<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Amendment No. ____
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NATIONAL QUALITY CARE, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
VICTOR GURA, M.D., CHIEF EXECUTIVE OFFICER
------------------------------------------------
(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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------
3) Filing Party:
------------------------------------------------
4) Date Filed:
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<PAGE>
NATIONAL QUALITY CARE, INC.
April 28, 2000
A message to our shareholders,
The management of National Quality Care, Inc. is pleased to report results of
the fiscal year ended on December 31, 1999. For the year, we achieved both an
increase in revenues and a reduction in total operating expenses, with the
result that the Company generated net income of $40,046 for the year ended
December 31, 1999, as compared with a net loss of $872,750 for the year ended
December 31, 1998. These results are in line with our expectations and reflect
the success of our efforts to achieve responsible growth. They validate the
investments we have made in recent quarters to increase our capacity to provide
top-quality dialysis and related services to people suffering from end-stage
renal disease.
In fiscal 1999, total income increased approximately 11%, to $4,344,730, from
the $3,931,576 reported for fiscal 1998. This increase resulted primarily from a
higher volume of medical services delivered, our core operations, with medical
service revenue also increasing approximately 11%, year over year, to
$4,073,030.
We were able to achieve this increase in income, while simultaneously decreasing
total operating expenses modestly, from $4,075,282 for 1998 to $4,057,229 for
1999. The component of these expenses represented by costs of medical services
decreased from $2,789,784 for 1998 to $2,768,996 for 1999, reflecting the
benefits of operational streamlining.
Similarly, our selling, general and administrative expenses decreased slightly,
from $1,092,770 for 1998 to $1,079,807 for 1999. This was despite additions to
our administrative payroll in the area of credit and collections, where
additional resources will assist in our ability to optimize revenues going
forward.
Thanks in part to revenue growth, we closed fiscal 1999 with a stronger balance
sheet than 1998's, as reflected in the improvement in our ratio of current
assets to current liabilities, which reached 0.61 to 1.00 as of December 31,
1999 versus 0.53 to 1.00 as of December 31, 1998.
We look forward to achieving continued profitability in the coming year and
increasing shareholder value in our Company.
In the meantime, management of National Quality Care, Inc. would like to send
our best wishes to our patients. We would also like to extend thanks to the
strategic partners who helped us to achieve our fiscal 1999 results, and to you,
our shareholders, for your support.
Very truly yours,
/S/ Victor Gura, M.D.
- ---------------------
Victor Gura, M.D.
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
NATIONAL QUALITY CARE, INC.
A DELAWARE CORPORATION
EXECUTIVE OFFICES
1835 SOUTH LA CIENEGA BOULEVARD
SUITE 235
LOS ANGELES, CALIFORNIA 90035
(310) 280-2758
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2000
------------------------
TO THE STOCKHOLDERS OF NATIONAL QUALITY CARE, INC.:
The Annual Meeting of Stockholders (the "Meeting") of National Quality
Care, Inc., a Delaware corporation (the "Company"), will be held at Le Meridian
at Beverly Hills, 465 South La Cienega Boulevard, Santa Monica Room, Los
Angeles, California 90048, on June 21, 2000, at 10:00 a.m., local time, to
consider and vote on the following proposals:
PURPOSE OF MEETING
(1) To elect to the Board of Directors four (4) directors, to
serve until the next Annual Meeting of Stockholders of the
Company or until their successors are elected and qualify,
subject to their prior death, resignation or removal.
(2) To cancel certain options to purchase shares of Common Stock
and issue replacement options at a reduced exercise price.
(3) To ratify the appointment of Moss Adams LLP, as independent
auditors for the Company for the year ending December 31,
2000.
(4) To transact such other business as may properly come before
the Meeting and any adjournments thereof.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL 28, 2000
(THE "RECORD DATE") ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE MEETING.
PLEASE FILL IN, SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO COLONIAL
STOCK TRANSFER, 455 E. 400 SOUTH, SUITE 100, SALT LAKE CITY, UTAH 84111, ATTN:
PROXY DEPARTMENT, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. A RETURN
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
BY ORDER OF THE BOARD OF DIRECTORS
NATIONAL QUALITY CARE, INC.
BY: /S/ VICTOR GURA, M.D.
-----------------------
VICTOR GURA, M.D.
CHIEF EXECUTIVE OFFICER
LOS ANGELES, CALIFORNIA
DATED: APRIL 28, 2000
<PAGE>
NATIONAL QUALITY CARE, INC.
A DELAWARE CORPORATION
EXECUTIVE OFFICES
1835 SOUTH LA CIENEGA BOULEVARD
SUITE 235
LOS ANGELES, CALIFORNIA 90035
(310) 280-2758
-----------------------
PROXY STATEMENT
-------------------------
This proxy statement is furnished to the stockholders of National
Quality Care, Inc., a Delaware corporation (the "Company"), in connection with
the Annual Meeting of Stockholders (the "Meeting") to be held at Le Meridian at
Beverly Hills, 465 South La Cienega Boulevard, Santa Monica Room, Los Angeles,
California 90048 on June 21, 2000 at 10:00 a.m., local time.
The Meeting will be held to consider and vote on the following
proposals:
PURPOSE OF MEETING
(1) To elect to the Board of Directors four (4) directors, to
serve until the next Annual Meeting of Stockholders of the
Company or until their successors are elected and qualify,
subject to their prior death, resignation or removal.
(2) To cancel certain options to purchase shares of Common Stock
and issue replacement options at a reduced exercise price.
(3) To ratify the appointment of Moss Adams LLP, as independent
auditors for the Company for the year ending December 31,
2000.
(4) To transact such other business as may properly come before
the Meeting and any adjournments thereof.
The list of all stockholders of record on April 28, 2000 will be
available at the Meeting and at the offices of the Company at 1835 South La
Cienega Boulevard, Suite 235, Los Angeles, California 90035, (310) 280-2758 for
the ten (10) days preceding the Meeting.
Upon written request, the Company will provide, without charge, a copy
of the exhibits to this Proxy Statement, to any stockholder of record or any
stockholder who owned Common Stock listed in the name of a bank or broker, as
nominee, at the close of business on April 28, 2000. A copy of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999 will be
delivered to the Company's stockholders, as of the Record Date, together with
this Proxy Statement.
Requests should be addressed to the Company, to the attention of
National Quality Care, Inc., Victor Gura, M.D., Chief Executive Officer, 1835
South La Cienega Boulevard, Suite 235, Los Angeles, California 90035, (310)
280-2758.
2
<PAGE>
INCORPORATION BY REFERENCE
National Quality Care, Inc., a Delaware corporation (the "Company") is
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and, in accordance therewith, files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information may be inspected and copied at the
public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington D.C. 20549; at its New York Regional Office,
7 World Trade Center, Suite 1300, New York, New York 10048; and at its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago Illinois
60661-2511, and copies of such materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates. In addition, such materials may be accessed
electronically at the Commission's site on the World Wide Web, located at
http:/www.sec.gov. The Company intends to furnish its stockholders with annual
reports containing audited financial statements and such other periodic reports
as the Company may determine to be appropriate or as may be required by law.
Portions of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999, are incorporated by reference in this Proxy Statement.
INFORMATION CONCERNING SOLICITATION AND VOTING
The following information is provided to stockholders to explain the
use of this Proxy Statement for this Meeting:
RECORD DATE
Only stockholders of record at the close of business on April 28, 2000
are entitled to vote at the Meeting. The Company's Common Stock is its only
class of voting securities. On April 28, 2000, the record date (the "Record
Date") fixed by the Board of Directors, the Company had issued and outstanding
9,889,878 shares of Common Stock of record.
REVOCABILITY OF PROXIES
A PROXY FOR USE AT THE MEETING IS ENCLOSED. ANY STOCKHOLDER WHO
EXECUTES AND DELIVERS A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE ITS
EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT REVOKING IT
OR A DULY EXECUTED PROXY BEARING A LATER DATE. IN ADDITION, A STOCKHOLDER MAY
REVOKE A PROXY PREVIOUSLY EXECUTED BY HIM BY ATTENDING THE MEETING AND ELECTING
TO VOTE IN PERSON.
VOTING AND SOLICITATION
Proxies are being solicited by the Board of Directors of the Company.
The cost of this solicitation will be borne by the Company. Solicitation will be
primarily by mail, but may also be made by telephone, fax transmission or
personal contact by certain officers and directors of the Company, who will not
receive any compensation therefor. Shares of Common Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated thereon. IN THE
ABSENCE OF SPECIFIC INSTRUCTIONS TO THE CONTRARY, PROPERLY EXECUTED PROXIES WILL
BE VOTED FOR EACH OF THE PROPOSALS DESCRIBED ABOVE. No business other than that
set forth in the accompanying Notice of Annual Meeting of Stockholders is
expected to come before the Meeting. Should any other matter requiring a vote of
stockholders properly arise, the persons named in the enclosed form of proxy
will vote such proxy in accordance with the recommendation of the Board of
Directors.
3
<PAGE>
Each share of Common Stock is entitled to one vote for each share held
as of record, and there are no preemptive rights. The Company's current
Certificate of Incorporation (the "Certificate of Incorporation") and Bylaws do
not provide for cumulative voting for the election of directors or any other
purpose.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Shares representing 50% of the voting power of the 9,889,878 shares of
Common Stock outstanding on the Record Date, which have voting rights, must be
represented at the Meeting to constitute a quorum for conducting business. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without further notice, may adjourn the meeting from time to
time until a quorum is attained. At any reconvened meeting following such
adjournment at which a quorum shall be present, any business may be transacted
which might have been transacted at the Meeting as originally notified.
The required quorum for the transaction of business at the Meeting is a
majority of the votes eligible to be cast by holders of shares of Common Stock
issued and outstanding on the Record Date. Shares that are voted "FOR" or
"AGAINST" a matter are treated as being present at the Meeting for purposes of
establishing a quorum and are also treated as shares entitled to vote at the
Meeting (the "Votes Cast") with respect to such matter.
The Company will count abstentions for purposes of determining both:
(i) the presence or absence of a quorum for the transaction of business, and
(ii) the total number of Votes Cast with respect to a proposal (other than the
election of directors). Accordingly, abstentions will have the same effect as a
vote against the proposal.
Further, the Company intends to count broker non-votes for the purpose
of determining the presence or absence of a quorum for the transaction of
business, although broker non-votes will not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal on
which the broker has expressly not voted. Thus, a broker non-vote will not
affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's next Annual Meeting of
Stockholders for the fiscal year ending December 31, 2000 must be received by
the Company no later than September 30, 2000, in order to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. There are no family
relationships among any of the Company's directors and executive officers.
The following sets forth certain biographical information concerning
the persons who have been nominated by the Board of Directors to be directors of
the Company in connection with Proposal 1 of this Proxy Statement and the
current executive officers of the Company:
4
<PAGE>
NAME POSITION AGE
---- -------- ---
Victor Gura, M.D. Director, President and 57
Chief Executive Officer
Ronald P. Lang, M.D. Director and Secretary 50
Jose Spiwak, M.D. Director 55
Melinda McIntyre-Kolpin Director 43
VICTOR GURA, M.D. has been a director and the President and Chief
Executive Officer of the Company since May 11, 1996. Dr. Gura is a medical
doctor who is board certified in internal medicine/nephrology. He has been a
director of Medipace Medical Group, Inc., a medical group in Los Angeles,
California, since 1980. He has been an attending physician at Cedars-Sinai
Medical Center since 1984 and the medical director of Los Angeles Community
Dialysis since 1985. Dr. Gura also serves as a Clinical Assistant Professor at
UCLA School of Medicine. Dr. Gura graduated from the School of Medicine, Buenos
Aires University in 1966, completed his residency in internal medicine and
nephrology in Israel, and was a fellow at the nephrology departments at Tel Aviv
University Medical School and USC Medical Center.
RONALD P. LANG, M.D. has been a director and the Secretary of the
Company since May 11, 1996. Dr. Lang is a medical doctor who is board certified
in internal medicine/nephrology. He has been a physician with Medipace Medical
Group, Inc. since 1983. Dr. Lang graduated from the Ohio State University
College of Medicine in 1973, completed his residency at St. Luke's Medical
Center in Chicago, Illinois, and was a fellow in the nephrology department at
UCLA-Center for the Health Sciences/Wadsworth Veterans Hospital. Dr. Lang also
serves as a Clinical Assistant Professor of Medicine at UCLA School of Medicine.
Dr. Lang also received M.A. and M.Ph. degrees in economics from Yale University
and was an Economist - Program Analyst for the U.S. Department of Health,
Education and Welfare (office of the Assistant Secretary for Planning and
Education) from 1973 to 1974.
JOSE SPIWAK, M.D. has been a director of the Company since March 11,
1998. Dr. Spiwak is a board certified thoracic and cardiovascular surgeon, and
serves as Chairman of the Cardiovascular Thoracic Section of St. Francis Medical
Center and Presbyterian Intercommunity Hospital in Los Angeles, California. He
served as Vice-Chairman of American Health, Inc., a managing company of primary
care physicians and comprehensive healthcare delivery networks, which was sold
to FPA Medical Management, Inc. in April, 1997. Dr. Spiwak graduated from the
Universidad Javeriana Medical School (Bogota, Columbia) in 1968 and performed
his residency in Israel and the United States. Dr. Spiwak is a member of the
Board of Directors of the American Cancer Society.
MELINDA MCINTYRE-KOLPIN has been a director of the Company since March
18, 1998. She is currently the chief executive officer of Network Health
Financial Services, Inc., a financial services company providing a variety of
services to healthcare clients. She is also chief executive officer and
president of First Professional Bank, N.A., a subsidiary of Professional
Bancorp, based in Santa Monica, California, a full-service bank providing
banking, financial consulting and general business strategies for the medical
community. Prior to joining First Professional Bank, Ms. McIntyre-Kolpin was a
commercial banking officer with Bank of California. She is a board member of
numerous organizations in Southern California, including the Executive
Council-Adaptive Business Leaders; director, Synergistic Systems, Medical
Billing; advisory board, University of Southern California School of Accounting;
director, Pacific Eyenet; National Health Foundation, board of trustees; City of
Hope, board of trustees. Ms. McIntyre-Kolpin received her Bachelor of Science
degree in business administration from the University of Southern California in
1978.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information concerning compensation of certain of the Company's executive
officers (the "Named Executives"), including the Company's Chief Executive
Officer and all executive officers whose total annual salary and bonus exceeded
$100,000, for the fiscal years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND OTHER ANNUAL OTHER RESTRICTED LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Victor Gura, M.D. 1999 $150,000 0 0 0 150,000 0 0
1998 $150,000 0 0 0 192,000 0 0
Ron Berkowitz (1) 1999 $120,000 0 $30,621 0 100,000 0 0
1998 $120,000 0 $13,000 0 120,000
- -----------------------------------
</TABLE>
1. Mr. Berkowitz resigned as Chief Financial Officer on December 3, 1999.
6
<PAGE>
OPTION/SAR GRANTS TABLE DURING LAST FISCAL YEAR. The following table
sets forth certain information concerning grants of stock options to certain of
the Named Executives, for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Victor
Gura, M.D. (2) 150,000 41.10% $0.20 3/08/04 0 0
Ron Berkowitz (3) 100,000 27.40% $0.20 12/03/01 0 0
</TABLE>
(1) This chart assumes a market price of $0.1125 for the Common Stock,
the average of the bid and asked prices for the Company's Common Stock in the
over-the-counter market as of December 31, 1999, as the assumed market price for
the Common Stock with respect to determining the "potential realizable value" of
the shares of Common Stock underlying the options described in the chart, as
reduced by any lesser exercise price for such options. Each of the options
reflected in the chart was granted at exercise prices which the Company believes
to have been determined at the fair market value as of the date of grant.
Further, the chart assumes the annual compounding of such assumed market price
over the relevant periods, without giving effect to commissions or other costs
or expenses relating to potential sales of such securities. The option exercise
price ($0.20 per share) exceeded the option market price ($0.1125) on December
31, 1999 and therefore, no gains were realized based on the assumed rates of
stock appreciation for the option term. On March 8, 2000, the Board agreed,
subject to shareholder approval at the Company's annual meeting, to reissue the
stock options at an exercise price of $0.10. The Company's Common Stock has a
very limited trading history. These values are not intended to forecast the
possible future appreciation, if any, of the price or value of the Common Stock.
(2) Dr. Gura was granted an option to purchase up to 150,000 shares of
Common Stock at an exercise price of $0.20 per share pursuant to the Company's
1998 Stock Option Plan. See "Executive Compensation - Stock Option Plans."
(3) Mr. Berkowitz was granted an option to purchase up to 100,000
shares of Common Stock at an exercise price of $0.20 per share pursuant to the
Company's 1998 Stock Option Plan. See "Executive Compensation - Stock Option
Plans." Mr. Berkowitz resigned as Chief Financial Officer on December 3, 1999.
Under the terms of the 1998 Stock Option Plan, the related options would have
expired 30 days following the date of his resignation. However, the Company
agreed to extend the expiration date of these options to December 3, 2001.
OPTION EXERCISES AND YEAR-END VALUES. The following table sets forth
information with respect to the exercised and unexercised options to purchase
shares of Common Stock for certain of the Named Executives held by them at
December 31, 1999:
7
<PAGE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN THE MONEY
ACQUIRED VALUE OPTIONS AT OPTIONS AT
ON EXERCISE REALIZED(1) DECEMBER 31, 1999 DECEMBER 31, 1999(2)
----------- ----------- ----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor
Gura, M.D. 0 0 342,000 0 0 0
Ron Berkowitz(3) 75,000 $11,060 145,000 0 1,813 0
- -----------------
</TABLE>
(1) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the over-the-counter market on the dates of exercise, May
11, 1999 ($ 0.4062 per share) and September 22, 1999 ($0.23), and any
lesser exercise price.
(2) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the over-the counter market on December 31, 1999 ($0.1125
per share) and the exercise price proposed by the Board ($0.10) during the
March 8, 2000 Board of Directors meeting, subject to stockholder approval.
See Proposal 2 - Cancellation of Options and Issuance of Replacement
Options at Reduced Exercise Price.
(3) Mr. Berkowitz resigned as Chief Financial Officer on December 3, 1999.
EMPLOYMENT AGREEMENTS. The Company has entered into employment
agreements with one (1) of its executive officers, Victor Gura, M.D.
The Company entered into a three (3) year employment agreement, dated
as of April 12, 1996, with Victor Gura, M.D., pursuant to which Dr. Gura agreed
to serve as the Company's Chief Executive Officer, President and Medical
Director. The employment agreement expired on April 11, 1999. The Company
currently pays Dr. Gura an annual base salary of $150,000, plus other benefits,
and otherwise compensates Dr. Gura in accordance with the terms and conditions
of the expired employment agreement. The Compensation Committee of the Board of
Directors intends to negotiate with Dr. Gura with respect to an extension of his
prior employment agreement. See "Compensation Committee Interlocks and Insider
Participation."
During the Board of Directors' Meeting held on March 8, 2000, the Board
authorizes the compensation of Dr. Ronald Lang at the rate of $2,000.00 per
month as Secretary of the Corporation effective March 2000.
Dr. Gura will also be entitled to participate in stock option and bonus
plans, which may be adopted by the Company for officers and directors of the
Company and its subsidiaries. In the event of his involuntary termination other
than for cause or certain other circumstances, he will be entitled to receive
the unpaid balance of his salary for the remaining term of the agreement.
STOCK OPTION PLANS
- ------------------
The Company has adopted three (3) stock option plans for the benefit of
officers, directors, employees, independent contractors and consultants of the
Company and its subsidiaries. These plans include: (i) the 1998 Stock Option
Plan, (ii) the 1996 Stock Option Plan, and (iii) the 1996 Employee Compensatory
Stock Option Plan.
1998 AND 1996 STOCK OPTION PLANS. As of July 7, 1998, the Company's
Board of Directors and stockholders approved the Company's 1998 Stock Option
Plan (the "1998 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").
8
<PAGE>
The Company has reserved for issuance up to 1,000,000 shares of Common
Stock under the 1996 Stock Option Plan. The Company has granted options to
purchase up to 994,739 shares of Common Stock under the 1996 Stock Option Plan.
All of the 994,739 options have been exercised. 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.
The Company has reserved for issuance up to 1,000,000 shares of Common
Stock under the 1998 Stock Option Plan. The Company has granted options to
purchase up to 712,500 shares of Common Stock under the 1998 Stock Option Plan,
75,000 shares of which have been exercised and all of which have vested. During
the March 8, 2000 Directors meeting, the Board agreed, subject to shareholder
approval at the Company's annual meeting, to cancel the 637,500 options granted
and unexercised and to reissue 637,500 options at an exercise price of $0.10.
The Board of Directors has approved a provision in the 1998 Stock Option Plan
which will place a 150,000 share limit on the number of options that may be
granted under the 1998 Stock Option Plan to an employee in each fiscal year.
The general provisions of the 1998 Stock Option Plan and the 1996 Stock
Option Plan (collectively, the "Company Stock Option Plans") are virtually
identical. A description of each of the Company Stock Option Plans is set forth
below. To the extent that any material differences between each of the Company
Stock Option Plans exist, such differences are summarized below. The description
is intended to be a summary of the material provisions of the Company Stock
Option Plans and does not purport to be complete.
ADMINISTRATION OF AND ELIGIBILITY UNDER COMPANY STOCK OPTION PLANS.
Each of the Company Stock Option Plans, 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. Each of the Company Stock Option Plans 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 each
of the Company Stock Option Plans.
Subject to the terms and conditions of each of the Company Stock Option
Plans, 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 each of the Company Stock Option Plans. However, only
employees of the Company and its subsidiaries are eligible to be granted ISOs.
STOCK OPTION AGREEMENTS. All options granted under each of the Company
Stock Option Plans 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 each of the Company Stock Option Plans need
not be identical and may include any term or condition which is not inconsistent
with each of the Company Stock Option Plans 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 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.
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An optionee of an ISO may not exercise an ISO granted under each of the
Company Stock Option Plans 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 Proxy Statement, ISOs have been granted under
the 1996 Stock Option Plan to purchase up to 25,000 shares of Common Stock at an
exercise price of $0.49 per share. All of these options have been exercised.
As of the date of this Proxy Statement, no ISOs have been granted under
the 1998 Stock Option Plan.
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 Proxy Statement, NSOs have been granted under
the 1996 Stock Option Plan to purchase up to 969,739 shares of Common Stock, all
of which have been exercised. These options had the following per share exercise
prices: 174,739 shares ($1.00), 700,000 shares ($0.50), 25,000 shares ($0.38)
and 70,000 shares ($0.25).
As of the date of this Proxy Statement, NSOs have been granted under
the 1998 Stock Option Plan to purchase up to 712,500 shares of Common Stock,
75,000 shares of which have been exercised. These options have the following per
share exercise prices: 357,500 shares ($0.28) and 280,000 shares ($0.20). The
Board of Directors agreed on March 8, 2000 to cancel the 637,500 options granted
and unexercised, and to reissue 637,500 shares at an exercise price of $0.10.
This proposal will be voted on by the Company's shareholders at the Company's
Annual Meeting of Stockholders in connection with this Proxy Statement. See
Proposal 2 - Cancellation of Options and Issuance of Replacement Options at
Reduced Exercise Price.
STOCK APPRECIATION RIGHTS. Each SAR granted under each of the Company
Stock Option Plans 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 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 each
of the Company Stock Option Plans 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 Proxy Statement, no SARs have been granted under
each of the Company Stock Option Plans.
TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under each of the Company Stock Option Plans 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
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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 each of the Company Stock Option
Plans 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 each of the Company Stock Option Plans and
the number and price of shares of Common Stock covered by each outstanding
option or SAR under each of the Company Stock Option Plans 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.
AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLANS. 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, and the 1998 Stock Option Plan will
terminate on April 8, 2008, the tenth (10th) anniversary date of the
effectiveness of the 1998 Stock Option Plan.
1996 EMPLOYEE COMPENSATORY STOCK OPTION PLAN. As of February 7, 1996,
the Company's Board of Directors adopted the 1996 Employee Compensatory Stock
Option Plan (the "Employee Stock Option Plan"). The Company has reserved for
issuance thereunder an aggregate of 500,000 shares of Common Stock. The Company
has issued non-qualified options to purchase up to 500,000 shares of Common
Stock under the Employee Stock Option Plan at an exercise price of $0.18 per
share, 473,000 of which have been exercised. The optionees are currently not
employees or affiliates of the Company. The remaining 27,000 options expire on
or about February 6, 2001, the termination date of the Employee Stock Option
Plan.
OTHER OPTIONS. The Company also has options issued and outstanding
outside of the three (3) stock option plans to purchase up to 954,495 shares of
Common Stock, at exercise prices ranging from $0.28 to $1.75 per share, to
certain directors, consultants and employees of the Company, of which 714,495
are currently exercisable.
COMPENSATION OF DIRECTORS
- -------------------------
The Board of Directors, in its March 8, 2000 meeting, authorizes the
following compensation to its outside Directors:
1. Cash payment of $500.00 for attendance at each meeting of the Board
of Directors.
2. Stock options of 20,000 shares per year, earned at a rate of 5,000
shares per quarter. Exercise price shall be based on the fair market
value of the Company's Common Stock as of the last trading day of
the preceding year.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
- ------------------------------------------
The Company has obtained directors' and officers' liability insurance
with an aggregate limit of liability for the policy year, inclusive of costs of
defense, in the amount of $2,000,000. The insurance policy expires on April 15,
2001.
LIMITATION OF DIRECTORS' LIABILITIES; INDEMNIFICATION OF OFFICERS AND DIRECTORS
- -------------------------------------------------------------------------------
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
11
<PAGE>
The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
In addition, the Company has adopted a form of indemnification
agreement (the "Indemnification Agreement") which provides the indemnitee with
the maximum indemnification allowed under applicable law. Since the Delaware
statute is non-exclusive, it is possible that certain claims beyond the scope of
the statute may be indemnifiable. The Indemnification Agreements provide a
scheme of indemnification which may be broader than that specifically provided
by Delaware law. It has not yet been determined, however, to what extent the
indemnification expressly permitted by Delaware law may be expanded, and
therefore the scope of indemnification provided by the Indemnification
Agreements may be subject to future judicial interpretation.
The Indemnification Agreement provides, in pertinent part, that the
Company shall indemnify an indemnitee who is or was a party or becomes a party
or is threatened to be made a party to any threatened, pending or completed
action or proceeding whether civil, criminal, administrative or investigative by
reason of the fact that the indemnitee is or was a director, officer, key
employee or agent of the Company or any subsidiary of the Company. The Company
shall advance all expenses, judgments, fines, penalties and amounts paid in
settlement (including taxes imposed on indemnitee on account of receipt of such
payouts) incurred by the indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding as
described above. The indemnitee shall repay such amounts advanced only if it
shall be ultimately determined that he or she is not entitled to be indemnified
by the Company. The advances paid to the indemnitee by the Company shall be
delivered within 20 days following a written request by the indemnitee. Any
award of indemnification to an indemnitee, if not covered by insurance, would
come directly from the assets of the Company, thereby affecting a stockholder's
investment.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
- ----------------------------------------------------------
Except as set forth in employment agreements of certain employees of
the Company and its subsidiaries, the Company has no compensatory plans or
arrangements which relate to the resignation, retirement or any other
termination of an executive officer or key employee with the Company or a change
in control of the Company or a change in such executive officer's or key
employee's responsibilities following a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
The Board has a Compensation Committee and an Audit Committee comprised
of the following members of the Board of Directors: Dr. Jose Spiwak and Melinda
McIntyre-Kolpin, each of whom may be deemed to be an outside/non-employee
director. The Board has no standing committee on nominations or any other
committees performing equivalent functions.
The Compensation Committee reviews and approves the annual salary and
bonus for each executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto) and administers the Company's
stock option plans and such other employee benefit plans as may be adopted by
the Company from time to time.
The Audit Committee reports to the Board regarding the appointment of
the independent auditors of the Company, the scope and fees of the prospective
annual audit and the results thereof, compliance with the Company's accounting
and financial policies and management's procedures and policies relative to the
adequacy of the Company's system of internal accounting controls.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Exchange Act requires the Company's directors and executive
officers and beneficial holders of more than 10% of the Company's Common Stock
to file with the Securities and Exchange Commission (the "Commission") initial
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<PAGE>
reports of ownership and reports of changes in ownership of such equity
securities of the Company. Based solely upon a review of such forms, or on
written representations from certain reporting persons that no other reports
were required for such persons, the Company believes that all reports required
pursuant to Section 16(a) with respect to its executive officers, directors and
10% beneficial stockholders for the fiscal year ended December 31, 1999 were
timely filed.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of April 28, 2000, the Company had issued and outstanding 9,889,878
shares of Common Stock. The following table reflects, as of April 28, 2000, the
beneficial Common Stock ownership of: (a) each director of the Company, (b) each
current executive officer named in the Summary Compensation Table in this Proxy
Statement, (c) each person known by the Company to be a beneficial owner of five
percent (5%) or more of its Common Stock, and (d) all executive officers and
directors of the Company as a group:
NAME AND ADDRESS NO. OF
OF BENEFICIAL OWNER SHARES(#) PERCENT
- ------------------- --------- -------
Medipace Medical Group, Inc.(1) 800,000 8.09%
Victor Gura, M.D.(1,2) 2,930,161 28.64%
Ronald P. Lang, M.D.(1,3) 1,498,554 15.00%
Jose Spiwak, M.D.(4) 115,000 1.16%
Melinda McIntyre-Kolpin(5) 60,000 *
Isaac Flombaum(6) 570,206 5.77%
Avraham H. Uncyk, M.D.(1,7) 1,064,913 10.77%
All executive officers
and directors as a group
(4 persons)(8) 3,803,715 36.38%
- ------------------------
(Footnotes on following page)
# Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
* Less than 1%
1. The address for Medipace and Drs. Victor Gura, Ronald P. Lang and Avraham
H. Uncyk is 5901 West Olympic Boulevard, Suite 300, Los Angeles,
California 90036. Medipace is a corporation owned by Drs. Gura, Lang and
Uncyk on a proportionate ownership interest of 67.5%, 22.5% and 10%,
respectively. Medipace is the registered owner of 800,000 shares of Common
Stock, and each of Drs. Gura, Lang and Uncyk are deemed to be the
beneficial owners of such 800,000 shares. See "Certain Relationships and
Related Transactions."
13
<PAGE>
- -------------------------
(Footnotes from previous page)
2. Dr. Gura has been granted options under the 1998 Stock Option Plan to
purchase up to 300,000 shares of Common Stock and options unrelated to the
1998 Stock Option Plan to purchase up 42,000 shares of Common Stock. The
current exercise price for 192,000 options is $0.28 per share and for
150,000 options is $0.20 per share. The Board agreed on March 8, 2000,
subject to shareholder approval at the Company's annual meeting, to
reissue 300,000 shares at an exercise of $.10. The options have vested
with respect to 192,000 shares, which expire on September 8, 2003, and
150,000 shares, which expire on January 14, 2004. Dr. Gura is the
beneficial owner of an additional 2,588,161 shares of Common Stock (which
includes 800,000 shares of Common Stock owned by an affiliate of Dr.
Gura). Further, the Company may issue an additional 2,842,185 shares of
Common Stock and warrants to purchase up to an additional 337,500 shares
of Common Stock, subject to certain future events.
3. Dr. Lang has been granted options under the 1998 Stock Option Plan to
purchase up to 102,500 shares of Common Stock. As of the date of this
proxy, the exercise price for 52,500 options is $0.28 per share and for
50,000 options is $0.20 per share. The Board agreed on March 8, 2000,
subject to shareholder approval at the Company's annual meeting, to
reissue 102,500 shares at an exercise price of $0.10. The options have
vested with respect to the 52,500 shares, which expire on September 8,
2003, and 50,000 shares, which expire on January 14, 2004. Dr. Lang is the
beneficial owner of an additional 1,396,054 shares of Common Stock (which
includes 800,000 shares of Common Stock owned by an affiliate of Dr.
Lang). Further, the Company may issue an additional 947,395 shares of
Common Stock and warrants to purchase up to an additional 112,500 shares
of Common Stock, subject to certain future events. See "Certain
Relationships and Related Transactions."
4. The address for Dr. Jose Spiwak is 3628 East Imperial Highway, Suite 402,
Lynwood, California 90262. Dr. Spiwak is the registered owner of 55,000
shares of Common Stock. Dr. Spiwak has been granted options to purchase up
to 150,000 shares of Common Stock at an exercise price of $1.00 per share,
60,000 of which have vested and the balance of which may vest subject to
certain schedules.
5. The address for Ms. McIntyre-Kolpin is 606 Broadway, Santa Monica,
California 90401. Ms. Kolpin has been granted options to purchase up to
150,000 shares of Common Stock at an exercise price of $1.00 per share,
60,000 of which have vested and the balance of which may vest subject to
certain schedules.
6. The address for Mr. Flombaum is Doblas 82, 2nd Piso, Buenos Aires,
Argentina. The 570,206 shares have been pledged as security for certain
obligations owing to the Company. See "Certain Relationships and Related
Transactions."
7. Dr. Uncyk is the beneficial owner of 1,064,913 shares (which includes
800,000 shares of Common Stock owned by an affiliate of Dr. Uncyk). Does
not include warrants to purchase up to 50,000 shares of Common Stock,
which may vest and 421,064 shares of Common Stock which may be issued
subject to certain performance levels by the Company. See "Certain
Relationships and Related Transactions."
8. Includes 3,239,215 shares of Common Stock and options to purchase up to
564,500 shares of Common Stock. Does not include options to purchase up to
180,000 shares of Common Stock, which may vest subject to certain
schedules, and warrants to purchase up to 450,000 shares of Common Stock
and 3,789,580 shares of Common Stock which may be issued subject to
certain performance levels by the Company. See "Certain Relationships and
Related Transactions."
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHARE EXCHANGE AGREEMENT; CONDITIONAL ISSUANCE OF SHARES AND WARRANTS.
On May 11, 1996, the Company, Los Angeles Community Dialysis, Inc. ("LACD"),
Victor Gura, M.D., Avraham H. Uncyk, M.D. and Ronald P. Lang, M.D. 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 of Common Stock to Drs. Gura,
Uncyk and Lang in exchange for 100% of the issued and outstanding shares of
common stock of LACD.
Up to an additional 4,210,644 shares of Common Stock and warrants to
purchase up to 500,000 shares of Common Stock, at an exercise price of $3.50 per
share, may be issued in the aggregate to Drs. Gura, Uncyk and Lang in the event
that the Company meets certain financial conditions based on the results of
operations of the Company during the fiscal years ending from December 31, 2000
to 2001, on the following basis: (i) Dr. Gura (2,842,185 shares and 337,500
warrants), (ii) Dr. Lang (947,395 shares and 112,500 warrants), and (iii) Dr.
Uncyk (421,064 shares and 50,000 warrants), which reflects the percentage
distribution ratio for the initial issuance of the shares of Common Stock in
connection with the Share Exchange Agreement to Drs. Gura, Lang and Uncyk,
respectively. The Company did not meet the required results of operations for
the fiscal year ended December 31, 1999. The 4,210,644 shares may be issued and
the 500,000 warrants may be exercisable in the event that the annual pre-tax
earnings from operations of the Company during any of the years ending from
December 31, 2000 to 2001 shall equal or exceed $2,000,000. The warrants will
expire 36 months from the initial date of exercisability of the warrants.
PLEDGE OF SHARES BY PRINCIPAL STOCKHOLDERS. The Company's principal
stockholders, Drs. Gura, Lang and Uncyk, and their affiliate, Medipace, have
pledged an aggregate of 2,650,000 shares of Common Stock as collateral for
certain obligations of such persons pursuant to certain pledge agreements to an
unaffiliated third party. So long as such obligations are not in default, such
pledgors direct the voting of their respective pledged shares.
LOANS TO AFFILIATES. Medipace has executed a demand promissory note in
favor of the Company in the principal amount of $121,151, dated September 17,
1997, which bears interest at the rate of 8% per annum. Medipace did not make
any payments on the promissory note in 1998 and 1999. During 1999, the Company
transferred $75,000 of the promissory note to a separate lease receivable in
connection with a purchase and leaseback arrangement with Medipace. The separate
$75,000 lease payable created in this transaction has a balance of $66,907 as of
December 31, 1999. As of December 31, 1999, the principal and interest amount of
the promissory note remaining payable was $57,006. Medipace has been in default
on its payment to the Company since October, 1999.
SALE OF WAREHOUSE ASSETS. As of October 18, 1996, the Company completed
the sale (the "Warehouse Sale") of certain real estate and other assets, related
to the Company's prior business operation of a potato warehouse (the "Warehouse
Assets") in Monte Vista, Colorado, to certain former affiliates of the Company
for the purchase price of approximately $1,415,000. The purchase price was paid
in the form of $550,000 in cash and two (2) promissory notes in the aggregate
amount of approximately $865,000 (subject to certain adjustments), and secured
by a pledge of 648,206 shares of Common Stock. As of April 15, 1997, the
obligors on the promissory notes assigned 630,206 of the shares of Common Stock
to Isaac Flombaum, making him a principal stockholder of the Company. Mr.
Flombaum executed a promissory note payable to the Company in the principal
amount of approximately $865,000, bearing interest at the rate of 8% per annum,
and due and payable on or before February 23, 1998. The promissory notes
executed by the initial obligors were cancelled. Further, Mr. Flombaum agreed to
pay the additional sum of approximately $135,000 to the Company on the due date
of the $865,000 promissory note, with interest accruing at the rate of ten
percent (10%) per annum from February 23, 1999, as additional consideration for
the Company's agreement to consent to the assignment of the 630,206 shares. The
obligations owing to the Company by Mr. Flombaum are secured by the 570,206
shares of Common Stock, which currently are held in escrow. Through December 31,
1999, the Company had received payment of $76,800 of accrued interest on the
promissory note in 1997 through the liquidation of 60,000 of the pledged shares.
The Company did not receive any payments on the promissory notes in 1998 and
1999. The Company has agreed to extend the maturity date of the promissory notes
through and including February 23, 2001. See "Voting Securities and Principal
Holders Thereof."
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<PAGE>
MATTERS FOR CONSIDERATION BY STOCKHOLDERS
PROPOSAL 1. ELECTION OF DIRECTORS.
Four (4) directors will be elected at the Annual Meeting, each to hold
office until the next Annual Meeting of the Stockholders of the Company or until
their successors are elected and qualify, subject to their prior death,
resignation or removal. Officers serve at the discretion of the Board of
Directors. There are no family relationships among any of the Company's
directors and executive officers. In the absence of instructions to the
contrary, shares of Common Stock represented by properly executed proxies will
be voted for the four (4) nominees listed hereinbelow, all of whom are
recommended by management of the Company and who have consented to be named and
to serve if elected.
In the event that any management nominee is unable or declines to serve
as a director at the time of the Meeting, the proxies will be voted for any
nominee who is designated by the present Board of Directors to fill the vacancy.
It is not expected that any nominee will be unable or will decline to serve as a
director.
The Board of Directors met or adopted actions by unanimous written
consent approximately eight (8) times during the year ended December 31, 1999.
All directors standing for reelection attended 100% of the meetings of the
Board.
The Board knows of no reason why any of the nominees will be
unavailable or decline to serve as a director. The information presented below
is as of April 28, 2000 and is based in part on information furnished by the
nominees and, in part, from the records of the Company.
The affirmative vote of a plurality of the combined Votes Cast at the
Meeting is required to elect the directors nominated below.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.
NOMINEES FOR ELECTION AS DIRECTOR
The following persons have been recommended by management of the
Company and have consented to be named and to serve as members of the Company's
Board of Directors if elected. Victor Gura, M.D. has been nominated to be the
Chairman of the Board of Directors. Biographies of such persons may be reviewed
in the section of this Proxy Statement entitled "Directors and Executive
Officers."
NAME DIRECTOR SINCE:
---- ---------------
Victor Gura, M.D. May, 1996
Ronald P. Lang, M.D. May, 1996
Jose Spiwak, M.D. March, 1998
Melinda McIntyre-Kolpin March, 1998
16
<PAGE>
PROPOSAL 2. CANCELLATION OF OPTIONS AND ISSUANCE OF REPLACEMENT OPTIONS AT
REDUCED EXERCISE PRICE.
On March 8, 2000, the Company's Board of Directors voted to cancel
certain options (the "Canceled Options") to purchase up to an aggregate of
637,500 shares of Common Stock pursuant to the Company's 1998 Stock Option Plan,
and to issue new options (the "Replacement Options") at a reduced exercise
price, subject to the approval of the Company's stockholders.
On September 9, 1998, the Company granted options to purchase up to
357,500 shares of Common Stock, at an exercise price of $0.28 per share, based
on the then current market price of the Common Stock, to the following persons:
Name of Optionee Number of Options
---------------- -----------------
Victor Gura, M.D. 150,000
Ronald Lang, M.D. 52,500
Ron Berkowitz 120,000
Mercedes Bin 15,000
Lois Coburn 10,000
Connie Latham 10,000
-------
Total 357,500
On March 8, 1999, the Company granted options to purchase up to
280,000 shares of Common Stock, at an exercise price of $0.20 per share, based
on the then current market price of the Common Stock, to the following persons:
Name of Optionee Number of Options
---------------- -----------------
Victor Gura, M.D. 150,000
Ronald Lang, M. D. 50,000
Ron Berkowitz 25,000
Mercedes Bin 30,000
Lois Coburn 15,000
Connie Latham 10,000
-------
Total 280,000
On March 8, 2000, a majority of the disinterested members of the
Company's Board of Directors voted to cancel all of these options and to issue
new options to these persons at an exercise price of $0.10 per share, based on
the market price of the Common Stock, as of December 31, 1999, subject to the
approval of the Company's stockholders. On April 27, 2000, the market price of
the Common Stock was approximately $0.16 per share.
Each of the Cancelled Options expired five (5) years from their
original dates of grant. The Replacement Options, if approved by the Company's
stockholders, will expire on March 8, 2005, or five (5) years from their date of
grant.
The Board of Directors determined to take this action to reduce
the exercise prices of these options based on the reduced market price for the
Common Stock following the grant of the Canceled Options for the benefit of the
optionees, all of whom were employees of the Company on the date of grant of the
Replacement Options. Victor Gura, M.D. is the Chief Executive Officer and
Chairman of the Board of Directors, Ronald Lang, M.D. is the Secretary and a
17
<PAGE>
member of the Board of Directors, and Ron Berkowitz was the Chief Financial
Officer of the Company, until his resignation on December 3, 1999. Lois Coburn
is no longer an employee of the Company.
The Board of Directors believes that the reduction in the exercise
price of the Canceled Options by the issuance of the Replacement Options at
$0.10 per share is in the best interests of the Company.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS.
Approval of the cancellation of the Canceled Options and the
issuance of the Replacement Options at an exercise price of $0.10 per share
requires the affirmative vote of a majority of the combined Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
CANCELLATION OF THE CANCELED OPTIONS AND THE ISSUANCE OF THE REPLACEMENT OPTIONS
AT A REDUCED EXERCISE PRICE OF $0.10 PER SHARE.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR.
The Board of Directors of the Company has appointed the firm of Moss
Adams LLP as independent auditors for the Company for the year ending December
31, 2000, subject to stockholder approval. The Company has been advised by Moss
Adams LLP that neither that firm nor any of its partners has any material
relationship with the Company or any affiliate of the Company.
A representative of Moss Adams LLP is expected to be present at the
Meeting to make a statement, if he or she desires to do so, and to be available
to respond to appropriate questions at the Meeting. In the event that the
stockholders disapprove the appointment of Moss Adams LLP as independent
auditors for the Company, the Board of Directors will review its selection.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the appointment of Moss Adams LLP as independent auditors
for the Company for the year ending December 31, 2000 requires the affirmative
vote of a majority of the combined Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF MOSS ADAMS LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 2000.
18
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
NATIONAL QUALITY CARE, INC.
BY: /S/ VICTOR GURA, M.D.
-----------------------
VICTOR GURA, M.D.
CHIEF EXECUTIVE OFFICER
LOS ANGELES, CALIFORNIA
APRIL 28, 2000
19
<PAGE>
P R O X Y
- - - - -
NATIONAL QUALITY CARE, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR AN ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2000
The undersigned stockholder appoints Victor Gura, M.D, as proxy with
full power of substitution, to vote the shares of voting securities of National
Quality Care, Inc. (the "Company") which the undersigned is entitled to vote at
the Annual Meeting of Stockholders to be held at Le Meridian at Beverly Hills,
465 South La Cienega Boulevard, Santa Monica Room, Los Angeles, California
90048, on June 21, 2000 at 10:00 a.m., local time, and at any adjournments
thereof, upon matters properly coming before the meeting, as set forth in the
Notice of Annual Meeting and Proxy Statement, both of which have been received
by the undersigned. Without otherwise limiting the general authorization given
hereby, such proxy is instructed to vote as follows:
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSALS INDICATED ON THIS CARD AND AS
SUCH PROXIES DEEM ADVISABLE WITH DISCRETIONARY AUTHORITY ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF.
(1) [ ] FOR ALL NOMINEES LISTED HEREIN (EXCEPT AS MARKED UP TO THE CONTRARY
BELOW).
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW)
Victor Gura, M.D. Ronald P. Lang, M.D.
Jose Spiwak, M.D. Melinda McIntyre-Kolpin
(2) To cancel certain options to purchase shares of Common Stock and issue
replacement options at a reduced exercise price.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To ratify the appointment of Moss Adams LLP, as independent auditors for
the Company for the year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting.
DATED:
------------------------ -----------------------------------------
Signature
-----------------------------------------
Signature (if held jointly)
-----------------------------------------
Print Names
(Please sign exactly as your name appears hereon.
When signing as attorney, executor, administrator,
trustee or guardian, please give your full title.
If shares are jointly held, each holder must sign.
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 CHECK THE BOXES ABOVE, SIGN, DATE AND RETURN THIS PROXY TO COLONIAL
STOCK TRANSFER COMPANY, INC., 455 E. 400 SOUTH, SUITE #100, SALT LAKE
CITY, UTAH 84111, ATTN: PROXY DEPARTMENT, IN THE SELF-ADDRESSED ENVELOPE
PROVIDED.
