SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to Rule 14a-12
|_| Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
METROPOLITAN HEALTH NETWORKS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as specified in its Charter)
METROPOLITAN HEALTH NETWORKS, INC.
--------------------------------------------------------------------------------
(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)(1) 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:
METCARE
250 South Australian Avenue
Suite 400
West Palm Beach, Florida 33401
----------------------
April 30, 2007
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Metropolitan Health Networks, Inc. that will be held at the Marriott Hotel,
1001 Okeechobee Blvd., West Palm Beach, Florida on Thursday, June 7, 2007, at
10:00 a.m. EST. I look forward to greeting as many of our shareholders as
possible.
Details of the business to be conducted at the 2007 Annual Meeting are
given in the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the 2007 Annual Meeting, it is important that
your shares be represented and voted at the meeting. Therefore, I urge you to
sign, date, and promptly return the enclosed proxy card in the enclosed
postage-paid envelope. If you decide to attend the 2007 Annual Meeting, you will
of course be able to vote in person, even if you have previously submitted your
proxy card.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of Metropolitan.
Sincerely,
/s/ Michael M. Earley
Michael M. Earley
Chairman and Chief Executive Officer
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METROPOLITAN HEALTH NETWORKS, INC.
250 South Australian Avenue
Suite 400
West Palm Beach, Florida 33401
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JUNE 7, 2007
----------------------
To the Shareholders of
Metropolitan Health Networks, Inc.:
NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of Shareholders
(the "Annual Meeting") of Metropolitan Health Networks, Inc., a Florida
corporation ("Metropolitan"), will be held on Thursday, June 7, 2007 at 10:00
a.m. EST, at the Marriott Hotel, 1001 Okeechobee Blvd., West Palm Beach,
Florida, for the following purposes:
o To elect seven members to Metropolitan's Board of Directors to hold
office until the next annual meeting of shareholders or until their
successors are duly elected and qualified;
o To consider and vote upon a proposal to approve of and ratify the
selection of Grant Thornton LLP as Metropolitan's independent auditors
for the fiscal year ending December 31, 2007;
o To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend; however, only
shareholders of record at the close of business on Friday, April 13th, 2007 are
entitled to vote at the Annual Meeting or any adjournments thereof.
By Order of the Board of Directors,
/s/ Roberto L. Palenzuela, Esq.
Roberto L. Palenzuela, Esq.
General Counsel and Secretary
West Palm Beach, Florida
April 30, 2007
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE
MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
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TABLE OF CONTENTS
Page
PURPOSES OF THE MEETING...........................................................................................1
GENERAL INFORMATION ABOUT VOTING..................................................................................2
WHO CAN VOTE AT THE ANNUAL MEETING?...........................................................................2
HOW DO I VOTE BY PROXY?.......................................................................................2
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY CARD?..........................2
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?............................................................2
WHEN WAS THIS PROXY STATEMENT SENT TO SHAREHOLDERS?...........................................................2
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?..........................................................2
WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?..........................................................2
HOW ARE VOTES COUNTED?........................................................................................3
WHO PAYS FOR THIS PROXY SOLICITATION?.........................................................................3
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS...................................................................4
ELECTION OF DIRECTORS.............................................................................................5
INFORMATION ABOUT DIRECTOR NOMINEES...........................................................................5
APPROVAL AND RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS...........................................8
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES............................................................9
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S INDEPENDENCE AND ATTENDANCE AT THE ANNUAL MEETING.............9
AUDIT COMMITTEE PRE-APPROVAL POLICY...........................................................................9
REPORT OF THE AUDIT COMMITTEE................................................................................10
CORPORATE GOVERNANCE.............................................................................................12
CORPORATE GOVERNANCE GUIDELINES..............................................................................12
DIRECTOR INDEPENDENCE AND FAMILY RELATIONSHIPS...............................................................12
NOMINATIONS FOR DIRECTORS....................................................................................12
COMMUNICATION WITH THE BOARD OF DIRECTORS....................................................................13
CODE OF ETHICS...............................................................................................13
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS.......................................................................13
LEGAL PROCEEDINGS............................................................................................13
MEETINGS AND COMMITTEES OF THE BOARD.............................................................................14
THE BOARD....................................................................................................14
BOARD COMMITTEES.............................................................................................14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..................................................15
DIRECTOR COMPENSATION............................................................................................15
BOARD RETAINER FEES..........................................................................................15
MEETING FEES.................................................................................................15
STOCK AND OPTION AWARDS......................................................................................15
EXPENSE REIMBURSEMENT........................................................................................16
EMPLOYEE DIRECTORS...........................................................................................16
DIRECTOR SUMMARY COMPENSATION TABLE..........................................................................16
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EXECUTIVE COMPENSATION...........................................................................................16
COMPENSATION DISCUSSION & ANALYSIS...........................................................................16
COMPENSATION COMMITTEE REPORT................................................................................22
SUMMARY COMPENSATION TABLE...................................................................................22
2006 GRANTS OF PLAN BASED AWARDS.............................................................................24
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006...............................................................27
2006 OPTION EXERCISES........................................................................................28
PENSION BENEFITS.............................................................................................28
NONQUALIFIED DEFINED CONTRIBUTION AN OTHER NONQUALIFIED DEFERRED COMPENSATION PLANS..........................28
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL.....................................................28
SECURITY OWNERSHIP...............................................................................................32
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.......................................................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS..............................................................33
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..........................................................34
PERFORMANCE GRAPH................................................................................................34
REVIEW OF RELATED PARTY TRANSACTIONS.............................................................................35
ANNUAL REPORT TO SHAREHOLDERS....................................................................................35
OTHER BUSINESS...................................................................................................35
2008 SHAREHOLDER PROPOSALS...................................................................................35
PROCEDURES FOR NOMINATING OR RECOMMENDING FOR NOMINATION CANDIDATES FOR DIRECTOR.............................35
OTHER MATTERS................................................................................................37
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2007 ANNUAL MEETING OF SHAREHOLDERS
OF
METROPOLITAN HEALTH NETWORKS, INC.
PROXY STATEMENT
June 7, 2007, 10:00 a.m. EST
Marriott Hotel
1001 Okeechobee Blvd.
West Palm Beach, Florida
This Proxy Statement is furnished in connection with the solicitation by our
Board of Directors of proxies from the holders of our common stock (the "Common
Stock"), for use at our 2007 Annual Meeting of Shareholders, to be held at the
Marriott Hotel, 1001 Okeechobee Blvd., West Palm Beach, Florida on Thursday,
June 7, 2007, at 10:00 a.m. EST, or at any adjournment(s) or postponement(s)
thereof, pursuant to the foregoing Notice of Annual Meeting of Shareholders.
The approximate date that this Proxy Statement and the enclosed form of
proxy are first being sent to our shareholders is April 30, 2007. Shareholders
should review the information provided herein in conjunction with our 2006
Annual Report on Form 10-K, which accompanies this Proxy Statement. The complete
mailing address, including zip code, of our principal executive offices is 250
South Australian Avenue, Suite 400, West Palm Beach, Florida 33401 and our
telephone number is (561) 805-8500.
PURPOSES OF THE MEETING
At the Annual Meeting, our shareholders will consider and vote upon the
following matters:
1. The election of seven members to our Board of Directors to serve
until our next Annual Meeting of Shareholders or until their successors are duly
elected and qualified;
2. To consider and vote upon a proposal to approve of and ratify the
selection of Grant Thornton LLP ("Grant Thornton") as our independent auditors
for the fiscal year ending December 31, 2007; and
3. Such other business as may properly come before the 2007 Annual
Meeting, including any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy card,
all shares represented by valid proxies received pursuant to this solicitation
(and which have not been revoked in accordance with the procedures set forth
below) will be voted: (1) FOR the election of the seven nominees for director
named below; and (2) FOR the approval of and ratification of Grant Thornton as
our independent auditors for the fiscal year ending December 31, 2007.
In the event a shareholder specifies a different choice by means of the
enclosed proxy card, his or her shares will be voted in accordance with the
specification so made. The Board of Directors does not know of any other matters
that may be brought before the Annual Meeting nor does it foresee or have reason
to believe that proxy holders will have to vote for substitute or alternate
director nominees. In the event that any other matter should come before the
Annual Meeting or any director nominee is not available for election, the
persons named in the enclosed proxy card will have discretionary authority to
vote all proxies not marked to the contrary with respect to such matters, in
accordance with their best judgment.
-1-
GENERAL INFORMATION ABOUT VOTING
Who can vote at the Annual Meeting?
You can vote or direct the voting of your shares of Common Stock if our
records show that you owned the shares on Friday, April 13, 2007. A total of
50,270,964 shares of Common Stock can vote at the Annual Meeting. You are
entitled to one vote for each share of Common Stock. The enclosed proxy card
shows the number of shares you can vote.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each
proposal to be considered at the Annual Meeting. Sign and date the proxy card
and mail it back to us in the enclosed envelope. The proxyholders named on the
proxy card will vote your shares as you instruct. If you sign and return the
proxy card but do not vote on a proposal, the proxyholders will vote for you on
that proposal. Unless you instruct otherwise, the proxyholders will vote for
each of the seven director nominees and in favor of the ratification of the
auditors.
Can I vote in person at the Annual Meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card to
ensure that your vote is counted, you can attend the Annual Meeting and vote
your shares in person.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change or
revoke your vote by:
o giving our Secretary a written notice revoking your proxy card at or
before the Annual Meeting;
o signing, dating, and returning to us a new proxy card at or before
the Annual Meeting; or
o attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy.
Any written notice of revocation or subsequent proxy may be sent to Metropolitan
Health Networks, Inc., Attn: Roberto Palenzuela, Secretary, 250 South Australian
Avenue, Suite 400, West Palm Beach, Florida 33401, or hand delivered to our
Secretary at or before voting at the Annual Meeting.
When was this proxy statement sent to shareholders?
This proxy statement was first mailed on April 27, 2007 to our
shareholders of record as of April 13, 2007, the record date for voting at the
Annual Meeting.
What if other matters come up at the Annual Meeting?
The matters described in this proxy statement are the only matters we
know will be voted on at the Annual Meeting. If other matters are properly
presented at the meeting, the proxyholders will vote your shares as they see
fit.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker, a bank, or other
nominee, that party should give you instructions for voting your shares.
-2-
How are votes counted?
We will hold the Annual Meeting if holders of a majority of the shares
of Common Stock entitled to vote either sign and return their proxy cards or
attend the meeting. If you sign and return your proxy card, your shares will be
counted to determine whether we have a quorum even if you abstain or fail to
vote on any of the proposals listed on the proxy card.
If your shares are held in the name of a broker or other nominee, and
you do not instruct the nominee in a timely fashion how to vote your shares
(so-called "Broker Nonvotes"), the broker or nominee can vote your shares as it
sees fit only on matters that are determined to be routine, and not on any other
proposal. Broker Nonvotes will be counted as present to determine if a quorum
exists at the Annual Meeting but will not be counted as present and entitled to
vote on any non-routine proposal.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, we may engage a
proxy solicitation firm to contact you directly by telephone, mail or in person.
We will bear such costs, if any, which are not expected to exceed $5,000.
-3-
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on Friday, April
13, 2007 as the record date (the "Record Date") for determining shareholders
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 50,270,964 shares of Common Stock issued and outstanding, all of
which are entitled to be voted at the Annual Meeting.
Each share of Common Stock is entitled to one vote on each matter
submitted to shareholders for approval at the Annual Meeting.
Shareholders do not have the right to cumulate their votes for
directors.
Our Amended and Restated Bylaws (the "Bylaws") provide that the
presence, in person or by proxy, of the holders of record of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum.
Pursuant to the Bylaws, the seven persons receiving the highest number
of votes cast in his or her favor by the shares of Common Stock represented in
person or by proxy at the Annual Meeting will be elected as directors (Proposal
No. 1). Pursuant to the Bylaws, the affirmative vote of a majority of the
outstanding shares of Common Stock represented in person or by proxy at the
Annual Meeting is required to approve the ratification of auditors (Proposal No.
2).
Abstentions are counted as present for purposes of determining the
presence of a quorum. Abstentions are not counted as votes cast "for" or
"against" the election of any director (Proposal No. 1). However, abstentions
are treated as present and entitled to vote and thus have the effect of a vote
against the ratification of auditors (Proposal No. 2).
If less than a majority of the outstanding shares of Common Stock
entitled to vote are represented at the Annual Meeting, a majority of the shares
so represented may adjourn the Annual Meeting to another date, time or place,
and notice need not be given for the new date, time or place, if the new date,
time or place is announced at the Annual Meeting before an adjournment is taken.
Prior to the Annual Meeting, we will select one or more inspectors of
election for the meeting. Such inspectors shall determine the number of shares
of Common Stock represented at the Annual Meeting, the existence of a quorum and
the validity and effect of proxies and shall receive, count and tabulate ballots
and votes and determine the results thereof.
A list of shareholders entitled to vote at the Annual Meeting will be
available at our offices, 250 South Australian Avenue, Suite 400, West Palm
Beach, Florida 33401, for a period of ten (10) days prior to the Annual Meeting
and at the Annual Meeting itself, for examination by any shareholder.
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ELECTION OF DIRECTORS
(Proposal No. 1)
The size of our Board of Directors is currently set at seven members
and there are currently seven persons serving on the Board of Directors.
Pursuant to our Bylaws, the Board of Directors must consist of no less than one
and no more than eleven directors, with the exact number of directors to be
determined from time to time by resolution duly adopted by the Board of
Directors.
Seven directors are to be elected at the Annual Meeting to hold office
until the next Annual Meeting of Shareholders or until their successors are
elected and qualified. It is intended that the accompanying proxy will be voted
in favor of the following persons to serve as directors unless the shareholder
indicates to the contrary on the proxy card. Under Florida law and our Bylaws,
the seven persons receiving the highest number of votes cast in his or her favor
in person or by proxy at the Annual Meeting will be elected to our Board of
Directors. Management expects that each of the nominees will be available for
election, but if any of them is not a candidate at the time the election occurs,
it is intended that such proxy will be voted for the election of another nominee
to be recommended by the Governance & Nominating Committee and designated by the
Board of Directors. Each of the seven director nominees listed below, all of
whom currently serve as members of our Board of Directors, has been recommended
by the Governance & Nominating Committee of the Board of Directors.
The Board of Directors recommends a vote FOR the seven director
nominees listed below:
Name Age Position
---- --- --------
Michael M. Earley.............................. 51 Chairman of the Board of Directors and Chief
Executive Officer
David A. Florman............................... 54 Director
Martin W. Harrison, M.D........................ 54 Director
Eric Haskell, CPA.............................. 60 Director
Karl M. Sachs, CPA............................. 70 Director
Robert E. Shields.............................. 59 Director
Barry T. Zeman ................................ 61 Director
Information About Director Nominees
MICHAEL M. EARLEY has served as our Chairman and Chief Executive
Officer since March 2003 and was appointed Chairman of the Board in September
2004. He previously served as a member of our Board of Directors from June 2000
to December 2002. From January 2002 until February 2003, Mr. Earley was
self-employed as a corporate consultant. Previously, from January 2000 through
December 2002, he served as Chief Executive Officer of Collins Associates, an
institutional money management firm. From 1997 through December 1999, Mr. Earley
served as Chief Executive Officer of Triton Group Management, a corporate
consulting firm. From 1986 to 1997, he served in a number of senior management
roles, including CEO and CFO of Intermark, Inc. and Triton Group Ltd., both
publicly traded diversified holding companies and from 1978 to 1983, he was an
audit and tax staff member of Ernst & Whinney. Mr. Earley received his
undergraduate degrees in Accounting and Business Administration from the
University of San Diego.
DAVID A. FLORMAN joined our Board of Directors in April 2006. In May
2005, Mr. Florman founded DFI Consulting, Ltd, a boutique consulting firm
serving the health care marketplace and currently serves as its President. He
has over 30 years of broad professional experience in the health care industry.
He has held senior executive positions in the healthcare provider sector with
community hospitals and key academic medical centers as well as leadership roles
in the payer/insurance community with regional and national managed care
organizations. These include United Health Group, Inc., where he served as
Regional Vice President from December 2003 through June 2005, Empire Blue Cross
Blue Shield, where he served as Senior Vice President of Medical Delivery and
Medicare Risk from March 2001 through September 2003 and Aetna, Inc., where he
served in a variety of positions between July 1990 and February 2001. At Aetna,
Mr. Florman served as, among other things, Head of the National Medical Cost
Management, Market/Health Delivery Strategic Initiative Team Lead and Head of
the National Medical Management Strategy. Mr. Florman received a Bachelors of
Arts Degree from New York University in 1973 and a Masters Degree in Business
Administration with a concentration in Health Care Administration from The City
University of New York in May 1976.
-5-
MARTIN W. HARRISON, M.D. has served as a member of our Board of
Directors since November 2000. From June 2000 to March 2003, Dr. Harrison also
served as an advisor to our Board of Directors. Since May 1999, Dr. Harrison has
owned and served as President of H30, Inc. a privately held research &
biomedical company. Dr. Harrison is a self-employed medical doctor and has
practiced medicine in South Florida since July 1991, specializing in preventive
and occupational medicine. Dr. Harrison earned his undergraduate degree at the
University of Illinois and obtained his postgraduate and residency training as
well as his Masters in Public Health from Johns Hopkins University.
ERIC HASKELL, CPA joined our Board of Directors in August 2004. Mr.
Haskell is a certified public accountant with over 30 years of experience in
senior financial positions at several public and private companies. He has
significant expertise in the areas of acquisitions and divestitures, strategic
planning and investor relations. Since December 2005, Mr. Haskell has served as
the Executive Vice President and Chief Financial Officer of SunCom Wireless
Holdings, Inc., a publicly traded company providing digital wireless
communications services. He also has served as a member of the SunCom's Board of
Directors since November 2003. From 1989 until April 2004, Mr. Haskell served as
the Chief Financial Officer of Systems & Computer Technology Corp., a NASDAQ
listed software and services corporation. Mr. Haskell has served on the Board of
the Philadelphia Ronald McDonald House since 1996 and currently serves as
Chairman of its Finance Committee. Mr. Haskell received his Bachelors Degree in
Business Administration from Adelphi University in 1969.
KARL M. SACHS, CPA rejoined our Board of Directors in September 2002
after previously serving as a member of our Board of Directors from March 1999
to December 2001. Since 1974, he has served as the President of the Miami-based
public accounting firm of Sachs & Foccaraci, P.A., which he founded. Mr. Sachs
is a qualified litigation expert for the U.S. Federal District Court, U.S.
District Court, U.S. Bankruptcy Court and Circuit Courts of Dade and Broward
Counties and has previously served as an auditor for the Internal Revenue
Service. He received his Bachelors Degree in Business Administration in 1957
from the University of Miami. A certified public accountant for more than 30
years, Mr. Sachs is a member of the American Institute of Certified Public
Accountants, Personal Financial Planning and Tax Sections; Florida Institute of
Certified Public Accountants; and the National Association of Certified
Valuation Analysts.
ROBERT "GENE" SHIELDS joined our Board of Directors in May 2006. In May
2005, Mr. Shields founded RES Consulting, LLC, a consulting firm providing
services to the Veteran Benefits Administration and currently serves as its
President. Prior to founding RES Consulting, Mr. Shields was employed for over
ten years by Humana, Inc. in a variety of positions, including Senior Vice
President of Government and Senior Products from June 2004 through April 2005,
Senior Vice President of Government Programs from July 2001 through June 2004,
Senior Vice President of Development from January 2000 through July 2001 and
Vice President of Humana and President and Chief Executive Officer of Humana
Military Healthcare Services from July 1994 through January 2000. Mr. Shields
has been awarded numerous military decorations and, from July 1992 through July
1994, he was Colonel and Chief of the Air Force Office of the Surgeon General
Managed Care Division. Mr. Shields received a Bachelors Degree in Business
Administration from the Citadel in 1970, a Masters Degree in Systems Management
from the University of California in 1974 and a Masters in Health Administration
from the Medical College of Virginia at Virginia Commonwealth University in
1981. Mr. Shields is also a Distinguished Graduate of the Industrial College of
Armed Forces and a Fellow of the American College of Healthcare Executives.
-6-
BARRY T. ZEMAN joined our Board of Directors in August 2004. Mr. Zeman
has 34 years of health care industry and hospital management experience. In
1989, Mr. Zeman founded U.S. Business Development Corp., a private consulting
firm offering comprehensive and consultative solutions to professionals in the
areas of health care finance, construction, physician group practices, hospital
association activities and health care law. He has served as President of U.S.
Business Development Corp. since its inception. In May 2004, Mr. Zeman was
appointed Regional Business Development Manager for Wells Fargo Home Mortgage.
Mr. Zeman has operated in the capacity of President and/or Chief Executive
Officer of several hospital organizations throughout the State of New York. He
served as Associate Director of the Long Island Jewish Medical Center from 1971
through 1976. He served as President and Chief Executive Officer of Staten
Island University Hospital from 1976 to 1989 and was President and Chief
Executive Officer of St. Charles Hospital and Rehabilitation Center from 1991
through 2000. From 2000 through February 2003, Mr. Zeman served as President of
the Parker Jewish Institute, a private not-for-profit rehabilitative, sub-acute
and long-term care institution. He currently serves as the Vice Chair of the
Building & Grounds Committee and a member of the Board of Trustees of Adelphi
University and has served on the Board of Trustees of Adelphi University since
1997. Mr. Zeman received his Bachelors Degree in Business Administration from
the University of Cincinnati in 1969 and graduated with a Master's Degree in
Public Health from the Program in Health Care Administration, Graduate School of
Public Health at the University of Pittsburgh in 1971.
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS
VOTE "FOR" EACH OF THE SEVEN DIRECTOR NOMINEES LISTED ABOVE.
-7-
APPROVAL AND RATIFICATION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
(Proposal No. 2)
The Audit Committee is responsible for the appointment, compensation,
retention and oversight of the work of our independent registered public
accounting firm.
On August 18, 2006, we dismissed Kaufman, Rossin & Co., P.A.
("Kaufman") as our independent registered public accounting firm. The decision
to dismiss Kaufman was approved by our Audit Committee.
Kaufman's audit reports on our financial statements for the fiscal
years ended December 31, 2005 and December 31, 2004 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The audit report of Kaufman
on management's assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control over financial
reporting as of December 31, 2005 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the fiscal years ended December 31, 2005
and December 31, 2004 and in the subsequent interim period from January 1, 2006
through August 18, 2006, there were:
(i) no disagreements between us and Kaufman on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Kaufman, would have caused Kaufman to make reference to the subject matter of
the disagreement in their reports on the financial statements for such years;
and
(ii) no "reportable events" as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
We have provided Kaufman with a copy of the disclosure set forth above.
On August 24, 2006, we engaged Grant Thornton as our new independent
registered public accounting firm. The decision to engage Grant Thornton was
approved by our Audit Committee. During the fiscal years ended December 31, 2005
and December 31, 2004 and in the subsequent interim period from January 1, 2006
through August 24, 2006, neither us nor anyone acting on our behalf consulted
with Grant Thornton regarding any of the matters or events set forth in Item
304(a)(2) of Regulation S-K. We have provided Grant Thornton with a copy of the
disclosure set forth in this paragraph.
The Audit Committee has designated Grant Thornton as our independent
registered public accounting firm for the fiscal year ending December 31, 2007.
The Audit Committee has considered whether Grant Thornton's provision of
services other than audit services is compatible with maintaining independence
as the Company's independent registered public accounting firm.
Although ratification by shareholders is not a prerequisite to the
ability of the Audit Committee to select Grant Thornton as our independent
registered public accounting firm, we believe such ratification to be desirable.
Accordingly, shareholders are being requested to ratify, confirm and approve the
selection of Grant Thornton as our independent registered public accounting firm
to conduct the annual audit of our consolidated financial statements for the
year ending December 31, 2007. If the shareholders do not ratify the selection
of Grant Thornton, the selection of the independent registered public accounting
firm will be reconsidered by the Audit Committee; however, the Audit Committee
may select Grant Thornton notwithstanding the failure of the shareholders to
ratify its selection. If the appointment of Grant Thornton is ratified, the
Audit Committee will continue to conduct an ongoing review of Grant Thornton's
scope of engagement, pricing and work quality, among other factors, and will
retain the right to replace Grant Thornton at any time.
The Audit Committee selected Grant Thornton as the best firm to deliver
independent audits in light of factors such as the auditor's depth of
experience, breadth of reserves, commitment to provide exceptional service,
ability to handle transaction issues and location of key personnel.
-8-
Independent Registered Public Accounting Firm Fees
Aggregate fees billed to us for the fiscal years ended December 31,
2006 and December 31, 2005 by our independent registered public accounting
firms, Grant Thornton and Kaufman (each an "Accounting Firm" and together, the
"Accounting Firms"), are as follows:
2006(1) 2005(2)
-------
-------------------------------------------
Type of Fees Grant Thornton Kaufman Kaufman
------------ -------------- ------- -------
Audit Fees (3) $606,000(6) $72,894 $609,095
Audit Related Fees (4) - - $2,832
Tax Fees (5) - - $38,415
All Other Fees - - -
-----------------------------------------------------
(1) The 2006 fees billed to us by the Accounting Firms were, in aggregate,
$678,894.
(2) The 2005 fees represent the aggregate fees billed to us solely by Kaufman.
(3) Represents the aggregate fees billed to us by each respective Accounting
Firm during the applicable fiscal year for professional services rendered for
the audit of our annual consolidated financial statements, the reviews of the
financial statements included in our Quarterly Reports on Form 10-Q and the
audits of our internal controls and/or services normally provided by such
Accounting Firm in connection with statutory or regulatory filings or
engagements by us during such fiscal year.
(4) Represents the aggregate fees billed to us by each respective Accounting
Firm during the applicable fiscal year for assurance and related services
reasonably related to the performance of the audit of our annual financial
statements for those years. For 2005, all audit-related fees were incurred in
connection with SEC registration statement consent procedures.
(5) Represents the aggregate fees billed to us by each respective Accounting
Firm during the applicable fiscal year for the preparation of our federal and
state income tax returns. The "Tax Fees" also included fees billed for
professional services related to tax compliance. Independent Registered Public
Accounting Firm's Independence and Attendance at the Annual Meeting.
(6) Includes (i) $74,000 billed to us in connection with the review of the
financial statements included in our Quarterly Reports on Form 10-Q and (ii)
$532,000 billed to us in connection with the audit of our 2006 annual audited
consolidated financial statements, $290,000 of which was not billed to us until
fiscal 2007.
We believe that Grant Thornton has no direct or indirect financial
interest in us or in any of our subsidiaries, nor has it had any connection with
us or any of our subsidiaries in the capacity of promoter, underwriter, voting
trustee director, officer or employee.
We anticipate representatives of Grant Thornton will be present at the
meeting of shareholders and will be afforded an opportunity to make a statement,
if they desire to do so. It is also expected that they will be available to
respond to appropriate questions.
Audit Committee Pre-Approval Policy
Consistent with policies of the Securities and Exchange Commission
regarding auditor independence, the Audit Committee has responsibility for the
appointment, compensation and oversight of the work of the independent auditor.
As part of this responsibility, the Audit Committee has adopted, and our Board
has ratified, an Audit and Non-Audit Services Pre-Approval Policy pursuant to
which the Audit Committee is required to pre-approve the audit and non-audit
services performed by our independent registered public accounting firm in order
to assure that these services do not impair the auditor's independence from us.
Prior to engagement of the independent auditor for the next year's
audit, the independent auditor and the Chief Financial Officer submit a list of
services and related fees expected to be rendered during that year within each
of four categories of services to the Audit Committee for approval:
(i) Audit Services: Audit services include the annual financial
statement audit (including required quarterly reviews), subsidiary audits,
equity investment audits and other procedures required to be performed by the
independent auditor to be able to form an opinion on our consolidated financial
statements. Audit Services also include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit or
quarterly review as well as the attestation engagement for the independent
auditor's report on management's report on internal controls for financial
reporting.
-9-
(ii) Audit-Related Services: Audit-related services are assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements, including due diligence related to potential
business acquisitions/dispositions, accounting consultations related to
accounting, financial reporting or disclosure matters not classified as "Audit
Services," assistance with understanding and implementing new accounting and
financial reporting guidance from rulemaking authorities, financial audits of
employee benefit plans, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements.
(iii) Tax Services: Tax services include services such as tax
compliance, tax planning and tax advice; however, the Audit Committee will not
permit the retention of the independent registered public accounting firm in
connection with a transaction initially recommended by the independent
registered public accounting firm, the sole business purpose of which may be tax
avoidance and treatment which may not be supported in the Internal Revenue Code
and related regulations.
(iv) All Other Services: All other services are those permissible
non-audit services that the Audit Committee believes are routine and recurring
and would not impair the independence of the auditor and are consistent with the
Securities & Exchange Commission's rules on auditor independence.
Prior to engagement, the Audit Committee pre-approves the services and
fees of the independent auditor within each of the above categories. During the
year, it may become necessary to engage the independent auditor for additional
services not previously contemplated as part of the engagement. In those
instances, the Audit and Non-Audit Services Pre-Approval Policy requires that
the Audit Committee specifically approve the services prior to the independent
auditor's commencement of those additional services. Under the Audit and
Non-Audit Services Pre-Approval Policy, the Audit Committee may delegate the
ability to pre-approve audit and non-audit services to one or more of its
members provided the delegate reports any pre-approval decision to the Audit
Committee at its next scheduled meeting. As of the date hereof, the Audit
Committee has not delegated its ability to pre-approve audit services.
All of the 2005 and 2006 fees paid to the Accounting Firms described
above were pre-approved by the full Audit Committee in accordance with the Audit
and Non-Audit Services Pre-Approval Policy.
Report of the Audit Committee
The Audit Committee is responsible for overseeing our financial
reporting process on behalf of the Board of Directors. In this oversight role,
the Audit Committee relies on the work and assurances of our management, which
has the primary responsibility for financial statements and reports, including
the system of internal controls, and of the independent auditors, who, in their
report, express an opinion on the conformity of our annual financial statements
to generally accepted accounting principles in the United States.
In fulfilling its oversight responsibilities, the Audit Committee has
reviewed and discussed with management and the independent auditors our audited
financial statements contained in our Annual Report on Form 10-K for the year
ended December 31, 2006, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements.
The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as amended. In addition, the Audit
Committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). The Audit Committee has
substantively discussed with the independent auditors the auditors' independence
from us and our management. The Audit Committee has also considered the
compatibilities of non-audit services with the auditors' independence.
-10-
The Audit Committee discussed with our independent auditors the overall
scope and plans for their audit. The Audit Committee met with our independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of our internal controls, and the overall
quality of our financial reporting.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited financial statements be included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2006, for filing with the Securities
and Exchange Commission.
The Audit Committee
Karl M. Sachs, CPA
David A. Florman
Martin W. Harrison, M.D.
Eric Haskell, CPA
Barry T. Zeman
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS
VOTE "FOR" THE APPROVAL AND RATIFICATION OF GRANT THORNTON LLP AS
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS.
-11-
CORPORATE GOVERNANCE
Corporate Governance Guidelines
We have adopted corporate governance guidelines, which are available at
www.metcare.com. The Corporate Governance Guidelines are also available in print
to any shareholder who requests it. These principles were adopted by the Board
to promote the effective functioning of the Board and its committees, to promote
the interests of shareholders and other stakeholders of the Company, and to
ensure a common set of expectations as to how the Board, the committees of the
Board, individual directors and management should perform their functions
Director Independence and Family Relationships
We define an "independent" director in accordance with Section 121A of
the AMEX Company Guide. Because it is not possible to anticipate or explicitly
provide for all potential conflicts of interest that may affect independence,
the Board, with the recommendation of the Governance & Nominating Committee, is
responsible for affirmatively determining as to each independent director that
no relationships exist which, in the opinion of the Board, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a
director. In making these determinations, the Board and the Governance &
Nominating Committee each review information provided by the directors with
regard to each director's business and personal activities as they may relate to
the us and our management.
Our Board of Directors, upon the recommendation of the Governance &
Nominating Committee, has affirmatively determined that each of the following
persons, constituting a majority of our Board of Directors, are "independent"
and has no relationship with us, except for serving as a member of our Board of
Directors and holding our securities: David A. Florman, Martin W. Harrison, Eric
Haskell, Karl M. Sachs, Robert E. Shields and Barry T. Zeman. The Board further
determined that Michael M. Earley is not independent because he is our President
and Chief Executive Officer.
There are no family relationships among our officers and directors, nor
are there any arrangements or understandings between any of our directors or
officers or any other person pursuant to which any officer or director was or is
to be selected as an officer or director.
Nominations for Directors
The Governance & Nominating Committee's Charter provides that
shareholder nominees to the Board of Directors will be evaluated using the same
guidelines and procedures used in evaluating nominees nominated by other
persons. In evaluating director nominees, the Governance & Nominating Committee
considers the following factors:
o the appropriate size and the diversity of our Board;
o our needs with respect to the particular talents and experience of
our directors;
o the knowledge, skills and experience of nominees, including
experience in technology, business, finance, healthcare,
administration or public service, in light of prevailing business
conditions and the knowledge, skills and experience already
possessed by other members of the Board;
o familiarity with national and international business matters;
o experience in political affairs;
o experience with accounting rules and practices;
o whether such person qualifies as an "audit committee financial
expert" pursuant to SEC rules;
o appreciation of the relationship of our business to the changing
needs of society; and
o the desire to balance the considerable benefit of continuity with
the periodic injection of the fresh perspective provided by new
members.
-12-
In identifying director nominees, the Governance & Nominating Committee
will first evaluate the current members of the Board of Directors willing to
continue in service. Current members of the Board with skills and experience
that are relevant to our business and who are willing to continue in service
shall be considered for re-nomination, balancing the value of continuity of
service by existing members of the Board with that of obtaining a new
perspective. Generally, the Governance & Nominating Committee strives to
assemble a Board of Directors that brings to us a variety of perspectives and
skills derived from business and professional experience. In doing so, the
Governance & Nominating Committee also considers candidates with appropriate
non-business backgrounds. If any member of the Board does not wish to continue
in service or if the Governance & Nominating Committee or the Board decides not
to re-nominate a member for re-election, the Governance & Nominating Committee
identifies the desired skills and experience of a new nominee in light of the
criteria above. Other than the foregoing, there are no specific, minimum
qualifications that the Governance & Nominating Committee believes that a
Committee-recommended nominee to the Board of Directors must possess, although
the Governance & Nominating Committee may also consider such other factors as it
may deem are in our best interests or the best interests of our shareholders.
In its deliberations, the Governance & Nominating Committee is aware
that our Board must be comprised of a majority of "independent" directors, as
such term is defined by the AMEX Company Guide, and at least one director who
qualifies as an "audit committee financial expert" as defined by SEC rules. The
Governance & Nominating Committee also believes it appropriate for certain key
members of our management to participate as members of the Board.
The Governance & Nominating Committee and Board of Directors are polled
for suggestions as to individuals meeting the criteria of the Governance &
Nominating Committee. Research may also be performed to identify qualified
individuals. To date, we have not engaged third parties to identify or evaluate
or assist in identifying potential nominees. We reserve the right in the future
to retain a third party search firm, if necessary.
Communication with the Board of Directors
We have a Shareholder Communication Policy for shareholders wishing to
communicate with various Board committees and individual members of the Board of
Directors. Shareholders wishing to communicate with the Board of Directors, our
Governance & Nominating Committee, and specified individual members of the Board
of Directors can send communications to the Board of Directors and, if
applicable, to the Governance & Nominating Committee or to specified individual
directors in writing c/o Roberto L. Palenzuela, General Counsel and Secretary,
Metropolitan Health Networks, Inc., 250 South Australian Avenue, Suite 400, West
Palm Beach, Florida 33401. We do not screen such mail and all such letters will
be forwarded to the intended recipient.
Code of Ethics
As part of our system of corporate governance, our Board of Directors
has adopted a code of ethics that is specifically applicable to our Chief
Executive Officer and senior financial officers. This Code of Ethics for Senior
Financial Officers, as well as our Code of Business Conduct and Ethics,
applicable to all directors, officers and employees, are available on our web
site at www.metcare.com. If we make substantive amendments to this Code of
Business Conduct and Ethics or grant any waiver, including any implicit waiver,
we will disclose the nature of such amendment or waiver on our website or in a
report on Form 8-K.
Director Attendance at Annual Meetings
We have adopted a formal written policy regarding attendance by members
of the Board of Directors at Annual Meetings of Shareholders. While members of
our Board of Directors are not required to be present at our Annual Meetings,
all members of our Board of Directors are welcome and encouraged to attend. All
the members of our Board of Directors were able to attend the 2006 annual
meeting.
Legal Proceedings
There are no pending, material legal proceedings to which any
of our directors, officers or affiliates, any owner of record or beneficially of
more than five percent of any class of our voting securities, or any associate
of any such director, officer, affiliate, or security holder is a party adverse
to us or any of our subsidiaries or has a material interest adverse to us.
-13-
MEETINGS AND COMMITTEES OF THE BOARD
The Board
Directors are expected to attend meetings of the Board and any Board
committees on which they serve. During the fiscal year ended December 31, 2006,
our Board of Directors held twelve meetings and took two actions by unanimous
written consent. Committees of the Board of Directors held a total of 36
meetings and took no actions by unanimous written consent. All directors
attended 75% or more of the aggregate of all meetings of the Board of Directors
and the Board committees on which he or she served during 2006.
Board Committees
The Board has three standing committees to facilitate and assist the
Board in the execution of its responsibilities: the Audit Committee, the
Compensation Committee and the Governance & Nominating Committee.
The Board of Directors has adopted a written charter for each of the
Audit Committee, the Compensation Committee and the Governance & Nominating
Committee. The full text of these Committee charters are available on our
website located at www.metcare.com.
The following table describes the current members of each of the Board
Committees:
GOVERNANCE &
AUDIT COMPENSATION NOMINATING
----- ------------ ------------
Michael M. Earley
David A. Florman* X X
Martin W. Harrison* X X
Eric Haskell* X Chair
Karl M. Sachs* Chair X X
Robert E. Shields* X X
Barry T. Zeman* X Chair
------------------------------------------------
* Independent Directors
The Audit Committee
-------------------
The Audit Committee's primary function is to assist the Board in
fulfilling its oversight responsibilities relating to (i) the quality and
integrity of our financial statements and corporate accounting practices, (ii)
our compliance with legal and regulatory requirements, (iii) the independent
auditor's qualifications and independence and (iv) the performance of our
internal audit function and independent auditors. The specific responsibilities
in carrying out the Audit Committee's oversight role are delineated in the Audit
Committee Charter.
The Board of Directors has determined that each member of the Audit
Committee is independent pursuant to Rule 121A of the AMEX Company Guide. The
Board of Directors has determined that Mr. Sachs and Mr. Haskell each qualify as
a "financial expert" as that term is defined in rules of the Securities and
Exchange Commission implementing requirements of the Sarbanes-Oxley Act of 2002.
During the fiscal year ended December 31, 2006, our Audit Committee
held 18 meetings and took no actions by unanimous written consent.
-14-
The Compensation Committee
--------------------------
The Compensation Committee's primary objectives include making
recommendations to the Board of Directors regarding the compensation of our
directors, executive officers, non-officer employees and consultants and
administering our employee stock option plans.
The Board of Directors has determined that each member of the
Compensation Committee is independent pursuant to Rule 121A of the AMEX Company
Guide.
During the fiscal year ended December 31, 2006, our Compensation
Committee held nine meetings and took no actions by unanimous written consent.
The Governance & Nominating Committee
-------------------------------------
The primary objectives of our Governance & Nominating Committee
include: (1) assisting the Board by identifying individuals qualified to become
Board members and recommending to the Board the director nominees for the next
Annual Meeting of Shareholders; (2) overseeing the governance of the corporation
including recommending to the Board Corporate Governance Guidelines; (3) leading
the Board in its annual review of the Board's performance; and (4) recommending
to the Board director nominees for each Board Committee.
The Board of Directors has determined that each member of the
Governance & Nominating Committee is independent pursuant to Rule 121A of the
AMEX Company Guide.
During the fiscal year ended December 31, 2006, our Governance &
Nominating Committee held nine meetings and took no actions by unanimous written
consent.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised entirely of independent
directors.
DIRECTOR COMPENSATION
Board Retainer Fees
For the year ended December 31, 2006, each of our non-employee
directors received a $20,000 fee for his service on the Board of Directors. The
Chairpersons of our Governance & Nominating Committee, Compensation Committee
and Audit Committee also received an additional annual fee of $2,000, $4,000 and
$6,000, respectively, for service in 2006.
Meeting Fees
In addition, each of our non-employee directors received $1,500 per
meeting of the Board of Directors attended in person, together with
reimbursement of travel expenses. Non-employee directors received $750 for each
board meeting attended telephonically. Members of the Board committees received
$1,000 for each meeting of a Board committee attended in person and $500 for
each meeting of a Board Committee attended telephonically.
Stock and Option Awards
In 2006, two new members were appointed to our Board of Directors, Mr.
Florman and Mr. Shields. Each received 30,000 restricted shares of our Common
Stock and options to purchase 25,000 shares of our common stock. Both the
restricted shares and the options are scheduled to vest in full on the one-year
anniversary of each such director's date of appointment to the Board.
-15-
Expense Reimbursement
We reimburse all directors for their expenses in connection with their
activities as members of our Board of Directors.
Employee Directors
Currently, one of our directors is also an employee of the Company and
does not receive additional compensation for his services as a director. We are
a party to an employment agreement with Michael M. Earley as further described
in the section of this Proxy Statement entitled "Employment Agreements."
Ms. Debra A. Finnel, who served as our President and Chief Operating
Officer and as a director until the termination of her employment on April 9,
2007, did not receive any additional compensation for her services as a
director. We are a party to a separation agreement with Ms. Finnel as further
described in the section of the Proxy Statement entitled "Severance Agreements."
Director Summary Compensation Table
The table below summarizes the compensation we paid to non-employee
directors for the fiscal year ended December 31, 2006.
Fees Earned or
Paid in Cash Stock Awards Option Awards Total
Name(1) ($) ($)(2) ($)(3) ($)
----------------------------------------- ------------------ ------------------ ------------------ ------------------
David A. Florman 35,750 48,825 12,668 97,243
Martin W. Harrison, M.D. 56,000 0 14,804 70,804
Eric Haskell, CPA 55,250 0 14,804 70,054
Karl M. Sachs, CPA 57,500 0 14,804 72,304
Robert E. Shields 29,000 39,600 9,736 78,336
Barry T. Zeman 52,500 0 14,804 67,304
-----------------------------------------
(1) Michael M. Earley, our President and Chief Executive Officer, is not
included in this table since he is an employee and receives no additional
compensation for his services as a director. The compensation received by Mr.
Earley as an employee of the Company is described in the Summary Compensation
Table that appears later in this Proxy Statement.
(2) Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123(R).
(3) Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123(R).
EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
General Philosophy
We compensate our senior management team through a combination of cash
compensation in the form of base salary and cash incentive compensation and
equity compensation awards, each of which designed (i) to be competitive with
peer companies in our industry and geographic area, (ii) to attract, retain,
incent and reward talented executives who we believe can contribute to our
growth and success, and/or (iii) to align executives' interests with the
long-term interests of our shareholders.
To determine compensation, we first establish a target overall cash
compensation figure for each member of our senior management team and allocate
this target amount among base salary and cash incentive compensation. We
simultaneously determine whether and to what extent we believe equity
compensation awards are appropriate in a given year taking into consideration,
among other things, the level of grants made in prior years and whether we
believe such prior grants continue to provide sufficient motivation and equity
incentive to our executives.
-16-
For our most senior executive officers, including our "named executive
officers" listed in the Summary Compensation Table, we have designed our cash
incentive compensation program predominantly to reward the achievement of
company-wide performance goals by tying awards to, among other things, (1) our
operating results, (2) our success in diversifying, expanding and broadening our
core business, (3) our relative competitive success and (4) our success in
increasing shareholder value (collectively, the "Corporate Objectives"). The
amount allocated to each of the foregoing factors varies from executive to
executive and is subjectively determined by the Compensation Committee and the
Board of Directors.
Board Process for Determining Compensation
Our Compensation Committee has responsibility for evaluating and
administering our director, executive officer and consultant compensation plans
and making recommendations to our Board of Directors with respect thereto,
including with respect to the compensation of our Chief Executive Officer. The
Compensation Committee is also responsible for annually reviewing and making
recommendations to the Board with respect to the compensation, including
individual base salaries, cash incentives and equity compensation grants of the
other named executive officers. In recommending salaries for the named executive
officers other than the Chief Executive Officer, the Compensation Committee
consults with the Chief Executive Officer and, when it deems appropriate, other
appropriate advisors.
Use of Employment Agreements
We believe that employment agreements provide us with a mechanism to
assist in the retention of our executive officers and provide us with
competitive protections through provisions restricting these officers, for a
period of time, from commencing employment with a competitor within our service
area or soliciting our employees or customers. We believe these agreements
provide our officers with security upon their termination without cause or upon
a change of control of the company. We are a party to employment agreements with
Michael M. Earley, our Chairman and Chief Executive Officer, Robert J. Sabo, our
Chief Financial Officer, Roberto L. Palenzuela, our General Counsel and
Secretary and Dr. Jose Guethon, the President of our Provider Service Network
(the "PSN") (collectively, the "NEO Employment Agreements"). Our former Chief
Financial Officer, David S. Gartner, was a party to an employment agreement
prior to the termination of his employment in October 2006. Our former President
and Chief Operating Officer, Debra A. Finnel, was party to an employment
agreement prior to the termination of her employment in April 2007. See the
Section below entitled "Summary of Employment Agreements" and "Severance
Agreements" for a description of the material terms of the NEO Employment
Agreements and the severance agreements with Mr. Gartner and Ms. Finnel.
The Elements of Our Executive Compensation Program
The elements of our executive compensation program are as follows:
o cash compensation in the form of base salary;
o cash compensation in the form of incentive compensation (i.e.
performance-based bonuses); and
o equity-based awards.
In addition, as discussed above, the NEO Employment Agreements provide
for potential payments upon termination of employment for a variety of reasons,
including a change in control of our company. Each of these elements are
discussed below.
-17-
Pursuant to our executive compensation program for fiscal 2006, the
allocation of compensation among base salary and performance-based bonus was
relatively consistent among our named executive officers, with base salary
generally comprising between 49% and 71% of a named executive officer's total
compensation package for 2006 and the target bonus generally comprising between
29% and 32% of a named executive officer's total compensation package for 2006.
As discussed below, except for an initial grant to Mr. Sabo upon the
commencement of his employment, we did not award any equity-based compensation
in 2006. In allocating executive compensation among these elements, we believe
that the compensation of our senior-most management team- the persons having the
greatest ability to influence our performance - should have a large performance
based component.
Base Salaries
We include base salary as part of executive compensation because we
want to provide our executive officers with a level of assured cash compensation
that facilitates an appropriate lifestyle in light of their professional status
and accomplishments.
Each named executive officer's employment agreement specifies a minimum
level of base salary. The Board of Directors, however, may, in its discretion,
set each executive's salary at any higher level that it deems appropriate.
Accordingly, the Compensation Committee generally evaluates and sets the base
salaries for our named executive officers annually. Changes in each officer's
base salary on an annual basis depend upon the Compensation Committee's and the
Board's assessment of company and individual performance. For 2006, the
Compensation Committee set each named executive officer's base salary as
follows:
Name 2006 Base Salary
($)
---------------------------------------------------- --------------------
Michel M. Earley 300,000
Debra A. Finnel(1) 300,000
Robert J. Sabo (2) 250,000
David S. Gartner (3) 203,300
Roberto L. Palenzuela 203,300
Jose A. Guethon, M.D. 275,000
---------------------------------------------------
(1) Ms. Finnel's employment with us was terminated on April 9, 2007. However,
in accordance with her Separation Agreement, dated April 9, 2007, Ms. Finnel
will continue to receive her base salary for twelve months following the
Separation Date.
(2) Mr. Sabo commenced his employment with us in November 2006 and, accordingly,
he received approximately $26,900 in base salary during the 2006 fiscal year.
(3) Mr. Gartner resigned effective October 16, 2006 (the "Separation Date").
However, in accordance with his Transition and Severance agreement, dated August
18, 2006, Mr. Gartner will continue to receive his base salary for 15 months
following the Separation Date.
The base salary of each of our named executive officers in 2006 was
materially the same as such officer's base salary in 2005, except for inflation
related adjustments and with the exception of the salary of Dr. Guethon who was
promoted to his current position of President of the PSN in 2006. In connection
with this promotion, Dr. Guethon's base salary was raised from $250,000 to
$275,000, upon the recommendation of our Chief Executive Officer and in light
his relative importance in the organization and the additional responsibilities
he was being asked to perform in connection with his new job position.
In addition, in November 2006, we hired Mr. Sabo to serve as our Chief
Financial Officer. In determining his compensation package, we considered both
the information in the Watson Study as well as his prior experience. His base
salary for his period of service in 2006 was set at $26,900 (approximately
$250,000 per annum). In addition, he was entitled to participate in our
executive bonus plan in 2006 on a pro rated basis. In connection with the
commencement of his employment with us, we granted him options to purchase
200,000 shares of our Common Stock. In accordance with our stock option grant
policies, the exercise price of the options was set at the closing price of our
Common Stock on the AMEX on the day immediately preceding his start date. The
options are scheduled to vest ratably over a four year period.
-18-
To assist us establish base salaries for fiscal 2005 for our Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, Vice
Presidents and other key members of senior management, in 2004, we engaged
Watson Wyatt & Co. ("Watson"), a nationally recognized consulting firm, to
perform a study (the "Watson Study") of the compensation of these individuals as
compared to compensation of persons serving in similar positions at 13
comparable companies (the "Peer Group"), including:
o Continucare Corporation o Wellcare Health Plans, Inc. o Molina Healthcare, Inc.
o Centene Corporation o Pediatrix Medical Group, o Pediatric Services of
Inc. America, Inc.
o Vistacare, Inc. o Horizon Health Corporation o American Healthways, Inc.
o Amedisys, Inc. o Safeguard Health o Integramed America, Inc.
Enterprises, Inc.
o Comprehensive Care Corporation
The companies included as part of the Peer Group are either direct
competitors of ours in our markets, managed care companies headquartered in
similar areas to our markets, or companies, which at the time of the Watson
Study, had market capitalization comparable to ours and who were perceived to
recruit executives with similar skills and background to our management team.
To determine base salaries for 2005, our Compensation Committee used
"benchmark" comparisons to the Peer Group to establish points of reference to
determine whether and to what extent we are providing competitive levels of
salary for our executives.
For 2005, the median results of the Peer Group benchmark comparisons
were the starting point of the analysis of base salary for each of the named
executive officers. However, the Compensation Committee also analyzed a number
of other factors in determining appropriate salary levels, including, but not
limited to:
o the reported base salaries being paid by our perceived most
comparable competitor, Continucare Corporation;
o the reported base salaries being paid by the other Peer Group
companies that were closest to our size and characteristics;
o the relative experience and skills of the subject named executive
officer;
o the level of responsibilities assigned to the subject named
executive officer;
o his or her historical performance in light of the Corporate
Objectives; and
o our operating performance to date during his or her tenure as with
us.
In order to assist the Compensation Committee determine recommendations
for 2007 compensation, we have engaged Watson to perform an updated study of the
competitiveness of the compensation of our senior management team, including our
named executive officers. As of the date of this proxy statement, the
Compensation Committee has not yet established its recommendations for 2007
compensation.
Assuming target performance levels are met, the amount of cash
compensation that we provide in the form of base salary generally is used as a
measure for the amount of annual cash incentive under our executive bonus plan,
which is described below.
-19-
Cash Incentive Compensation
Our executive bonus plan is a performance-based cash incentive plan
designed to promote our interests and the interests of our shareholders by
providing employees with financial rewards upon achievement of specified
business objectives, as well as helping us attract and retain key employees.
Under this plan, additional cash is payable to our named executive officers
based upon the degree that, the performance goals recommended by the
Compensation Committee and approved by the Board generally during the first half
of the fiscal year are met. While satisfaction of performance goals are the
primary consideration in determining bonuses, we also recognize individual
contributions as well as other considerations and have used, and will continue
to use, these other measurers in considering bonus awards. The amount of cash
incentive compensation earned by our named executive officers in 2006 is set
forth in the "Non-Equity Incentive Plan Compensation" column of the 2006 Summary
Compensation Table. We anticipate that these amounts will be paid in May 2007.
For 2006, the target annual cash incentive compensation for each of the
named executive officers was 42% of base salary, although actual cash incentive
compensation payable under our executive bonus plan to each named executive
officer could have been as high as 80% of base salary or as low as zero
depending on satisfaction of the Performance Goals.
In 2006, we established a threshold goal of year-end income after
allocated overhead and before income taxes for our PSN segment. Approximately
82% of the target income must have been realized in 2006 before we paid any
annual incentive compensation, which target we did achieve in 2006. Subject to
the foregoing sentence, the performance goals are weighted so that the recipient
can receive part of an award in the event that some, but not all, of the target
results are achieved. We do not believe in an "all-or-nothing" approach.
For 2006, the Compensation Committee recommended and the Board
established performance goals for each of our named executive officers. The
Chief Executive Officer also approved the goals of our other named executive
officers. Each of our named executive officers was assigned the same types of
performance goals in 2006 with respect to the following measures of operating
performance (the "Performance Goals"). Each Performance Goal was assigned the
weight indicated in the table below. For each type of Performance Goal, we
established minimum and target numbers. Assuming the target numbers were reached
for each Performance Goal, the annual cash incentive compensation for each of
the named executive officers would equal the target of 42% of their respective
base salaries.
Performance Goal Types Assigned Weight of
Performance Goal Type
PSN segment's year-end gain after allocated overhead and before income taxes 26.7%
Ratio of total medical expenses to revenue for our PSN business at fiscal year 26.7%
end
Aggregate of the HMO's membership for each month during the fiscal year 26.7%
Average level of achievement by vice presidents and senior vice presidents 20%
reporting to the named executive officers of certain individual objectives
established by the Compensation Committee for each vice president and senior
vice president
Year end membership level of the HMO 5%
At its April 2007 meeting, the Compensation Committee reviewed each
named executive's achievement of these Performance Goals during 2006 and
approved cash incentive compensation under our executive bonus plan. Each of our
named executive officers achieved between 63% and 65% of the Performance Goals
and earned cash incentive compensation equal to between 27% and 41% of his or
her 2006 base salary.
Our Chief Executive Officer elected to forgo his receipt of the $81,000
bonus amount earned by him under the executive bonus plan in 2006.
Equity Compensation
The primary form of equity compensation that we have awarded to date
consist of non-qualified stock options, which we believe provides a strong
motivation to our executives to continue to seek growth in our business. We are
currently assessing the desirability of utilizing restricted stock grants in
addition to option grants. Grants of restricted stock are increasingly becoming
a trend in our industry and we believe that this type of award may provide an
equally motivating form of incentive compensation while permitting us to issue
fewer shares, thereby reducing potential dilution of our shareholders.
-20-
In determining the size of stock option grants to named executives, the
Committee considers similar awards to individuals holding comparable positions
in our Peer Group, our operating results and performance, individual performance
against the individual's objectives, as well as the allocation of overall share
usage attributed to executives and the total number of shares issued in the
grant relative to our outstanding shares. We do not place particular emphasis on
any one factor but rather analyze the appropriateness of rewarding equity
compensation in light of each of these considerations.
Options are generally granted pursuant to our Omnibus Equity
Compensation Plan. Our stock options generally vest ratably on an annual basis
over a three or four year service period and expire after a ten year term. The
exercise price for option grants is based on the closing price of our Common
Stock on the date of the grant. Stock options only have compensatory value if
the market price of the common stock increases after the grant date.
With the exception of options granted in connection with significant
promotions and new hires, we generally make equity awards at the first meeting
of the Compensation Committee and the Board of Directors following the
availability of our financial results for the prior year.
In 2006, we did not grant any stock options to our named executive
officers, other than options granted to Mr. Sabo in connection with the
commencement of his employment with us. In making this determination, we
believed that, in light of the significant option grants to the named executive
officers in the two preceding fiscal years, our named executive officers'
interests were substantially aligned with the long-term interests of our
shareholders and such prior grants continued to provide ample financial
motivation to our named executive officers.
In the past, we also have granted restricted stock to certain of our
senior management team in lieu of a portion of cash incentive compensation
described in the preceding section. We determine the fair market value of our
Common Stock based on the closing price of our Common Stock the day prior to the
grant date. We then reduce the cash bonus award earned by the fair value of the
restricted shares granted. The recipient of the restricted shares is generally
required to remain employed with us for two years following the grant date as a
condition to the vesting of the restricted shares. The Company does not
currently anticipate continuing the practice of issuing equity in lieu of
payment of a portion of cash bonus in the future.
Severance Benefits and Change in Control Payments
Pursuant to our NEO Employment Agreements, our named executive officers
are entitled to receive certain severance payments upon their death, disability,
termination without cause, resignation for good reason and upon a change in
control of the Company. These benefits are designed to promote stability and
continuity of senior management as well as to recognize the potential difficulty
for such individuals to locate comparable employment within a short period of
time. Information regarding applicable payments under such agreements for the
named executive officers is provided under the heading "Potential Payments Upon
Termination of Change-In-Control."
Retirement Plan
The Metropolitan Health Networks 401(k) Plan (the "401(k) Plan") is a
tax qualified employee savings and retirement plan covering our eligible
employees, including our named executive officers. At our discretion, we may
make a matching contribution and a non-elective contribution to the 401(k) Plan.
The rights of the participants in the 401(k) Plan to our contributions do not
fully vest until such time as the participant has been employed by us for three
years. In 2006, we made full matching contributions to our named executive
officers.
Perquisites and Other Benefits
We provide our named executive officers with perquisites and other
personal benefits that we and the Compensation Committee believe are reasonable
and consistent with our overall compensation program to better enable the
Company to attract and retain talented employees for key positions. We
periodically review the levels of perquisites and other personal benefits
provided to named executive officers.
-21-
The named executive officers are each provided automobile allowances
and cell phone allowances. We believe these allowances enable our executives to
be available to customers and employees at all times. In addition, we reimburse
our Chief Executive Officer for the cost of health insurance for a non-employee.
The named executive officers also participate in our medical, dental
and life insurance plans to the same extent as our other employees. Upon
relocation, key executive officers may receive, at the discretion of the Board
of Directors, a relocation allowance in amounts individually negotiated at the
time of relocation.
Compensation Committee Report
Our Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with
management and, based on such review and discussions, the Compensation Committee
recommended to the Board that the Compensation Discussion and Analysis be
included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Eric Haskell
Martin W. Harrison
Karl M. Sachs
Robert E. Shields
Summary Compensation Table
The table below summarizes the total compensation paid or earned by
each of the named executive officers for the fiscal year ended December 31,
2006.
Mr. Gartner left his employment with us in 2006 and the amounts listed
below in column (i) include amounts paid pursuant to severance arrangements
between us and Mr. Gartner.
Non-Equity
Incentive
Option Plan All Other
Name and Principal Fiscal Salary Awards Compensation Compensation
Position Year ($) (3) ($) ($) ($) (4) Total ($)
-------------------------- ---------- ---------- ---------- --------------- --------------- ---------------
Michael M. Earley 2006 300,000 99,800 - (5) 21,897 421,697
Chairman & Chief
Executive Officer
Debra A. Finnel 2006 300,000 199,500 76,695 22,100 598,295
President & Chief
Operating Officer
Robert J. Sabo (1) 2006 26,900 10,400 11,000 6,300 54,550
Chief Financial
Officer
David S. Gartner (2) 2006 196,500 67,100 - 219,000 482,600
Chief Financial
Officer
Roberto L. Palenzuela 2006 203,300 32,200 55,000 16,000 306,500
Secretary & General
Counsel
Jose A. Guethon 2006 267,600 99,700 74,000 6,200 447,500
President, PSN
--------------------------
(1) Mr. Sabo began serving as our Chief Financial Officer in November 2006.
(2) Mr. Gartner resigned as Chief Financial Officer in October 2006 in
accordance with the terms of the Transition and Severance Agreement we entered
into with him on August 18, 2006.
(3) Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123(R). Information regarding the stock options granted to our named executive
officers during 2006 is set forth in the 2006 Grants of Plan-Based Awards Table.
The 2006 Grants of Plan-Based Awards Table also sets forth the aggregate grant
date fair value of the stock options granted during 2006 computed in accordance
with FAS 123R.
-22-
(4) "All Other Compensation" for each of the named executive officers is
comprised of the following components:
Long-Tem
Cellular Disability/Life 401(k) Accrued
Automobile Phone Insurance Matching Severance Housing
Allowance Allowance Premiums Amounts Payments Benefits Other Total
--------------- ------------ -------------- ----------- ------------- ------------ ------------- ------------
Michael M. Earley $10,200 $3,000 $1,500 $4,500 - - $2,697 $21,897
Debra A. Finnel 18,600 3000 - 500 - - 22,100
Robert J. Sabo 1,200 400 - - - $4,700 6,300
David S. Gartner 5,500 1,000 1,500 3,300 207,700 - 219,000
Roberto L. Palenzuela 6,600 1,200 1,500 3,000 - - 3,700 16,000
Jose A. Guethon 1,400 1,200 1,500 2,100 - - 6,200
(5) Mr. Earley elected to forgo the entire amount of non-equity incentive plan
compensation earned by him in 2006.
-23-
2006 Grants of Plan Based Awards
The following table sets forth information regarding the grants of
annual cash incentive compensation and stock options during 2006 to our named
executive officers.
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards (1)
----------------------------------------
All Other
Option
Awards: Grant Date
Number of Exercise Fair Value
Securities Price of of Option
Threshold Target Maximum Underling Option Awards Awards
Name Grant Date ($) ($) ($) Options (#) ($) ($)(2)
----------------------- ------------- ----------- ----------- ---------- --------------- --------------- -------------
Michael M. Earley n/a $66,000 $126,000 $240,000 - n/a n/a
Debra A. Finnel n/a $66,000 $126,000 $240,000 - n/a n/a
Robert J. Sabo 11/15/2006 $9,000 $17,500 $33,000 200,000 (3) 2.19 $171,750
David S. Gartner n/a $45,000 $85,000 $163,000 n/a n/a
Roberto L. Palenzuela n/a $45,000 $85,000 $163,000 - n/a n/a
Jose A. Guethon n/a $61,000 $116,000 $220,000 - n/a n/a
-----------------------
(1) The amounts set forth in these columns reflect the annual cash incentive
compensation amounts that potentially could have been earned during 2006 based
upon the achievement of performance goals under our Executive Bonus Plan. The
amounts of annual cash incentive compensation earned in 2006 by our named
executives under our Executive Bonus Plan have been determined and will be paid
in May 2007. The amounts paid are included in the "Non-Equity Incentive Plan
Compensation" column of the 2006 Summary Compensation Table.
(2) The dollar value of stock options disclosed in this column are equal to the
aggregate grant date fair value computed in accordance with FAS 123R, except no
assumptions for forfeitures were included. A discussion of the assumptions used
in calculating the grant date fair value is set forth in Note 13 of the Notes to
Consolidated Financial Statements of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2006.
(3) The options are scheduled to vest in four equal installments on November 15,
2007, November 15, 2008, November 15, 2009 and November 15, 2010.
Salaries
Salaries paid to our named executives are set forth in the 2006 Summary
Compensation Table. For 2006, salaries paid to our named executives officers
accounted for the following percentages of their total compensation: Mr. Earley
(55%), Ms. Finnel (34%), Mr. Sabo (49%), Mr. Gartner (33%), Mr. Palenzuela (66%)
and Mr. Guethon (60%).
Non-equity Incentive Plan Compensation
The non-equity incentive plan compensation set forth in the tables
above reflects annual cash incentive compensation under our Executive Bonus
Plan. Annual cash incentive compensation is earned based upon a formula that
takes into account our attainment of certain performance goals and the
achievement by vice presidents and senior vice presidents of certain individual
objectives. The components of the Executive Bonus Plan are discussed in greater
detail under the heading "Compensation Discussion & Analysis."
The threshold, target and maximum amounts set forth in the 2006 Grants
of Plan-Based Awards Table correspond to the named executive achieving an
average of 55%, 105% and 200% of his or her performance goals and individual
objectives, respectively.
-24-
Amounts paid to our named executives under the Executive Bonus Plan are
set forth in the 2006 Summary Compensation Table. For 2006, payments pursuant to
the Executive Bonus Plan to our named executives officers accounted for the
following percentages of their total compensation: Mr. Earley (15%), Ms. Finnel
9%), Mr. Sabo (20%), Mr. Gartner (-0-%), Mr. Palenzuela (18%) and Mr. Guethon
(17%).
Stock Options
We grant stock options pursuant to our Omnibus Equity Compensation
Plan. The option exercise price is equal to the closing price of our common
stock on the American Stock Exchange on the date options are granted. Our stock
options generally vest at the rate of one-fourth per year and have a term of ten
years. Stock options are not transferable other than by will or the laws of
descent and distribution.
In 2006, we did not grant options to any of our named executive
officers, other than Mr. Sabo, who commenced his employment with us in November
2006.
In August 2006, we entered into a transition and severance agreement
with Mr. Gartner, our Chief Financial Officer until October 16, 2006 (the
"Separation Date"). Pursuant to this agreement, the vesting on all outstanding
and unvested stock options granted to Mr. Gartner under our Omnibus Equity
Compensation Plan immediately accelerated as of the Separation Date and Mr.
Gartner was entitled to exercise any or all of his stock options during a three
month period following the Separation Date.
Employment Agreements
We are a party to employment agreements with Mr. Earley, Mr. Sabo, Mr.
Palenzuela and Dr. Guethon. We are also party to a transition and severance
agreement with Mr. Gartner and a separation agreement with Ms. Finnel.
In 2004, we entered into an employment agreement with Mr. Earley, our
Chairman and Executive Officer, which agreement was amended and restated
effective January 3, 2005. Our employment agreement with Mr. Earley is subject
to automatic renewal on January 3 of each year for successive one year terms,
unless earlier terminated in accordance with the terms of the agreement. The
agreement provides for an annual base salary of $300,000 to be reviewed
annually. Our Board of Directors may, in its sole discretion, increase Mr.
Earley's salary and award bonuses and options to Mr. Earley at any time. The
agreement also provides for an automobile allowance in the amount of $800 per
month, a telephone allowance in the amount of $250 per month, vacation,
participation in all benefit plans offered by us to our executives and the
reimbursement of reasonable business expenses. The agreement also contains
non-disclosure, non-solicitation and non-compete restrictions. The
non-solicitation and non-compete restrictions survive for a period of two years
and one year, respectively, following the date of the termination of Mr.
Earley's employment with the Company. Either party may terminate the contract at
any time.
Effective November 16, 2006, we entered into an employment agreement
with Mr. Sabo, our Chief Financial Officer. This agreement has an initial term
of one year and is automatically renewable for successive one-year terms, unless
terminated in accordance with the terms of the agreement. The agreement provides
for an annual base salary of $250,000 to be reviewed at least annually. Our
Board of Directors may, in its sole discretion, increase Mr. Sabo salary and
award bonuses and options to Mr. Sabo at any time. The agreement also provides
for an automobile allowance in the amount of $800 per month, a telephone
allowance in the amount of $250 per month, vacation, participation in all
benefit plans offered by us to our executives and the reimbursement of
reasonable business expenses. The agreement also contains non-disclosure,
non-solicitation and non-compete restrictions. The non-solicitation and
non-compete restrictions survive for a period of two years and one year,
respectively, following the date of the termination of Mr. Sabo's employment
with the Company. Either party may terminate the contract at any time.
-25-
In 2004, we entered into an employment agreement with Mr. Palenzuela,
our General Counsel and Secretary, which agreement was amended and restated
effective January 3, 2005. Our employment agreement with Mr. Palenzuela is
subject to automatic renewal on January 3 of each year for successive one year
terms, unless earlier terminated in accordance with the terms of the agreement.
The agreement provides for an annual base salary of $190,000 to be reviewed
annually. Our Board of Directors may, in its sole discretion, increase Mr.
Palenzuela's salary and award bonuses and options to Mr. Palenzuela at any time.
The agreement also provides for an automobile allowance in the amount of $500
per month, a telephone allowance in the amount of $100 per month, vacation,
participation in all benefit plans offered by us to our executives and the
reimbursement of reasonable business expenses. The agreement also contains
non-disclosure, non-solicitation and non-compete restrictions. The
non-solicitation and non-compete restrictions survive for a period of two years
and one year, respectively, following the date of the termination of Mr.
Palenzuela's employment with the Company. Either party may terminate the
agreement at any time.
Effective February 1, 2005, Dr. Guethon entered into an employment
agreement with Metcare of Florida, Inc., our wholly-owned subsidiary. The
employment agreement with Dr. Guethon is subject to automatic renewal on
February 1 of each year for successive one year terms, unless earlier terminated
in accordance with the terms of the agreement. The agreement provides for an
annual base salary of $250,000 to be reviewed annually. Our Board of Directors
may, in its sole discretion, increase Dr. Guethon's salary and award bonuses and
options to Dr. Guethon at any time. The agreement also provides for a telephone
allowance in the amount of $100 per month, vacation, participation in all
benefit plans offered by us to our executives and the reimbursement of
reasonable business expenses. The agreement also contains non-disclosure,
non-solicitation and non-compete restrictions. The non-solicitation and
non-compete restrictions survive for a period of two years and one year,
respectively, following the date of termination of Dr. Guethon's employment with
Metcare of Florida. Either party may terminate the agreement at any time.
In the event that any one of Mr. Earley, Mr. Sabo, Mr. Palenzuela or
Dr. Guethon (i) is terminated by us without cause, (ii) dies or becomes
disabled, (iii) terminates his or her employment because he or she has been
assigned duties inconsistent with his or her position or because his or her
duties and responsibilities have been diminished or because of our breach of the
agreement or because he or she has been reassigned to a location outside of the
area for which he or she was hired, he or she will be entitled to reimbursement
of all unreimbursed expenses incurred prior to the date of termination, payment
of unused vacation days and payment of his or her then annual base salary and
benefits for a period of one year following the termination.
If there is a change of control of the Company (as such term is defined
in the agreements), each of Mr. Earley, Mr. Sabo, Mr. Palenzuela and Dr. Guethon
will be entitled to reimbursement of all unreimbursed expenses incurred prior to
the date of termination, payment of unused vacation days, a single lump sum
payment of an amount equal to his or her then annual base salary plus bonuses
payable, the value of annual fringe benefits paid to him or her in the year
preceding the year of termination, and the value of the portion of his or her
benefits under any deferred compensation plan which are forfeited for reason of
the termination.
Severance Agreements
On August 18, 2006, we entered into a transition and severance
agreement (the "Transition Agreement") with David S. Gartner, who served as our
Chief Financial Officer until October 16, 2006 (the "Separation Date"). Under
the terms of the Transition Agreement, we and Mr. Gartner agreed to terminate
our employment relationship and provide for an orderly CFO succession. This
termination of the employment relationship did not involve any disagreements
between us and Mr. Gartner. Under the Transition Agreement, we agreed, among
other things, to provide Mr. Gartner with his base salary and to allow him to
participate in certain of our benefit programs for fifteen months following the
Separation Date. Under the Transition Agreement, Mr. Gartner has agreed to be
bound by restrictive covenants regarding, among others things, non-competition
with us for a one year period, non-solicitation of our employees for a two-year
period and confidentiality. Mr. Gartner has also provided a general release of
claims in favor of us and parties related to us.
On April 9, 2007, we entered into a separation agreement (the
"Separation Agreement") with Debra A. Finnel, who served as our President and
Chief Operating Officer until April 9, 2007 (the "Finnel Separation Date").
Under the terms of the Separation Agreement, we and Ms. Finnel agreed to
terminate our employment relationship and Ms. Finnel was deemed to have resigned
from our Board of Directors. The termination of these relationships did not
involve any disagreements between us and Ms. Finnel. Under the Separation
Agreement, we agreed, among other things, to provide Ms. Finnel with her base
salary, to allow her to participate in certain of our benefit programs and to
provide her with an automobile and mobile phone allowance for twelve months
following the Finnel Separation Date. Under the Separation Agreement, Ms. Finnel
has agreed to be bound by restrictive covenants regarding, among others things,
non-competition with us for a one year period, non-solicitation of our employees
for a two-year period and confidentiality. Ms. Finnel has also provided a
general release of claims in favor of us and parties related to us.
-26-
Additional Information.
We have provided additional information regarding the compensation we
pay to our named executive officers under the heading "Compensation Discussion &
Analysis."
Outstanding Equity Awards at December 31, 2006
The following table sets forth information regarding the number of
shares of unexercised stock options outstanding on December 31, 2006 for each of
our named executive officers. None of our named executive officers hold
restricted shares of our common stock.
Option Awards
---------------------------------------------------------------------------------------
Number of Securities Underlying Equity
Unexercised Options Incentive
(#) Plan Awards:
----------------------------------
Number of
Securities
Underlying
Unexercised Option Option
Unearned Exercise Expiration
Name Exercisable Unexercisable Options (#) Price Date
-------------- --------------- ------------- -------------- -------------
Michael M. Earley 116,667 -0- - $0.35 12/31/08
116,667 -0- - $0.35 12/31/09
116,666 -0- - $0.35 12/31/10
200,000 200,000 (1) - $1.83 11/05/14
Debra A. Finnel 50,000 -0- - $0.50 10/08/07
100,000 -0- - $1.00 01/01/08
100,000 -0- - $1.00 01/01/09
340,600 -0- - $0.35 09/22/08
400,000 (2) 400,000 (2) - $1.83 11/05/14
Robert J. Sabo -0- 200,000 (3) - $2.19 11/15/16
David S. Gartner (4) 180,000 -0- - $0.35 09/22/08
Roberto L. Palenzuela 50,000 -0- - $0.67 03/08/10
50,000 -0- - $0.67 03/08/11
-0- 50,000 (5) - $0.67 03/08/12
50,000 50,000 (6) - $1.83 11/05/14
Jose A. Guethon 16,000 -0- $0.35 09/22/08
50,000 50,000 (7) - $1.83 11/05/14
50,000 150,000 (8) - $2.05 12/09/15
---------------------------
(1) 100,000 options scheduled to vest on each of November 5, 2007 and November
5, 2008.
(2) As of December 31, 2006, 200,000 options were scheduled to vest on each of
November 5, 2007 and November 5, 2008. However, on April 9, 2007, Ms. Finnel's
employment with us was terminated and the options immediately vested and became
exercisable. In accordance with the terms of the agreement evidencing the grant
of options to purchase 800,000 shares of our Common Stock, all of the options
subject to the grant are now scheduled to expire on July 9, 2007.
(3) 50,000 options scheduled to vest on each of November 15, 2007, November 15,
2008, November 15, 2009 and November 15, 2010.
(4) Pursuant to the transition and severance agreement we entered into with Mr.
Gartner in August 2006, the vesting on all outstanding and unvested stock
options held by Mr. Gartner immediately accelerated as of October 16, 2006 and
Mr. Gartner was entitled to exercise any or all of his stock options during a
three month period following October 16, 2006. On December 13, 2007, Mr. Gartner
exercised 150,000 options at an exercise price of $1.83.
(5) Options scheduled to vest on March 8, 2007.
(6) 25,000 options scheduled to vest on each of November 5, 2007 and November 5,
2008.
(7) 25,000 options scheduled to vest on each of November 5, 2007 and November 5,
2008.
(8) 50,000 options scheduled to vest on each of December 9, 2007, December 9,
2008 and December 9, 2009.
-27-
2006 Option Exercises
The following table sets forth information regarding the number and
value of stock options exercised during 2006 by our named executive officers.
Option Awards
-----------------------------------------------------------
Name Number of Shares Acquired on Value Realized on
Exercise Exercise
(#) ($) (1)
-------------------------------------------------------- -------------------------------- ----------------------
Michael M. Earley 20,000 43,800
Debra A. Finnel 150,000 293,500
David S. Gartner 150,000 234,000
--------------------------------------------------------
(1) The value realized on the exercise of stock options is based on the
difference between the exercise price and the closing price of our common stock
on the AMEX on the date of exercise.
Pension Benefits
We do not have any plans that provide for payments or other benefits
at, following or in connection with the retirement of our employees, including
our named executive officers.
Nonqualified Defined Contribution an Other Nonqualified Deferred
Compensation Plans
We do not have any defined contribution or plans that provide for the
deferral of compensation on a basis that is not tax-qualified.
Potential Payments Upon Termination or Change-In-Control.
The tables below reflect the amount of compensation payable to each of
the named executive officers in the event of termination of such executive's
employment. The amount of compensation payable to each named executive officer
pursuant to his or her employment agreement (i) upon termination for cause or
resignation without good reason, (ii) upon termination without cause or
resignation for good reason, (i) upon termination for cause or resignation
without good reason, (iii) in the event of disability or death of the executive
and (iv) upon termination following a change of control is shown below. The
amounts shown assume that such termination was effective as of December 31,
2006, and thus include amounts earned through such time and are estimates of the
amounts which would be paid out to the executives upon their termination. The
actual amounts to be paid out can only be determined at the time of such
executive's separation from the Company.
Payments Made Upon Termination For Cause or Resignation Without Good
Reason
In the event a named executive officer is terminated for cause or
resigns his or her employment without good reason, we are required pursuant to
our employment agreements to:
o pay the executive any unpaid base salary earned through the date of
termination or resignation; and
o reimburse the executive for reasonable business expenses incurred
prior to the date of termination or resignation.
Under our employment agreements, "cause" is defined to include (i) an
action or omission of the executive which constitutes a willful and material
breach of, or failure or refusal (other than by reason of disability) to perform
his or her duties under the employment agreement, which is not cured within 15
days after notice thereof, (ii) fraud, embezzlement, misappropriation of funds
or breach of trust in connection with his or her services under the employment
agreement, (iii) conviction of a felony or any other crime which involves
dishonesty or a breach of trust or (iv) gross negligence in connection with the
performance of the executive's duties under the employment agreement, which is
not cured within 15 days after notice thereof.
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Under or employment agreements, "good reason" is defined to include (i)
the assignment to the executive of any duties or responsibilities inconsistent
in any respect with the executive's position or a similar position in the
Company or one of our subsidiaries, (ii) any other action by us which results in
a substantial and compelling diminution of the executive's position, authority,
duties or responsibilities, excluding an isolated, insubstantial and inadvertent
action not taken in bad faith which we remedy within 15 days of notice by the
executive or (iii) our breach of certain provisions of the employment agreement,
other than an isolated, insubstantial and inadvertent failure not taken in bad
faith which we remedy promptly after receipt of notice by the executive, (iii)
our requiring the executive to be based at any office or location outside the
area for which he or she was originally hired to work, except for travel
reasonably required in the performance of his or her responsibilities. Any good
faith determination of "good reason" made by our Board of Directors is
conclusive pursuant to our employment agreements.
Upon an executive's termination for cause or resignation without good
reason, any options granted to such executive pursuant to our Omnibus Equity
Compensation Plan (the "Omnibus Plan") and vested as of the date of termination
or resignation will generally remain exercisable for a period of up to three
months, although our Compensation Committee has the right to cancel or suspend
the option if the executive is terminated for cause or the Compensation
Committee determines that the executive is competing or has competed with us.
Any unvested options granted pursuant to the Omnibus Plan will immediately
terminate.
Payments Made Upon Termination Without Cause, Resignation For Good
Reason, Death or Disability
In the event a named executive officer is terminated without cause,
resigns his or her employment for good reason, dies or becomes disabled, we are
required pursuant to our employment agreements to:
o pay the executive (or his estate, as applicable) any unpaid base
salary earned through the date of termination or resignation;
o continue to pay the executive's base salary for a period of twelve
months from the date of termination or resignation;
o continue to allow the executive to participate in all benefit plans
offered by us to our executives for a period of twelve months from
the date of termination or resignation or, if participation in any
such plan is not possible, pay the executive (or his estate, as
applicable) cash equal to the value of the benefit that otherwise
would have accrued for the executive's benefit under such plan for
the period during which such benefits could not be provided under
the plan;
o reimburse the executive for reasonable business expenses incurred
prior to the date of termination or resignation; and
o pay the executive (or his estate, as applicable) for any unused
vacation days.
Upon an executive's resignation with good reason, any options granted
to such executive pursuant to our Omnibus Plan and vested as of the date of
resignation will generally remain exercisable for a period of up to three months
and any unvested options granted pursuant to the Omnibus Plan will immediately
terminate.
Upon an executive's termination without cause, any options granted to
such executive pursuant to our Omnibus Plan and vested as of the date of
termination will generally remain exercisable for a period of up to three
months. Any unvested options granted under the Omnibus Plan generally will
become immediately exercisable and fully vested in accordance with their terms
and exercisable for three months following the date of termination.
Upon an executive's death or disability, any options granted to such
executive pursuant to our Omnibus Plan and vested as of the date of termination
will generally remain exercisable for a period of one year. Any unvested options
granted under the Omnibus Plan generally will become immediately exercisable and
fully vested in accordance with their terms and exercisable for one year
following the date of termination.
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The following table shows amounts that would be payable upon each named
executive officer's termination without cause, resignation with good reason,
death or disability.
Early
Vesting of Continuation Unused
Name Severance Stock of Benefits Vacation
Amount ($) Options ($) ($) Days ($) Total ($)
-------------------------- ------------- ------------- --------------- -------------- --------------
Michael M. Earley 300,000 79,100 11,000 23,100 413,200
Robert J. Sabo 250,000 161,300 10,600 2,200 424,100
Roberto L. Palenzuela 203,300 20,800 17,000 8,000 249,100
Jose A. Guethon 275,000 100,000 6,500 1,800 383,300
Payments Made Upon Termination Following a Change in Control
In the event that following a "change in control" of the Company (as
defined below), a named executive officer is terminated without cause or resigns
for good reason within one year of the event causing the "change in control", we
are required pursuant to our employment agreements to:
o pay the executive any unpaid base salary earned through the date of
termination or resignation;
o pay the executive a single lump sum payment of an amount equal to
his or her then annual base salary plus bonuses payable, the value
of annual fringe benefits paid to him or her in the year preceding
the year of termination, and the value of the portion of his or her
benefits under any deferred compensation plan which are forfeited
for reason of the termination.
o reimburse the executive for reasonable business expenses incurred
prior to the date of termination or resignation; and
o pay the executive (or his estate, as applicable) for any unused
vacation days.
Under the provisions of the Omnibus Plan, if a change in control of the
Company occurs, our Compensation Committee, in its discretion, may provide that
50% of the Options held by any person then unexercised and outstanding will
become fully vested and exercisable. Notwithstanding the foregoing, the
percentage of outstanding options which may become fully vested and immediately
exercisable may, in the Compensation Committee's discretion, be more than or
less than 50%. In addition, the Compensation Committee may, in its discretion,
provide that all outstanding options be cashed out on the date of the occurrence
of the change in control (the "Occurrence Date") at the higher of (i) the
highest price per share of common stock paid in any sale reported on a national
exchange or quoted on the NASDAQ or the OTCBB and (ii) the highest purchase
price paid or offered for a share of Common Stock in any transaction related to
the change in control during the 60 day period preceding the Occurrence Date.
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The following table shows amounts that would be payable upon each named
executive officer's termination following a change in control.
Early Vesting of Annual Unused
Severance Stock Fringe Vacation
Name Amount ($) Options ($) Benefits ($) Days ($) Total ($)
-------------------------- -------------- -------------- -------------- -------------- --------------
Michael M. Earley 426,000 79,100 11,000 23,100 539,200
Robert J. Sabo 267,500 161,300 10,600 2,200 441,600
Roberto L. Palenzuela 288,300 20,800 17,000 8,000 334,100
Jose A. Guethon 391,000 100,000 6,500 1,800 499,300
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SECURITY OWNERSHIP
Security Ownership of Directors and Executive Officers
The following table sets forth the beneficial ownership(1) of our
Common Stock as of April 13, 2007, for each of our directors, named executive
officers and by all of our directors and executive officers as a group.
Options
Currently Total
Exercisable or Common
Exercisable Stock and
within 60 days Common Percentage
Common Stock for Shares of Stock Based of Class
Name (#) Common Stock Holdings (%) (2)
-------------------------------------- ---------------- ----------------- ------------- --------------
Michael M. Earley 79,899 550,000 (3) 629,899 1.3
Debra A. Finnel 107,459 1,400,000 (4) 1,507,459 3.0
Roberto J. Sabo -0- -0- (5) -0- *
David S. Gartner 146,348 180,000 (6) 326,348 *
Roberto L. Palenzuela 7,420 200,000 (7) 207,420 *
Jose A. Guethon, M.D. 34,000 116,000 (8) 150,000 *
David A. Florman 30,000 25,000 (9) 55,000 *
Martin W. Harrison, M.D. 4,367,169 (10) 120,000 (11) 4,487,169 8.9
Eric Haskell, CPA 40,333 50,000 (12) 90,333 *
Karl M. Sachs, CPA 692,066 50,000 (13) 742,066 1.5
Robert E. Shields 34,600 (14) 25,000 (15) 59,600 *
Barry T. Zeman 49,264 (16) 50,000 (17) 99,264 *
Directors and Executive Officers as 5,588,558 2,766,000 8,354,558 16.6
a group
(12 persons)
--------------------------------------
* Represents less than 1% of the total number of shares of common stock
outstanding.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from April 13, 2007 upon exercise of
options, warrants and convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any other person)
and that are exercisable within 60 days from April 13, 2007 have been exercised.
(2) Applicable percentage ownership is based on 50,270,964 shares of Common
Stock outstanding as of April 13, 2007.
(3) Includes (i) 350,000 shares issuable upon the exercise of options at a price
of $0.35 per share, expiring between December 2008 and December 2010 and (ii)
200,000 shares issuable upon the exercise of options at a price of $1.83 per
share, expiring in November 2014. Does not include 200,000 shares issuable upon
the exercise of options at a price of $1.83 per share that have not yet vested.
(4) Includes (i) 50,000 shares issuable upon the exercise of options at a price
of $0.50 per share, expiring in October 2007, (ii) 200,000 shares issuable upon
the exercise of options at a price of $1.00, expiring between January 2008 and
January 2009, (iii) 350,000 shares issuable upon the exercise of options at a
price of $0.35, expiring in September 2008, and (iv) 800,000 shares issuable
upon the exercise of options at an exercise price of $1.83 per share, expiring
in July 2007.
(5) Does not include 200,000 shares issuable upon the exercise of options at a
price of $2.19 per share that have not yet vested.
(6) Includes 180,000 shares issuable upon the exercise of options at a price of
$0.35 per share, expiring between December 2008 and December 2009.
(7) Includes (i) 150,000 shares issuable upon the exercise of options at a price
of $0.67 per share, expiring between March 2010 and March 2012 and (ii) 50,000
shares issuable upon the exercise of options at a price of $1.83 per share,
expiring in November 2014. Does not include 50,000 shares issuable upon the
exercise of options at a price of $1.83 per share that have not yet vested.
(8) Includes (i) 16,000 shares issuable upon the exercise of options at an
exercise price of $0.35 per share, expiring in September 2008, (ii) 50,000
shares issuable upon the exercise of options at an exercise price of $1.83 per
share, expiring in November 2014, and (iii) 50,000 shares issuable upon the
exercise of options at an exercise price of $2.05, expiring in December 2015.
Does not include 50,000 shares issuable upon the exercise of options at an
exercise price of $1.83 per share and 150,000 shares issuable upon the exercise
of options at an exercise price of $2.05 per share.
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(9) Includes 25,000 shares issuable upon the exercise of options at a price of
$2.17.
(10) Includes 900,000 shares owned by H30, Inc., a corporation for which Dr.
Harrison serves as a director.
(11) Includes (i) 70,000 shares issuable upon the exercise of options at a price
of $0.70 per share, expiring in December 2008, (ii) 25,000 shares issuable upon
the exercise of options at a price of $1.83 per share, expiring in November 2014
and (iii) 25,000 shares issuable upon the exercise of options at a price of
$2.05 per share, expiring in December 2015.
(12) Includes (i) 25,000 shares issuable upon the exercise of options at a price
of $1.83 per share, expiring in November 2014 and (ii) 25,000 shares issuable
upon the exercise of options at a price of $2.05 per share, expiring in December
2015.
(13) Includes (i) 25,000 shares issuable upon the exercise of options at a price
of $1.83 per share, expiring in November 2014 and (ii) 25,000 shares issuable
upon the exercise of options at a price of $2.05 per share, expiring in December
2015.
(14) Includes 30,000 of restricted shares of common stock issued to Mr. Shields
that are scheduled to vest on May 15, 2007.
(15) Includes 25,000 shares issuable upon the exercise of options at a price
$1.98 per share that are scheduled to vest on May 15, 2007, expiring in May
2016.
(16) Includes (i) 7,114 shares held by Mr. Zeman's spouse and (ii) 13,200 shares
held in Mr. Zeman's IRA.
(17) Includes (i) 25,000 shares issuable upon the exercise of options at a price
of $1.83 per share, expiring in November 2014 and (ii) 25,000 shares issuable
upon the exercise of options at a price of $2.05 per share, expiring in December
2015.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as to each beneficial owner(1) of more
than five percent of our Common Stock, information regarding shares owned by
each at April 13, 2007.
Name and Address of Beneficial Owner Common Stock Percentage of Class
(#) (%) (2)
------------------------------------------------------------- -------------------------- -----------------------
Pequot Capital Management 2,748,400 5.5
500 Nyala Farm Road
Westport, CT 06880
Norman Pessin 2,646,655 5.3
605 Third Avenue, 14th floor
New York, NY 10158
Nicusa Capital Partners, L.P. 2,597,354 5.2
17 State Street, Suite 1650
New York, NY 10004
Fundamental Management Corporation 2,530,000 5.0
8567 Coral Way, #138
Miami, FL 33155
-------------------------------------------------------------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from April 13, 2007 upon exercise of
options, warrants and convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any other person)
and that are exercisable within 60 days from April 13, 2007 have been exercised.
(2) Applicable percentage ownership is based on 50,270,964 shares of Common
Stock outstanding as of April 13, 2007.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our directors and executive officers, and persons who
own more than ten percent (10%) of the outstanding Common Stock, to file with
the SEC initial reports of ownership on Form 3 and reports of changes in
ownership of Common Stock on Forms 4 or 5. Such persons are required by SEC
regulation to furnish us with copies of all such reports they file.
Based solely on our review of the copies of such reports furnished to
us or written representations that no other reports were required, we believe
that all Section 16(a) filing requirements applicable to our officers, directors
and greater than ten (10%) percent beneficial owners have been complied with
during the year ended December 31, 2006 and through the date hereof except for
one late Form 3 filed by Dr. Guethon.
PERFORMANCE GRAPH
The following graph depicts our cumulative total return for the last
five fiscal years relative to the cumulative total returns of the NASDAQ Stock
Market Index and a group of peer companies (the "Peer Group"). All indices shown
in the graph have been reset to a base of $100 as of December 31, 2001 and
assume an investment of $100 on that date and the reinvestment of dividends paid
since that date.
|GRAPH|
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REVIEW OF RELATED PARTY TRANSACTIONS
The Board of Directors has delegated to the Audit Committee the
responsibility to review and approve all transactions or series of transactions
in which we or a subsidiary is a participant, the amount involved exceeds
$120,000 and a "Related Person" (as defined in Item 404 of Regulation S-K") has
a direct or indirect material interest. Transactions that fall within this
definition will be referred to the Audit Committee for approval, ratification or
other action. Based on its consideration of all of the relevant facts and
circumstances, the Audit Committee will decide whether or not to approve such
transaction and will approve only those transactions that are in the best
interests of the Company.
ANNUAL REPORT TO SHAREHOLDERS
A copy of our Annual Report on Form 10-K, for the fiscal year ended
December 31, 2006, accompanies this Notice of Annual Meeting and Proxy
Statement. Additional copies of the Annual Report on Form 10-K may be obtained
without charge by writing to:
Metropolitan Health Networks, Inc.
250 South Australian Avenue, Suite 400
West Palm Beach, Florida 33401
Attention: General Counsel and Secretary
OTHER BUSINESS
2008 Shareholder Proposals
Shareholders interested in submitting a proposal to be considered for
inclusion in our Proxy Statement and form of Proxy for the 2008 Annual Meeting
of Shareholders may do so by following the procedures prescribed by Securities
Exchange Act Rule 14a-8. To be eligible for inclusion, proposals must be
submitted in writing and received by us at the address appearing as our
principal executive offices on or before Monday, December 31, 2007.
A shareholder of ours may wish to have a proposal presented at the 2008
Annual Meeting of Shareholders, but not to have the proposal included in our
Proxy Statement and form of Proxy relating to that meeting.
Pursuant to our Amended and Restated Bylaws, in most circumstances, no
business may be brought before the annual meeting unless it is specified in the
notice of meeting or is otherwise brought before the meeting at the direction of
the Board of Directors or by a shareholder who otherwise has the right to submit
the proposal and who has delivered written notice to us (containing certain
information specified in the Amended and Restated Bylaws about the shareholder
and the proposed action) no later than 90 days nor earlier than 120 days prior
to the first anniversary of the date of the preceding year's annual meeting,
i.e., between February 8, 2008 and March 10, 2008.
Procedures for Nominating or Recommending for Nomination Candidates for Director
In order for a shareholder to nominate a candidate for director, under
Metropolitan's Bylaws, we must receive timely notice of the nomination in
advance of the meeting. Ordinarily, such notice must be received not less than
90 nor more than 120 days before the first anniversary of the date of the
preceding year's annual meeting, i.e., between February 8, 2008 and March 10,
2008. The shareholder filing the notice of nomination must include:
As to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination is made:
o the name and address of such shareholder, as they appear on our
books, and of such beneficial owner;
o the class and number of shares of our capital stock which are owned
beneficially and of record by such shareholder and such beneficial
owner;
-35-
o a representation that the shareholder is a holder of record of our
stock entitled to vote at such meeting and or by proxy at the
meeting to propose such business or nomination; and
o a representation whether the shareholder or the beneficial owner, if
any, intends or is part of a group which intends (a) to deliver a
proxy statement and/or form of proxy to holders of at least the
percentage of our outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (b) otherwise to
solicit proxies from shareholders in support of such proposal or
nomination.
As to each person whom the shareholder proposes to nominate for
election as a director:
o the name and age of the nominee and, if applicable, all positions
and offices held by such person with the Company including the dates
and terms of service;
o a description of any family relationship between the nominee and any
of our directors or executive officers;
o a description of the business experience and principal occupations
of the nominee for the past five years, including the name of the
nominee's principal employers and the dates of service;
o a description of any relationship between any employer of the
nominee during the past five years and the Company;
o a list of all directorships held by the nominee;
o a description of any legal proceedings involving the nominee or any
entity for which the nominee served as an executive officer,
including; without limitation, the filing of any petition under
federal bankruptcy or state insolvency laws with respect to the
nominee's property or business or any entity for which the nominee
served as an executive officer within the preceding two (2) years;
the conviction of the nominee or naming of the nominee as the
subject of a criminal proceeding and any order or similar decree
enjoining the nominee from engaging in specified activities;
o a description of all arrangements or understandings between such
shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by such shareholder;
o any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors or
is otherwise required by Regulation 14A under the Securities
Exchange Act of 1934, as amended; and
o the nominee's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected.
In order for a shareholder to bring other business before a shareholder
meeting, timely notice must be received by us within the time limits described
above. Such notice must include:
o the information described above with respect to the shareholder
proposing such business;
o a brief description of the business desired to be brought before the
meeting including the text of the proposal or business (including
the text of any resolutions proposed for consideration and in the
event that such business includes a proposal to amend our Bylaws,
the language of the proposed amendment);
-36-
o the reasons for conducting such business at the meeting; and
o any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made.
These requirements are separate from and in addition to the
requirements a shareholder must meet to have a proposal included in our proxy
statement.
In each case the notice must be given by personal delivery or by United
States certified mail, postage prepaid, to the attention of Roberto L.
Palenzuela, General Counsel and Secretary, whose address is 250 South Australian
Avenue, Suite 400, West Palm Beach, Florida 33401. Any shareholder desiring a
copy of our Bylaws will be furnished one without charge upon written request to
the Secretary. A copy of our Bylaws is filed as an exhibit to our Current Report
on Form 8-K filed on September 30, 2004, and is available at the SEC Internet
website at www.sec.gov.
Other Matters
Management is not aware of any matters to be presented for action at
the 2007 Annual Meeting, except matters discussed in this Proxy Statement. If
any other matters properly come before the meeting, it is intended that the
shares represented by proxies will be voted in accordance with the judgment of
the persons voting the proxies.
By Order of the Board of Directors
April 30, 2007 /s/ Roberto L. Palenzuela, Esq.
Roberto L. Palenzuela, Esq.
General Counsel and Secretary
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