<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT
(PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
CONTINUCARE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONTINUCARE CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.:
(3) Filing Parties:
(4) Date Filed:
<PAGE> 2
CONTINUCARE CORPORATION
80 S.W. 8TH STREET, MIAMI, FLORIDA 33131
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 21, 1999
--------------------
To the Shareholders of Continucare Corporation:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Continucare Corporation, a Florida corporation, will be held at 10:00 a.m.,
local time, on Tuesday, December 21, 1999, at the ____________________________,
Miami, Florida, for the following purposes:
(1) The election of three members to our Board of
Directors to hold office until Continucare's 2000
Annual Meeting of Shareholders or until their
successors are duly elected and qualified;
(2) To approve the restructuring of our convertible
subordinated notes and the issuance of the common
stock in connection with the restructure; and
(3) The transaction of such other business as may
properly come before the annual meeting and any
adjournments or postponements thereof.
The Board of Directors has fixed the close of business on November 1,
1999 as the record date for determining those shareholders entitled to notice
of, and to vote at, the Annual Meeting and any adjournment(s) or
postponement(s) thereof.
Whether or not you expect to be present, please sign, date and return
the enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors
Spencer J. Angel
President, Chief Executive Officer
and Chief Operating Officer
Miami, Florida
November 29, 1999
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. ALL SHAREHOLDERS ARE RESPECTFULLY URGED TO EXECUTE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO
EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY
AND VOTE THEIR SHARES IN PERSON.
<PAGE> 3
1999 ANNUAL MEETING OF SHAREHOLDERS
OF
CONTINUCARE CORPORATION
--------------------------
PROXY STATEMENT
--------------------------
This proxy statement is furnished in connection with the solicitation
by the board of directors of Continucare Corporation, a Florida corporation, of
proxies from the holders of our common stock, par value $.0001 per share, for
use at the 1999 Annual Meeting of Shareholders of Continucare to be held at
10:00 a.m., local time, on Tuesday, December 21, 1999, at
_____________________, Miami, Florida, or at any adjournment(s) or
postponement(s) thereof, pursuant to the foregoing notice of annual meeting of
shareholders. This proxy statement and the enclosed form of proxy are first
being sent to holders of our common stock on or about November 29, 1999.
Shareholders should review the information provided herein in
conjunction with the Continucare's 1999 annual report to shareholders, which
accompanies this proxy statement. Continucare's principal executive offices are
located at 80 S.W. 8th Street, Miami, Florida 33131 and its telephone number is
(305) 350-7515.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of our board of directors.
The giving of a proxy does not preclude the right to vote in person should any
shareholder giving the proxy so desire. Shareholders have an unconditional
right to revoke their proxy at any time prior to the exercise thereof, either
in person at the annual meeting or by filing with Continucare's Secretary at
our headquarters a written revocation or duly executed proxy bearing a later
date; however, no such revocation will be effective until written notice of the
revocation is received by Continucare at or prior to the annual meeting.
The cost of preparing, assembling and mailing this proxy statement,
the notice of annual meeting of shareholders and the enclosed proxy is to be
borne by Continucare. In addition to the use of mail, our employees may solicit
proxies personally and by telephone and facsimile. Our employees will receive
no compensation for soliciting proxies other than their regular salaries.
Continucare may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and to
request authority for the execution of proxies. We may reimburse such persons
for their expenses in so doing.
PURPOSES OF THE MEETING
At the annual meeting, our shareholders will consider and vote upon
the following matters:
(1) The election of three members to our board of
directors to hold office until our 2000 annual
meeting of shareholders or until their successors
are duly elected and qualified;
(2) To approve the restructuring of our convertible
subordinated notes and the issuance of our common
stock in connection with the restructuring; and
(3) The transaction of such other business as may
properly come before the annual meeting, including
any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted for the election of the nominees for director named below and in
favor of the other matters presented. In the event a shareholder specifies a
different choice by means of the enclosed proxy, his shares will be voted in
accordance with the specification so made.
<PAGE> 4
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The board of directors has set the close of business on November 1,
1999 as the record date for determining shareholders of Continucare entitled to
notice of and to vote at the annual meeting. As of the record date, there were
14,704,091 shares of common stock outstanding. Only the holders of issued and
outstanding shares of common stock are entitled to vote at the annual meeting.
Shareholders do not have the right to cumulate their votes, and are entitled to
one vote for each share held.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding shares of common stock entitled to vote at the annual meeting
is necessary to constitute a quorum with respect to all matters presented.
Directors will be elected by a plurality of the votes cast by the shares of
common stock represented in person or by proxy at the annual meeting. Approval
of the restructuring of the convertible subordinated notes and the issuance of
common stock in connection with the restructure will be approved if the
majority of the votes cast in person or by proxy vote in favor of the proposal.
Any other matter that may be submitted to a vote of the shareholders will be
approved if the number of shares of common stock voted in favor of the matter
exceeds the number of shares voted in opposition to the matter, (unless such
matter is one for which a greater vote is required by law or by the Company's
Articles of Incorporation or Bylaws). If less than a majority of outstanding
shares entitled to vote are represented at the annual meeting, a majority of
the shares so represented may adjourn the annual meeting to another date, time
or place, and notice need not be given of the new date, time, or place if the
new date, time, or place is announced at the meeting before an adjournment is
taken.
Prior to the annual meeting, we will select one or more inspectors of
election for the meeting. Such inspector(s) shall determine the number of
shares of common stock represented at the meeting, the existence of a quorum
and the validity and effect of proxies, and shall receive, count and tabulate
ballots and votes and determine the results thereof. Abstentions will be
considered as shares present and entitled to vote at the annual meeting and
will be counted as votes cast at the annual meeting, but will not be counted as
votes cast for or against any given matter.
A broker or nominee holding shares registered in its name, or in the
names of its nominee, which are beneficially owned by another person and for
which it has not received instructions as to voting from the beneficial owner,
has the discretion to vote the beneficial owner's shares with respect to the
election of directors. If a matter has been included in the proxy to which a
broker or nominee would not have discretionary voting power under applicable
American Stock Exchange rules, any broker or nominee "non-votes" would not be
considered as shares entitled to vote on the subject matter and therefore would
not be considered by the inspector when counting votes cast on the matter.
SECURITY OWNERSHIP
The following table sets forth certain information as of November 1,
1999 concerning the beneficial ownership of the common stock by (i) each person
known by Continucare to be the beneficial owner of more than 5% of the
outstanding common stock, (ii) each of the directors and director nominees who
own our shares, (iii) Named Executive Officers (as defined hereafter), and (iv)
all of our executive officers and directors as a group. All holders listed
below have sole voting power and investment power over the shares beneficially
owned by them, except to the extent such power may be shared with such person's
spouse.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(2)
- ------------------- ----------------------- ---------------
<S> <C> <C>
Charles M. Fernandez 1,454,167(3) 9.8%
80 S.W. 8th Street
Miami, FL 33131
Spencer J. Angel 200,800(4) 1.4
80 S.W. 8th Street
Miami, FL 33131
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(2)
- ------------------- ----------------------- ---------------
<S> <C> <C>
Dr. Phillip Frost 2,414,133(5) 16.3
4400 Biscayne Boulevard
Miami, FL 33137
Neil Flanzraich 0 0
4400 Biscayne Boulevard
Miami, FL 33137
Carlos E. Padron 10,000 *
338 Minorca Avenue
Coral Gables, FL 33134
Susan Tarbe 80,000(6) *
1221 Brickell Avenue
Miami, FL 33131
Strategic Investment Partners, Ltd. 2,250,000(7) 15.3
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
Franklin Resources, Inc. 2,620,607(8) 15.1
777 Mariners Island Boulevard
San Mateo, CA
Pecks Management Partners Ltd. 1,862,069(8) 11.2
One Rockefeller Plaza
Suite 900
New York, NY
All directors and executive officers 4,079,100(9) 27.3
as a group (5 persons)
</TABLE>
- --------------------
* Less than one percent.
(1) For purposes of this table, beneficial ownership is computed pursuant to
Rule 13d-3 under the Exchange Act; the inclusion of shares as
beneficially owned should not be construed as an admission that such
shares are beneficially owned for purposes of the Exchange Act. Under the
rules of the Securities and Exchange Commission, a person is deemed to be
a "beneficial owner" of a security he or she has or shares the power to
vote or direct the voting of such security or the power to dispose of or
direct the disposition of such security. Accordingly, more than one
person may be deemed to be a beneficial owner of the same security.
(2) Based on 14,740,091 shares outstanding as of November 1, 1999.
(3) Includes (i) 1,316,667 shares of Common Stock are owned of record by the
Fernandez Family Limited Partnership, (ii) 27,500 shares held directly by
Mr. Fernandez and (iii) 110,000 shares of Common Stock underlying options
granted that are currently exercisable.
(4) Includes (i) 800 shares held by Arkangel, Inc. and (ii) 200,000 shares
held by Harter Financial, Inc.
(5) Based on the most recent Schedule 13D, includes (i) shares owed
beneficially through Frost Nevada Limited Partnership and Frost-Nevada
Corporation and (ii) 75,000 shares of common stock underlying options
granted that are currently exercisable.
(6) Represents shares of common stock underlying options granted which are
currently exercisable, but expire on December 16, 1999.
(7) Based on the most recent Schedule 13D, beneficial ownership of these
shares is shared by (i) Quasar Strategic Partners LDC, (ii) Quantum
Industrial Partners LDC, (iii) QIH Management Advisor, L.P., (iv) QIH
Management, Inc., (v) Soros Fund Management LLC, (vi) Mr. Stanley F.
Druckenmiller and (vii) Mr. George Soros.
(8) Represents shares of Common Stock that may be issued upon the conversion
(at a conversion price of $7.25) of 8% Convertible Subordinated Notes due
2002 issued by the Company on October 30, 1997. Share information based
on the most recent Schedule 13G.
(9) Includes 185,000 shares of Common Stock underlying options granted that
are currently exercisable.
In connection with the restructuring of the Company's convertible
subordinated notes as described in Proposal No. 2, Continucare will be issuing
15,500,000 shares of common stock to the noteholders and 3,000,000 shares of
common stock to the guarantors of Continucare's financing. See "Restructuring
Overview" in Proposal No. 2.
3
<PAGE> 6
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Three persons are nominated for election as directors to serve until
the next annual meeting of shareholders and until each director's successor is
duly elected and qualified. Although we anticipate that all of the nominees
will be able to serve, if any nominee is unable or unwilling to serve at the
time of the annual meeting, proxies solicited hereunder will be voted in favor
of the remaining nominees, if any, and for such other persons as may be
designated by the board of directors, unless directed by a proxy to do
otherwise.
Mr. Charles M. Fernandez, Dr. Phillip Frost and Mr. Spencer J. Angel
are the three persons nominated as directors. Each of the director nominees is
a current member of the board of directors. Biographical information for the
director nominees is set forth under "Management" below. Neil Flanzraich and
Carlos E. Padron, current members of the board of directors, are not standing
for re-election as directors.
MANAGEMENT
The executive officers and directors of Continucare are as follows:
NAME AGE POSITION
- ---- --- --------
Charles M. Fernandez.............. 37 Chairman of the Board*
Phillip Frost, M.D................ 63 Vice Chairman of the Board*
Spencer J. Angel.................. 33 President, Chief Executive Officer,
Chief Operating Officer and
Director*
Neil Flanzraich................... 56 Director
Carlos E. Padron.................. 34 Director
- --------------
* Director nominees.
CHARLES M. FERNANDEZ, the Chairman of the Board, is the president and
chief executive officer of Big City Radio, a New York company that owns and
operates a network of radio stations. Mr. Fernandez co-founded Continucare in
February 1996 and served as its Chairman of the Board, President and Chief
Executive Officer from the Company's inception until November 1, 1999, at which
time he resigned as the President and Chief Executive Officer. Since 1985 and
prior to founding Continucare, Mr. Fernandez was the Executive Vice President
and Director of Heftel Broadcasting Corporation ("HBC"), a public company
owning a network of radio stations. At HBC, Mr. Fernandez was involved in the
acquisition of 17 broadcast companies and played an instrumental role in HBC's
growth in revenues from $4 million in 1985 to approximately $65 million in
1995. Mr. Fernandez has also been a director of IVAX Corporation, a Florida
corporation ("IVAX") since June 1998. [From July 1999 until November 1999, Mr.
Fernandez served as the Chairman of Hispanic Internet Holdings, Inc., a Spanish
online service provider that was acquired by Big City Radio in 1999.]
PHILLIP FROST, M.D. has served as Vice Chairman of Continucare since
September 1996. Dr. Frost has served, since 1987, as Chairman of the Board and
Chief Executive Officer of IVAX, the world's largest generic pharmaceutical
manufacturer. He served as IVAX's President from July 1991 until January 1995.
He was the Chairman of the Department of Dermatology at Mt. Sinai Medical
Center of Greater Miami, Miami Beach, Florida from 1970 to 1992. Dr. Frost was
Chairman of the Board of Directors of Key Pharmaceutical, Inc. from 1972 to
1986. He is Vice Chairman of the Board of Directors of North American Vaccine,
Inc., Chairman of the Board of Directors of Whitman Education Group, which is
engaged in proprietary education and a director of Northrup Grumman which is in
the aerospace industry. He is Vice Chairman of the Board of Trustees of the
University of Miami and a member of the Board of Governors of the American
Stock Exchange.
SPENCER J. ANGEL has served as the Company's President and Chief
Executive Officer since the resignation of Mr. Fernandez on November 2, 1999.
Previously he served as the Company's Executive Vice President and Chief
4
<PAGE> 7
Operating Officer since July 12, 1999, and he served as a member of the Board
of Directors since September 30, 1999. Mr. Angel has served, since 1996, as
director and president of Harter Financial, Inc., a diversified financial
consulting firm. See "Certain Relationships and Related Transactions." In 1999,
Mr. Angel served as president and chief executive officer of Medical Laser
Technologies, Inc., a company that produces digital x-ray picture archiving and
communications systems for cardiac catheterization labs. He was the secretary,
treasurer and director of Autoparts Warehouse, Inc., an auto parts retail and
service company, from September 1997 to January 1999. From December 1994
through August 1996 Mr. Angel was President of 5 East 41 Check Cashing Corp. a
company engaged in the payroll service and armored car business. From November
1991 to 1994 Mr. Angel was an associate attorney with Platzer, Fineberg &
Swergold, a law firm specializing in corporate financial reorganizations.
NEIL FLANZRAICH has served as a director of the Company since the 1998
annual meeting on January 26, 1999. He has served as the Vice Chairman and
President of IVAX since May 1998. From September 1995 to May 1998, Mr.
Flanzraich was a shareholder and served as Chairman of the Life Sciences Legal
Practice at the law firm of Heller Erhman White & McAuliffe. Prior to his
position at the law firm, Mr. Flanzraich was the Senior Vice President and
General Counsel of Syntex Corporation, an international diversified life
science company, which was acquired by Roche Holding, Ltd.
CARLOS E. PADRON was appointed as a director in October 1999. He is a
partner with the law firm of Vila, Padron & Carrillo, P.A. and has practiced
with the firm since 1991. Mr. Padron also serves on the board of Caribbean
Cigar Company, S.A., Inter-Continental Cigar Corporation and Transcontinental
Investment, Inc.
Officers serve at the pleasure of the board of directors, subject to
the terms of any employment agreements. See "-Employment Agreements."
DIRECTOR COMPENSATION
Mr. Fernandez receives an annual salary of $50,000 for serving as the
Chairman of the Board of Continucare; however the other directors do not
receive any cash compensation for service on the board of directors but may be
reimbursed for certain expenses in connection with attendance at board of
director meetings or other meetings on our behalf. Our directors are eligible
to receive options under the Continucare Stock Option Plan.
Mr. Angel receives an annual salary of $250,000 as the President,
Chief Executive Officer and Chief Operating Officer of Continucare.
Additionally, he is eligible to receive a bonus equal to 7% of Continucare's
earnings before interest, taxes, depreciation and amortization in excess of $3
million for the fiscal year.
See "Executive Compensation and Other Information -- Employment
Agreements."
COMMITTEES AND MEETINGS
During fiscal year 1999, the Board of Directors held eight meetings
and took certain actions by unanimous written consent. Each director attended
at least 75% of the aggregate of (i) the number of such meetings, and (ii) the
number of meetings of Committees of the Board held during fiscal year 1999
during the period of such director's service, except for Dr. Elias Ghanem, who
resigned as a director and from the compensation committee in January 1999.
The compensation committee currently consists of Dr. Phillip Frost
(Chairman), and Neil Flanzraich. Dr. Elias Ghanem and Mark J. Hanna served on
the compensation committee until their resignations from the board of directors
in January 1999 and February 1999, respectively. Mr. Flanzraich was appointed
to the compensation committee upon Dr. Ghanem's resignation in January 1999.
The compensation committee met once during fiscal year 1999. The primary
function of the compensation committee is to review and approve our
compensation policies and practices, propose compensation levels for directors
and officers, and propose changes in our benefit plans.
The audit committee is currently composed of Dr. Frost (Chairman), Mr.
Flanzraich and Mr. Angel. Mr. Hanna and Richard B. Frost served as members of
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<PAGE> 8
the audit committee until their resignations in February 1999. Upon their
resignation, Dr. Frost was appointed to the committee. Mr. Kenneth Looloian,
the former chairman of the audit committee, resigned from the board of
directors in September 1999. Upon his resignation, Dr. Frost was appointed
chairman of the audit committee and Mr. Flanzraich became a member of the
committee Mr. Angel was appointed to this committee in September 1999. The
audit committee met once during fiscal year 1999. The primary function of the
audit committee is to assist the board of directors in fulfilling its
responsibilities with respect to the accounting and financial reporting
practices of Continucare, and to address the scope and expense of audit and
related services provided by our independent accountants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Phillip Frost, Chairman of our compensation committee, is also a
director and executive officer of IVAX Corporation. Mr. Fernandez serves on the
board of directors of IVAX Corporation. During fiscal 1999, Mr. Fernandez
served on the board of directors of Frost Hanna Capital Group, Inc. Mark Hanna,
president and a director of Frost Hanna Capital Group, Inc., served on our
compensation committee in fiscal 1999 until his resignation in February 1999.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by Continucare and its subsidiaries for the fiscal
years 1997, 1998 and 1999 to or on behalf of (i) the Chief Executive Officer
who was serving at the end of the last fiscal year, (ii) the most highly
compensated executive officers who was serving as executive officers at the end
of the last fiscal year, each of whose total annual salary and bonus,
determined as of the end of the fiscal year ended June 30, 1999, exceeded
$100,000 and (iii) two individuals for whom disclosure would have been
provided, but for the fact that they were not serving as executive officers at
the end of the last fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
----------------------------------- OTHER NO. OF SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS COMPENSATION
- ---------------------------- ------ ---------- --------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Fernandez, 1999 352,782 15,000 (1) -0- -0-
President and Chief 1998 334,547 0 (1) 100,000 -0-
Executive Officer(2) 1997 327,880 70,000(7) 36,360(3) -0- -0-
Susan Tarbe, Executive 1999 184,230 -0- (1) 50,000(4)
Vice President and 1998 168,462 -0- (1) -0- 3,167(5)
General Counsel(6) 1997 97,000 40,000(7) (1) 100,000 1,118(5)
Norman B. Gaylis, M.D.
Senior Vice President,
Chief Operating 1999 328,846 -0- (1) -0- -0-
Officer of Physician 1998 464,193 -0- (1) 50,000 -0-
Practice Division(8) 1997 92,094 50,000(9) -0- -0- -0-
Bruce Altman
Chief Financial 1999 104,615 10,000 (1) 62,500 -0-
Officer(10)
</TABLE>
- -------------------
(1) The total perquisites and other personal benefits provided is less than
10% of the total annual salary and bonus to such officer.
(2) Mr. Fernandez resigned as President and Chief Executive Officer in
November 1999.
(3) Includes $13,155 in car allowance and $20,205 in insurance benefits.
(4) Includes a severance payment of $25,000 in August 1999 and a severance
payment of $25,000 in September 1999.
(5) Reflects matching contributions to the Company's 401(k) plan which is
earned during the fiscal year indicated but not paid until the following
fiscal year.
(6) Mrs. Tarbe joined the Company in September 1996 and resigned in September
1999.
(7) Includes a signing bonus in the amount of $2,500 and a bonus paid in
September 1997 for services rendered in fiscal 1997.
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<PAGE> 9
(8) Dr. Gaylis joined the Company in April 1997 and resigned in March 1999.
(9) Represents a bonus paid in fiscal 1998 for services rendered in fiscal
1997.
(10) Mr. Altman joined the Company in October 1998 and resigned in April 1999.
OPTION GRANTS DURING FISCAL 1999
OPTION GRANTS TABLE. The following table sets forth certain
information concerning grants of stock options made during fiscal 1999 to each
of the Named Executive Officers. We did not grant any stock appreciation rights
in fiscal 1999.
<TABLE>
<CAPTION>
INDIVIDUAL OPTION GRANTS IN 1999 FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------
SHARES OF POTENTIAL REALIZABLE VALUE AT
COMMON STOCK ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING % OF TOTAL APPRECIATION FOR OPTION TERM (1)
OPTIONS GRANTED TO OPTION EXPIRATION ------------------------------------
NAME GRANTED EMPLOYEES PRICE($) DATE 5% 10%
- ---- ------------ ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Fernandez 0 -- -- -- -- --
Susan Tarbe 0 -- -- -- -- --
Norman B. Gaylis, M.D. 0 -- -- -- -- --
Bruce Altman 62,500(2) 38.5%(3) $5.125 7/15/99 201,443 510,496
</TABLE>
- ------------------
(1) The dollar amounts set forth in these columns are the result of
calculations at the five percent and ten percent rates set by the
Securities and Exchange Commission, and therefore are not intended to
forecast possible future appreciation, if any, of the market price of the
Common Stock.
(2) Mr. Altman resigned from his position as Chief Financial Officer in April
1999 and his options expired in July 1999.
(3) Based upon 162,500 options granted during fiscal 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR END OPTION VALUES
The following table sets forth information with respect to (i) the
number of unexercised options held by the Named Executive Officers as of June
30, 1999, and (ii) the value as of June 30, 1999 of unexercised in-the-money
options. No options were exercised by any of the Named Executive Officers in
1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT JUNE 30, 1999 AT JUNE 30, 1999 ($)(1)
------------------------------------ ------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Charles M. Fernandez 110,000 25,000 0 0
Susan Tarbe 80,000 20,000 0 0
Norman B. Gaylis, M.D. 33,334 16,666 0 0
Bruce Altman 31,250 31,250 0 0
</TABLE>
- ------------------
(1) Market value of shares covered by in-the-money options on June 30, 1999,
less option exercise price. Options are in-the-money if the market value
of the shares covered thereby is greater than the option exercise price.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Charles M.
Fernandez, Susan Tarbe, Norman B. Gaylis and Bruce Altman. Mr. Fernandez's
employment agreement was for a term of three years plus one additional year for
each year of service and became effective on September 11, 1996, and provided
for an annual base salary of $350,000 and a bonus of $100,000 payable in 20
equal installments of $5,000 over the first five years of such agreement. In
June 1999 Mr. Fernandez voluntarily reduced his annual salary to $275,000. In
October 1999 Mr. Fernandez entered into an employment modification agreement
which provided for the further reduction in Mr. Fernandez's annual salary to
$250,000 and a performance bonus for the fiscal year commencing July 1, 1999,
to equal 5% of Continucare's earnings before interest, taxes, depreciation and
amortization ("EBITDA") in excess of $3 million for the fiscal year. His
modified employment agreement provides that if Mr. Fernandez was terminated
7
<PAGE> 10
without cause, Mr. Fernandez was entitled to receive his base salary for one
year after his termination. Pursuant to the terms of his modified agreement,
Mr. Fernandez was prohibited from competing with Continucare for a period of
six months following his termination, unless terminated without cause. Mr.
Fernandez resigned from his position as President and Chief Executive Officer
of Continucare in November 1999. Upon his resignation, his employment agreement
was modified to provide for an annual salary of $50,000, payable during his
term as Chairman of the Board of Directors.
Ms. Tarbe's employment agreement, as amended, was effective until
August 24, 2001, and provided for an annual base salary of $185,000 and a bonus
as may be determined by the Chairman and approved by the Board. Under the terms
of Ms. Tarbe's employment agreement, she received an option to purchase 100,000
shares of the Company at $5.00 per share. Upon a change in control of the
Company, Ms. Tarbe was entitled to an acceleration of the remainder of her
employment agreement and automatic vesting of any unvested portion of her
aforementioned option. Ms. Tarbe resigned from Continucare in September 1999,
at which time her employment agreement was terminated. Ms. Tarbe received
$50,000 in severance payments.
Dr. Gaylis' employment agreement was for a period of four years
commencing April, 1997, and provided for an annual base salary of $450,000
renewable at the sole discretion of the Company, subject to adjustment upon
certain conditions. Under the terms of Dr. Gaylis' employment agreement, Dr.
Gaylis was entitled to annual incentive compensation of 50% of EBITDA derived
from his professional services at designated offices where EBITDA is in excess
of $365,000. Dr. Gaylis is prohibited from competing with the Company and
soliciting any employee or contractor of the Company for the duration of his
employment agreement and for a period of two years thereafter. Additionally,
Dr. Gaylis is prohibited from disclosing confidential information. Dr. Gaylis
resigned from Continucare in March 1999, at which time his employment agreement
was terminated.
Mr. Altman's employment agreement was for a period of two years
commencing on August 24, 1998 and provided for an annual base salary of
$160,000 and a bonus equal to at least 10% of his base salary and any
additional bonus as may have been determined by the compensation committee.
Under the terms of Mr. Altman's employment agreement, he received an option to
purchase 62,500 shares of common stock at a $5.125 exercise price. Upon a
change of control, Mr. Altman was entitled to an acceleration of the remainder
of his employment agreement, up to a maximum of one year salary and the
automatic vesting of the stock option. Mr. Altman resigned from Continucare in
April 1999, at which time his employment agreement was terminated.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission, the
Compensation Committee of the Board of Directors of the Company is required to
provide a report explaining the rationale and considerations that led to
fundamental compensation decisions affecting the Company's executive officers
(including the Named Executive Officers) during the past fiscal year.
General. The Compensation Committee is comprised of non-employee
directors and is responsible for setting and administering policies that govern
annual compensation of the Company's executive officers, as well as the
Company's stock option plan. The Compensation Committee's general philosophy
with respect to the compensation of the Company's executive officers is to
offer competitive compensation programs designed to attract key executives to
the Company and to recognize an individual's contribution and personal
performance. Such compensation programs include a base salary and an annual
performance-based bonus as well as stock option plans designed to provide
long-term incentives. In addition, the Compensation Committee may recommend the
grant of discretionary bonuses to the Company's executive officers. The
Committee did not establish performance targets or adopt any bonus plan for
fiscal 1999.
In establishing the Company's executive compensation program, the
Compensation Committee takes into account current market data and compensation
trends for comparable companies, and gauges achievement of corporate and
individual objectives. Due to the Company's financial condition, Mr. Fernandez,
the Company's former President and Chief Executive Officer, voluntarily reduced
his salary. Performance bonuses and stock options grants to executive officers
in prior fiscal years were structured to reinforce the achievement of both
8
<PAGE> 11
short and long term corporate objectives in addition to fostering a long-term
perspective aligned with that of its shareholders; however, due to
Continucare's financial condition, performance bonuses were not granted in
fiscal 1999. The salaries for each of the Named Executive Officers is set forth
in such executive's employment agreement.
Dr. Phillip Frost, Chairman
Neil Flanzraich
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock against the cumulative total
return of the AMEX Market Value Index and the NASDAQ Health Services Index for
the period of September 11, 1996 (the date a wholly owned subsidiary of the
predecessor to the Company merged with and into Continucare (the "Merger") and
the Company listed its Common Stock on the American Stock Exchange) to June 30,
1999.
CUMULATIVE TOTAL RETURN
---------------------------
6/97 6/98 6/99
---- ---- ----
Continucare Corporation 100 66 55 7
Amex Market Value 100 114 134 150
NASDAQ Health Services 100 97 95 90
CERTAIN TRANSACTIONS
On May 4, 1999 the Company retained Harter Financial, Inc. ("Harter")
to negotiate a consensual restructuring (the "Restructuring") with the holders
of the Company's of the 8% Convertible Subordinated Notes of 2002. As
compensation for its services, Harter received an initial fee of $50,000. In
October 1999, the Company's Board of Directors approved a final compensation
package to be paid to Harter consisting of an additional cash payment of
$150,000 and 200,000 shares of the Company's common stock. Mr. Angel is a
director, president and a shareholder of Harter.
In April 1999 the Company sold substantially all of the assets of one
of its subsidiaries to Kessler Rehabilitation of Florida, Inc. ("Kessler") for
$5,500,000. Mr. Looloian, a director of the Company during fiscal 1999, was
also a director of Kessler at the time of the sale.
9
<PAGE> 12
In February 1997, the Company entered into an agreement with Bally
Total Fitness ("Bally"), relating to the establishment of outpatient
rehabilitation centers at Bally fitness centers. During the fiscal year ended
June 30, 1999, the Company earned $381,000 in management fees from Bally and,
as of June 30, 1999, $760,442 was included in accounts receivable for these
services. The Bally agreement was terminated in April 1999. Mr.
Looloian, a director of the Company during fiscal 1999 is an affiliate of
Bally.
On April 10, 1997, the Company, through Continucare Physician Practice
Management, Inc., a wholly owned subsidiary, acquired all of the outstanding
stock of certain arthritis rehabilitation centers and affiliated physician
practices, including practices (the "Practices') affiliated with Norman G.
Gaylis, M.D., a former executive officer of the Company. In connection with the
acquisition, the Company entered into a management agreement with ZAG Group,
Inc. ("ZAG"). Dr. Gaylis is an affiliate of ZAG. The management agreement,
among other things, provided for ZAG to perform certain services in exchange
for specified compensation. In addition, the Company entered into a put/call
agreement with ZAG, which allowed each of the parties to require the other
party, after a two-year period, to either sell or purchase all the issued and
outstanding capital stock of ZAG for a specified price to be paid in a
combination of cash and common stock of the Company. In August 1998, the
Company entered into an agreement with ZAG (the "ZAG Agreement") pursuant to
which, (i) the management agreement was terminated, and (ii) the Company paid
approximately $2 million to ZAG in connection with the cancellation of the
put/call agreement, of which $115,000 was paid in cash and the remaining
$1,885,000 was paid by issuing 575,000 shares (the "ZAG Shares") of the
Company's common stock with a fair market value of approximately $1.6 million.
The ZAG Agreement also included provisions that, in the event that the ZAG
Shares did not have an aggregate fair market value of $1,885,000 on October 15,
1999, the Company could be obligated to pay additional cash consideration or
issue additional shares of its common stock (the "Additional Consideration") so
that the aggregate value of the ZAG Shares would equal $1,885,000. Based on the
value of the Company's common stock on October 15, 1999, Additional
Consideration of approximately $1,562,000 in cash or approximately 2,777,000
shares of the Company's common stock could be required to be issued under the
ZAG Agreement. Also, effective March 1999, Continucare transferred
substantially all of the assets of the Practices to Dr. Gaylis (excluding cash
and accounts receivables) in exchange for Dr. Gaylis assuming certain
liabilities and a cash payment of $39,000 to Dr. Gaylis. The Company and its
counsel are currently reviewing these transactions, including its remaining
obligations under the ZAG Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
satisfied.
10
<PAGE> 13
PROPOSAL TO APPROVE THE RESTRUCTURING
OF OUR CONVERTIBLE SUBORDINATED NOTES
AND THE ISSUANCE OF SHARES IN CONNECTION
WITH THE RESTRUCTURING
(PROPOSAL NO. 2)
OUR OPERATING HISTORY
We developed and expanded our operations through acquisitions of
healthcare related companies. The expenses and operational challenges
associated with the integration of the acquired businesses and the difficulties
in assimilating the operations of the acquired businesses coupled with the
increased demand of management resources and personnel was detrimental to our
financial stability. The process of integrating functions such as management
information systems, claims administration and billing services, utilization
management of medical services, care coordination and case management, quality
and cost monitoring and physician recruitment, and other aspects of operations,
while managing and often downsizing the entity, presented a significant
challenge to our management.
The continued integration of our acquired businesses and our future
ability to control costs are important to our ongoing financial and operational
performance. The anticipated benefits from several acquisitions were not
achieved, and the operations of the acquired businesses were not successfully
integrated in a timely manner. The process of integrating the acquired
businesses caused the interruption and loss of momentum in the conduct of these
businesses and had a material adverse effect on our operations, financial
results and cash flows.
Throughout fiscal 1999 we experienced adverse business operations. To
strengthen Continucare financially, since the end of calendar 1998, we
undertook a business rationalization program to divest certain unprofitable
operations and close other underperforming subsidiary divisions and a financial
restructuring program to strengthen our financial performance. In connection
with the implementation of our business rationalization program, we sold or
closed our outpatient rehabilitation division, diagnostic imaging division and
specialty physician practices. These divestitures generated net cash proceeds
of approximately $6,700,000 (after the payment of transaction costs and other
costs such as employee-related costs). The business rationalization program has
assisted with the commencement and implementation of our financial
restructuring program and has allowed us to focus our resources on a core
business model.
Since December 31, 1998 we have not been in compliance with certain
covenants under the terms of our $5 million credit facility with First Union
National Bank. During April 1999, we used approximately $4.0 million of the net
proceeds of the sale of our rehabilitation subsidiary to reduce the outstanding
balance of the credit facility to $1.0 million. In connection with the payment,
we entered into an amendment to the credit facility, which provided, among
other things, for the repayment of the remaining outstanding principal balance
of approximately $1.0 million to First Union by December 31, 1999.
On April 30, 1999 we defaulted on our semi-annual payment of interest
on our notes. In an effort to avoid bankruptcy and effect a successful
completion of our business rationalization program and financial restructuring,
we negotiated a settlement with the noteholders to address the restructuring of
the notes.
ISSUANCE OF NOTES
We issued 8% convertible subordinated notes due 2002 in the principal
amount of $46,000,000 to qualified institutional buyers and to a limited number
of institutional accredited investors on October 27, 1997. The notes became
convertible into our common stock 60 days following the initial date of
issuance and remain convertible until maturity, unless previously redeemed, at
a conversion price of $7.25 per share, subject to certain adjustments. The
interest on the notes is payable on April 30 and October 31 of each year, and
the interest payments commenced on April 30, 1998. The notes are redeemable in
11
<PAGE> 14
whole or in part, at our option at any time on or after October 31, 2000. The
notes and the common stock issuable upon the conversion of the notes were
registered on a resale registration statement filed on December 24, 1997.
CURRENT STATUS OF NOTES
On April 30, 1999, we defaulted on our semi-annual payment of interest
on the notes. At that time negotiations with an informal committee of the
noteholders commenced. In August 1998 we repurchased $1.0 million of the notes
and in July 1999 we purchased $4.0 million of the notes for approximately
$200,000. We defaulted on our semi-annual payment of interest in October 1999.
In May 1999 we entered into an agreement with Harter Financial, Inc.
to assist us with our financial reorganization and to represent us in
negotiating the restructuring of the notes and a settlement with the
noteholders. Mr. Angel is the president and 15% shareholder of Harter. As
compensation for its services, Harter received an initial fee of $50,000. On
September 29, 1999 we announced an agreement in principle with the noteholders
to enter into a settlement and restructuring agreement with respect to the
remaining $41.0 million principal balance and approximately $3.3 million of
interest thereon accrued through October 31, 1999. The Board of Directors
approved in October 1999 a final compensation package to be paid to Harter
consisting of a cash payment of $150,000 and of 200,000 shares of the Company's
common stock.
RESTRUCTURING OVERVIEW
The proposed modification of the securities to eliminate at least 76%
of the notes from our debt structure. We believe this is necessary to best
ensure our long-term viability. We are asking our shareholders to approve the
restructuring of the notes and actions necessary to issue the common stock.
In anticipation of the execution of a restructuring agreement, on
September 29, 1999 we entered into a letter of intent and term sheet setting
forth the terms of the restructuring. The restructuring will eliminate $31
million of the remaining $41.0 million principal balance and approximately $3.3
million of interest thereon accrued through October 31, 1999. We are in the
process of finalizing the restructuring agreement with the noteholders and we
expect the noteholders to execute the final Waiver and First Supplemental
Indenture. The proposed Waiver and First Supplemental Indenture will not be
fully effective unless and until approved by the shareholders at the meeting
and executed by all of the parties thereto. Additionally, the proposed Waiver
and First Supplemental Indenture is conditioned upon Continucare obtaining a
new $3.0 million secured credit facility. The new credit facility will be
guaranteed by third party individual guarantors, and, as consideration for the
guaranty, the guarantors shall be issued an aggregate of 3.0 million shares of
our common stock. Such guarantors may be individuals affiliated with the
Company. It is anticipated that the guarantors shall guaranty our credit
facility after the noteholders have executed the Waiver and First Supplement to
Indenture and upon approval of the restructuring by the shareholders at the
annual meeting; however, there can be no assurance that such guaranty will be
executed.
The restructuring includes the following:
o conversion of $31 million of the notes, on a pro forma basis,
into 15.5 million (approximately 47% after giving effect for
the 3.0 million shares to be issued in connection with the
guaranty) of the issued and outstanding shares of our common
stock;
o forgiveness of interest payments through October 31, 1999
(approximately $3.3 million) and waiver of any event of
default resulting from our failure to make the two interest
payments in 1999;
o waiver of interest payment default on the remaining $10.0
million principal balance of notes and reinstatement on our
books and records as a performing non-default loan;
o a reduction of the coupon rate from 8% per annum to 7% per
annum effective as of November 1, 1999 on the remaining $10.0
million principal balance of the notes;
12
<PAGE> 15
o reduction of the conversion price from $7.25 to $2 on the $10
million of notes, effective November 1, 2000; and
o increasing the number of directors on our Board to five and
appointing two directors as designated by the noteholders.
DIRECTOR NOMINEES OF THE NOTEHOLDERS
At this time the noteholders have submitted Robert J. Cresci and
Patrick M. Healy as their director nominees.
Since 1990, Mr. Cresci has been a Managing Director of Pecks
Management Partners Ltd., an investment management firm and holder of
approximately $13.5 million of Continucare's notes. Mr. Cresci currently serves
on the boards of FIS International, Inc., Sepracor, Inc., Arcadia Financial,
Ltd., Aviva Petroleum Ltd., Film Roman, Inc., Quest Education Corporation,
Castle Dental Centers, Inc., Candlewood Hotel Co., Inc. SeraCare, Inc. and
several private companies.
Mr. Healy has served as President/Chief Administrative Officer and as
a member of the Board of Directors for Mayo Health Plan, Inc. since its
inception in June 1996. Previously, Mr. Healy was President/Chief Executive
Officer and member of the Board of Directors for Cleveland Clinic Florida
Health Plan from its inception in 1992 through 1996. Mr. Healy also served as
Regional Director of Operations/Southeast Region and Executive Director
Florida/Caribbean for The Travelers Insurance Company from 1990 through 1992.
STRUCTURE OF NOTES
Set forth below are the terms of the current notes and the modified
notes remaining after conversion of $31 million of the notes into 15,500,000
shares of our common stock.
<TABLE>
<CAPTION>
CURRENT STRUCTURE OF NOTES NOTES AFTER RESTRUCTURING
---------------------------------------------- ---------------------------
<S> <C> <C>
Securities Offered........... $41.0 million aggregate principal amount of 8% $10 million of notes
Convertible Subordinated Notes due 2002
Interest Payment Dates....... October 31 and April 30 Same, except April 30, 1999
and October 31, 1999
payments were waived.
Maturity..................... October 31, 2002. Same.
Conversion................... The notes are convertible into common stock at any time Same, except, effective
prior to maturity, unless previously redeemed, at a November 1, 2000, the
conversion price of $7.25 per share, subject to conversion price is reduced
adjustment under certain conditions. to $2.00.
Redemption at Option of
Company................... The notes are redeemable, in whole or in part, at our Same.
option at any time on or after October 31, 2000, at the
redemption prices (expressed as a percentage of the
principal amount) set forth below for the 12-month period
beginning October 31 of the years indicated:
2000 . . . . . . . 104.00%
2001 . . . . . . . 102.00%
and thereafter at 100% of principal amount,
together with accrued interest to the
redemption date.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
CURRENT STRUCTURE OF NOTES NOTES AFTER RESTRUCTURING
---------------------------------------------- ---------------------------
<S> <C> <C>
Repurchase at Option of
Holders................... If a Repurchase Event occurs, each noteholder will have Same.
the right, subject to certain conditions and
restrictions, to require us to repurchase all
outstanding Notes, in whole or in part, owned by such
noteholder at 101% of their principal amount
plus accrued interest, if any, to the date of repurchase.
If a Repurchase Event were to occur, there is no
assurance that we would have sufficient funds to pay
the repurchase price for all the Notes tendered by the
Holders thereof. The Company's ability to make such
payments may be limited by its leverage and the terms
of its then existing borrowing and other agreements.
Certain Covenants............ The Indenture contains certain covenants that, among Same.
other things, limit our ability to make restricted
payments and to enter into merger and similar
transactions. These covenants are subject to important
exceptions and qualifications.
Subordination................ The Notes are subordinated to all of our existing and Same.
future Senior Indebtedness and will be effectively
subordinated to all indebtedness and other
liabilities of our subsidiaries. The Indenture governing
the Notes does not prohibit us from incurring additional
Indebtedness, including Senior Indebtedness.
Registration Rights and
Transfer Registrations.... Pursuant to a registration rights agreement we filed a Same.
shelf registration statement to register the Notes and
the common stock issuable upon conversion
thereof. We agreed to use our best efforts to
maintain the effectiveness of the shelf
registration statement until the second
anniversary of the closing of the sale of the
notes or such shorter period ending when all
the notes and common stock issuable upon the
conversion thereof have been sold thereunder,
except that we are permitted to suspend the
use of the shelf registration statement during
certain periods under certain circumstances.
</TABLE>
CURRENT STATUS OF RESTRUCTURING
Continucare is finalizing negotiations with the noteholders on the
Waiver and the First Supplemental Indenture. Although, it is anticipated that
the noteholders will execute these agreements, Continucare cannot be certain
that the agreements will be executed. The effectiveness of these agreements are
conditioned upon the following:
o obtaining a loan from a financial institution for at lease $3
million, which requires a third party guaranty;
o appointing two members to the board of directors as nominated
by the noteholders; and
o obtaining approval by the shareholders by December 31, 1999.
14
<PAGE> 17
Continucare is currently negotiating with financial institutions and
third party guarantors regarding the $3 million line of credit; however, at
this time there are no formal arrangements in place, and Continucare cannot be
certain that the line of credit or the guaranty will be obtained.
ANTICIPATED RESULTS IF RESTRUCTURING IS NOT APPROVED
If we do not complete the restructuring:
o the principal and all accrued and unpaid interest on the notes
will most likely be declared payable in full;
o the $41.0 million principal amount of the notes will continue
to be classified as a current liability on our balance sheet;
o we may experience material adverse effects on our financial
position and operation;
o we may need to file a petition with the bankruptcy court to
reorganize under applicable provisions of the Bankruptcy Code;
o we may lose business if others begin to doubt our ability to
timely satisfy our obligations; and
o we will be unable to invest adequate capital in our business
or make appropriate capital expenditures.
A bankruptcy proceeding initiated in such circumstances, in our
opinion, would be lengthy and perhaps contested and, therefore, could be
expected to result in substantial disruption of business operations. We believe
that in such circumstances our stockholders would most likely suffer a total
loss of their investments, and our noteholders would likely recover no more,
and potentially could recover substantially less than the recovery available
through the restructuring.
VOTE REQUIRED AND RECOMMENDATION
If a quorum exists, the number of votes cast favoring the proposal
must exceed the number of votes cast opposing the proposal in order for the
restructuring of the notes and the issuance of the shares as set forth
hereinabove to be approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PROPOSAL TO RESTRUCTURE THE NOTES AND ISSUE THE SHARES IN CONNECTION WITH THE
RESTRUCTURING.
PROFORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
is based upon the historical financial position of the Company at June 30,
1999. The pro forma adjustments give effect to (a) the issuance of 15.5 million
shares of common stock as a result of the conversion of $31 million of the
notes, (b) forgiveness of $2.4 million of the accrued interest, (c) reduction
in the interest rate on the remaining notes to 7% and (d) the issuance of $3
million of common stock to the guarantor at a price per share of $0.625, which
was the trading price of the Company's common stock on June 30, 1999. The
adjustments also give effect to the repurchase of $4 million of the notes for a
cash payment of $210,000 which occurred on July 2, 1999.
15
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1999 ADJUSTMENTS PRO FORMA
------------- ----------- ---------
<S> <C> <C> <C>
Total assets................................. $114,696 (1)
$30,117,620 (437,136)(2) $ 29,795,180
=========== =============
Current liabilities.......................... (31,087,000)(1)
(12,100,000)(3)
64,252,629 (4,213,000)(2) 16,852,629
Long-term debt............................... 1,520,189 12,100,000 (3) 13,620,189
----------- -------------
Total liabilities............................ 65,772,818 30,472,818
Common stock................................. 1,455 1,850 (1) 3,305
Additional paid-in capital................... 32,910,465 11,560,650 (1) 44,471,115
Accumulated Deficit.......................... 19,638,864 (1)
(63,142,417) 3,776,196 (2) (39,727,357)
Treasury stock............................... (5,424,701) (5,424,701)
----------- -------------
Total shareholders' deficit.................. (35,655,198) (677,638)
----------- -------------
Total liabilities and shareholders' deficit.. $30,117,620 $ 29,795,180
=========== =============
</TABLE>
- --------------
(1) Adjustments resulting from the restructuring transaction
(2) Adjustments resulting from the repurchase of $4 million of the notes for
$210,000 on July 2, 1999
(3) Reclassification of the remaining outstanding notes from current to
long-term liabilities at their restated principal amount totaling the
Company's expected future cash payments for principal and interest through
the date of maturity.
Had these transactions occurred on July 1, 1998, the effect on the
Company's consolidated statement of operations for the year ended June 30, 1999
(excluding the effect of recording an extraordinary gain on extinguishment of
debt of approximately $19.6 million related to the restructuring transaction
and approximately $3.8 million as a result of the July 2, 1999 repurchase of $4
million of the notes), would have been to reduce net loss by approximately
$2.85 million to $47.66 million and reduce basic and fully-diluted net loss per
share from a loss of $3.50 per share to a loss of $3.30 per share.
The amounts included herein have not been adjusted for income taxes
because the Company believes it will be able to utilize certain of its net
operating loss carryforwards to offset any income tax liabilities related to
the transactions.
The pro forma condensed consolidated financial information presented
herein does not purport to represent what the Company's results of operations
or financial position would have been had such transactions in fact occurred at
the beginning of the period presented or to project the Company's results of
operation in any future period. The unaudited pro forma condensed consolidated
financial information should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
proxy.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Continucare's independent public accountants for the fiscal years
ended June 30, 1998 and 1999 were and for the fiscal year 2000 will be the firm
16
<PAGE> 19
of Ernst & Young LLP. It is expected that representatives of such firm will (i)
attend the annual meeting, (ii) have an opportunity to make a statement if they
desire to do so, and (iii) be available to respond to appropriate questions.
The accounting firm of Deloitte & Touche LLP represented us as our
independent accountants during fiscal year 1997 and was dismissed by
Continucare's Board of Directors on May 6, 1998. During Continucare's two most
recent fiscal years and subsequent interim periods, for which Deloitte & Touche
was our independent auditors, there were no disagreements between Continucare
and Deloitte & Touche on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte & Touche, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports. Deloitte & Touche's reports on the financial
statements of Continucare for the two most recent fiscal years, for which
Deloitte & Touche was Continucare's independent auditors, did not contain an
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows
of no other business to be presented at Continucare's 1999 annual meeting of
shareholders. If any other business should properly come before Continucare's
1999 annual meeting of shareholders, the persons named in the accompanying
proxy will vote thereon as in their discretion they may deem appropriate,
unless they are directed by a proxy to do otherwise.
SHAREHOLDER PROPOSALS
Shareholders interested in presenting a proposal for consideration at
our 2000 annual meeting of shareholders may do so by following the procedures
prescribed in Rule 14a-8 promulgated by the Securities and Exchange Act of
1934. To be eligible for inclusion in our proxy statement and form of proxy
relating to the meeting, shareholder proposals must be received by our
Corporate Secretary no later than August 1, 2000. Any shareholder proposal
submitted other than for inclusion in our proxy materials for that meeting must
be delivered to us no later than October 15, 2000, or such proposal will be
considered untimely. If a shareholder proposal is received after October 15,
2000, we may vote in our discretion as to the proposal all of the shares for
which we have received proxies for the 2000 annual meeting of shareholders.
By Order of the Board of Directors,
Spencer J. Angel
President, Chief Executive Officer
and Chief Operating Officer
Miami, Florida
November 29, 1999
17
<PAGE> 20
CONTINUCARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF
OF THE COMPANY'S BOARD OF DIRECTORS
COMMON STOCK
The undersigned, a holder of common stock of Continucare Corporation, a Florida
corporation, hereby appoints Spencer J. Angel and Raquel Libman, and each of
them, acting alone, as proxies for the undersigned, each with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all of the shares of stock of the Company held
of record by the undersigned at the close of business on November 1, 1999 at
the Annual Meeting of Shareholders of the Company, to be held on Tuesday,
December 21, 1999, at 10:00 a.m., local time, at ____________________________
and at any adjournment(s) or postponement(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND THE
OTHER PROPOSALS SET FORTH.
(1) ELECTION OF DIRECTORS CHARLES M. FERNANDEZ, DR. PHILLIP FROST AND SPENCER
J. ANGEL, as directors.
[ ] VOTE FOR all nominees listed above, except as marked to
the contrary below.
[ ] VOTE WITHHELD from all nominees listed above.
[ ] VOTE FOR all nominees listed above, except vote withheld
from the following nominees (if any): _________________.
(2) PROPOSAL to Approve the Restructuring of the Company's Convertible
Subordinated Notes and the issuance of common stock in connection with the
Restructuring.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Upon such other matters as may properly come before the Annual Meeting and
any adjournments thereof. In their discretion, the proxies are authorized
to vote upon such other business as may properly come before the Annual
Meeting, and any adjournments or postponements thereof.
(see reverse side)
<PAGE> 21
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED `FOR' ALL OF THE PROPOSALS.
The undersigned hereby acknowledges receipt of (1) the Notice of Annual Meeting
for the 1999 Annual Meeting, (2) the Proxy Statement and (3) the Company's 1999
Annual Report to Shareholders.
Dated _________________________ , 1999
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(Signature)
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(Signature if held jointly)
IMPORTANT: Please sign exactly as your name appears and mail it promptly even
though you now plan to attend the meeting. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENVELOPE
PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
