 14,074
<DEPRECIATION> 4,198
<TOTAL-ASSETS> 168,024
<CURRENT-LIABILITIES> 10,331
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 73,557
<TOTAL-LIABILITY-AND-EQUITY> 168,024
<SALES> 36,485
<TOTAL-REVENUES> 38,999
<CGS> 0
<TOTAL-COSTS> 31,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,526
<INCOME-PRETAX> 5,728
<INCOME-TAX> 2,227
<INCOME-CONTINUING> 3,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,501
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
