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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
XCARE.NET, INC.
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(Name of Registrant as Specified In Its Charter)
XCARE.NET, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[XCARE.NET LOGO]
September 20, 2000
Dear Shareholder,
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of XCare.net, Inc. to be held on Wednesday November 1, 2000 at the Inverness
Hotel, 200 Inverness Drive West, Englewood, Colorado, 80112 starting at 9:00
a.m. Mountain Standard Time.
Details of the business to be conducted at the meeting are set out in the
enclosed Notice of Annual Meeting of Stockholders and Proxy Statement.
It is important that you use this opportunity to take part in the affairs
of XCare.net by voting on the business to come before this meeting. Whether or
not you expect to attend the meeting, please complete, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that your
shares may be represented at the meeting. Returning the proxy does not deprive
you of your right to attend the meeting and to vote your shares in person.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
LOGO
Lorine R. Sweeney
President and Chief Executive
Officer
<PAGE> 3
[XCARE.NET LOGO]
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 1, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
XCare.Net, Inc., a Delaware corporation (the "Company"), will be held at the
Inverness Hotel, 200 Inverness Drive West, Englewood, Colorado, 80112, on
November 1, 2000 at 9:00 a.m., Mountain Standard Time, for the following
purposes:
1. To elect three (3) Class I directors to serve for the ensuing three
(3) years and until their successors are duly elected and qualified.
2. To approve an amendment to the Company's 1997 Stock Plan to
increase the number of shares of common stock available for issuance under
such plan from 2,200,000 to 3,600,000.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing matters are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on September 20, 2000
are entitled to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope for that purpose. Any stockholder attending the meeting
may vote in person even if he or she has returned a proxy.
FOR THE BOARD OF DIRECTORS
LOGO
Lorine R. Sweeney,
President and Chief Executive
Officer
Englewood, Colorado
September 20, 2000
IMPORTANT: TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF
YOU RETURNED A PROXY.
<PAGE> 4
XCARE.NET, INC.
6400 S. FIDDLER'S GREEN CIRCLE
SUITE 1400
ENGLEWOOD, COLORADO
(303) 488-2019
---------------------
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
XCare.net, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held at the Inverness Hotel, 200 Inverness Drive West, Englewood Colorado,
80112, on November 1, 2000 at 9:00 a.m., Mountain Standard Time, and at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. These proxy solicitation
materials and the Annual Report on Form 10-K for the fiscal year ended December
31, 1999, including financial statements, will be mailed on or about September
26, 2000 to all stockholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on September 20, 2000 (the
"Record Date") are entitled to notice of and to vote at the meeting and at any
adjournment(s) thereof. At the Record Date, 16,249,801 shares of the Company's
Common Stock were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company at its
principal offices to the attention of Gary T. Scherping a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
meeting and voting in person.
VOTING
Each stockholder is entitled to one vote for each share held.
SOLICITATION OF PROXIES
The cost of this solicitation will be borne by the Company. The Company has
retained the services of ChaseMellon Shareholder Services LLC (the "Agent"), to
perform a search of brokers, bank nominees and other institutional owners. The
Company estimates that it will pay the Agent a fee of $3,500 for its services
plus out-of-pocket expenses. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company's Bylaws provide that stockholders holding a majority of the
outstanding shares of the corporation entitled to vote on the Record Date and
represented by person or by proxy shall constitute a quorum at meetings of
stockholders. Shares that are voted "FOR," "AGAINST" or "WITHHELD" on a matter
are treated as being present at the meeting for purposes of establishing a
quorum and are also treated as "entitled to vote on the subject matter" (the
"Votes Cast") at the Annual Meeting with respect to such matter.
<PAGE> 5
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining the presence or absence of a
quorum for the transaction of business and the total number of Votes Cast with
respect to a particular matter (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, with the exception of the proposal for
the election of directors, abstentions will have the same effect as a vote
against the proposal. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Broker non-votes with respect to proposals set forth in
this Proxy Statement will therefore not be considered "Votes Cast" and,
accordingly, will not affect the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
at the 2001 Annual Meeting of Stockholders must be received by the Company no
later than May 26, 2001 and must otherwise be in compliance with applicable laws
and regulations in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting. However, in the event the date of
the 2001 Annual Meeting of Stockholders is more than 30 days before or after
(other than as a result of adjournment) the one year anniversary of the 2000
Annual Meeting of Stockholders, notice by the stockholder to be timely must be
delivered in writing at the close of business on the later of (i) 60 days before
the 2001 Annual Meeting of Stockholders, or (ii) 10 days after the day on which
a public announcement of the date of such meeting is first made.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). During 1999, no such filings were required of any of the
Company's officers, directors, or stockholders because the Company's securities
were not registered under the Exchange Act.
STOCKHOLDER INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, INCLUDING FINANCIAL STATEMENTS, IS ENCLOSED WITH THESE PROXY
SOLICITATION MATERIALS. IN COMPLIANCE WITH RULE 14a-3 PROMULGATED UNDER THE
EXCHANGE ACT, THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH
PERSON UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999, INCLUDING THE FINANCIAL STATEMENTS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO XCARE.NET, INC., 6400 S.
FIDDLER'S GREEN CIRCLE, SUITE 1400, ENGLEWOOD, COLORADO 80111, ATTENTION:
INVESTOR RELATIONS.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Three (3) Class I directors are to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's three (3) nominees named below, all
of whom are presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for the nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each person
elected as a director at this meeting will continue until the Annual Meeting of
Stockholders held in 2003 or until the director's successor has been elected and
qualified.
VOTE REQUIRED
The three (3) candidates receiving the highest number of "FOR" votes shall
be elected to the Company's Board of Directors. An abstention will have the same
effect as a vote withheld for the election of directors.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION
--------------- --- --------------------
<S> <C> <C>
Fred L. Brown............................. 59 Immediate past chairman of the American
Hospital Association
L. Ben Lytle.............................. 53 Chairman of Anthem, Inc.
Daniel J. Mitchell........................ 43 Manager, Sequel Venture Partners, LLC
</TABLE>
Set forth below are each nominee's principal occupation during the past
five (5) years. There are no family relationships among any directors or
executive officers of the Company.
Fred L. Brown. Mr. Brown has been a director of XCare.net since December
30, 1999. Since January 2000, Mr. Brown has been immediate past chairman of the
American Hospital Association, a public policy advocate and educational
association. From June 1993 until December 1998, Mr. Brown was the founding
President and Chief Executive Officer of BJC Health System, a healthcare
organization comprised of a comprehensive health network featuring 200 care
sites, 24,000 employees, and health plans covering more than 200,000 patients.
He currently serves as vice-chairman of the system. Mr. Brown is also currently
a director of Commerce Bancshares, Inc., a publicly traded company that provides
banking services in the midwest; Curon Medical, Inc., a medical products
company; American's Doctor.com, a privately held company; the Healthcare
Research and Development Institute, a research institute comprised of 35 chief
executives who direct hospitals and major health care systems that undertake
research studies; and Morrison Management Specialists, Inc., a publicly traded
company that provides food, nutrition and dining services to the health care
senior living industries. He is also a Visiting Professor at George Washington
University in Washington, D.C., and has been a member of President Clinton's
Council of Year 2000 Conversion during 1999.
L. Ben Lytle. Mr. Lytle has been a director of XCare.net since January 11,
2000. From 1976 to 1999 Mr. Lytle was employed by Anthem, Inc., a national
insurance company that provides a wide range of managed care products. Mr.
Lytle's service to Anthem included serving as its Chief Operating Officer from
1982 until 1989, and its Chief Executive Officer from 1989 until his retirement
in 1999. Mr. Lytle currently serves as Chairman of the Board. Mr. Lytle serves
on the boards of directors of IPALCO Enterprises, (NYSE); CID Equity Partners, a
venture capital firm; Duke REIT (NYSE), a real estate investment firm; and
AllScripts, Inc., (NASDAQ), a firm providing hand held computing solutions to
physicians; and Healthx.com, an Internet based health care connectivity company.
Mr. Lytle is a Fellow with the American Enterprise Institute of Washington,
D.C., a senior fellow in the Hudson Institute, and a guest lecturer at the
University of Arizona School of Business. He also served on President Clinton's
Commission on Consumer Protection and Quality in the Health Care Industry.
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<PAGE> 7
Daniel J. Mitchell. Mr. Mitchell has been a director of XCare.net since
August 1999. Since January 1997, Mr. Mitchell has been a Manager of Sequel
Venture Partners, LLC, a venture capital firm. Since June 1992, Mr. Mitchell has
been a General Partner of Capital Health Venture Partners, a venture capital
firm. Mr. Mitchell is a director of Genomic Solutions, Inc.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
NOMINEES LISTED ABOVE
DIRECTORS NOT STANDING FOR ELECTION
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting are set forth below.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION
---------------- --- --------------------
<S> <C> <C>
Jeffrey M. Krauss......................... 43 Managing Member, Psilos Group Managers,
LLC
Lorine R. Sweeney......................... 43 Chief Executive Officer and President of
XCare.net
J. Andrew Cowherd......................... 47 Managing Member of the General Partner,
Atlantic Medical Capital, L.P.
James B. Hoover........................... 45 Managing Member, Dauphin Capital Partners
I, L.P.
William F. Reilly......................... 57 Independent Consultant
Robert Tsao............................... 27 Investment Manager, Vertex Management,
Inc.
</TABLE>
Jeffrey M. Krauss. Mr. Krauss has been Chairman of the Board of Directors
of XCare.net since March 1997. Since April 2000, Mr. Krauss has been a Managing
Member of Psilos Group Managers, LLC, a venture capital firm. From May 1990
until March 2000, Mr. Krauss was a General Partner of Nazem & Company, a venture
capital firm. Mr. Krauss is a director of Tegal Corporation, a publicly traded
company engaged in the manufacture of semi-conductor capital equipment. Mr.
Krauss also serves as a director of several private companies.
Lorine R. Sweeney. Ms. Sweeney has been President, Chief Executive Officer
and a director of XCare.net since October 1997. From November 1994 until
September 1997, Ms. Sweeney was Vice President of Software Development and
Technology and Vice President of the UltiMedex Business Unit of Micromedex,
Inc., an international supplier of clinical reference information to the
healthcare and environmental industries. Ms. Sweeney has over 19 years of
executive leadership experience in the commercial software, CD-ROM, online
information services, consulting and systems integration industries.
J. Andrew Cowherd. Mr. Cowherd has been a director of XCare.net since March
1997. Since July 1996, Mr. Cowherd has been a Managing Member of the general
partner of Atlantic Medical Capital, L.P., a venture capital firm that is
managed by Atlantic Medical Management, L.L.C. Mr. Cowherd is a director of
several private companies including MedCambio, Inc., a privately held company
developing software products to speed the conversion of healthcare receivables
to cash using the Internet; NotifyMD, Inc. a privately held company providing
unified messaging and other communications services to physicians; and
Nursefinders, Inc. a privately held company providing healthcare staffing and
home health care services.
James B. Hoover. Mr. Hoover has been a director of XCare.net since June
1999. Mr. Hoover is the Managing Member of Dauphin Management, L.L.C. which is
the general partner of Dauphin Capital Partners I, L.P., a venture capital firm
that he founded in June 1998. From November 1992 until June 1998, Mr. Hoover was
a General Partner of Welsh, Carson, Anderson & Stowe, a private equity firm
specializing in the acquisition of healthcare and information services
businesses. Mr. Hoover is a director of New American Healthcare Corporation and
U.S. Physical Therapy, Inc., two publicly traded health care companies.
William F. Reilly. Mr. Reilly has been a director of XCare.net since May
1989. Mr. Reilly was one of the three founders of Reilly Dike Dosher
Corporation, XCare.net's predecessor company. From May 1989 until
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October 1997, Mr. Reilly was President and Chief Executive Officer of XCare.net.
Since June 1998, Mr. Reilly has been an independent consultant.
Robert Tsao. Mr. Tsao has been a director of XCare.net since June 1999.
Since August 1997, Mr. Tsao has been an Investment Manager at Vertex Management,
Inc., a venture capital firm and is currently a Vice-President. Mr. Tsao leads
Vertex's investments in the Internet and Software industries. He currently
serves as a director of several private companies including CyberBills, Inc.,
Expert Practice, Inc., Insite Objects, Inc., Kiracom Corp., New Moon Systems,
Inc., One World Networks and ReachCast Corporation. From July 1995 until July
1997, Mr. Tsao was a Corporate Finance Analyst at SoundView Technology Group,
Inc., an investment banking firm.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eight meetings during
the fiscal year ended December 31, 1999. No director serving during the fiscal
year attended fewer than 75% of all meetings of the Board of Directors and the
committees thereof on which such director served held during such director's
tenure.
The Board of Directors has two committees, the Audit Committee and the
Compensation Committee. The Audit Committee, which consists of Messrs. Krauss,
Mitchell and Lytle, reviews and advises the Board of Directors regarding the
Company's accounting matters and is responsible for reviewing and recommending
the annual appointment of the independent public accountants, reviewing the
services to be performed by them, and reviewing and evaluating the accounting
principles being applied to the Company's financial reports. The Audit Committee
first met in March 2000. As a result no meetings were held during 1999.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Cowherd, Hoover and Tsao, reviews and advises the Board of Directors
regarding all forms of compensation to be provided to the officers, employees,
directors and consultants of the Company. The Compensation Committee first met
in January 2000. As a result no meetings were held in 1999.
The Board of Directors has no nominating committee or any committee
performing such functions.
DIRECTOR COMPENSATION
Directors are not paid any cash compensation from the Company for their
services as members of the Board or any committee thereof, although they are
reimbursed for reasonable out-of-pocket expenses incurred by them in attending
such meetings. The board has the discretion to grant stock options to
non-employee directors pursuant to the director option plan. In September 1999,
each director then in office other than Lorine R. Sweeney, our President and
Chief Executive Officer, was granted an option to purchase 10,000 shares of
common stock under the 1999 Plan. In December 1999, Fred L. Brown was granted an
option to purchase 25,000 shares of common stock. In January, 2000, L. Ben Lytle
was granted an option to purchase 25,000 shares of common stock.
The Company's full Board of Directors adopted a 1999 Director Option Plan
in October 1999 (the "Director Plan"). The Director Plan was approved by the
Company's stockholders in January 2000, and became effective upon the completion
of our initial public offering.
The director option plan has a term of ten years, unless terminated sooner
by our board of directors. A total of 250,000 shares of our common stock have
been reserved for issuance under the 1999 director option plan. The director
option plan generally provides for an automatic initial grant of an option to
purchase 25,000 shares of our common stock to each non-employee director on the
date that person first becomes a director. After the initial grant, a
non-employee director will automatically be granted subsequent options to
purchase 10,000 shares of our common stock each year on the date of our annual
stockholder's meeting, if on such date he or she has served on our board of
directors for at least six months. Each initial option grant and each subsequent
option has a term of 10 years. Each initial option, vests as to 25% of the
shares subject to the option on each anniversary of the date of grant, and each
subsequent option grant vests as to 100% of the shares subject to the option on
the first anniversary of the date of grant. The exercise price of all options
will be 100% of the fair market value of our common stock on the date of grant.
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<PAGE> 9
The director option plan provides that if we merge with another
corporation, or sell substantially all our assets, each option will become fully
vested and exercisable for a period of thirty days from the date our board of
directors notifies the optionee of the option's full exercisability, after which
period the option will terminate. Options granted under the director option plan
must be exercised within three months of the end of the optionee's tenure as a
director of the Company, or within 12 months after termination by death or
disability, but in no event later than the expiration of the option's ten year
term. Options granted under the director option plan are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable, during the lifetime of the optionee, only by the
optionee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Messrs. Hoover,
Cowherd and Tsao. None of these individuals has at any time been an officer or
employee of XCare.net. Prior to formation of the compensation committee, all
decisions regarding executive compensation were made by the full board. No
interlocking relationship exists between the board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
PROPOSAL TWO
AMENDMENT OF THE 1997 STOCK PLAN TO INCREASE THE NUMBER OF SHARES
ISSUABLE UNDER THE PLAN FROM 2,200,000 TO 3,600,000
INTRODUCTION
The 1997 Stock Plan (the "1997 Plan") was adopted by the Board of Directors
in March 1997 and was approved by the stockholders in March 1997.
The stockholders are being asked to approve an amendment to the 1997 Plan
increasing the base number of shares reserved under the 1997 Plan from 2,200,000
shares to 3,600,000 shares. The number of shares available for issuance under
the 1997 Plan will also be automatically increased on January 1 of each year,
beginning in 2001, as further described below. As of the Record Date, 44,374
shares were available for grant under the 1997 Plan. As of the Record Date, the
closing price for the Company's Common Stock on the Nasdaq National Market was
$5.875.
The material features of the 1997 Plan are outlined below.
SUMMARY OF THE 1997 PLAN
The 1997 Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, officers,
directors and consultants. The 1997 Plan was adopted by our board of directors
in March 1997 and approved by the stockholders in March 1997. The board of
directors approved amendments to the 1997 Plan to increase the number of shares
reserved under the plan in December 1997, April 1998, July 1998, May 1999 and
September 1999. The stockholders approved these amendments to the stock plan in
December 1997, April 1998, July 1998, May 1999 and September 1999.
As of December 31, 1999 a total of 2,200,000 shares of our common stock has
been reserved for issuance under the 1997 Plan. During the year ended December
31, 1999, we granted options under the plan to purchase 1,175,276 shares of
common stock. As of August 31, 2000, options to purchase 1,868,252 shares of
common stock were outstanding under the 1997 Plan and 43,244 were available for
future issuance.
The number of shares available for issuance under the 1997 Plan will be
automatically increased on January 1 of each year, beginning in 2001, by an
amount equal to the lesser of (a) 1,224,000 shares, (b) 5% of the outstanding
shares on such date or (c) a lesser amount determined by the Board of Directors.
Unless terminated sooner, the stock plan terminates in 2007.
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The Company's Board of Directors, which acts as administrator of the 1997
Plan, has the power to determine, among other things:
- the terms of the options or stock purchase rights granted, including
exercise price;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the 1997 Plan, so long as no such action affects any shares previously
issued or any option previously granted under the 1997 Plan. During any fiscal
year, no optionee may be granted options to purchase more than 1,050,000 shares,
although, in connection with an optionee's initial employment with us, such
optionee may be granted an option covering an additional 1,050,000 shares.
Options and stock purchase rights granted under the 1997 Plan are generally
not transferable by the optionee, and each option and stock purchase right is
exercisable during the lifetime of the optionee only by the optionee. Options
granted under the 1997 Plan must generally be exercised within three months
after the end of the optionee's status as an employee, director or consultant of
XCare.net, or within 12 months after termination by death or disability, but in
no event later than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the Company retains a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment or consulting
relationship with XCare.net for any reason, including death or disability. The
repurchase price is the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to XCare.net. The repurchase
option shall lapse at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 1997
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options and stock
purchase rights is determined by the administrator, but for nonstatutory stock
options intended to qualify as "performance-based compensation" under Section
162(m) of the Internal Revenue Code, the exercise price must be at least equal
to the fair market value of our common stock on the date of grant. For any
participant who possesses more than 10% of the voting power of all classes of
the our outstanding stock, the exercise price of any incentive stock option must
be at least equal to 110% of the fair market value on the grant date and the
term of the incentive stock option must not exceed five years. The term of all
other options granted under the 1997 Plan may not exceed ten years. The 1997
Plan provides that if the Company merges with another corporation, or sells
substantially all its assets, each option and stock purchase right will be
assumed or an equivalent option will be substituted by the successor
corporation. If the outstanding options and stock purchase rights are not
assumed or substituted for, the optionees will become fully vested in and have
the right to exercise their options or stock purchase rights in full. In such
case, the administrator will notify the optionees that their options or stock
purchase rights are fully exercisable for a period of 15 days from the date of
the notice, and the options or stock purchase rights will terminate upon the
expiration of that period.
UNITED STATES TAX INFORMATION
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after the date of
grant and one year after exercising the option, any gain or loss will be treated
as long-term capital gain or loss. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of sale or exchange
equal to the difference between the exercise price and the lower of (i) the fair
market value of the shares on the date of the option exercise or (ii) the sale
price of the shares. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director or
10% stockholder of the Company. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as
7
<PAGE> 11
ordinary income will be characterized as long-term or short-term capital gain or
loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time a nonstatutory option is granted. However, upon its exercise,
the optionee will recognize taxable income generally measured as the excess of
the then fair market value of the shares exercised over the exercise price. A
different rule may apply if the optionee is a director, officer or 10%
stockholder. Any taxable income recognized in connection with an option exercise
by an optionee who is also an employee of the Company will be subject to tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. Upon resale of such shares by the optionee, any difference
between the sales price and the optionee's exercise price, to the extent not
recognized as taxable income as described above, will be treated as long-term or
short-term capital gain or loss, depending on the holding period. The Company
will be entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee with respect to shares acquired upon exercise of a
nonstatutory option.
THE FOREGOING SUMMARY OF THE EFFECT OF THE UNITED STATES FEDERAL INCOME
TAXATION LAWS UPON THE OPTIONEE AND THE COMPANY IN CONNECTION WITH THE 1997 PLAN
DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE
PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE
PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY
IN WHICH THE PARTICIPANT MAY RESIDE.
AMENDED AND NEW PLAN BENEFITS
The Company cannot now determine the number of shares to be issued in the
future pursuant to the 1997 Plan to the Company's executive officers and
employees. In 1999, options to purchase 1,175,276 shares of the Company's Common
Stock were issued to all employees pursuant to the 1997 Plan of which options to
purchase 917,926 shares of the Company's Common Stock were issued to the
executive officers as a group.
ADOPTION OF 2000 NONSTATUTORY STOCK OPTION PLAN
In September 2000, the Board of Directors of the Company adopted the 2000
Nonstatutory Stock Option Plan (the "NSO Plan"). Under NSO Plan, the Board of
Directors may issue options to purchase up to an aggregate of 600,000 shares of
the Company's Common Stock to employees of the Company. No options will be
issued under the NSO Plan to directors or executive officers of the Company. All
options issued under the NSO Plan will nonstatutory stock options under the
Internal Revenue Code. Approval of the NSO Plan by the stockholders of the
Company is not required.
REQUIRED VOTE
The approval of the amendment of the 1997 Plan requires the affirmative
vote of a majority of the shares of the Company's Common Stock present or
represented and entitled to vote on this subject matter at the Annual Meeting.
An abstention is not an affirmative vote, and therefore, will have the same
effect as a vote against the proposal. A broker non-vote will not be treated as
entitled to vote on this subject matter at the meeting. See "Information
Concerning Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes."
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE AMENDMENT OF THE 1997 STOCK PLAN
8
<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of our common stock as of August 31, 2000, as adjusted to reflect the
sale of common stock in this offering, the conversion of our outstanding
convertible preferred stock, including convertible preferred stock issuable upon
the assumed cashless exercise of all outstanding convertible preferred stock
warrants, and the cashless exercise of all outstanding common stock warrants.
Information is given for:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- each of our directors;
- each of our officers; and
- all of our directors and officers as a group.
Percentages of the outstanding shares of common stock are based on
16,239,550 shares outstanding as of August 31, 2000, plus all shares of common
stock issuable on exercise of options within 60 days of August 31, 2000 held by
the particular beneficial owner.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the individual or entity has voting power or investment power and any shares
which the individual has the right to acquire within 60 days of August 31, 2000,
through the exercise of any stock option or other right. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, to our knowledge, 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.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o XCare.net, Inc., 6400 South Fiddler's Green Circle,
Suite 1400, Englewood, Colorado 80111.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------
<S> <C> <C>
Entities affiliated with Nazem & Company IV, L.P.(1)........ 2,914,542 17.9%
Jeffrey M. Krauss
645 Madison Avenue, 12th Floor
New York, New York 10022-1010
Atlantic Medical Capital, L.P.(2)........................... 2,398,501 14.8
J. Andrew Cowherd
156 West 56th Street, Suite 1605
New York, New York 10019-3800
Entities affiliated with Sequel Venture Partners II,
LLC(3).................................................... 1,129,012 6.9
Daniel J. Mitchell
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Vertex Technology Fund (II) Ltd.(4)......................... 1,156,112 7.1
Robert Tsao
3 Lagoon Drive, Suite 220
Redwood City, California 94065
CB Healthcare Fund, L.P. ................................... 1,111,112 6.8
One Boston Place, Suite 4010
Boston, MA 02108
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------
<S> <C> <C>
Dauphin Capital Partners I, L.P.(5)......................... 955,926 5.9
James B. Hoover
108 Forest Avenue
Locust Valley, New York 11560
Lorine R. Sweeney(6)........................................ 869,726 5.1
Fred L. Brown(7)............................................ 25,000 *
Afshin Cangarlu(8).......................................... 70,000 *
Ben Lytle(9)................................................ 25,000 *
Lawrence S. Dike............................................ 120,000 *
Kathlyn Matre(10)........................................... 25,000 *
Tammy McLaren(11)........................................... 100,000 *
Randy McMahon(12)........................................... 40,000 *
Suriya Narayanan(13)........................................ 60,000 *
Sinan S. Nayman(14)......................................... 40,000 *
Thomas M. Pianko(15)........................................ 80,000 *
Mark Rangell(16)............................................ 300,000 1.8
William F. Reilly(17)....................................... 205,000 1.3
Gary Scherping(18).......................................... 50,500 *
All directors and officers as a group (19 persons)(19)...... 10,564,319 59.4
</TABLE>
---------------
* Represents less than one percent of the total.
(1) Represents 2,334,486 shares held by Nazem & Company IV, L.P., 555,556
shares held by Transatlantic Venture Fund C.V., 14,500 shares owned by
Jeffrey M. Krauss, and 10,000 shares subject to stock options exercisable
within 60 days of August 31, 2000 held by Jeffrey M. Krauss. Mr. Krauss,
one of our directors, is a general partner of Nazem & Company IV, L.P.
Nazem & Company IV, L.P. has four general partners, each of whom shares
voting and investment power over the shares held by Nazem & Company IV,
L.P. The majority of the partners in the General Partner of Nazem & Company
IV, L.P. are also partners in the General Partner of Transatlantic Venture
Fund C.V. Mr. Krauss disclaims beneficial ownership of the shares held by
these entities except to the extent of his proportionate pecuniary
interest.
(2) Represents 2,388,001 shares held by Atlantic Medical Capital, L.P., 500
shares owned by J. Andrew Cowherd, and 10,000 shares subject to stock
options exercisable within 60 days of August 31, 2000 held by Atlantic
Medical Management, LLC. J. Andrew Cowherd, one of our directors, is a
member of Atlantic Medical Management LLC. Atlantic Medical Management LLC
is the management services company of Atlantic Medical Capital L.P.
Atlantic Medical Management LLC has three members, each of whom shares
voting and investment power over the shares held by Atlantic Medical
Capital, L.P. Mr. Cowherd disclaims beneficial ownership of the shares held
by that entity except to the extent of his proportionate pecuniary
interest.
(3) Represents 1,074,075 shares held by Sequel Limited Partnership II, 37,037
shares held by Sequel Entrepreneurs Fund II, L.P., 7,900 shares held by
Daniel J. Mitchell, and 10,000 shares subject to stock options exercisable
within 60 days of August 31, 2000 held by Sequel Venture Partners II,
L.L.C. Sequel Venture Partners II, L.L.C., the general partner of Sequel
Limited Partnership II and Sequel Entrepreneurs Fund II, L.P., has five
managers, including Daniel J. Mitchell, one of our directors. Each of these
managers' shares voting and investment power over the shares held by Sequel
Limited Partnership II and Sequel Entrepreneurs Fund II, L.P. Mr. Mitchell
disclaims beneficial ownership of the shares held by these entities except
to the extent of his proportionate pecuniary interest.
(4) Represents 1,136,112 shares held by Vertex Technology Fund (II) Ltd.,
10,000 shares owned by Robert Tsao, and 10,000 shares subject to stock
options exercisable within 60 days of August 31, 2000 held by Robert Tsao.
Mr. Tsao, one of our directors, is an Investment Manager with Vertex
Technology Fund. Mr. Tsao disclaims beneficial ownership of the shares held
by that entity except to the extent of his proportionate pecuniary
interest.
10
<PAGE> 14
(5) Represents 925,926 shares held by Dauphin Capital Partners I, L.P., 20,000
shares owned by James B. Hoover, and 10,000 shares subject to stock options
exercisable within 60 days of August 31, 2000 held by Dauphin Management,
L.L.C. James B. Hoover, one of our directors, is a Managing Member of
Dauphin Management L.L.C., which is the general partner of Dauphin Capital
Partners I, L.P. Mr. Hoover disclaims beneficial ownership of the shares
held by that entity except to the extent of his proportionate pecuniary
interest.
(6) Includes 788,726 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(7) Includes 25,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(8) Includes 70,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(9) Includes 25,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(10) Includes 25,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(11) Includes 80,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(12) Includes 40,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(13) Includes 60,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(14) Includes 40,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(15) Includes 80,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(16) Includes 191,309 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(17) Includes 10,000 shares subject to stock options exercisable within 60 days
of August 31, 2000.
(18) Includes 500 shares held by Gary Scherping and 40,000 shares subject to
stock options exercisable within 60 days of August 31, 2000. Also includes
10,000 shares held in the name of Mr. Scherping's spouse.
(19) Includes 1,525,035 shares subject to stock options exercisable within 60
days of August 31, 2000, as described in the above footnotes.
11
<PAGE> 15
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during the year ended December 31, 1999, for services rendered during
1999, to our Chief Executive Officer and the only other executive officers whose
salary and bonus exceeded $100,000 during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- --------- ------- ---------------
<S> <C> <C> <C>
Lorine R. Sweeney.......................................... $175,000 -- $2,815
President and Chief Executive Officer
Lawrence S. Dike........................................... 135,000 -- 3,909
Senior Vice President and Chief Scientist
Mark Rangell............................................... 135,000 -- 2,814
Senior Vice President, Sales and Marketing
Tammy McLaren.............................................. 113,462 $1,500 2,665
Vice President, Professional Services
Jon Wisda(2)............................................... 106,154 -- 2,123
Vice President, Product Development
</TABLE>
---------------
(1) Consists of premiums we paid for life insurance, dental insurance, health
insurance and long-term disability insurance for each executive officer.
(2) Mr. Wisda resigned effective February 18, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted in 1999 to each of the officers named in the above table,
including the potential realizable value over the ten-year term of the options,
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These assumed rates of appreciation comply with the rules of the Securities and
Exchange Commission and do not represent our estimate of our future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney............ 151,100 12.9% $0.25 03/16/09 $ 23,756 $ 60,204
285,726 24.3 2.70 09/01/09 485,167 1,229,509
Lawrence S. Dike............. -- -- -- -- -- --
Mark Rangell................. 60,300 5.1 0.25 03/16/09 9,481 24,026
66,800 5.7 2.70 09/01/09 113,427 287,447
Tammy McLaren................ 50,000 4.3 0.25 02/08/09 7,861 19,922
44,000 3.7 2.70 09/01/09 74,713 189,337
Jon Wisda(1)................. 50,000 4.3 0.25 02/08/09 7,861 19,922
30,000 2.6 2.70 09/01/09 50,940 129,093
</TABLE>
---------------
(1) Mr. Wisda resigned effective February 18, 2000.
In 1999, we granted options to purchase an aggregate of 1,175,276 shares to
employees, directors and consultants. All options were granted under our stock
option plan at exercise prices equal to the fair market value of our common
stock on the date of grant, as determined in good faith by our board of
directors, based on our financial results and prospects and at the share prices
paid in arms-length transactions. All options typically vest
12
<PAGE> 16
over four years and are exercisable for up to ten years. In July 1999, we
amended our option agreements so that all options are immediately exercisable
upon grant; however, any unvested shares are subject to repurchase by us at
their cost in the event of the optionee's termination of employment.
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the named officers information
concerning exercisable and unexercisable options held as of December 31, 1999.
The value of in-the-money options is based on a value of $10.00 per share, the
fair market value of our common stock at December 31, 1999, as determined by our
board, and net of the option exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney..... 80,000 216,000 788,726 -- $6,990,050 --
Lawrence S. Dike...... -- -- -- -- -- --
Mark Rangell.......... 22,800 61,560 277,200 -- $2,539,040 --
Tammy McLaren......... 20,000 54,000 80,000 -- $ 672,200 --
John Wisda(1)......... -- -- 80,000 -- $ 706,500 --
</TABLE>
---------------
(1) Mr. Wisda resigned effective February 18, 2000.
The number of unexercised options at December 31, 1999 which are
exercisable reflects that all options are immediately exercisable upon grant,
although the shares issued upon exercise are subject to our right to repurchase
them upon termination of employment, which right lapses progressively over time.
EMPLOYMENT AGREEMENTS
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon termination
the employee will not work for a competitor and may not solicit our customers
and employees. At the time of commencement of employment, our employees also
generally sign offer letters specifying basic terms and conditions of
employment. Lorine R. Sweeney, Mark Rangell and Tammy McLaren have each signed
offer letters of this type.
OTHER EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company sponsors a 401(k) plan covering full-time employees, including
executive officers, located in the United States who are at least 21 years of
age. The 401(k) plan is intended to qualify under Section 401(k) of the Internal
Revenue Code. Contributions to the 401(k) plan by employees or by us, and the
investment earnings on these contributions, are not taxable until withdrawn from
the 401(k) plan. Employees may elect to reduce their pre-tax earnings up to a
statutorily prescribed annual limit, which was $10,000 in 1999, and to have the
amount of that reduction contributed to the 401(k) plan. The 401(k) plan
permits, but does not require, additional matching contributions by us on behalf
of all participants in the 401(k) plan. To date, we have not made any
contributions to the 401(k) plan.
13
<PAGE> 17
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the Company's Chief Executive Officer and
other executive officers. The Committee is comprised of three independent,
nonemployee members of the Board of Directors, none of whom has interlocking
relationships as defined by the Securities and Exchange Commission. The
Committee has available to it such external compensation advice and data as the
Committee deems appropriate to obtain.
The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is competitive with those
offered by companies of similar type and size, in the same geographical area and
whose executives perform similar skills to those performed by the executives of
the Company. Accordingly, the Committee follows a compensation strategy which
has used vesting terms to incentivize and reward executives as the Company
addresses the challenges associated with growth. As the Committee applies this
compensation philosophy in determining appropriate executive compensation levels
and other compensation factors, the Committee reaches its decisions with a view
towards the Company's overall financial performance. The Committee strives to
structure each officer's overall compensation package to enable the Company to
attract, retain and reward personnel who contribute to the success of the
Company.
EXECUTIVE OFFICER COMPENSATION
The objectives of the executive officer compensation program are to
attract, retain, motivate and reward key personnel who possess necessary
leadership and management skills through competitive base salary, annual cash
bonus incentives, long-term incentive compensation in the form of stock options,
and various benefits generally available to employees of the Company.
Base Salary. Base salary levels for the Company's executive officers are
generally targeted to be competitive with companies in the same stage of
development and in the same industry and geographic area. In determining
salaries, the Committee also takes into account the Chief Executive Officer's
recommendations, individual experience, contributions to corporate goals and the
Company's performance.
Incentive Bonuses. The Committee believes that a cash incentive bonus plan
can serve to motivate the Company's executive officers and management to address
annual performance goals, using more immediate measures for performance than
those reflected in the appreciation in value of stock options. In 1999, the
Company's goals were targeted toward longer-term objectives for corporate
development. As a consequence, the Company did not have an incentive bonus plan
for executive officers for fiscal 1999.
Stock Option Grants. Stock options are granted to executive officers and
other employees under the Company's Option Plans. Stock option grants are
intended to focus the recipient on the Company's long-term performance to
improve stockholder value and to retain the services of executive officers in a
competitive job market by providing significant long-term earning potential. To
this end, stock options generally vest over a four-year period, based on
continued employment. Factors considered in granting stock options to executive
officers of the Company are the duties and responsibilities of each individual,
such individual's contributions to the success of the Company and other relevant
factors. The Company views stock options as an important component of long-term
compensation for executive officers since options motive executive officers to
manage the Company in a manner that is consistent with the interests of
stockholders.
14
<PAGE> 18
CEO COMPENSATION
Compensation for the Chief Executive Officer is consistent with the
philosophies and practices described above for executive officers in general.
Ms. Sweeney received no increase to her salary of $175,000 in 1999. During 1999,
Ms. Sweeney was granted 151,100 options to purchase Company common stock at an
exercise price of $0.25, and an addition 285,726 options to purchase Company
common stock at an exercise price of $2.70.
COMPENSATION COMMITTEE
J. Andrew Cowherd
James B. Hoover
Robert Tsao
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, there was not any transaction or series of similar
transactions to which the Company was a party in which the amount involved
exceeded $60,000 and in which any director, executive officer, holder of more
than five percent of the Company's common stock or any member of the immediate
family of any of the foregoing persons had a direct or indirect material
interest, other than compensation agreements and other arrangements described
above in "Executive Compensation" and the transactions described below.
PROFESSIONAL SERVICES AGREEMENT
In September 1999, the Company entered into a professional services
agreement with munshee.com LLC, whose managing member is a general partner of
Nazem & Company IV, L.P., a beneficial owner of greater than 5% of our common
stock. Jeffrey M. Krauss, a director of the Company, was a general partner of
Nazem & Company IV, L.P. until March 2000. The Company recognized $453,000 in
revenue under this agreement during the quarter ended December 31, 1999.
EQUITY INVESTMENT TRANSACTIONS
In June and July 1999, the Company sold an aggregate of 6,305,322 shares of
its Series B preferred stock at a price of $2.70 per share. Holders of five
percent or more of the Company's common stock participated in these sales as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
STOCKHOLDER SERIES B
----------- ---------
<S> <C>
Atlantic Medical Capital, L.P. ........................... 640,193
C.B. Healthcare Fund, L.P. ............................... 1,111,112
Dauphin Capital Partners, L.P. ........................... 925,926
Entities affiliated with Nazem & Company IV, L.P. ........ 1,142,234
Entities affiliated with Sequel Venture Partners II,
LLC..................................................... 1,111,112
Vertex Technology Fund (II) Ltd. ......................... 1,111,112
</TABLE>
J. Andrew Cowherd, one of the Company's directors, is a member of Atlantic
Medical Management LLC. Atlantic Medical Management LLC is the Management
Services Company for Atlantic Medical Capital L.P. James B. Hoover, one of the
Company's directors, is a Managing Member of Dauphin Management L.L.C., which is
the general partner of Dauphin Capital Partners I, L.P. Jeffrey M. Krauss, one
of the Company's directors, was a general partner of Nazem & Company IV, L.P.
until March 2000. Daniel J. Mitchell, one of the Company's directors, is a
manager of Sequel Venture Partners II, LLC. Robert Tsao, one of the Company's
directors, is an investment manager with Vertex Technology Fund. Holders of
preferred stock are entitled to registration rights with respect to the common
stock issued or issuable upon conversion of these shares.
15
<PAGE> 19
OPTION GRANTS TO DIRECTORS
On September 1, 1999, the Company granted an option to purchase 10,000
shares of common stock to each of Jeffrey M. Krauss, Robert Tsao, and William F.
Reilly, each of whom is one of the Company's directors. In addition, on
September 1, 1999, the Company granted an option to purchase 10,000 shares of
common stock to each of Atlantic Medical Management LLC, with which J. Andrew
Cowherd, one of the Company's directors, is affiliated; to Sequel Venture
Partners II, LLC, with which Daniel J. Mitchell, one of the Company's directors,
is affiliated; and to Dauphin Management L.L.C., with which James B. Hoover, one
of the Company's directors, is affiliated. The options each have an exercise
price of $2.70 per share. Twenty-five percent of the shares subject to each
option vests on September 7, 2000, and 1/48th of the shares subject to each
option vests at the end of each month after September 7, 2000, subject to the
continued services of the particular individual as a director. On December 30,
1999, the Company granted an option to purchase 25,000 shares of common stock to
Fred L. Brown, a director appointed to the Company's board on that date. The
option has an exercise price of $10.00 per share. Twenty-five percent of the
shares subject to the option vest on December 30, 2000, and 1/48th of the shares
vest at the end of each month after December 30, 2000, subject to the continued
service of Mr. Brown as a director.
The Company believes that all related-party transactions described above
were on terms no less favorable than could have been otherwise obtained from
unrelated third parties.
INDEPENDENT PUBLIC ACCOUNTANTS
No selection or recommendation has been made for the independent public
accountants for the Company's 2000 audit. This selection will be made by the
Audit Committee of the Company's Board of Directors. The Company's financial
statements for the year ended December 31, 1999, were audited by
PricewaterhouseCoopers LLP.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: September 20, 2000
16
<PAGE> 20
PROXY
XCARE.NET, INC.
Annual Meeting of Stockholders - November 1, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lorine R. Sweeney and Jeffrey M. Krauss, each
of them, as proxies of the undersigned, each with full power to appoint her or
his substitute, and hereby authorizes them to represent and to vote all the
shares of stock of XCare.net, Inc. which the undersigned is entitled to vote, as
specified on the reverse side of this card, at the Annual Meeting of
Stockholders of XCare.net, Inc. (the "Meeting") to be held on November 1, 2000
at 9:00 a.m., Mountain Standard Time at the Inverness Hotel, 200 Inverness Drive
West, Englewood, Colorado 80112, and at any adjournment or postponement thereof.
When this Proxy is properly executed, the shares to which this Proxy relates
will be voted as specified and, if no specification is made, will be voted for
the Board of Director nominees and for Proposal 2, and this Proxy authorizes the
above designated proxies to vote in their discretion on such other business as
may properly come before the meeting or any adjournments or postponements
thereof to the extent authorized by Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as amended.
[See reverse side] (Continued and to be signed on reverse side)
[X] Please mark votes as in this example
The Board of Directors recommends a vote FOR the Proposals:
1. ELECTION OF DIRECTORS.
Nominees:
Fred L. Brown
L. Ben Lytle
Daniel J. Mitchell
[ ] For [ ] Against [ ] Abstain
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
<PAGE> 21
2. AMENDMENT OF THE COMPANY'S 1997 STOCK PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER SUCH PLAN
FROM 2,200,000 TO 3,600,000 SHARES.
[ ] For [ ] Against [ ] Abstain
Please sign exactly as your name(s) appear(s) on this Proxy. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, this Proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute this Proxy for a deceased stockholder should give their
full title. Please date this Proxy.
[ ] Mark here for address change and note below
Signature:__________________________ Date: _________________
Whether or not you plan to attend the meeting in person, you are urged to
complete, date, sign and promptly mail this Proxy in the enclosed return
envelope so that your shares may be represented at the meeting.
