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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended June 30, 1996
Commission file number 0-19031
National Quality Care, Inc.
(EXACT NAME OF REGISTRANT)
Sargent, Inc.
(Former name of Registrant since last report)
Delaware 84-1215959
(State of Incorporation) (IRS Employer ID No.)
5901 W. Olympic Boulevard, Suite 109
Los Angeles, California 90036
(Address of Principal Executive Offices) (Zip Code)
(213) 930-6008
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
The number of shares of common stock outstanding
as of August 15, 1996 is 7,395,471
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National Quality Care, Inc.
Table of Contents
Part I. Financial Information PAGE
Item 1. Financial Statements
Balance Sheets as of June
30, 1996 and December 31, 1995 3
Statements of Operations for
the three months ended June
30, 1996 and 1995 5
Statements of Operations for
the six months ended June
30, 1996 and 1995 6
Statements of Cash Flows for
the six months ended June
30, 1996 and 1995 7
Notes to Financial Statements 8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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National Quality Care, Inc.
BALANCE SHEETS
(unaudited)
June 30, December 31,
1996 1995
------- ------------
(Predecessor)
ASSETS
Current Assets
Cash $ 107,925 $
Certificate of Deposit 20,000
Receivables 405,113 333,325
Inventories (Note 2) 122,344 21,771
Due from Affiliate (Note 5) 47,854
Prepaid Expenses 61,869
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Total Current Assets $ 765,105 $ 335,096
Prop, Furn, & Equip (net) (Note 3) $2,267,118 $ 96,252
Deferred Charges 10,667
Assets held for Sale (Note 4) 1,745,371
Other Assets 21,344 461
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TOTAL ASSETS $ 4,798,938 $ 462,476
See accompanying notes to financial statements
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National Quality Care, Inc.
BALANCE SHEETS
(unaudited)
June 30, December 31,
1996 1995
------- ------------
(Predecessor)
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable - trade $ 733,161 $ 401,146
Accrued expenses payable (Note 6) 60,819 564,012
Accrued Settlement (Note 6) 110,000
Current portion of long-term
debt 828,691 600,821
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Total Current Liabilities $1,732,671 $1,565,979
Long-term debt, less
current portion 1,894,859 3,645
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TOTAL LIABILITIES $3,627,530 $ 1,569,624
Net Liabilities of division (1,107,148)
STOCKHOLDERS' EQUITY 1,171,408
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,798,938 $4,624,476
See accompanying notes to financial statements
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National Quality Care, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
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(A) (Predecessor)
Revenue $1,549,957 $1,217,446
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Cost and expenses
Compensation and related expenses 395,369 357,309
Medical supplies 331,134 239,615
Outside services 151,734 91,657
Rent expense 40,570 51,588
Insurance 14,201 18,388
General and administrative 226,986 32,089
Depreciation and amortization 38,803 34,010
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1,198,797 824,656
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Income (loss) from operations 351,160 392,790
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Other Income (expense)
Interest Income 333
Interest Expense (4,728) (29,041)
Merger Costs (275,000)
Net Rental Income 5,427
Other Expense (14,632)
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Total Other Income (Expense) (288,600) (29,041)
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Income (loss) Before Income Tax 62,560 363,749
Provision for Federal Income Tax (4,056)
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Net Income (loss) 58,504 363,749
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Net Income (loss) per Share $ .02 $ .36
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Weighted Average Number of
Shares Outstanding 2,534,912 1,000,000
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Proforma effect net income (loss) 384,921
Net Income (loss) Historical 363,749
Proforma effect of Income tax (153,968) (145,500)
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Proforma Income (loss) 230,953 218,249
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Net Income (loss) per Share $.23 $ .22
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(A) Predecessor 1/1/96 - 5/10/96
Combined with Company 5/11/96 - 6/30/96
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National Quality Care, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
FOR THE THREE MONTHS ENDED JUNE 30,
1996 1995
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(A) (Predecessor)
Revenue $ 758,864 $ 618,578
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Cost and expenses
Compensation and related expenses 222,761 186,232
Medical supplies 195,093 108,687
Outside services 49,302 38,585
Rent expense 20,285 23,537
Insurance 7,339 9,194
General and administrative 141,998 11,850
Depreciation and amortization 21,699 17,055
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658,477 395,140
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Income (loss) from operations 100,387 223,438
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Other Income (expense)
Interest Income 333
Interest Expense (4,590) (14,521)
Merger Costs
Net Rental Income 5,427
Other Expense (14,632)
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Total Other Income (Expense) (13,462) (14,521)
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Income (loss) Before Income Tax 86,925 208,917
Provision for Federal Income Tax (4,056)
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Net Income (loss) 82,869 208,917
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Net Income (loss) per Share $ .02 $ .21
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Weighted Average Number of
Shares Outstanding 4,052,956 1,000,000
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Proforma effect net income 76,784
Net Income (loss) Historical 208,917
Proforma effect of Income tax (30,714) ( 83,567)
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Proforma Income (loss) 46,070 125,350
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Net Income (loss) per Share $ .05 $ .13
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(A) Predecessor 1/1/96 - 5/10/96
Combined with Company 5/11/96 - 6/30/96
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National Quality Care, Inc.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Cash flows from operating activities:
Net income $ 58,504
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 27,353
Amortization 11,450
Increase in:
Accounts receivable (71,788)
Inventory (9,640)
Prepaid expenses (41,150)
Other assets (10,798)
Increase in:
Accounts payable 65,442
Accrued expenses and other liabilities (33,133)
Decrease in:
Deposits 10,000
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Net cash provided by operating activities 6,240
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Acquisition of Sargent, Inc. 50,266
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Cash flows used in investing activities:
Purchase of furniture and equipment ($2,198,220)
------------
Cash flows from financing activities:
Notes payable acquired 2,396,504
Repayment of notes payable (130,277)
Due from affiliates (47,854)
Warranties issued 31,266
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Net cash used in financing activities 2,249,639
Net increase in cash 107,925
Cash, beginning of year -0-
Cash, end of year $ 107,925
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National Quality Care, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB. Therefore, they do not include
all information and footnotes necessary for a fair presentation of financial
position and results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of Management, all adjustments
considered necessary for a fair presentation have been included in the interim
period. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
NOTE 2. INVENTORIES
Inventories consist primarily of processing and warehouse supplies used in
processing potatoes and are stated at the lower of cost or market on a first-in,
first-out basis. In addition, inventories represents medical supplies and
medication.
NOTE 3. PROPERTY, FURNITURE AND EQUIPMENT
Property, Furniture and Equipment consist of the following at June 30,
1996:
Medical equipment $ 212,622
Buildings and Improvements 2,194,607
Office and Equipment 49,713
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2,456,942
Less Accumulated Depreciation (189,824)
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2,267,118
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On September 16, 1995, the Company entered a into a Lease Agreement with
Sargent Potato Company, which is composed of two of the principals of former
management of Sargent, Inc. (Richard L. Messick and Richard A. Messick) ("SPC")
to lease the packaging facility wherein the Company leased to SPC the warehouse
for a monthly rental of $15,172 for one year beginning September 16, 1995, with
an option to renew or purchase the packaging facility. The Company made
necessary repairs to the roof as required by the Agreement. SPC rented the
property in an "as is" condition. The Company also agreed to maintain deposits
with SLVREC and the Colorado Department of Agriculture for the term of the
lease. Upon expiration of the lease, these deposits shall be remitted to
Company. The Lease Agreement also provides SPC the right of first
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refusal to acquire the warehouse at the expiration of the Lease Agreement. SPC
is responsible for all property damage and fire insurance on the warehouse.
Currently, SPC is in arrears for approximately two lease payments. The lease has
expired and is now month-to-month.
NOTE 4. ASSETS FOR RESALE
The Messicks have agreed to purchase a Ford Pickup truck, Ford Bronco and a
Bobcat from the Company for an aggregate purchase price of $14,900. The Company
is holding for sale the property, plant and equipment reported as of April 30,
1996 for $1,730,470.
NOTE 5. DUE FROM AFFILIATE
In connection with the closing, expenses were paid on behalf of Medipace
Medical Group, Inc. which is controlled by the three largest shareholders of the
Company. There is in place a demand note at 8%.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company was a co-defendant, along with American Securities Transfer,
Incorporated ("AST"), the Company's transfer agent, in a law suit filed by
Carolyn K. Combs and Medica Financial Corp. ("Combs and Medica"), Case No. 93 CV
23 in the District Court, County of Rio Grande, State of Colorado (Carolyn K.
Combs and Medica Financial Corp. vs. Sargent, Inc. and American Securities
Transfer Incorporated). Judgement was rendered against the Company, Richard A.
Messick, Richard L. Messick, Douglas G. Messick and AST for damages of
$128,515.63 plus interest accrued at the legal rate from March 26, 1993 and
exemplary damages in the amount of $64,100.
In September of 1995, Combs and Medica instituted another civil action [No.
95-CV-36] in the court, seeking to collect upon their Judgment under theories of
breach of contract and unjust enrichment. The parties settled these two matters
by agreeing to dismiss with prejudice civil action No. 95-CV-36 upon written
assurance and admission by Sargent to Combs and Medica that the second civil
action is unnecessary for them to execute upon their Judgment. A payment
schedule called for the Company to make payment on November 15, 1995 of
$11,437.62, which was paid in full. The amount due and owing to Medica in the
amount of $24,589 is being paid in monthly installments of $6,249.97 over a
remaining period of three months beginning on December 15, 1995 and ending on
September 15, 1996. Within ten days after the final payment, Medica has agreed
to file with the Court in 95-CV-36 a Satisfaction of Judgment.
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Seaboard Surety Company ("Seaboard"), the bonding company for AST, made
payment to Combs and Medica in the approximate amount of $140,086.06. The
Company previously carried a liability on its books in the amount of $197,569
evidencing its perceived obligation to Seaboard. In November of 1995, the
Company discovered that Seaboard failed to file a claim in the bankruptcy court
before the bar date and, therefore, believed that Seaboard would be effectively
barred from collecting on their claim and the Company thus eliminated this
contingency from its financial statements and reflected a zero balance on its
January 31, 1996 Form 10-QSB filing with the Commission. However, since January
31, 1996, the Company has conducted extensive investigation and found that
Seaboard would be able to litigate its claim and perhaps collect the full
amount. To eliminate this possibility, the Company negotiated a settlement of
this claim with Seaboard and agreed to pay Seaboard the sum of $110,000 by
September 3, 1996. If for any reason the Company is unable to pay this amount to
Seaboard by September 3, 1996, the Company is liable to Seaboard for $207,474.
This contingency has been reserved for at April 30, 1996.
In November of 1995, M&I/Reicam agreed to extend its lease agreement with
the Company with respect to a potato harvester. The Company paid the amount
in arrears of $57,000 plus a refinance charge of $20,000. Additional payments
of $57,000 are due on December 15, 1996, March 15, 1997, December 15, 1997,
and March 15, 1998.
On May 11, 1996, the Company entered into a joint venture with a related
party in which the Company contributed the lease and any proceeds of
subleasing the potato harvester. The Company has a further contingent
obligation to contribute up to $228,000 to the joint venture, subject to the
amount of proceeds received from the sublease and from any sale of the potato
warehouse. The related party pledged 50,000 options as security for this
transaction and issued a promissory note to the Company in the amount of
$225,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and accompanying notes included elsewhere in this report.
The Company's primary source of revenue is outpatient kidney dialysis
services through a dialysis center and inpatient services contracted with local
hospitals through a visiting nurse program. These services were in operation for
the entire period reported.
RESULTS OF OPERATIONS.
Revenues in the second quarter of 1996 increased to $758,864 from $618,578
in the second quarter of 1995. For the first half of 1996 revenues increased
approximately 27% to $1,549,957 from $1,217,446 for the same period of 1995.
This increase is primarily
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the result of higher inpatient and home care.
Medical supplies in the second quarter of 1996 were $195,093 compared with
$108,687 in the second quarter of 1995. For the first half of 1996 medical
supplies increased approximately 38% to $331,134 from $239,615 for the same
period of 1995. The increase is due to rising usage of medical supplies
prescribed by physicians and a direct effect of higher revenues.
Outside services in the second quarter of 1996 were $49,302 compared with
$38,585 in the second quarter of 1995. For the first half of 1996 outside
services increased approximately 65% to $151,734 from $91,657 for the same
period of 1995. The primary increase is directly attributed to the rise of
inpatient services.
General and administrative in the second quarter of 1996 were $141,998
compared with $11,850 in the second quarter of 1995. For the first half of 1996
General and administrative services were $226,986 compared with $32,089 in the
first half of 1995. The increase is directly related to requisite professional
fees after the stock exchange of May 11, 1996.
Interest expense in the second quarter of 1996 was $4,590 compared with
$14,521 in the second quarter of 1996. For the first half of 1996 Interest
expense was $4,728 compared with $29,041 in the first half of 1995. The decrease
is a result of extinguishment of debt as the result of the stock exchange of May
11, 1996.
Merger costs in the first quarter of 1996 of $275,000 represent
professional fees related to the stock exchange of May 11, 1996.
As a result of the foregoing, the second quarter reflects income of $82,869
as compared to net income of $208,917 in the second quarter of 1995. For the
first half of 1996 net income was $58,504 as compared to net income of $363,749
in 1995.
The proforma and historical representation of net income reflects activity
of Los Angeles Community Dialysis (predecessor) before the stock exchange of May
11, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the ratio of current assets to current liabilities was
.44 to 1.00 compared to .21 to 1.00 at December 31, 1995. The inventory consists
of bags and packaging supplies which will be purchased by SPC as they are used
and medical supplies and medications.
FUTURE OPERATIONS. The Company plans to acquire additional dialysis centers
through purchase and joint venture with physician groups. The Company currently
experiences profitable operations and
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positive cash flow. However, the Company does not currently generate sufficient
cash flow to finance any such expansion plans. The Company will require
financing from external sources. The Company does not have any commitment for
such financing and there can be no assurances that the Company will be able to
obtain any such financing on terms favorable to the Company or at all.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of May 12, 1996 the Company's stockholders adopted the following
resolution by the written consent of in excess of 50% of the issued and
outstanding shares of Common Stock set forth below:
(1) To adopt the Company's 1996 Stock Option Plan and to reserve up to
1,000,000 shares of the Company's Common Stock for issuance under the
1996 Stock Option Plan. (4,234,128 shares in favor, and 2,111,343 not
voting or abstained). See "Item 5 - Other Information - Stock Option
Plan."
ITEM 5. OTHER INFORMATION
SHARE EXCHANGE AGREEMENT. On May 11, 1996, the Company, Los Angeles
Community Dialysis, Inc. ("LACD"), Victor Gura, M.D. ("Gura"), Avraham H. Uncyk,
M.D. ("Uncyk") and Ronald P. Lang, M.D. ("Lang") completed the transactions
contemplated by an Agreement for Exchange of Stock (the "Share Exchange
Agreement"). In connection with the Share Exchange Agreement, the Company issued
an aggregate of 4,234,128 shares (the "Exchanged Sargent Shares") of the common
stock, par value $0.01 per share (the "Common Stock") of the Company to Gura,
Uncyk and Lang in exchange for 100% of the common stock of LACD as follows: (i)
Gura (2,183,036 shares), (ii) Lang (727,679 shares), (iii) Uncyk (323,413
shares), and (iv) Medipace Medical Group, Inc. ("Medipace"), a California
corporation owned by Gura, Lang and Uncyk (1,000,000 shares). The 1,000,000
shares issued to Medipace were originally issued to Gura, Lang and Uncyk in the
proportionate ownership interests in Medipace (67.5%, 22.5% and 10%,
respectively), and subsequently transferred to Medipace.
LACD is a high-quality provider of hemodialysis services for patients
suffering from chronic kidney failure, also known as end stage renal disease
("ESRD").
ACQUISITION OF REAL PROPERTY. As of May 17, 1996, the Company acquired
that certain real property (the "Real Property") located at 6000 San Vicente
Boulevard, Los Angeles, California, for a purchase price of $2,194,607, as
adjusted for certain credits to the Company with respect to the purchase price.
The Real Property includes the improvement of a hospital facility. The Real
Property is subject to three (3) deeds of trust in the aggregate amount of
$1,850,000.
The loans on the Real Property are personally guaranteed by Ehud Barkai,
who is not an affiliate of the Company, and by Drs. Gura and Lang. The Company
has entered into an agreement (the "Agreement to Perform Loan Covenants") with
Mr. Barkai to perform the covenants, conditions and restrictions required of the
Company under the loan agreements with respect to the acquisition of the Real
Property. The Company has granted to Mr. Barkai's affiliated corporation, Aegis
Medical Systems, Inc. ("Aegis"), an all inclusive deed of trust ("AIDT"), with
an assignment of rents, issues and profits and a power of sale to secure the
Company's
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agreement to repay the loans on the Real Property which are guaranteed by Mr.
Barkai.
The Company also has executed a promissory note in the amount of $200,000
payable to Aegis, which is due and payable on August 15, 1996, as a fee in
connection with the purchase of the Real Property. The promissory note bears
interest at the rate of 1% PER ANNUM until August 15, 1996, anbd if not paid in
full by such date, bears interest at the rate of 10% PER ANNUM thereafter until
paid in full. The promissory note is secured by an AITD in favor of Aegis with
an assignment of rents, issues and profits and a power of sale.
The Company also has entered into a master lease agreement (the "Master
Lease") with Aegis for the Real Property at an annual rental rate of $1,000. The
Master Lease is subject to a written triple net lease dated January 16, 1980,
with Avalon Memorial Hospital ("Avalon") as the current tenant in possession.
The term of the lease with Avalon extends through December 31, 1999, with
options to extend the lease by Avalon for two (2) additional five (5) year
terms. The term of the Master Lease extends through May 31, 2026. However, the
Master Lease may be terminated earlier upon the cancellation, exoneration or
release of any guarantees by Aegis or Mr. Barkai with respect to loan
obligations secured by the Real Property. In connection with the Agreement to
Perform Loan Covenants, Barkai has agreed that if the net rents arising from the
Real Property are paid to Aegis in an amount or amounts sufficient to pay all
amounts due under such loans as they became due, the Company will be excused
from its duty to Barkai of payment under such loans, but only to that extent.
Currently, the aggregate monthly amount due under such loans is approximately
$20,290 and the current monthly rental payment of Avalon is approximately
$22,690.
APPOINTMENT OF CHIEF FINANCIAL OFFICER. On July 8, 1996, the Company
appointed Ron Berkowitz as the Company's Chief Financial Officer.
Mr. Berkowitz, 44, previously served as Vice President in the lending
division of Bank Leumi Le-Israel and Bank Leumi Trust Company from 1990 until
July, 1996 and was the head of the Asset Liability Management Section from 1988
to 1990, where he developed investment strategies for Bank Leumi. Mr. Berkowitz
served on Bank Leumi's Credit Committee and Asset Liability Committee. From
1985 to 1987, he worked for another financial institution as a senior analyst
where he was responsible for asset liability management analysis. Mr. Berkowitz
is a Chartered Financial Analyst. Mr. Berkowitz received his undergraduate
degree in economics from Hebrew University (Israel) in 1976 and a Master's of
Business Administration (finance/management) from Indiana University in 1978.
Mr. Berkowitz also entered into a five (5) year employment agreement with
the Company, effective July 8, 1996, pursuant to which the Company has agreed to
pay Mr. Berkowitz an annual base salary of $90,000, plus other benefits. The
Company also granted options to Mr. Berkowitz to purchase up to 50,000 shares of
Common Stock, subject to certain vesting schedules.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE. As of August 15, 1996, the Company determined to engage Singer
Lewak Greenbaum & Goldstein LLP, as the Company's independent certified
accountants to replace Ehrhardt Keefe Steiner & Hottman PC, whose report with
respect to the Company's financial statements for the fiscal year ended July 31,
1995, has been included in the Company's Form 10-KSB for the fiscal year ended
July 31, 1995. By letter dated August 15, 1996, the
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Company dismissed Ehrhardt Keefe Steiner & Hottman PC as independent certified
accountants for the Company.
The Company has been advised that the Company's former independent
auditors, O'Neal & White P.C., whose report with respect to the Company's
financial statements for the fiscal year ended July 31, 1994, has been included
in the Company's Form 10-KSB for the fiscal year ended July 31, 1995, dissolved
their operations in 1995.
The former independent accountants' annual reports covering the two (2)
fiscal years ended July 31, 1995 and 1994 have not included an adverse opinion
or disclaimer of opinion, and have not been modified as to uncertainty, audit
scope or accounting principles. In connection with the audits of the two (2)
most recent fiscal years and during any subsequent interim periods preceding
such dismissals, there has not developed any disagreement between such former
independent accounts and management of the Company or other reportable events
which have not been resolved to the former independent accountants' satisfaction
who had been the Company's independent certified accountants.
CHANGE IN FISCAL YEAR. As of August 15, 1996, in connection with the
closing of the transactions contemplated by the Share Exchange Agreement, the
Company has determined to adopt the fiscal year of LACD as the Company's fiscal
year, and to change the Company's fiscal year end from July 31 to December 31.
STOCK OPTION PLAN. As of May 12, 1996, the Company's Board of Directors
and stockholders approved the Company's 1996 Stock Option Plan (the "1996 Stock
Option Plan").
The Company has reserved for issuance thereunder an aggregate of 1,000,000
shares of Common Stock. The Company has granted options to purchase up to
924,739 shares of Common Stock under the 1996 Stock Option Plan. Of the 924,379
options granted as of the date of this Report, 887,239 options have vested, and
the remaining 37,500 options may vest subject to certain schedules. The Board
of Directors has approved a provision in the 1996 Stock Option Plan which will
place a 300,000 share limit on the number of options that may be granted under
the 1996 Stock Option Plan to an employee in each fiscal year.
A description of each of the 1996 Stock Option Plan is set forth below.
The description is intended to be a summary of the material provisions of the
1996 Stock Option Plan and does not purport to be complete.
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ADMINISTRATION OF AND ELIGIBILITY UNDER 1996 STOCK OPTION PLAN
The 1996 Stock Option Plan, as adopted, provides for the issuance of
options to purchase shares of Common Stock to officers, directors, employees,
independent contractors and consultants of the Company and its subsidiaries as
an incentive to remain in the employ of or to provide services to the Company
and its subsidiaries. The 1996 Stock Option Plan authorizes the issuance of
incentive stock options ("ISOs"), non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee") to
be established by the Board of Directors to administer the 1996 Stock Option
Plan.
Subject to the terms and conditions of the 1996 Stock Option Plan, the
Committee will have the sole authority to determine: (a)the persons
("optionees") to whom options to purchase shares of Common Stock and SARs will
be granted, (b) the number of options and SARs to be granted to each such
optionee, (c) the price to be paid for each share of Common Stock upon the
exercise of each option, (d) the period within which each option and SAR will be
exercised and any extensions thereof, and (e) the terms and conditions of each
such stock option agreement and SAR agreement which may be entered into between
the Company and any such optionee.
All officers, directors and employees of the Company and its subsidiaries
and certain consultants and other persons providing significant services to the
Company and its subsidiaries will be eligible to receive grants of options and
SARs under the 1996 Stock Option Plan. However, only employees of the Company
and its subsidiaries are eligible to be granted ISOs.
STOCK OPTION AGREEMENTS
All options granted under the 1996 Stock Option Plan will be evidenced by
an option agreement or SAR agreement between the Company and the optionee
receiving such option or SAR. Provisions of such agreements entered into under
the 1996 Stock Option Plan need not be identical and may include any term or
condition which is not inconsistent with the 1996 Stock Option Plan and which
the Committee deems appropriate for inclusion.
INCENTIVE STOCK OPTIONS
Except for ISOs granted to stockholders possessing more than ten percent
(10%) of the total combined voting power of all classes of the securities of the
Company or its subsidiaries to whom such ownership is attributed on the date of
grant ("Ten Percent Stockholders"), the exercise price of each ISO must be at
least 100% of the fair market value of the Company's Common Stock as determined
on the date of grant. ISOs granted to Ten Percent
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Stockholders must be at an exercise price of not less than 110% of such fair
market value.
Each ISO must be exercised, if at all, within ten (10) years from the date
of grant, but, within five (5) years of the date of grant in the case of ISO's
granted to Ten Percent Stockholders.
An optionee of an ISO may not exercise an ISO granted under the 1996 Stock
Option Plan so long as such person holds a previously granted and unexercised
ISO.
The aggregate fair market value (determined as of time of the grant of the
ISO) of the Common Stock with respect to which the ISOs are exercisable for the
first time by the optionee during any calendar year shall not exceed $100,000.
As of the date of this Report, ISOs have been granted under the 1996 Stock
Option Plan to purchase up to 25,000 shares of Common Stock, subject to certain
vesting schedules. These options have the following per share exercise prices:
25,000 shares ($1.75) per share.
NON-QUALIFIED STOCK OPTIONS
The exercise price of each NSO will be determined by the Committee on the
date of grant. However, the exercise price for the NSOs under the 1996 Stock
Option Plan will in no event be less than 85% of the fair market value of the
Common Stock on the date the option is granted, or not less than 110% of the
fair market value of the Common Stock on the date such option is granted in the
case of an option granted to a Ten Percent Stockholder.
The exercise period for each NSO will be determined by the Committee at the
time such option is granted, but in no event will such exercise period exceed
ten (10) years from the date of grant.
As of the date of this Report, NSOs have been granted under the 1996 Stock
Option Plan to purchase up to 899,739 shares of Common Stock, subject to certain
vesting schedules. These options have the following per share exercise prices:
874,739 shares ($1.00) and 25,000 shares ($1.50).
STOCK APPRECIATION RIGHTS
Each SAR granted under the 1996 Stock Option Plan will entitle the holder
thereof, upon the exercise of the SAR, to receive from the Company, in exchange
therefor, an amount equal in value to the excess of the fair market value of the
Common Stock on the date of exercise of one share of Common Stock over its fair
market value on the date of exercise of one share of Common Stock over its fair
market value on the date of grant (or in the case of an SAR granted in
connection with an option, the excess of the fair market of one
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share of Common Stock at the time of exercise over the option exercise price per
share under the option to which the SAR relates), multiplied by the number of
shares of Common Stock covered by the SAR or the option, or portion thereof,
that is surrendered.
SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
1996 Stock Option Plan at any time and may impose any conditions upon the
exercise of an SAR or adopt rules and regulations from time to time affecting
the rights of holders of SARs.
As of the date of this Report, no SARs have been granted under the 1996
Stock Option Plan.
TERMINATION OF OPTION AND TRANSFERABILITY
In general, any unexpired options and SARs granted under the 1996 Stock
Option Plan will terminate: (a) in the event of death or disability, pursuant to
the terms of the option agreement or SAR agreement, but not less than six (6)
months or more than twelve (12) months after the applicable date of such event,
(b) in the event of retirement, pursuant to the terms of the option agreement or
SAR agreement, but no less that thirty (30) days or more than three (3) months
after such retirement date, or (c) in the event of termination of such person
other than for death, disability or retirement, until thirty (30) days after the
date of such termination. However, the Committee may in its sole discretion
accelerate the exercisability of any or all options or SARs upon termination of
employment or cessation of services.
The options and SARs granted under the 1996 Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution.
ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION
The number of shares of Common Stock reserved under the 1996 Stock Option
Plan and the number and price of shares of Common Stock covered by each
outstanding option or SAR under the 1996 Stock Option Plan will be
proportionately adjusted by the Committee for any increase or decrease in the
number of issued and outstanding shares of Common Stock resulting from any stock
dividends, split-ups, consolidations, recapitalizations, reorganizations or like
event.
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AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLAN
The Board of Directors has the right to amend, suspend or terminate the
Stock Option Plans at any time. Unless sooner terminated by the Board of
Directors, the 1996 Stock Option Plan will terminate on May 11, 2006, the tenth
(10th) anniversary date of the effectiveness of 1996 Stock Option Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS OF FORM 8-K.
The Company filed a Report on Form 8-K dated May 24, 1996 during the
Quarterly Period ended June 30, 1996.
(b) EXHIBITS.
10.1 Employment Agreement with Ron Berkowitz.
10.2 1996 Stock Option Plan
16.1 Letter from Ehrhardt, Keefe, Steiner & Hottman, P.C.
dated August 19, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized on the dates
indicated.
Dated August 19, 1996 NATIONAL QUALITY CARE, INC.
By: /s/Victor Gura, M.D.
-------------------------------
Victor Gura, M.D., President
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into and made effective as of June 19, 1996
by and between National Quality Care, Inc., ("Employer") a Delaware corporation,
and Ron Berkowitz ("Employee").
R E C I T A L S
WHEREAS, Employer is desirous of hiring Employee as one of its key
employees; and
WHEREAS, Employee is willing to accept employment as an employee of
Employer; and
WHEREAS, the parties hereto desire to delineate the responsibilities
of Employee and the expectations of Employer;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and obligations herein contained, the parties hereto agree as
follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, upon the terms and conditions set forth in
this Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the
terms of this Agreement shall commence on July 8, 1996 and shall continue for a
period of five (5) years, unless sooner terminated pursuant to the provisions
hereof.
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the Board
of Directors of Employer, Employee shall serve as the Chief Financial Officer of
Employer and shall fulfill all duties and obligations of such office. Employer
shall report directly to the Chief Executive Officer with respect to the
performance of his duties under this Agreement.
3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing,
Employee shall perform such other or different duties related to those set forth
in Paragraph 3.1 as may be assigned to him from time to time by Employer;
PROVIDED, HOWEVER, that any such additional assignment shall be at a level of
responsibility commensurate with that set forth in Paragraph 3.1 and PROVIDED,
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FURTHER, that Employee may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or entities
that in the judgment of Employer will not present any conflict of interest with
Employer or any of its operations or adversely affect the performance of
Employee's duties pursuant to this Agreement.
3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time
to the business of Employer during the term of this Agreement to fulfill his
obligations hereunder.
3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall
be performed at Employer's place of business and at such other locations as
shall be designated from time to time by Employer. However, in the event that
the services to be provided by Employee require such services to be provided on
a continuous basis for more than six (6) months, more than fifty (50) miles from
the current headquarters of the Company, Employee may elect to be treated as if
he had been terminated pursuant to Paragraph 5.1 hereof.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer
shall pay and Employee shall accept the following:
(1) For each year of this Agreement, measured from the effective date
hereof, base compensation of ninety thousand dollars ($90,000), with such
upward adjustments as may be approved from time to time by the Board of
Directors of Employer. Such adjustments may be based on the performance of
Employer, the value of Employee to Employer or any other factors considered
relevant by Employer.
(2) For each year, such stock options, bonus, supplemental or incentive
compensation ("Incentive Compensation") as may be approved by the Board of
Directors. However, Employee shall be entitled to such Incentive
Compensation in the event other officers receive such Incentive
Compensation, at the time such officers receive such Incentive
Compensation, during the term of this Agreement.
(3) Reimbursement of reasonable and necessary expenses, as determined in
the judgment of the Chief Executive Officer, for Employee's performance of
his responsibilities under this Agreement. In addition, Employee shall
receive: (i) an automobile allowance of $600 per month which shall cover
all automobile related expenses for which Employee shall otherwise be
entitled to reimbursement from Employer; and (ii) reimbursement for
professional development, including, but not limited to, dues, memberships,
and alike, in the amount of up to $1,500 per year.
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(4) Participation in Employer's employee fringe benefit programs in
effect from time to time for employees at comparable levels of
responsibility. Participation will be in accordance with any applicable
policies adopted by Employer. Employee shall be entitled to vacations,
absences for illness, and to similar benefits of employment to the extent
such benefits are generally available to employees of Employer at a
comparable level of responsibility, and subject to such policies and
procedures as may be adopted by Employer. Without limiting the generality of
the foregoing, it is agreed that such benefits of employment shall include no
less than four (4) weeks, vacation and ten (10) days' sick leave during each
calendar year of employment with Employer (which shall be carried forward for
a period not to exceed three (3) years and otherwise in accordance with
Employer's policies); major medical and health insurance; 401K Plan
participation; a term life insurance policy in the amount of $250,000; and
stock option plans for officers of the Company and members of the Board of
Directors. Employer further agrees that Employer or Employee shall arrange
for reasonable amounts of disability insurance for Employee at the expense of
Employer. Such insurance coverage and expense shall be reasonable in
relation to the compensation of Employee.
(5) Employee shall hereby be granted options to purchase 50,000 shares of
Employer's Common Stock. Of the options: (ii 25,000 options shall be non-
qualified stock options, with an exercise price of $1.50 per share, 12,500 of
which shall vest one (1) month following the date of this Agreement and an
additional 12,500 of which shall vest six (6) months following the date of this
Agreement, subject to the terms and conditions on the Non-Qualified Stock Option
Agreement, a copy of which is attached hereto as Exhibit "A;" and (ii) 25,000
options shall be incentive stock options, with an exercise rice of $1.75 per
share, 12,500 of which shall Vest twelve (12) months following the date of this
Agreement, and an additional 12,500 of which shall vest eighteen (18) months
following the date of this Agreement, subject to the terms and conditions of the
Incentive Stock option Agreement, a copy of which is attached hereto as Exhibit
"B." So long as applicable law allows, at the option of Employee, Employer
agrees to waive payment for the exercise of the options referenced hereinabove.
In such event, the Company shall issue appropriate documentation to Employee
causing Employee to recognize income for such waiver of the option exercise
price. In the event that applicable law will not allow for the waiver of such
payment for such options, the Company shall declare Incentive Compensation of no
less than the amount necessary for Employee to exercise such options.
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4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation provided
for in Section 4.1 hereof as follows:
(1) Employer shall pay the base compensation in cash, semi-monthly in
twenty-four equal installments or in accordance with Employer's payroll
practices for all its employees, but in no event less frequently than
monthly.
(2) Employer shall pay in cash the reimbursement of such discretionary
expenses provided in Section 4.1(3) hereof.
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement, and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination; PROVIDED, HOWEVER, in the event Employer
terminates this Agreement for any reason other than the occurrence of any of the
events set forth in Section 5.2, Employee shall be entitled to receive the
balance of the unpaid base salary which would otherwise be payable to Employer
during the remainder of the term of this Agreement within thirty (30) days after
such ninety (90) day notice period. However, in the event the time remaining
for the term of employment under this Agreement is twenty-four (24) months or
less, Employee shall be entitled to receive salary for no less than a
twenty-four (24) month period, payable within thirty (30) days after such
ninety (90) day notice period.
5.2. OTHER TERMINATION. This Agreement, and the employment of
Employee hereunder, shall terminate immediately upon the occurrence of any one
of the following events:
(1) The death of Employee.
(2) The loss by Employee of legal capacity.
(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
wilful and habitual neglect of duties.
(4) Employer's willfully engaging in an act of dishonesty
constituting a crime under the laws of the state in which
Employer's principal place of business is located, resulting or
intending to result in gain or personal enrichment at the expense
of Employer or to the detriment of Employer's business and to
which Employee is not legally entitled ("Act of Dishonesty"). In
the event that Employee is accused of an Act of Dishonesty and
the Board of Directors after due investigation believes that such
accusation has
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merit, Employer may suspend Employee's employment hereunder until
a final determination of whether the alleged act or acts
constitute an Act of Dishonesty. In the event that Employer
suspends Employee's employment under this provision of this
Agreement and Employee is found not to have committed an Act of
Dishonesty, Employee shall, upon such finding having been made,
be reinstated with all back compensation.
(5) The continued incapacity in excess of one hundred eighty (180)
days on the part of Employee to perform his duties, unless waived
by Employer.
(6) The mutual written agreement of Employee and Employer.
(7) The expiration of the term of this Agreement.
(8) Employee's breach of this Agreement.
5.3. EFFECT OF TERMINATION ON COMPENSATION. In the event of the
termination of Employee's employment pursuant to Section 5.2 of this Agreement
prior to the completion of the term of employment specified herein, Employee
shall be entitled to the compensation earned by him (including any Incentive
Compensation and fringe benefits pursuant to Paragraph 4.1(2) and 4.1(4)) prior
to the date of such termination as provided in this Agreement. Employee shall
be entitled to no further compensation, in the nature of severance pay or
otherwise, upon the termination of his employment pursuant to the provisions of
this Agreement.
5.4. REMEDIES. No termination of the employment of Employee pursuant
to the terms of this Agreement shall prejudice any other remedy to which any
party to this Agreement may be entitled either at law, in equity, or under this
Agreement.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets"
shall include without limitation any and all of Employer's financial, cost and
pricing information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind, data, formulas,
specifications, concepts or ideas, where such information pertains to the
business of Employer and has not previously been publicly released by duly
authorized representatives of Employer or Parent or otherwise lawfully entered
the public domain.
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6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business that have been
or may be obtained or learned by him by reason of his employment. Employee will
not, without the written consent of Employer, either use for his own benefit or
purposes or disclose or permit disclosure to any third parties, either during
the term of his employment hereunder or thereafter (except as required in
fulfilling the duties of his employment), any trade secret connected with the
business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
knowingly disclose to Employer or induce Employer to use any trade secrets
belonging to any third party.
6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans (including,
without limitation, marketing and sales plans), proposals, customer lists,
computer software or hardware, and similar materials that are made by him or
come into his possession by reason of his employment with Employer are the
property of Employer and shall not be used by him in any way adverse to
Employer's interests. Employee will not knowingly allow any such documents or
things, or any copies, reproductions or summaries thereof to be delivered to or
used by any third party without the specific consent of Employer. Employee
agrees to deliver to the Board of Directors of Employer or its designee, upon
demand, and in any event upon the termination of Employee's employment, all of
such documents and things which are in Employee's possession or under his
control.
6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement,
and for a period of one (1) year following the termination of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, principal stockholder, corporate officer,
director, or in any other individual or representative capacity: (i) engage or
participate in that part or portion of any business that is in competition in
any manner with the renal care business of Employer; (ii) during Employee's
employment with Employer, divert, take away or attempt to divert or take away
(and during the one year period, call on or solicit) any of Employer's clients
who had a business relationship with Employer, for a period of ninety (90) days
prior to the termination of Employee's employment, with respect to Employer's
renal care business within the counties in the United States (for purposes of
this Agreement, the term "Employer's clients" shall mean clients with Employer
and those who develop a business relationship with Employer); (iii) undertake
planning for or organization of any business within the counties in the United
States where the Company has business operations or in any other country in
which Employer is engaged in business activity competitive with Employer's renal
care business within the counties in the United States where the Company has
renal care business
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operations or in any other country in which Employer is engaged in business or
combine or conspire with employees or other representative of Employer's
business within the counties in the United States or in any other country in
which Employer is engaged in business for the purpose of organizing any such
competitive activity within the United States where the Company has business
operations or in any other country in which Employer is engaged in business; or
(iv) induce or influence (or seek to induce or influence) any person who is
engaged, as an employee, agent, independent contractor or otherwise by Employer
within the United States where the Company has renal care business operations or
in any other country in which Employer is engaged in the renal care business to
terminate his employment or engagement.
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise
agreed to in writing between the parties hereto, the provisions of this Section
6 shall survive the termination of this Agreement. The covenants in this
Section 6 shall be construed as separate covenants and to the extent any
covenant shall be judicially unenforceable, it shall not affect the enforcement
of any other covenant. In the event Employee breaches any of the provisions of
this Section 6, Employee agrees that Employer shall be entitled to injunctive
relief in addition to any other remedy to which Employer may be entitled. For
purposes of this Section 6, the term "Employer" shall include Employer, its
parents and subsidiaries.
7. GENERAL PROVISIONS.
7.1. NOTICES. Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in writing
and served personally, by overnight mail, or sent by certified mail, postage
prepaid and return receipt requested, addressed as follows:
If to Employer: National Quality Care, Inc.
Attn: Victor Gura, M.D.
5901 West Olympic Boulevard
Suite 109
Los Angeles, California 90036
Telecopier no. (213) 933-8836
If to Employee: Ron Berkowitz
437 Terraine Avenue
Long Beach, California 90814
Telecopier no. (310) 494-0939
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However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered personally shall be deemed effective as
of the day delivered and notices delivered by mail shall be deemed effective as
of seven days after mailing (excluding weekends and federal holidays).
7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise
in this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of California, County of Los Angeles. The
parties agree that any dispute arising under this Agreement, whether during the
term of this Agreement or at any subsequent time, shall be resolved exclusively
in the courts of the State of California and the parties hereby submit to the
jurisdiction of such courts for all purposes provided herein.
7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or written,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
7.4. ASSIGNMENT. Because of the personal nature of the services to
be rendered hereunder, this Agreement may not be assigned in whole or in part by
Employee without the prior written consent of Employer. However, subject to the
foregoing limitation, this Agreement shall be binding on, and shall inure to the
benefit of, the parties hereto and their respective heirs, legatees, executors,
administrators, legal representatives, successors and assigns.
7.5. SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable, or invalid as applied to any particular case or in all cases,
such circumstances shall not have the effect of rendering any such provision
inoperative, unenforceable, or invalid in any other case or of rendering any of
the other provisions of this Agreement inoperative, unenforceable or invalid.
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7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the
date hereof that Employer's execution and delivery of this Agreement to Employee
and the carrying out of the provisions hereof have been duly authorized by
Employer's Board of Directors and authorized by Employer's shareholders and
further represents and warrants that neither the execution and delivery of this
Agreement, nor the compliance with the terms and provisions thereof by Employer
will result in the breach of any state regulation, administrative or court
order, nor will such compliance conflict with, or result in the breach of, any
of the terms or conditions of Employer's Certificate of Incorporation or Bylaws,
as amended, or any agreement or other instrument to which Employer is a party,
or by which Employer is or may be bound, or constitute an event of default
thereunder, or with the lapse of time or the giving of notice or both constitute
an event of default thereunder.
7.7. COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.8. HEADINGS AND CAPTIONS. Headings and captions are included for
purposes of convenience only and are not a part hereof.
7.9. CONSULTATION WITH COUNSEL. Employee acknowledges that he has had
the opportunity to consult with counsel independent of Employer or Employer's
counsel, Matthias & Berg LLP, regarding the entering into of this Agreement and
has done so to the extent he sees fit.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Los Angeles, California.
"Employer"
NATIONAL QUALITY CARE, INC.
a Delaware corporation
By: /s/ Victor Gura, M.D.
-----------------------
Victor Gura, M.D.
Chief Executive Officer
"Employee"
By: /s/ Ron Berkowitz
-----------------------
Ron Berkowitz
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SARGENT, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Sargent, Inc. 1996 Stock Option Plan (the
"Plan"), is to provide an incentive to officers, directors, employees,
independent contractors, and consultants of Sargent, Inc., a Delaware
corporation (sometimes referred to herein as the "Company"), and any parent
companies and subsidiaries (together with the Company herein collectively
referred to as "Sargent") to remain in the employ of Sargent or provide services
to Sargent and contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue Code
of 1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meanings set forth in Sections 424(e) and (f) of the
Code.
This Plan was adopted by the Board of Directors of Directors and the
stockholders of the Company as of May 12, 1996.
2. ADMINISTRATION. The Plan shall be administered by a Plan Committee
which shall be established by the Board of Directors of the Company (the
"Board"). The Plan Committee shall be comprised of at least two members who
shall be outside directors of the Company, as defined in Section 162(m) of the
Code or any successor provision. Members of the Plan Committee shall be
appointed, both initially and as vacancies occur, by the Board. The Board may
serve as the Plan Committee if by the terms of the Plan all members of the Board
are otherwise eligible to serve on the Plan Committee. The Board, at any time
it so desires, may increase or decrease, but not below two, the number of
members of the Plan Committee, may remove from membership on the Plan Committee
all or any portion of its members, and may appoint such person or persons as it
desires to fill any vacancy existing on the Plan Committee, whether by removal,
resignation or otherwise. The provisions of the Plan and all option and stock
appreciation right (SAR) agreements executed pursuant thereto, and its decisions
shall be conclusive and binding upon all interested persons. Subject to the
provisions of the Plan, the Plan Committee shall have the sole authority to
determine:
(a) The persons (hereinafter, "optionees") to whom options to
purchase shares of Common Stock of the Company ("Stock") and SARs shall be
granted;
(b) The number of options and SARs to be granted to each optionee;
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(c) The price to be paid for each share of Stock upon the exercise of
each option;
(d) The period within which each option and SAR shall be exercised
and, with the consent of the optionee, any extensions of such period (provided,
however, that the original period and all extensions shall not exceed the
maximum period permissible under the Plan); and
(e) The terms and conditions of each stock option and/or SAR
agreement entered into between the Company and persons to whom the Company has
granted an option or SAR and of any amendments thereto (provided that the
optionee consents to each such amendment).
The Plan Committee shall meet at such times and places as it determines,
including by means of a telephone conference call. A majority of the members
shall constitute a quorum, and a decision of a majority of those present at any
meeting at which a quorum is present shall constitute the decision of the Plan
Committee. A memorandum signed by all of the members of the Plan Committee
shall constitute the decision of the Plan Committee without the necessity, in
such event, for holding an actual meeting.
3. ELIGIBILITY. Officers, directors and employees of Sargent independent
contractors, consultants and other persons providing significant services to
Sargent shall be eligible to receive grants of options under the Plan.
4. STOCK SUBJECT TO PLAN. There shall be reserved for issue, upon the
exercise of options granted under the Plan, 1,000,000 shares of Stock or the
number of shares of Stock, which, in accordance with the provisions of Section 9
hereof, shall be substituted therefor. Such shares may be treasury shares. If
an option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, unpurchased shares subject thereto shall
again be available for the purposes of the Plan. The maximum number of shares
with respect to which options which may be granted to an optionee who is an
employee of the Company shall not exceed 300,000 shares in any fiscal year
during the term of the Plan.
5. TERMS OF OPTIONS AND SARS.
(a) INCENTIVE STOCK OPTIONS. It is intended that options granted
pursuant to this Section 5(a) qualify as incentive stock options as defined in
Section 422 of the Code. Incentive stock options shall be granted only to
employees of Sargent. Each stock option agreement evidencing an incentive stock
option shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Plan Committee may deem appropriate in each case:
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(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of each incentive stock option shall be determined by the Plan
Committee at the time the option is granted, but shall in no event be less than
100% of the Fair Market Value (as defined below) of the shares on the date the
option is granted, or not less than 110% of the Fair Market Value of such shares
on the date such option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) 10% or more of the total
combined voting power of all classes of stock of the Company or of its Parent or
Subsidiaries. As used in this Plan, the term "date the option is granted" means
the date on which the Plan Committee authorizes the grant of an option hereunder
or any later date specified by the Plan Committee. For the purposes of the
Plan, Fair Market Value of the shares shall be (i) the closing sales price of
shares of Stock sold on the New York Stock Exchange, American Stock Exchange or
the NASDAQ National Market System on the date the option is granted (or if there
was no sale on such date, the highest asked price for the Stock on such date),
(ii) if the Stock is not listed on either of those exchanges or traded on the
NASDAQ National Market System on the date the option is granted, the "bid" price
of the Stock in the National Over-The-Counter Market (or other similar market
quotation system) on the date the option is granted, or (iii) if the Stock is
not traded in any market, the price determined by the Plan Committee to be the
fair market value, based upon such evidence as it may deem necessary or
desirable.
(2) PERIOD OF OPTION AND EXERCISE. The period or periods within
which an option may be exercised shall be determined by the Plan Committee at
the time the option is granted, but in no event shall any option granted
hereunder be exercised more than ten years from the date the option was granted
nor more than five years from the date the option was granted in the case of an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiaries.
(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option price be payable, at
the election of the holder of the option and with the consent of the Plan
Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued upon exercise until full payment therefor has been made, and no optionee
shall have any rights as an owner of Stock until the date of issuance to him of
the stock certificate evidencing such Stock.
3
<PAGE>
(4) LIMITATION ON AMOUNT BECOMING EXERCISABLE IN ANY ONE
CALENDAR YEAR. Subject to the overall limitations of Section 4 hereof (relating
to the aggregate shares subject to the Plan), the aggregate Fair Market Value
(determined as of the time the option is granted) of Stock with respect to which
incentive stock options are exercisable for the first time by the optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, the Parent, and Subsidiaries) shall not exceed $100,000.
(b) NONQUALIFIED STOCK OPTIONS. Nonqualified stock options may be granted
not only to employees but also to directors who are not employees of Sargent and
to consultants, independent contractors and other persons who provide
substantial services to Sargent. Each nonqualified stock option granted under
the Plan shall be evidenced by a stock option agreement between the person to
whom such option is granted and the Company. Such stock option agreement shall
provide that the option is subject to the following terms and conditions and to
such other terms and conditions not inconsistent therewith as the Plan Committee
may deem appropriate in each case:
(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of an option shall be determined by the Plan Committee at the
time the option is granted, but shall in no event be less than 85% of the Fair
Market Value (as defined below) of the shares on the date the option is granted.
As used in this Plan, the term "date the option is granted" means the date on
which the Plan Committee authorized the grant of an option hereunder or any
later date specified by the Plan Committee. To the extent that the fair market
value of Stock is relevant to the pricing of the option by the Plan Committee,
fair market value of the Stock shall be determined as set forth in Section
5(a)(1) hereof.
(2) PERIOD OF OPTION AND EXERCISE. The periods, installments or
intervals during which an option may be exercised shall be determined by the
Plan Committee at the time the option is granted, but in no event shall such
period exceed 10 years from the date the option is granted.
(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option exercise price be
payable at the election of the holder of the option, with the consent of the
Plan Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued until full payment therefor has been made, and no optionee shall have any
rights as an owner of shares of
4
<PAGE>
Stock until the date of issuance to him of the stock certificate evidencing such
Stock.
(c) STOCK APPRECIATION RIGHTS. SARs may be granted in writing under the
Plan by the Plan Committee subject to the following terms and conditions and
such other terms and conditions as the Plan Committee may prescribe.
(1) RIGHT OF OPTIONEE. Each SAR shall entitle the holder
thereof, upon the exercise of the SAR, to receive from the Company in exchange
therefor an amount equal in value to the excess of the Fair Market Value on the
date of exercise of one share of Stock over its Fair Market Value on the date of
grant (or, in the case of an SAR granted in connection with an option, the
excess of the Fair Market Value of one share of Stock at the time of exercise
over the option exercise price per share under the option to which the SAR
relates), multiplied by the number of shares covered by the SAR or the option,
or portion thereof, that is surrendered. No SAR shall be exercisable at a time
that the amount determined under this subparagraph is negative. Payment by the
Company upon exercise of an SAR shall be made in Stock valued at the Fair Market
Value of the Stock on the date of exercise.
(2) EXERCISE. An SAR shall be exercisable only at the time or
times established by the Plan Committee. If an SAR is granted in connection
with an option, the following rules shall apply: (i) the SAR shall be
exercisable only to the extent and on the same conditions that the related
option could be exercised; (ii) upon exercise of the SAR, the option or portion
thereof to which the SAR relates terminates; and (iii) upon exercise of the
option, the related SAR or portion thereof terminates.
(3) RULES. The Plan Committee may withdraw any SAR granted
under the Plan at any time and may impose any conditions upon the exercise of an
SAR or adopt rules and regulations from time to time affecting the rights of
holders of SARs granted prior to adoption or amendment of such rules and
regulations as well as SARs granted thereafter.
(4) FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of an SAR. In lieu thereof, cash may be paid in an amount equal
to the value of the fraction or, if the Plan Committee shall determine, the
number of shares may be rounded downward to the next whole share.
(5) SHARES SUBJECT TO PLAN. Upon the exercise of an SAR for
shares, the number of shares of Stock reserved for issuance under the Plan shall
be reduced by the number of shares issued.
5
<PAGE>
6. NONTRANSFERABILITY. The options and SARs granted pursuant to the Plan
shall be nontransferable except by will or the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death or for
options other than incentive stock options, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act and shall be exercisable during the optionee's lifetime only
by him (or, in the case of a transfer pursuant to a qualified domestic relations
order, by the transferee under such qualified domestic relations order) and
after his death, by his personal representative or by the person entitled
thereto under his will or the laws of intestate succession.
7. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Unless otherwise
specified in the applicable option and/or SAR agreement or SAR, upon termination
of the optionee's employment or other relationship with Sargent, his rights to
exercise options and SARs then held by him shall be only as follows (in no case
do the time periods referred to below extend the term specified in any option):
(a) DEATH OR DISABILITY. Upon the death or disability (within the
meaning of Section 22(e)(3) of the Code) of an optionee, any option or SAR which
he holds may be exercised (to the extent exercisable at his death or
disability), unless it otherwise expires, within such period after the date of
his death (not less than six months nor more than twelve months) as the Plan
Committee shall prescribe in his option agreement or SAR, by the optionee or, in
the event of death, by the optionee's representative or by the person entitled
thereto under his will or the laws of intestate succession.
(b) RETIREMENT. Upon the retirement (either pursuant to a Sargent
retirement plan, if any, or pursuant to the approval of the Board) of an
officer, director or employee, an outstanding option or SAR may be exercised (to
the extent exercisable at the date of such retirement) by him within such period
after the date of his retirement (provided that such period is no less than 30
days and no more than three months) as the Plan Committee shall prescribe in his
option agreement or SAR.
(c) OTHER TERMINATION. In the event an officer, director or employee
ceases to serve as an officer or director or leaves the employ of Sargent for
any reasons other than as set forth in (a) and (b), above, or a nonemployee
ceases to provide services to Sargent, any option or SAR which he holds shall
remain exercisable (to the extent exercisable as of the date of such
termination) until 30 days after the date of such termination.
(d) PLAN COMMITTEE DISCRETION. The Plan Committee may in its sole
discretion accelerate the exercisability of any or all options or SARs.
6
<PAGE>
8. TRANSFER TO RELATED CORPORATION. In the event an employee leaves the
employ of the Company to become an employee of a Parent or a Subsidiary or any
employee leaves the employ of a Parent or a Subsidiary to become an employee of
the Company or another Parent or Subsidiary, such employee shall be deemed to
continue as an employee for purposes of this Plan.
9. ADJUSTMENT OF SHARES; TERMINATION OF OPTIONS AND SARS.
(a) ADJUSTMENT OF SHARES. In the event of changes in the outstanding
Stock by reason of stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the Plan
Committee), an appropriate adjustment shall be made by the Plan Committee in the
number of shares reserved under the Plan, in the number of shares set forth in
Section 4 hereof, in the number of shares and the option price per share
specified in any stock option agreement, and in the number of SARs with respect
to any unexercised shares. The determination of the Plan Committee as to what
adjustments shall be made shall be conclusive. Adjustments for any options to
purchase fractional shares shall also be determined by the Plan Committee. The
Plan Committee shall give prompt notice to all optionees of any adjustment
pursuant to this Section.
(b) TERMINATION OF OPTIONS AND SARS ON MERGER, REORGANIZATION OR
LIQUIDATION OF THE COMPANY. Notwithstanding anything to the contrary in this
Plan, in the event of any merger, consolidation or other reorganization of the
Company in which the Company is not the surviving or continuing corporation (as
determined by the Plan Committee) or in the event of the liquidation or
dissolution of the Company, all options and SARs granted hereunder shall
terminate on the effective date of the merger, consolidation, reorganization,
liquidation or dissolution unless there is an agreement with respect thereto
which expressly provides for the assumption of such options and SARs by the
continuing or surviving corporation.
10. SECURITIES LAW REQUIREMENTS. The Company's obligation to issue shares
of its Stock upon exercise of an option or SAR is expressly conditioned upon the
completion by the Company of any registration or other qualification of such
shares under any state and/or federal law or rulings and regulations of any
government regulatory body or the making of such investment representations or
other representations and undertakings by the optionee (or his legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
of such shares which the Company in its sole discretion shall deem necessary or
advisable. The Company may refuse to permit the sale or other disposition of
any shares acquired pursuant to any such representation until it is satisfied
that such sale or other disposition would not be in contravention of applicable
state or federal securities law.
7
<PAGE>
11. TAX WITHHOLDING. As a condition to the exercise of an option or SAR
or otherwise, the Company may require an optionee to pay over to the Company all
applicable federal, state and local taxes which the Company is required to
withhold with respect to the exercise of an option or SAR granted hereunder. At
the discretion of the Plan Committee and upon the request of an optionee, the
minimum statutory withholding tax requirements may be satisfied by the
withholding of shares of Stock otherwise issuable to the optionee upon the
exercise of an option or SAR.
12. AMENDMENT. The Board may amend the Plan at any time, except that
without shareholder approval:
(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 9(a) hereof;
(b) The option price per share of Stock subject to incentive stock
options may not be fixed at less than 100% of the Fair Market Value of a share
of Stock on the date the option is granted;
(c) The maximum period of ten (10) years during which the options or
SARs may be exercised may not be extended;
(d) The class of persons eligible to receive options or SARs under
the Plan as set forth in Section 3 shall not be changed; and
(e) This Section 12 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.
13. EFFECTIVE DATE. The Plan shall be effective upon the date of its
adoption by both the Board, and subject to the approval of the stockholders of
the Company within the 12 month period following such adoption date.
14. TERMINATION. The Plan shall terminate automatically as of the close
of business on the day preceding the 10th anniversary date of its effectiveness
or earlier by resolution of the Board, or upon consummation of any merger,
consolidation or other reorganization in which the options granted hereunder
terminate, all as described in Section 9(b) hereof. Unless otherwise provided
herein, the termination of the Plan shall not affect the validity of any option
agreement outstanding at the date of such termination.
8
<PAGE>
15. STOCK OPTION AND SAR AGREEMENT. Each option and SAR granted under the
Plan shall be evidenced by a written agreement executed by the Company and
accepted by the optionee, which (i) shall contain each of the provisions and
agreements herein specifically required to be contained therein, (ii) shall
indicate whether an option is to be an incentive stock option or a nonqualified
stock option, and if it is to be an incentive stock option, the stock option
agreement shall contain terms and conditions permitting such option to qualify
for treatment as an incentive stock option under Section 422 of the Code, (iii)
may contain the agreement of the optionee to remain in the employ of, and/or to
render services to, the Company or any Parent or Subsidiary for a period of time
to be determined by the Plan Committee, and (iv) may contain such other terms
and conditions as the Plan Committee deems desirable and which are not
inconsistent with the Plan.
16. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any option or SAR
granted hereunder shall confer upon any optionee any right to continue in the
employ of Sargent or to continue to perform services for Sargent, or shall
interfere with or restrict in any way the rights of Sargent to discharge or
terminate any officer, director, employee, independent contractor or consultant
at any time for any reason whatsoever, with or without good cause.
Executed and dated as of the date first written above at Los Angeles,
California.
SARGENT, INC.
By: /s/ Victor Gura, M.D.
-----------------------------
Victor Gura, M.D.
Chief Executive Officer
9
<PAGE>
EXHIBIT 16.1
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read and agree with the comments in Item 5 of Form 10-QSB of
National Quality Care, Inc. (formerly Sargent, Inc.) dated August 1996
specifically and only as they refer to our firm.
Ehrhardt Keefe Steiner & Hottman PC
Denver, Colorado
August 19, 1996
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