Amendment to Annual Report — Form 10-K Filing Table of Contents
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(Exact
name of registrant as specified in its charter)
Florida
65-0635748
(State
or other jurisdiction of incorporation
or organization)
(I.R.S.
Employer Identification
No.)
250
South Australian Avenue, Suite 400
West
Palm Beach, Fl.
33401
(Address
of principal executive offices)
(Zip
Code)
(561)
805-8500
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
Name
of each exchange on which registered
Common
Stock, $.001 par value per share
NYSE
Amex
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes o No x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated
filer”“accelerated filer” and “smaller reporting company”, in Rule
12b-2 of the Exchange Act.
Large accelerated filer o Accelerated
filer x
Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No x
As of
June 30, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $91,964,322 based
on the closing sale price as reported on the NYSE Amex. This calculation has
been performed under the assumption that all directors, officers and
stockholders who own more than 10% of our outstanding voting securities are
affiliates of the Company.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Directors,
Executive Officers and Corporate Governance
2
Item
11.
Executive
Compensation
8
Item
12.
Securities
Ownership of Certain Beneficial Owners and Management and Related
Matters
27
Item
13.
Certain
Relationships and Related Transactions, and Director
Independence
30
Item
14.
Principal
Accounting Fees and Services
31
PART
IV
Item
15.
Exhibits,
Financial Statement Schedules
33
Signatures
1
EXPLANATORY
NOTE
Metropolitan
Health Networks, Inc. (the “Company”) is filing this Amendment No. 1 on Form
10-K/A (this “Amendment”) to amend its Annual Report on Form 10-K for the fiscal
year ended December 31, 2009, filed with the Securities and Exchange
Commission (the “SEC”) on March 2, 2010 (the “Original Filing”). This Amendment
is being filed to include the information required by Items 10 through 14 of
Part III of Form 10-K that, in the Original Filing, was intended to be
incorporated by reference to the definitive Proxy Statement for our 2010 Annual
Meeting of Shareholders. In addition, on the cover page, (i) the reference
in the Original Filing to the incorporation by reference of the definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders has been deleted and (ii)
the information with respect to the number of outstanding shares of our common
stock has been updated.
Pursuant
to Rule 12b-5 under the Securities and Exchange Act of 1934, this Amendment
includes updated officer certifications as Exhibits 31.1 and 31.2 to this
Amendment. Except for the exhibits referenced in the preceding sentence, the
exhibits included in Item 15 of this report speak as of the date of the Original
Filing.
Except as
described above, no other information in the Original Filing has been updated
and this Amendment continues to speak as of the date of the Original Filing.
Other events occurring after the filing of the Original Filing or other
disclosures necessary to reflect subsequent events have been or will be
addressed in other reports filed with or furnished to the SEC subsequent to the
date of the Original Filing.
“We,”“us” or “the Company” refers to Metropolitan Health Networks, Inc.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Board
of Directors
As
reported in a Current Report on Form 8-K filed on April 26, 2010, effective as
of 5:00 P.M. on April 23, 2010, each of Mr. David Florman, Mr. Eric Haskell, Mr.
Karl Sachs, Mr. Robert Shields and Mr. Barry Zeman (collectively, the “Prior
Directors”) resigned as members of the Board of Directors. Over the
course of the last several months, certain large shareholders of the Company had
informed the Board of its opinion that the Board should retain Mr. Michael
Earley as Chief Executive Officer and reconstitute the Board. After
consideration of such information, the Prior Directors expressed their views
that they did not believe these actions to be in the best interests of our
shareholders as a whole and, accordingly, these large shareholders submitted to
the Company an alternative slate of directors. The Prior Directors further
expressed the view that they did not believe that it is in the shareholders’
best interests to engage in a proxy contest with the shareholders seeking to
make the changes described above. None of the Prior Director’s
resignations were due to any form of disagreement with our operations, policies
or practices.
Effective
as of the same date, Mr. Michael Earley, the sole remaining director, appointed
six new directors to fill the vacancies created by the resignation of the Prior
Directors as well as the vacancy created by the previous resignation of Dr.
Martin Harrison in March 2010. Listed below are the names, ages and
biographies of our current directors at April 23, 2010.
Our
directors are elected annually and serve until the next annual meeting of
shareholders and until their successors are duly elected and
qualified. Below each director’s biography is a brief discussion of
the specific experience, qualifications, attributes or skills that led to the
conclusion that such director should serve as a director for the Company as of
the date hereof, in light of our business and structure.
2
Name
Age
Position
Michael
M. Earley
54
Chairman
and Chief Executive Officer
Michael
Cahr
70
Director
Richard
A. Franco, Sr.
68
Director
Casey
Gunnell
63
Director
Arthur
D. Kowaloff
63
Director
Mark
Stolper
38
Director
John
S. Watts, Jr.
50
Director
MICHAEL M. EARLEY has served
as our Chief Executive Officer since March 2003. He also served as
Chairman of the Board from September 2004 through December 31,2009. 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., a AMEX-listed diversified holing company, and Triton Group
Ltd., a AMEX-listed diversified holding company and from 1978 to 1983, he was an
audit and tax staff member of Ernst & Whinney. From 2002 through
2006, Mr. Earley served on the Board of Directors of MPower Holding Corporation,
an AMEX listed trade facilities-based broadband communications provider until
its merger in August 2006. Mr. Earley received his undergraduate
degrees in Accounting and Business Administration from the University of San
Diego.
Key Attributes, Experience and
Skills:
Mr. Earley was nominated to serve as a
director on our Board due to his many years of experience serving as our CEO as
well as his experience serving in a variety of senior executive, director and/or
consulting roles with publicly traded companies. Mr. Earley’s service
as our CEO creates a critical link between management and the Board, assisting
the Board to perform its oversight function with the benefits of management's
perspectives on the business.
MICHAEL
CAHR was appointed to our Board in April 2010. He had
previously served as a member of our Board from 2000 through November
2002. He has been a general partner at Focus Equity Partners, a
private equity investment and management firm that acquires middle-market
companies and assists them in reaching their performance potential, since 2003.
Mr. Cahr has more than 30 years of experience as a venture capitalist,
CEO and director of public and private companies. From September 2004 to
June 2006, Mr. Cahr served as CEO of one of Focus Equity’s investments,
C&M Pharmacy, a Glenview, Illinois, specialty pharmacy company, and
engineered the sale of the company to Walgreen Co. Since October 2006,
Mr. Cahr has acted as a board member and advisor to another Focus
investment, Business Only Broadband (BOB), a premier provider of carrier-class,
fixed wireless primary and co-primary data network solutions for the business
sectors in Chicago and the New York metropolitan area. Prior to joining Focus,
from 2001 to 2003, Mr. Cahr was president of Saxony Consultants, a provider
of financial and marketing expertise, and from 1994 to 1999 served variously as
president, CEO and chairman of publicly held Allscripts, Inc., the leading
developer of hand-held devices that provide physicians with real-time access to
health, drug and other critical medical information. Prior to Allscripts, from
1987 to 1994, Mr. Cahr was venture group manager for Allstate Venture
Capital where he oversaw domestic and international investments in technology,
healthcare services, biotech and medical services. Since January 2009,
Mr. Cahr has served as a director of MakeMusic, Inc., a NASDAQ-listed
provider of music education technology. He also has served since
September 2002 as a director of PacificHealth Laboratories, an OTCBB traded
nutritional products firm that develops and commercializes functionally unique
nutritional products. Mr. Cahr was also a director of Lifecell Corporation
from 1989 to 2007 where he served as the chairman of the audit
committee.
3
Key Attributes, Experience and
Skills:
The Board
believes that Mr. Cahr’s many years of experience serving in a variety of senior
executive, director and/or consulting roles with publicly traded companies and
specifically with companies in the healthcare industry enables him to bring
unique and valuable management insights to the Board. In addition,
the Board believes that Mr. Cahr contributes financial expertise to the Board,
including through his service on the audit committees (and in some cases
chairmanship) of other public companies, as well as executive compensation
experience, including through his service on the compensation committees of
other public companies.
RICHARD A. FRANCO, SR. was
appointed to our Board in April 2010. Mr. Franco has served as CEO
and as a member of the Board of Directors of DARA BioSciences, Inc., a
NASDAQ-listed biopharmaceutical development company, since January 2009 and as
Chairman and President of DARA BioSciences since February 2009. Previously,
Mr. Franco served as DARA’s Chairman of the Board from October 2007 until
March 2008, as President and CEO from January 1, 2007 until March 2008 and
as President and a member of the board of directors from 2005 until March
2008. Mr. Franco
has been a leader in the pharmaceutical and medical industry for more than 35
years. Prior to joining DARA Biosciences, Mr. Franco co-founded LipoScience,
Inc., a private medical technology and diagnostics company, and served as
president, CEO and chairman of that company, from 1997 to 2002. Prior to
founding LipoScience, Inc., Mr. Franco served as president, CEO and
director of Trimeris, Inc., a NASDAQ-listed biopharmaceutical company, from 1994
to 1997. Mr. Franco was employed for more than a decade, from 1982 to 1994,
with Glaxo Inc. (now GlaxoSmithKline), where he served as a member of the
Executive Committee, vice president and general manager of Glaxo Dermatology and
the Cerenex Division and vice president of Commercial Development and Marketing.
Since May 2000, Mr. Franco has served as a director of Salix Pharmaceuticals,
Ltd., a NASDAQ-listed specialty pharmaceutical company. He also
serves as Chapter Director of the Research Triangle Chapter of the National
Association of Corporate Directors (NACD). Previously, he served as a director
of TriPath Imaging, EntreMed Inc and Tranzyme, Inc. Mr. Franco earned a
Bachelor of Science degree in pharmacy from St. John’s University and did his
graduate work in pharmaceutical marketing and management at Long Island
University.
Key Attributes, Experience and
Skills:
Mr.
Franco has had a prominent role in multiple publicly traded companies in the
pharmaceutical and medical industries, including as co-founder, director and CEO
of a private medical technology and diagnostics company and as CEO and director
of multiple publicly traded biopharmaceutical company. The Board
believes that these experiences demonstrate his significant management and
leadership capabilities within the medical and pharmaceutical industry and
enable him to bring a wealth of industry knowledge and expertise to the
Board.
CASEY
GUNNELL was appointed to our Board in April 2010. Mr. Gunnell
has thirty-eight years of broad business experience in entrepreneurial, startup,
troubled and rapid growth sales based companies. Since January 2009, he has
serve as President and as a member of the Board of Directors of NeedleNurse,
Inc., a privately owned startup medical device company which he
co-founded. Since December 2005, he has also served as a
Managing Director of Cornerstone Management, LLC, a private firm providing
advisory, interim staffing and project management solutions to distressed
commpanies. He has also served, since April 1998, as President of
Gunnell Family Corp., a private firm focused on interim management
solutions. From May 2001 to May 2003, Mr. Gunnell served as interim
CEO, President and as a director of Holdiay RV Superstores, inc. d/b/a/
Recreation USA, a NASDAQ-listed retailer of recreational vehicles and marine
products. He also served from May 2000 to May 2001 as COO and CFO of
PNV, Inc., a NASDAQ-listed cable television, communications, broadband wireless,
ISP and portal to the trucking industry. Since April 2008, Mr.
Gunnell has served as a member of the Board of Directors of Enable Holdings,
Inc., an OTCBB-traded asset recovery solution provider. Mr. Gunnell
earned a Bachelor of Business Administration degree from Florida Atlantic
University.
4
Key Attributes, Experience and
Skills:
The Board
believes that Mr. Gunnell’s 38 years of business experience as an entrepreneur
driving the growth of a private medical device company (which he co-founded), an
executive in multiple consulting and management solutions firms and as an
executive and director of various publicly traded companies provides the Board
with valuable business, leadership and management
experience. Further, the Board believes that his entrepreneurial
experience provides the Board with unique perspectives and guidance on the
strategic direction and growth of the Company. The Board considers Mr. Gunnell’s
strong operational background is as an additional asset to the
Board.
ARTHUR
D. KOWALOFF was appointed to our Board in April 2010. Mr.
Kowaloff served as a Managing Director of BNY Capital Markets, Inc from 1998
until his retirement in 2003. From 1991 to 1998, he was COO and Senior Managing
Director of Patricof & Co. Capital Corporation. Prior to that,
Mr. Kowaloff was an attorney at the New York City firm of Willkie
Farr & Gallagher, from 1971 to 1991, where he served as Senior Partner
and Executive Committee Member and specialized in corporate and securities law
and mergers and acquisitions. Mr. Kowaloff is currently President and
Director of the PBP Foundation of New York, a member of the Board of Directors
of the Orange Regional Medical Center and a trustee of Carleton College.
Mr. Kowaloff received a Bachelor of Arts degree from Carleton College and
holds a Juris Doctor degree from Yale Law School. Since 2004, Mr.
Kowaloff,m has served as a director of Sirona Dental Systems, Inc., a
NASDAQ-listed manufacturer of high-quality, technologically advanced dental
equipment.
Key Attributes, Experience and
Skills:
The Board
believes that Mr. Kowaloff’s career in law and investment banking, including
serving as Managing Director of both BNY Capital Markets, Inc. and Patricof
& Company Capital Corporation, provides the board with valuable business
experience and critical insights on the roles of law, finance and strategic
transactions. In addition, the Board believes that Mr. Kowaloff’s experience as
an attorney, practicing in the areas of corporate and securities law and mergers
and acquisitions enables him to provide a unique and valuable perspective on the
various securities law and general corporate law issues that the Company may
face.
MARK STOLPER was appointed to
our Board in April 2010. He has served as Executive Vice President
and Chief Financial Officer of RadNet, Inc., a NASDAQ-listed company, since
2004. RadNet is the largest owner and operator of medical diagnostic
imaging centers in the United States. From 1999 to 2004, Mr. Stolper was a
partner at Broadstream Capital Partners and West Coast Capital, Los
Angeles-based investment and merchant banking firms focused on advising middle
market companies engaged in financing and merger and acquisition
transactions. Mr. Stolper began his career in 1993 as a member of the
corporate finance group at Dillon, Read and Co., Inc., executing mergers and
acquisitions, public and private financings and private equity investments with
Saratoga Partners LLP, an affiliated principal investment group of Dillon
Read. From 1995 to 1998, Mr. Stolper was a Vice President at Archon
Capital Partners, which made private equity investments in media and
entertainment companies. From 1998 to 1999, Mr. Stolper worked at
Eastman Kodak, where he was responsible for business development for Kodak’s
Entertainment Imaging subsidiary ($1.5 billion in sales). Since May 2007, Mr.
Stolper has served on the Board of Directors of CompuMed, Inc., a
publicly-traded medical informatics and software company. Mr. Stolper
graduated magna cum laude from the University of Pennsylvania, received a
finance degree from the Wharton School and earned a post-graduate award in
Accounting from UCLA.
5
Key Attributes, Experience and
Skills:
Mr.
Stolper brings to the Board comprehensive knowledge of the health care
industry. For the last six years, he has served as the principal
financial executive at a NASDAQ-listed healthcare company with over $500 million
of annual revenues. In addition to his leadership experience, through
his work at RadNet and his service as Chairman of the Board of CompuMed, he
brings extensive knowledge of corporate governance practices, especially for
publicly traded companies in the health services industry. Mr.
Stolper also has diverse experiences in investment banking, private equity,
venture capital investing and operations.
JOHN S. WATTS, JR. was
appointed to the Board in April 2010. Since January 2008, Mr. Watts
has been a partner at John Watts Consulting, Inc., where he provides management
consultation, market development services and health care system navigation
support to start up and growth companies. Prior to starting his
consulting firm, Mr. Watts spent over 12 years at Wellpoint, Inc., one of the
nation’s largest health insurers. He served in numerous roles at
Wellpoint during his tenure, including as President and CEO of Wellpoint’s
commercial and consumer business from September 2006 through December 2007, as
President and CEO of Anthem national accounts from December 2004 through
September 2006 and as President and CEO of Blue Cross Blue Shield of Georgia
from 2002 through 2004. Since September 2009, Mr. Watts has served as
a member of the Board of Directors at CareCentrix, a privately owned provider of
home health benefits management services to the managed care
industry. He also served as Executive Chairman of Implantable
Provider Group, a privately owned company providing implantable device
management. from September 2008 through November 2009.
Key Attributes, Experience and
Skills:
Mr. Watts
brings to the Board more than 25 years of experience in building, growing and
leading large health plan organizations. It is the Board’s
understanding that he has a strong track record of building successful new
ventures and achieving high growth rates for Wellpoint and other health plans he
has led. The Board believes that his knowledge of the health plan
space and experience in competitive analysis and strategy development are
significant assets for the Board.
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
Family
Relationships
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.
Audit
Committee
We have a separately-designated
standing Audit Committee established in accordance with Section 3(a)(58)(A) of
the Exchange Act. 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
independent auditors. The specific responsibilities in carrying out
the Audit Committee’s oversight role are delineated in the Audit Committee
Charter.
6
Each of Mr. Franco Mr. Gunnell and Mr.
Stolper has served as a member of the Audit Committee since his appointment to
the Board on April 23, 2010. Immediately prior to that time, the
Audit Committee was comprised of Mr. Karl Sachs, Mr. David Florman, Mr. Eric
Haskell and Mr. Barry Zeman.
The Board of Directors has determined
that each member of the Audit Committee is independent pursuant to the corporate
governance rules of the NYSE Amex (the “NYSE Amex Rules”). The Board
of Directors has determined that each of Mr. Gunnell and Mr. Stolper qualifies
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.
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.
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.
Nomination
of Directors by Shareholders
There
have been no material changes to the procedures by which our shareholders may
recommend nominees to our Board of Directors since those procedures were
described in our Proxy Statement for our 2009 Annual Meeting of Shareholders,
filed with the Commission on April 29, 2009.
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 our 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, 2009 except for one late Form 4 filed by Dr. Harrison, a
former member of the Board of Directors.
The information required by this item
about our Executive Officers is included in Part I, “Item 1. Business”
of the Original Form 10-K under the caption “Our Executive
Officers.”
7
ITEM
11. EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION & ANALYSIS
General
Philosophy
Our
executive compensation program, which is grounded in the principle of
pay-for-performance, is intended to reward members of our executive team and
senior management for sustained, high-level performance over the short and long
term as demonstrated by measurable, company-wide performance metrics and
personal contributions which are consistent with our overall growth and
goals. 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. Our compensation program has been structured to
enhance our ability to achieve our short-term and long-term strategic goals and
to retain and motivate the members of our executive team and senior management
to achieve such goals.
To
determine compensation, we first establish a target overall compensation figure
for each member of our executive team and senior management and allocate this
target amount among base salary, cash incentive compensation and equity
compensation awards.
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 our operating income.
Board
Process for Determining Compensation
Our
Compensation Committee has responsibility for evaluating and administering our
director and executive officer 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 compensation for the named executive
officers, the Compensation Committee consults with the Chief Executive Officer
and when it deems appropriate, other appropriate advisors.
Use
of Compensation Consultants
Pursuant
to its charter, the Compensation Committee has the authority to retain any
compensation consultant to assist the Compensation Committee in its evaluation
of compensation for our Board of Directors and/or senior executive
officers. In accordance with this authority, in December 2006, the
Compensation Committee engaged Watson Wyatt to conduct a review of the
competitiveness of our compensation program for our named executive officers and
our Board of Directors as compared to a peer group and to published survey data
for companies with revenues similar to ours. In October 2007, to
assist the Compensation Committee make determinations with respect to our
executive compensation program for 2008, the Committee asked Watson Wyatt to
provide an updated review of the competitiveness of our compensation program for
our named executive officers. In late 2008, the Committee consulted
with Watson Wyatt on various issues regarding our 2009 executive compensation
program.
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 Chief Executive Officer, Dr. Jose Guethon, our President
and Chief Operating Officer, Robert J. Sabo, our Chief Financial Officer, and
Roberto L. Palenzuela, our General Counsel and Secretary (collectively, the “NEO
Employment Agreements”).
8
2009
Compensation as compared to 2008 Compensation
The
primary change to our executive compensation program in 2009 was additional
earnings opportunity for the executives with respect to short-term incentive
compensation, which was reflected in the terms of our 2009 executive bonus
plan. Under the 2009 bonus plan, the maximum amount payable equaled
2.5 times the target bonus percentage, up from 2 times the target bonus
percentage under the 2008 plan. Additionally, the bonus thresholds
were lowered so that 100% of the target bonus would be payable if the Company
hit 93% of budged income before income taxes (the “Target Amount”) and 50% of
the target bonus would be payable if the Company hit 85% of the Target Amount
(or approximately 79% of budgeted income before income taxes). The
Compensation Committee considered these lower thresholds to be appropriate
considering that budgeted income before income taxes for 2009 was approximately
60% higher than 2008 income before income taxes and at the Target Amount was
over 50% higher than 2008 income before income taxes.
Other
than increasing the base salary of Dr. Guethon to reflect his promotion to
President and Chief Operating Officer in September 2008, we did not make any
other changes to the compensation of our named executive officers in 2009 as
compared to 2008. In making compensation decisions for 2009, the Compensation
Committee balanced the strong company performance and significant company
accomplishments in 2008, including the successful sale of our HMO, against the
rapidly deteriorating economy. After consulting with Watson Wyatt and
reviewing the results of a flash survey completed by them in October/November
2009, the Compensation Committee determined that it was in line with the market
to keep executive compensation packages in 2009 at the same level they were at
in 2008.
Factors
Considered in Determining Executive Compensation
The
Compensation Committee considers a variety of factors in coming to decisions
regarding compensation for the named executive officers. Competitive market
information is an important consideration, but not the only one.
Market competitiveness. In
making determinations regarding 2009 executive compensation, the Compensation
Committee relied, in part, upon information regarding competitive market pay
information and compensation structures provided by Watson Wyatt to the
Committee in October 2007. As part of its study, Watson Wyatt
compared the compensation paid in 2007 to our named executive officers to the
compensation paid by a peer group comprised of 13 similarly sized companies in
the healthcare industry (the “Peer Group”) as well as to published survey data
for issuers with similar revenues (approximately $250 million) to the Company
(the “Published Survey Data”). This study updated the compensation
study provided by Watson Wyatt to the Company in December 2006 which compared
our performance and the compensation paid in 2006 to our named executive
officers to the performance of and compensation paid to the same Peer
Group. The Peer Group includes:
· Continucare
Corporation
· Amsurg
Corporation
· Healthways,
Inc.
· Radiation
Therapy Services, Inc.
· Pediatrix
Medical Group, Inc.
· Pediatric
Services of America, Inc.
· Vistacare,
Inc.
· Horizon
Health Corporation
· Techne
Corporation
· Amedisys,
Inc.
· Thoratec
Corporation
· Integramed
America, Inc.
· Ventana
Medical Systems, Inc.
For each
named executive officer, Watson Wyatt provided the Committee with information as
to whether the base salary, target cash bonus as a percentage of base salary and
equity incentive compensation as a percentage of base salary paid to the subject
named executive officer in 2007 was at, above or below market as compared to the
Peer Group and the Published Survey Data. The following table
summarizes the results of the Watson Wyatt study.
9
Named Executive Officer
Base Salary
Cash
Bonus as a
Percentage
of
Base Salary
Equity
Incentive
Compensation
as a
Percentage
of
Base Salary
Michael
M. Earley
Significantly
Below Market
Competitive
Competitive
(1)
Dr.
Jose Guethon (2)
Competitive
Competitive
Above
Market
Robert
J. Sabo
Competitive
Competitive
Below
Market
Roberto
L. Palenzuela
Competitive
Competitive
Competitive
(1)
Although
Mr. Earley’s equity incentive compensation as a percentage of base salary
is competitive with the Peer Group and Published Survey Data, since Mr.
Earley’s base salary for 2007 was significantly below market, the actual
dollar value of his equity incentive compensation for 2007 was below the
market.
(2)
As
of the date of the Watson Wyatt study and for a substantial portion of
2008, Dr. Guethon served as the President of our Provider Service Network
(our “PSN”). In September 2008, he was promoted to President
and Chief Operating Officer.
In
setting compensation levels for the named executive officers for 2008, the
Compensation Committee sought to provide target compensation—in the aggregate,
and generally for each element—that is competitive, and therefore approximates
the 50th percentile (or the market median) for comparable positions in the Peer
Group and companies included in the Published Survey Data. Individual
compensation may be more or less than the median compensation amount when
warranted by individual or corporate performance.
In
December 2008, the Chairman of the Compensation Committee and the Lead
Independent Director, now Chairman of the Board, consulted with Watson Wyatt
regarding 2009 compensation considerations.
Although
Watson did not provide a formal report, it informed the directors that, based
upon a review of the still existing members of the Peer Group, the CEO’s base
salary continued to be materially less than CEOs of the Peer Group companies.
Mr. Earley, however, had indicated to the Compensation Committee that he did not
desire a raise for 2009. Watson further indicated that the base
salaries for the CFO and General Counsel continued to be competitive as compared
to the Peer Group companies.
Watson
further indicated that equity compensation as a percentage of base salary
continued to be competitive as compared to the Peer Group
companies.
Our
executive compensation policies are generally applied in the same manner to all
of the named executive officers, although the Chief Executive Officer’s
compensation package is designed to incorporate a more significant performance
based component than our other named executive officers. The comparison to the
market median is done on a position by position basis and takes into account the
relative responsibilities and authority of each named executive officer. The
differences in amounts of compensation for each named executive officer reflect
the significant differences in the scope of responsibilities and authority
attributed to their respective positions.
Performance. Our policy is to
provide our executive officers with compensation opportunities that are based
upon their individual performance, the performance of the Company and their
contribution to that performance. The Compensation Committee considers these
performance factors when approving adjustments to the compensation of the named
executive officers.
Mix of current and long-term
compensation. Because the successful operation of the Company’s business
requires a long-term approach, one of the important components of the program is
long-term compensation by means of long-term incentives. The Compensation
Committee believes that the incorporation of a long-term compensation element
assists in the alignment of the named executive officers’ interests with the
economic interests of the Company’s shareholders.
10
Impact and mix of cash vs. non-cash
compensation. The Compensation Committee considers both the cost and the
motivational value of the various components of compensation. The Compensation
Committee has determined that current compensation—base salary and annual
bonuses—should be delivered in cash, but that long-term incentive compensation
should include stock-based compensation so that the long-term financial rewards
available to the named executive officers are linked to increases in our value
over the long-term. The Compensation Committee believes that this also aligns
the named executive officers’ interests with the economic interests of the
Company’s shareholders.
The
Elements of Our Executive Compensation Program
The
elements of our executive compensation program are as follows:
·
cash
compensation in the form of base
salary;
·
cash
compensation in the form of incentive compensation (i.e. performance-based
bonuses); and
·
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
is discussed below.
Pursuant
to our executive compensation program for fiscal 2009, the allocation of
compensation among base salary, target performance-based bonus and equity-based
awards was relatively consistent among our named executive officers, other than
our Chief Executive Officer, with base salary generally comprising between 45%
and 57% of the named executive officer’s total compensation package for 2009,
the target bonus generally comprising between 22% and 23% of a named executive
officer’s total compensation package for 2009 and equity awards generally
comprising between 20% and 32% of a named executive officer’s total compensation
package for 2009.
The Chief
Executive Officer’s compensation package for 2009 had a more significant
performance based component than our other named executive officers, with base
salary comprising only 41% of his total compensation package while target bonus
and equity awards comprised 20% and 37%, respectively, of his total compensation
package.
In
allocating executive compensation among these elements, we believe that, in
light of their significant ability to influence our performance, the
compensation of our senior-most management team and, most especially, our Chief
Executive Officer 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. In accordance with our Compensation Policy, base
salaries are set at levels which are intended to produce the highest value for
us at an appropriate cost, reflect the individual’s responsibilities, tenure and
past performance and be competitive with the Peer Group.
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 recommends 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 as
well as an assessment of the competitiveness of the officer’s base salary to
companies included in the Peer Group and the Published Survey
Data. For 2009, the Compensation Committee set each named executive
officer’s base salary as follows:
11
Name
2009
Base Salary
Michel
M. Earley
$375,000
Jose
A. Guethon, M.D.
$336,000
Robert
J. Sabo
$270,000
Roberto
L. Palenzuela
$225,000
For 2008,
the median base salaries and total compensation paid by companies in the Peer
Group and companies included in the Published Survey Data 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:
·
the
relative experience and skills of the subject
officer;
·
the
importance of the particular position to
us;
·
the
level of responsibilities assigned to the subject
officer;
·
the
difficulty in replacing the
executive;
·
the
subject officer’s historical performance in light of the Corporate
Objectives;
·
our
operating performance to date during his tenure with
us;
·
internal
alignment considerations; and
·
inflation.
As
described further below, target cash incentive compensation and equity awards
are generally set as a percentage of each named executive officer’s base
salary.
The
relative weight applied to each of the foregoing factors varied with each
position and individual and was within the sole discretion of the Compensation
Committee. Decisions regarding the individual performance factors identified
above and used by the Compensation Committee in making base salary decisions for
each named executive officer, other than the CEO, were based on the Compensation
Committee’s review of the Chief Executive Officer’s evaluation of the officer’s
individual performance for the prior year. Decisions regarding the individual
performance factors identified above and used in making base salary decisions
for the Chief Executive Officer were based on the Board of Directors’ review of
the CEO’s individual performance for the prior year.
As
discussed above, the Compensation Committee determined that, in light of the
economic crisis, it was appropriate to keep base salaries at the same level in
2009 as in 2008. Notwithstanding the foregoing, the Compensation
Committee recommended an increase in Dr. Guethon’s base salary from $320,000 to
$336,000 in consideration of his promotion to President and Chief Operating
Officer.
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 are met. The
amount of cash incentive compensation earned by our named executive officers in
2009 is set forth in the “Non-Equity Incentive Plan Compensation” column of the
2009 Summary Compensation Table. These amounts were paid in February
2010 and were included in our results of operations for the year ended December31, 2009.
12
The
Compensation Committee assigns the named executive officers a competitive
incentive target for each year under our executive bonus plan. The
target incentive is expressed as a percentage of the participant’s annual base
salary as of the end of the year and is designed by the Compensation Committee
to be indicative of the incentive payment that each participant would expect to
receive on the basis of our strong performance and the strong individual
performance by our senior vice presidents and vice presidents reporting to our
named executive officers. The Compensation Committee set 2009 target
incentives (“Target Bonus”) for each of the named executive officers at the
percentage of base salary as set forth below:
Name
Percentage
of Base Salary at Target
Michel
M. Earley
70%
Jose
A. Guethon, M.D
50%
Robert
J. Sabo
50%
Roberto
L. Palenzuela
40%
For each
named executive officer, the Target Bonus percentage for 2009 was the same as
the target bonus percentage for 2008.
Depending
on our income before income taxes in 2009, actual cash incentive compensation
payable under our executive bonus plan to each named executive officer could
have been as low as zero or as high as the percentage of base salary set forth
next to his name below.
Name
Maximum
Percentage of Base Salary
Michel
M. Earley
175%
Jose
A. Guethon, M.D
125%
Robert
J. Sabo
125%
Roberto
L. Palenzuela
100%
In 2009,
for our named executive officers to be eligible to receive the full Target Bonus
under our executive bonus plan, our consolidated year-end income before income
taxes for 2009 was required to equal or exceed $25.37 million (the “Target
Goal”), which was 93% of our budgeted consolidated year-end income before income
taxes of $27.29 million. For our named executive officers to be
eligible to receive any bonus under the executive bonus plan, our consolidated
year end income before income taxes for 2009 was required to equal or exceed
$21.57 million (the “Threshold Goal”), which was 85% of Target
Goal. Our 2009 consolidated year-end income before income taxes, as
adjusted by the Committee to take into account the costs associated with the
anticipated CEO succession, gain on the sale of our HMO in 2008 and changes in
estimates of HMO associated accounts, was approximately $23.03
million. Accordingly, each of our named executive officers were
eligible to receive annual incentive compensation equal to between 27% and 48%
of his 2009 base salary as set forth in the Summary Compensation
Table. Bonuses under the plan were paid in February
2010.
Equity
Compensation
Prior to
2007, the primary form of equity compensation that we had awarded consisted of
non-qualified stock options, which we believe provided a strong motivation to
our executives to continue to seek growth in our business. In 2007,
we began 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 provides an equally
motivating form of incentive compensation while permitting us to issue fewer
shares, thereby reducing potential dilution of our shareholders.
13
Each
year, the Compensation Committee assigns each named executive officer a
competitive equity incentive dollar amount expressed as a percentage of the
participant’s annual base salary for the subject year. In setting
this percentage, in addition to competitive market information, the Compensation
Committee considers 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.
The
Compensation Committee set 2009 equity incentives for each of the named
executive officers at the percentage of base salary as set forth
below:
Name
Percentage
of
Base
Salary
Michel
M. Earley
100%
Jose
A. Guethon, M.D
70%
Robert
J. Sabo
70%
Roberto
L. Palenzuela
40%
For each
named executive officer, the equity award percentage for 2009 was the same as
the equity award percentage for 2008.
Equity
awards for any year are generally issued to the named executive officers in
February of the subject year and are generally paid approximately 60% in stock
options and approximately 40% in restricted shares of Common
Stock. See “Grants of Plan Based Awards” for information as to the
total number of stock options and restricted shares of Common Stock granted to
our named executive officers in 2009.
Options
and restricted stock are generally granted pursuant to our Omnibus Equity
Compensation Plan. Both our stock options and restricted stock
granted to our employees generally vest ratably on an annual basis over a 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
NYSE Amex on the grant date. Stock options only have compensatory value if the
market price of the Common Stock increases after the grant date.
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 or 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 2009, we made matching
contributions to our named executive officers.
14
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 us 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.
The named
executive officers are each provided automobile allowances and mobile phone
allowances. We believe these allowances enable our executives to be available to
customers and employees at all times.
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.
Stock Ownership
Guidelines
In 2007,
our Board of Directors adopted stock ownership guidelines for our senior
executives, including our named executive officers, and for non-employee members
of our Board of Directors. The Compensation Committee monitors progress under
these guidelines annually. Although we expect each senior executive
and director to make annual progress towards his or her target, each senior
executive and non-employee member of our Board of Directors will have five years
from the earlier of (a) the date he or she becomes a senior executive or
non-employee director and (b) the date the guidelines were adopted to meet his
or her target. If an executive is promoted and the target is increased, an
additional five-year period will be provided to meet the increase in the target
attributable to the promotion. Targets for our executives increase with rank in
the organization and are based upon multiples of base salary. Shares
counted toward the guidelines include:
·
shares
of Common Stock owned outright by the senior executive or director or his
or her immediate family members residing in the same
household;
·
shares
of Common Stock owned jointly by the senior executive or director with a
spouse or children;
·
shares of Common Stock held in
trust for the benefit of the senior executive or
director;
·
restricted
shares of Common Stock owned by the senior executive or director, whether
or not vested;
·
shares
of Common Stock held in our 401(k) Retirement Savings Plan for the benefit
of the executive or director; and
·
shares
of Common Stock acquired by the senior executive or director upon stock
option exercises.
On
January 26, 2010, our Board of Directors, upon the recommendation of our
Compensation Committee, fixed the 2010 base salaries of our President and Chief
Operating Officer, our Chief Financial Officer and our General Counsel (the
“Applicable Officers”) and awarded each Applicable Officer a one-time retention
bonus payable in restricted shares of our common stock (the “Retention Shares”)
in an amount equal to his 2010 base salary. The number of Retention
Shares issued in satisfaction of the bonus amounts was based upon the closing
price of our common stock on the grant date. The following table sets
forth the 2010 base salary of and the number of Retention Shares issued to each
Applicable Officer:
15
Name
and Title
2010
Base Salary
Percentage
Increase Over 2009 Base Salary
Number
of Retention Shares Issued in Connection with Bonus
Jose
A. Guethon, M.D.
President
and Chief Operating Officer
$346,080
3%
155,193
Robert
J. Sabo
Chief
Financial Officer
$278,100
3%
124,709
Roberto
L. Palenzuela
General
Counsel and Secretary
$231,750
3%
103,924
The 2010 base salary is effective
retroactive to January 1, 2010.
The Retention Shares vest in four equal
annual installments commencing on the first anniversary of the grant date.
Notwithstanding the foregoing, any unvested Retention Shares held by an
Applicable Officer will automatically vest upon a change in control, the subject
officer’s resignation for good reason, death or disability at any time or upon
the termination of the subject officer without cause prior to the second
anniversary of the grant date.
On February 24, 2010, upon the
recommendation of the Compensation Committee, the Board established the target
bonus amounts and the performance criteria applicable to the Company's 2010
bonus plan for executive officers and certain key management employees (the
“2010 Bonus Plan”).
For the named executive officers,
bonuses will be payable under the Bonus Plan based upon our income before income
taxes for the year ending December 31, 2010 (“2010 IBIT”). For any
bonus to be paid to a named executive officer under the 2010 Bonus Plan, we must
first achieve at least 80% (the “Threshold Goal”) of our budgeted 2010 IBIT (the
“Budgeted IBIT”). Provided the Threshold Goal is satisfied, the named
executive officers shall receive some level of bonus.
In the event that we achieve 100% of
the Budgeted IBIT (the “Target Goal”), the named executive officers will be
entitled to receive a bonus (the “Target Bonus”) equal to the percentage of
their base salary set forth below.
Title
Percentage of Base
Salary at Target
Chief
Executive Officer
70%
Chief
Financial Officer
50%
President and
Chief Operating Officer
50%
General
Counsel
40%
Actual bonuses payable may be as high
as 250% of the Target Bonus or as low as zero depending on the Company's 2010
IBIT.
As a general rule, bonus awards under
the 2010 Bonus Plan are subject to the participant’s employment with us as of
December 31, 2010. Bonuses pursuant to the Bonus Plan are anticipated
to be paid once we complete the audit of our financial statements for the fiscal
year ending December 31, 2010.
On April26, 2010, our Board of Directors, upon the recommendation of our Compensation
Committee, fixed the 2010 base salaries of our Chief Executive Officer at
$386,250, representing a 3% increase from his 2009 base salary. The
2010 base salary is effective retroactive to January 1, 2010.
16
Compensation
Committee Report
Our
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the Compensation Committee recommended to
the Board that the Compensation Discussion and Analysis be included in this
Amendment.
THE
COMPENSATION COMMITTEE
Michael
Cahr, Chairman
Richard
A. Franco, Sr.
John S.
Watts, Jr.
Summary
Compensation Table
The table
below summarizes the total compensation paid or earned by each of the named
executive officers for the fiscal years ended December 31, 2009, 2008 and
2007. We do not have any persons serving as executive officers of the
Company other than the named executive officers.
Name
and Principal Position
Year
Salary
($)
Stock
Awards
($)
(1)
Option
Awards
($)
(2)
Non-Equity
Incentive Plan Compensation
($)
All
Other Compensation ($) (3)
Total
($)
Michael
M. Earley
Chairman
& Chief Executive Officer
2009
2008
2007
375,000
375,000
335,879
163,296
148,533
83,000
175,317
163,783
97,352
181,725
277,773
241,100
34,143
25,067
20,850
929,481
990,156
778,181
Jose
A. Guethon
President
and Chief Operating Officer
2009
2008
2007
336,000
320,000
300,000
102,384
88,704
49,800
109,979
97,863
64,900
116,304
169,309
192,200
15,987
16,851
13,950
680,654
692,727
620,850
Robert
J. Sabo
Chief
Financial Officer
2009
2008
2007
270,000
270,000
250,000
82,296
121,044
33,200
88,354
82,571
—
93,459
142,855
150,000
22,005
22,165
31,150
556,114
638,635
464,350
Roberto
L. Palenzuela
General
Counsel & Secretary
2009
2008
2007
225,000
225,000
213,000
39,204
35,574
19,920
42,090
39,332
22,715
62,306
95,237
97,800
28,022
17,701
16,486
396,622
412,844
369,921
(1) Reflects
the aggregate grant date fair values for the restricted shares issued during the
applicable year computed in accordance with FASB ASC Topic 718. The
2007 and 2008 award values have been recalculated from amounts shown in prior
Proxy Statements to reflect their grant date fair values, as required by SEC
rules effective for 2010. Further information regarding the 2009 awards is
included in the “2009 Grants of Plan-Based Awards” and “2009 Outstanding Equity
Awards at Fiscal Year-End” tables later in this Amendment. The grant date fair
values for the 2009 awards have been determined based on the quoted market price
of our common stock on the grant date, as set forth in Note 15 to our
consolidated financial statements included in our Form 10-K for the year ended
December 31, 2009.
(2) Reflects
the grant date fair values for the stock options issued during the applicable
year computed in accordance with FASB ASC Topic 718. The 2007 and
2008 award values have been recalculated from amounts shown in prior Proxy
Statements to reflect their grant date fair values, as required by SEC rules
effective for 2010. Further information regarding the 2009 awards is included in
the “2009 Grants of Plan-Based Awards” and “2009 Outstanding Equity Awards at
Fiscal Year-End” tables later in this Amendment. The grant date fair values for
the 2009 awards have been determined based on the assumptions and methodologies
set forth in Note 15 to our consolidated financial statements included in our
Form 10-K for the year ended December 31, 2009.
(3) “All
Other Compensation” in each of 2009, 2008 and 2007 for each of the named
executive officers is comprised of the following components:
17
Fiscal Year
2009:
Automobile
Allowance ($)
Cellular
Phone Allowance ($)
Long-Tem
Disability/Life Insurance Premiums ($)
401(k)
Matching Amounts ($)
Payout
of Accrued Vacation ($)
Total
($)
Michael
M. Earley
10,200
3,000
1,155
8,250
11,538
34,143
Jose
A. Guethon
6,600
1,200
1,155
7,032
—
15,987
Robert
J. Sabo
9,600
3,000
1,155
8,250
—
22,005
Roberto
L. Palenzuela
6,600
1,200
1,155
8,250
10,817
28,022
Fiscal Year
2008:
Automobile
Allowance ($)
Cellular
Phone Allowance ($)
Long-Tem
Disability/Life Insurance Premiums ($)
401(k)
Matching Amounts ($)
Total
($)
Michael
M. Earley
10,200
3,000
2,151
9,716
25,067
Jose
A. Guethon
6,600
1,200
2,151
6,900
16,851
Robert
J. Sabo
9,600
3,000
2,151
7,414
22,165
Roberto
L. Palenzuela
6,600
1,200
2,151
7,750
17,701
Fiscal Year
2007:
Automobile
Allowance ($)
Cellular
Phone Allowance ($)
Long-Tem
Disability/Life Insurance Premiums ($)
401(k)
Matching Amounts ($)
Housing
Benefits ($)
Other($)
Total
($)
Michael
M. Earley
10,200
3,000
1,500
6,150
-
-
20,850
Jose
A. Guethon
6,600
1,200
1,500
4,650
-
-
13,950
Robert
J. Sabo
9,600
3,000
1,500
-
17,050
-
31,150
Roberto
L. Palenzuela
6,600
1,200
1,500
3,909
-
3,277
16,486
Grants
of Plan Based Awards
The table
below summarizes awards granted under our executive bonus plan and equity based
awards to our named executive officers in 2009.
2009
Grants of Plan Based Awards
Estimated
Future Payouts Under Non-Equity Incentive Plans (1)
All
Other
Stock
Awards: Number of Shares
All
Other Option Awards: Number of Securities
Exercise
Price of
Grant
Date Fair Value of Stock and Option
Name
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
of
Stocks
(#)
(2)
UnderlyingOptions
(#) (3)
Option
Awards ($)
Awards
($)
(4)
Michael
M. Earley
2/5/09
131,250
262,500
656,250
100,800
302,400
1.62
338,613
Jose
A. Guethon
2/5/09
84,000
168,000
420,000
63,200
189,700
1.62
212,363
Robert
J. Sabo
2/5/09
67,500
135,000
337,500
50,800
152,400
1.62
170,650
Roberto
L. Palenzuela
2/5/09
45,000
90,000
225,000
24,200
72,600
1.62
81,294
18
(1) The
amounts set forth in these columns reflect the annual cash incentive
compensation amounts that potentially could have been earned during 2009 based
upon the achievement of performance goals under our Executive Bonus Plan. The
amounts of annual cash incentive compensation earned in 2009 by our named
executives under our Executive Bonus Plan have been determined and were paid in
February 2010. The amounts paid are included in the “Non-Equity Incentive Plan
Compensation” column of the 2009 Summary Compensation Table.
(4) Reflects
the grant date fair values for the restricted shares and options issued during
the applicable year computed in accordance with FASB ASC Topic
718. The grant date fair values have been determined based on the
assumptions and methodologies set forth in Note 15 to our consolidated financial
statements included in our Form 10-K for the year ended December 31,2009.
Base
Salaries
Base
salaries paid to our named executive officers are set forth in the 2009 Summary
Compensation Table. For 2009, base salaries paid to our named
executives officers accounted for the following percentages of their total
compensation: Mr. Earley (40.5%), Dr. Guethon (49.4%), Mr. Sabo (48.8%) and
Mr. Palenzuela (56.7%).
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.”
Amounts
paid to our named executives under the executive bonus plan are set forth in the
2009 Summary Compensation Table. For 2009, payments pursuant to the
executive bonus plan to our named executives officers accounted for the
following percentages of their total compensation: Mr. Earley (19.6%), Dr.
Guethon (17.1%), Mr. Sabo (16.9%) and Mr. Palenzuela (15.7%).
Restricted
Stock
We grant
restricted stock pursuant to our Omnibus Equity Compensation
Plan. Our restricted stock grants generally vest at the rate of
one-fourth per year. Restricted stock is not transferable other than
by will or the laws of descent and distribution.
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 NYSE
Amex on the grant date. Our stock option grants 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.
Employment
Agreements
We are a
party to employment agreements with Mr. Earley, Dr. Guethon, Mr. Sabo and Mr.
Palenzuela.
19
Effective
April 26, 2010, we entered into an amended and restated employment agreement
with Mr. Earley, our Chief Executive 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 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 $850 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
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 Mr. Earley’s employment with the Company. Either
party may terminate Mr. Earley’s employment with the Company at any
time.
Effective
February 1, 2005, Dr. Guethon, our President and Chief Operating Officer,
entered into an employment agreement with Metcare of Florida, Inc., our
wholly-owned subsidiary, which agreement was amended effective December 22,2008. This agreement had 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 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 Dr.
Guethon’s employment with the Company at any time.
Effective
November 16, 2006, we entered into an employment agreement with Mr. Sabo, our
Chief Financial Officer, which agreement was amended effective December 22,2008. This agreement had 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 to be reviewed at least annually. Our Board
of Directors may, in its sole discretion, increase Mr. Sabo’s 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 Mr. Sabo’s
employment with the Company at any time.
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 and amended effective December 22, 2008. This agreement had 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 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 $550 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 Mr. Palenzuela’s employment with
the Company at any time.
20
In the
event that any one of Mr. Earley, Dr. Guethon, Mr. Sabo or Mr. Palenzuela (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, Dr. Guethon, Mr. Sabo and Mr. Palenzuela 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.
Additional
Information
We have
provided additional information regarding the compensation we pay to our named
executive officers under the heading “Compensation Discussion &
Analysis.”
(17) Market
value was determined by multiplying the number of shares of stock by $1.99, the
closing price of our Common Stock on December 31, 2009.
2009
Option Exercises and Restricted Stock Vested
The
following table sets forth information regarding the number and value of stock
options exercised or transferred for value and the number and value of
restricted shares of our Common Stock vested during 2009 for each of our named
executive officers.
OPTION
AWARDS
STOCK
AWARDS
Name
Number
of Securities for which the Options were Exercised or Transferred for
Value (#)
Value
Realized on Exercise or Transfer ($)
Number
of Shares Acquired on Vesting
Value
Realized on Vesting
Michael
M. Earley
116,667
(1)
$180,974
28,575
$52,899
Jose
A. Guethon
300,000
(2)
$70,360
17,100
$31,665
Robert
J. Sabo
——
——
18,100
$32,165
Roberto
L. Palenzuela
267,500
(2)
$261,558
6,850
$12,683
(1) Options
were repurchased by the Company on December 9, 2009 at a price per option equal
to the difference between the option exercise price and a two percent discount
to the closing price of our Common Stock on December 8, 2009, the date of the
repurchase agreement. See “Item 13. Certain Relationships
and Related Transactions, and Director Independence” for additional information
regarding the repurchase.
(2) Options
were repurchased by the Company on September 10, 2009 at a price per option
equal to the difference between the option exercise price and a two percent
discount to the closing price of our Common Stock on September 8, 2009, the date
of the repurchase agreement. See “Item 13. Certain
Relationships and Related Transactions, and Director Independence” for
additional information regarding the repurchase.
22
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 officer’s employment. The
amount of compensation payable to each officer pursuant to his employment
agreement (i) upon termination for cause or resignation without good reason,
(ii) upon termination without cause or resignation for 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, 2009, 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 an executive officer is terminated for cause or resigns his or her
employment without good reason, we are required pursuant to our employment
agreements to:
·
pay
the executive any unpaid base salary earned through the date of
termination or resignation; and
·
reimburse
the executive for reasonable business expenses incurred prior to the date
of termination or resignation.
Under our
employment agreements with the named executive officers, “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.
Under our
employment agreements with the named executive officers, “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.
23
Upon an
executive officer’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 an 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:
·
pay
the executive (or his estate, as applicable) any unpaid base salary earned
through the date of termination or
resignation;
·
continue
to pay the executive’s base salary for a period of twelve months from the
date of termination or resignation;
·
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;
·
reimburse
the executive for reasonable business expenses incurred prior to the date
of termination or resignation; and
·
pay
the executive (or his estate, as applicable) for any unused vacation
days.
Pursuant
to our Compensation Policy, unless otherwise decided by the Board, in order to
be eligible for a bonus in respect of any fiscal year, it is anticipated that an
executive must be employed by us as of the end of such year. For our
executives with employment agreements, which includes all of our named executive
officers, unless otherwise decided by the Board, if such executive’s employment
is terminated following the end of the calendar year to which a bonus relates
but prior to the date bonuses are paid, the determination of whether such
executive is entitled to receive his or her bonus for the prior calendar year
will depend on whether, pursuant to the applicable employment agreement, we are
required to pay the executive his or her base salary for any period following
the termination of employment. If we are required to continue to pay
an executive’s base salary for any post-employment period, such executive will
receive any bonus payable pursuant to our executive bonus plan contemporaneously
with other members of our management team as if he continued to be employed by
us. If we are not required to continue to pay an executive’s base salary for any
post-employment period, such executive will not receive any bonus with respect
to the prior year.
Upon an
executive officer’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 officer’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.
24
Upon an
executive officer’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.
The
following table shows amounts that would be payable to each named executive
officer upon his termination without cause, death or disability. The
amounts in the table assume that the listed officer left Metropolitan effective
December 31, 2009 and are based on the price per share of our Common Stock on
that date of $1.99. Amounts actually received should any of the
listed officers cease to be employed will vary based on factors such as the
timing during the year of any such event, our stock price and any changes to our
benefit arrangements and policies.
Name
Severance
Amount
($)
Early
Vesting
of
Stock
Options
($)
Early
Vesting
of Restricted Stock ($)
Continuation
of Benefits
($)
Unused
Vacation
Days
($)
Total
($)
Michael
M. Earley
556,725
136,638
346,310
7,146
17,870
1,064,689
Jose
A. Guethon
452,304
86,689
212,930
7,194
4,904
764,201
Robert
J. Sabo
363,459
56,388
199,199
11,204
35,453
665,703
Roberto
L. Palenzuela
287,306
32,637
83,083
18,841
3,912
425,779
Payments
Made Upon Termination Following a Change in Control
In the
event that following a “change in control” of the Company (as defined below), an
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:
·
pay
the executive any unpaid base salary earned through the date of
termination or resignation;
·
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.
·
reimburse
the executive for reasonable business expenses incurred prior to the date
of termination or resignation; and
·
pay
the executive (or his estate, as applicable) for any unused vacation
days.
A “change
in control” will be deemed to occur pursuant to our employment agreements in the
event the shareholders of the Company approve (x) the sale of substantially all
of our assets, (y) our liquidation or dissolution or (z) a merger or other
similar transaction which would result in our shareholders prior to the
transaction owning 50% or less of the combined voting power of the merged entity
immediately following the transaction. In addition, with certain
exceptions, a “change of control” will be deemed to occur upon any person or
group’s acquisition of more than 50% of our outstanding shares or voting
power.
Under the
provisions of the Omnibus Plan and our award agreements with our executives,
upon a change in control of the Company, any outstanding unvested stock options
and restricted shares will become immediately and automatically
vested.
25
The
following table shows amounts that would be payable upon each named executive
officer’s termination following a change in control. The amounts in
the table assume that the listed officer left Metropolitan effective December31, 2009 and are based on the price per share of our Common Stock on that date
of $1.99. Amounts actually received should any of the listed officers
cease to be employed will vary based on factors such as the timing during the
year of any such event, our stock price and any changes to our benefit
arrangements and policies.
Name
Severance
Amount ($)
Early
Vesting of Stock Options ($)
Early
Vesting of Restricted Stock ($)
Continuation
of Benefits ($)
Unused
Vacation Days ($)
Total
($)
Michael
M. Earley
556,725
136,638
346,310
7,146
17,870
1,064,689
Jose
A. Guethon
452,304
86,689
212,930
7,194
4,904
764,201
Robert
J. Sabo
363,459
56,388
199,199
11,204
35,453
665,703
Roberto
L. Palenzuela
287,306
32,637
83,083
18,841
3,912
425,779
Director
Compensation
Board
Retainer Fees
For the
year ended December 31, 2009, each of our non-employee directors received a
$20,000 fee for his service on the Board of Directors. During 2009, Mr. Haskell
served as Lead Independent Director and received an additional annual fee of
$15,000. For service in 2009, the Chairman of our Audit Committee received an
additional annual fee of $10,000 and the Chairpersons of our Governance &
Nominating Committee and Compensation Committee each received an additional
annual fee of $7,500.
Meeting
Fees
Each of
our non-employee directors receives $1,500 per meeting of the Board of Directors
attended in person, together with reimbursement of travel
expenses. Non-employee directors receive $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
On June18, 2009, we issued to each non-employee director 16,829 restricted shares of
our Common Stock and options to purchase 8,414 shares of our Common Stock at an
exercise price equal to the closing price of our Common Stock on the NYSE Amex
on the grant date ($1.92) in consideration for his services as a director in
2009. The restricted shares and options were issued pursuant to our
Omnibus Plan and are scheduled to vest in full one year from the date of
issuance.
Expense
Reimbursement
We
reimburse all directors for their expenses in connection with their activities
as members of our Board of Directors.
Employee
Directors
Currently,
one of our directors is also an employee of the Company and does not receive
additional compensation for his services as a director. We are a
party to an employment agreement with Michael M. Earley as further described in
the section above entitled “Employment Agreements.”
26
Director
Summary Compensation Table
The table
below summarizes the compensation we paid to non-employee directors for the
fiscal year ended December 31, 2009.
Name(1)
Fees
Earned or Paid in Cash
($)
Stock
Awards
($)(2)
Option
Awards
($)(3)
Total
($)
David
A. Florman (4)
45,000
32,312
4,623
81,935
Martin
W. Harrison, M.D. (5)
45,500
32,312
4,623
82,435
Eric
Haskell, CPA (4)
61,000
32,312
4,623
97,935
Karl
M. Sachs, CPA (4)
54,500
32,312
4,623
91,435
Robert
E. Shields (4)
51,750
32,312
4,623
88,685
Barry
T. Zeman (4)
52,000
32,312
4,623
88,935
(1) Michael
M. Earley, our 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 is described in
the Summary Compensation Table above.
(2) Reflects
the aggregate grant date fair values for the restricted shares issued during the
applicable year computed in accordance with FASB ASC Topic 718. The
grant date fair values have been determined based on the quoted market price of
our common stock on the grant date, as set forth in Note 15 to our consolidated
financial statements included in our Form 10-K for the year ended December 31,2009.
(3) Reflects
the grant date fair values for the stock options issued during the applicable
year computed in accordance with FASB ASC Topic 718. The grant date
fair values have been determined based on the assumptions and methodologies set
forth in Note 15 to our consolidated financial statements included in our Form
10-K for the year ended December 31, 2009.
(4) Resigned
as a member of the Board of Directors effective April 23, 2010.
(5) Resigned
as a member of the Board of Directors effective March 8, 2010.
Risk
Assessment of Compensation Policies and Practices.
We have
assessed the compensation policies and practices for our employees and concluded
that they do not create risks that are reasonably likely to have a material
adverse effect on the company.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee is comprised entirely of independent
directors.
ITEM
12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Security
Ownership of Directors and Executive Officers
The
following table sets forth the beneficial ownership(1) of
our Common Stock as of April 28, 2010 for each of our directors, named executive
officers and all of our directors and executive officers as a
group.
27
Name
Common
Stock
(#)
Options
Currently Exercisable or Exercisable within 60 days for Shares of Common
Stock
Total
Common Stock and Common Stock Based Holdings
Percentage
of Class
(2)
Michael
M. Earley
491,466
(3)
763,666
(4)
1,255,132
3.1%
Jose
A. Guethon, M.D.
382,093
(5)
155,025
(6)
537,118
1.3%
Robert
J. Sabo
264,309
(7)
236,700
(8)
501,009
1.3%
Roberto
L. Palenzuela
180,244
(9)
41,300
(10)
221,544
*
Michael
Cahr
854,711
(11)
—
(12)
854,711
2.1%
Richard
Franco
12,978
(13)
—
(12)
12,978
*
Casey
Gunnell
11,978
(14)
—
(12)
11,978
*
Arthur
Kowaloff
32,978
(15)
—
(12)
32,978
*
Mark
Stolper
36,998
(16)
—
(12)
36,998
*
John
Watts, Jr.
11,978
(17)
—
(12)
11,978
Directors
and Executive Officers as a group
(10
persons)
2,279,733
1,196,691
3,476,424
8.7%
* 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 28, 2010 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 28, 2010 have
been exercised.
(2) Applicable
percentage ownership is based on 39,914,260 shares of Common Stock outstanding
as of April 28, 2010.
(3) Includes
(i) 25,000 restricted shares of Common Stock issued to Mr. Earley that are
scheduled to vest ratably over 2 years on each of August 6, 2010 and August 6,2011, (ii) 32,150 restricted shares of Common Stock issued to Mr. Earley that
are scheduled to vest ratably over 2 years on each of February 11, 2011 and
February 11, 2012, (iii) 75,600 restricted shares of Common Stock issued to Mr.
Earley that are scheduled to vest ratably over 3 years on each of February 5,2011, February 5, 2012 and February 5, 2013 and (iv) 72,300 restricted shares of
Common Stock issued to Mr. Earley that are scheduled to vest ratably over 4
years on each of February 24, 2011, February 24, 2012, February 24, 2013, and
February 24, 2014.
(4) Includes
(i) 116,666 shares issuable upon the exercise of options at a price of $0.35 per
share, (ii) 400,000 shares issuable upon the exercise of options at a price of
$1.83 per share, (iii) 75,000 shares issuable upon the exercise of options at a
price of $1.66 per share, (iv) 96,400 shares issuable upon the exercise of
options at a price of $2.31 per share and (v) 75,600 shares issuable upon the
exercise of options at a price of $1.62 per share. Does not include
(i) 75,000 shares issuable upon the exercise of options at a price of $1.66 per
share, (ii) 96,400 shares issuable upon the exercise of options at a price of
$2.31 per share, (iii) 226,800 shares issuable upon the exercise of options at a
price of $1.62 per share and (iv) 216,800 shares issuable upon the exercise of
options at a price of $3.04, that have not yet vested.
(5) Includes
(i) 15,000 restricted shares of Common Stock issued to Dr. Guethon that are
scheduled to vest ratably over 2 years on each of August 6, 2010 and August 6,2011, (ii) 19,200 restricted shares of Common Stock issued to Dr. Guethon that
are scheduled to vest ratably over 2 years on each of February 11, 2011 and
February 11, 2012, (iii) 47,400 restricted shares of Common Stock issued to Dr.
Guethon that are scheduled to vest ratably over 3 years on each of February 5,2011, February 5, 2012 and February 5, 2013, (iv) 155,193 restricted shares of
Common Stock issued to Dr. Guethon that are scheduled to vest ratably over 4
years beginning on January 26, 2011 and (v) 45,300 restricted shares
of Common Stock issued to Dr. Guethon that are scheduled to vest ratably over 4
years beginning on February 24, 2011.
(6) Includes
(i) 50,000 shares issuable upon the exercise of options at a price of $2.05,
(ii) 57,600 shares issuable upon the exercise of options at a price of $2.31 per
share and (iii) 47,425 shares issuable upon the exercise of options at a price
of $1.62 per share. Does not include (i) 50,000 shares issuable upon
the exercise of options at a price of $1.66, (ii) 57,600 shares issuable upon
the exercise of options at a price of $2.31 per share, (iii) 142,275 shares
issuable upon the exercise of options at a price of $1.62 per share and (iv)
136,000 shares issuable upon the exercise of options at a price of $2.40 per
share, that have not yet vested.
(7) Includes
(i) 10,000 restricted shares of Common Stock issued to Mr. Sabo that are
scheduled to vest ratably over 2 years on each of August 6, 2010 and August 6,2011, (ii) 26,200 restricted shares of Common Stock issued to Mr. Sabo that are
scheduled to vest ratably over 2 years on each of February 11, 2011 and February11, 2012, (iii) 38,100 restricted shares of Common Stock issued to Mr. Sabo that
are scheduled to vest ratably over 3 years on each of February 5, 2011, February5, 2012 and February 5, 2013, (iv) 124,709 restricted shares of Common Stock
issued to Mr. Sabo that are scheduled to vest ratably over 4 years beginning on
January 26, 2011 and (v) 36,400 restricted shares of Common Stock issued to Mr.
Sabo that are scheduled to vest ratably over 4 years beginning on February 24,2011.
28
(8) Includes
(i) 150,000 shares issuable upon the exercise of options at a price of $2.19 per
share, (ii) 48,600 shares issuable upon the exercise of options at a price of
$2.31 per share and (iii) 38,100 shares issuable upon the exercise of options at
a price of $1.62 per share. Does not include (i) 50,000 shares
issuable upon the exercise of options at a price of $2.19 per share, and (ii)
48,600 shares issuable upon the exercise of options at a price of $2.31 per
share, (iii) 114,300 shares issuable upon the exercise of options at a price of
$1.62 per share and (iv) 109,300 shares issuable upon the exercise of options at
a price of $2.40 per share, that have not yet vested.
(9) Includes
(i) 6,000 restricted shares of Common Stock issued to Mr. Palenzuela that are
scheduled to vest ratably over 2 years on each of August 6, 2010 and August 6,2011, and (ii) 7,700 restricted shares of Common Stock issued to Mr. Palenzuela
that are scheduled to vest ratably over 2 years on each of February 11, 2011 and
February 11, 2012, (iii) 18,150 restricted shares of Common Stock issued to Mr.
Palenzuela that are scheduled to vest ratably over 3 years on each of February5, 2011, February 5, 2012 and February 5, 2013, (iv) 103,924 restricted shares
of Common Stock issued to Mr. Palenzuela that are scheduled to vest ratably over
4 years beginning on January 26, 2011 and (v) 17,300 restricted shares of Common
Stock issued to Mr. Palenzuela that are scheduled to vest ratably over 4 years
beginning on February 24, 2011.
(10) Includes
(i) 23,150 shares issuable upon the exercise of options at a price of $2.31 per
share and (ii) 18,150 shares issuable upon the exercise of options at a price of
$1.62 per share. Does not include (i) 17,500 shares issuable upon the
exercise of options at a price of $1.66 per share, (ii) 23,150 shares issuable
upon the exercise of options at a price of $2.31 per share, (iii) 54,450 shares
issuable upon the exercise of options at a price of $1.62 per share and (iv)
52,000 shares issuable upon the exercise of options at a price of $2.40 per
share, that have not yet vested.
(11) Includes
(i) 14,900 shares owned directly by Mr. Cahr or in individual accounts he
controls, (ii) 706,833 shares held in the Cahr Dynastic Trust, over which Mr.
Cahr has voting and investment power, (iii) 40,400 shares held by Mr. Cahr
jointly with Mr. Cahr’s spouse, (iv) 39,900 shares held in Mr. Cahr’s individual
retirement account, (v) 26,200 shares held by Mr. Cahr in a money purchase plan,
(vi) 10,000 shares held in Mr. Cahr’s spouse’s individual retirement account,
(vii) 4,500 shares held by Mr. Cahr in a 401(k) retirement plan and (viii)
11,978 restricted shares of Common Stock issued to Mr. Cahr that are scheduled
to vest in full on June 30, 2011. Does not include 89,000 shares held
by Mr. Cahr’s daughter, 10,000 shares held by Mr. Cahr’s son and 5,000 shares
held by Mr. Cahr’s grandson, with respect to which Mr. Cahr disclaims beneficial
ownership.
(12) Does
not include 5,989 shares issuable upon the exercise of options at a price of
$3.04 per share that have not yet vested.
(13) Includes
(i) 1,000 shares held jointly with Mr. Franco’s spouse, and (ii) 11,978
restricted shares of Common Stock issued to Mr. Franco that are scheduled to
vest in full on June 30, 2011.
(14) Includes
11,978 restricted shares of Common Stock issued to Mr. Gunnell that are
scheduled to vest in full on June 30, 2011.
(15) Includes
(i) 20,000 shares owned directly by Mr. Kowaloff, (ii) 1,000 shares held in Mr.
Kowaloff’s individual retirement account, and (iii) 11,978 restricted shares of
Common Stock issued to Mr. Kowaloff that are scheduled to vest in full on June30, 2011 .
(16) Includes
(i) 25,020 shares owned by a private investment fund over which Mr. Stolper,
through Helios Capital, LLC, has voting and investment power; and (ii) 11,978
restricted shares of Common Stock issued to Mr. Stolper that are scheduled to
vest in full on June 30, 2011.
(17) Includes
11,978 restricted shares of Common Stock issued to Mr. Watts that are scheduled
to vest in full on June 30, 2011.
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 28, 2010.
(1) A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from April 28, 2010 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 28, 2010 have
been exercised.
29
(2) Applicable
percentage ownership is based on 39,914,260 shares of Common Stock outstanding
as of April 28, 2010.
(3) Includes
900,000 shares held indirectly through H30, Inc., a corporation in which Dr.
Harrison is an officer.
(4) Reported
share ownership is based upon information contained in Amendment No. 2 to
Schedule 13d filed by Mr. and Mrs. Pessin on February 16,2010. Includes (i) 2,277,344 shares owned directly by Mr. Pessin, and
(ii) 950,310 shares owned directly by Mrs. Pessin.
(5) Reported
share ownership is based upon information contained in Amendment No. 1 to
Schedule 13D filed by Nicusa Capital Partners, L.P. on March 3,2010.
Information
regarding our equity compensation plans was included in Part II, Item 5 of the
Original 10-K.
ITEM
13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions
with Related Persons
Stock
and Stock Option Repurchases
In
connection with our stock repurchase program, after the close of trading on
September 8, 2009, we entered into stock and stock option repurchase agreements
with certain of our directors and executive officers (collectively, the “Stock
and Option Repurchase”).
More
specifically, as detailed in the following table, we agreed to repurchase an
aggregate of 500,000 shares of the Common Stock at a per share price of $2.1462
(the “Per Share Price”), which is equal to a two percent discount to the closing
price of the Common Stock on the NYSE AMEX on September 8, 2009.
Name
Title
Number
of Shares to be Repurchased
Total
Repurchase
Price
Dr.
Martin W. Harrison
Former
Director (1)
250,000
$536,550
Karl
M. Sachs
Former
Director (2)
230,000
$493,626
Robert
J. Sabo
Chief
Financial Officer
20,000
$42,924
(1) Dr.
Harrison resigned as a member of the Board effective March 8, 2010.
(2) Mr.
Sachs resigned as a member of the Board effective April 23, 2010.
In
addition, as detailed in the following table, we agreed to repurchase options
exercisable for an aggregate of 567,500 shares of the Common Stock at a price
per option equal to the difference between the exercise price of the subject
option and the Per Share Price:
Name
Title
Number
of Options to be Repurchased
Total
Repurchase
Price
Dr.
Jose A. Guethon
President
and Chief Operating Officer
300,000
$70,360
Roberto
L. Palenzuela
General
Counsel
267,500
$261,558
The Stock
and Option Repurchase, which was approved by a special subcommittee of the Audit
Committee formed for the purpose of negotiating and reviewing the Stock and
Option Repurchase and comprised of those members of the Board of Directors who
did not participate as sellers in the Stock and Option Repurchase, closed on
September 10, 2009. The Stock and Option Repurchase was also approved
by those members of the Board who did not participate as sellers in the Stock
and Option Repurchase.
30
The
directors and officers who participated as sellers in the Stock and Option
Repurchase identified investment diversification, estate planning, desired
liquidity and satisfaction of tax liabilities as reasons for entering into the
Stock and Option Repurchase.
In
connection with our stock repurchase program, on December 9, 2009, we
repurchased options to purchase 116,667 shares of the Common Stock from Mr.
Earley for aggregate consideration of $180,974. The options, which
were scheduled to expire on December 31, 2009, were repurchased at a price per
option equal to the difference between (i) the exercise price of the subject
option and (ii) $1.9012, which is equal to a two percent discount to the closing
price of the Common Stock on the NYSE AMEX on December 8, 2009.
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.
Director
Independence
We define
an “independent” director in accordance with the NYSE Amex
Rules. 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: Michael Cahr, Richard Franco, Casey
Gunnell, Arthur Kowaloff, Mark Stolper and John Watts, Jr. The Board
also had previously determined in March 2009 that each of David Florman, Dr.
Martin Harrison, Eric Haskell, Karl Sachs, Robert Shields and Barry Zeman, each
of whom served as a director during all of 2009, was
“independent.” The Board has further determined that each director
serving on our Audit Committee, Compensation Committee and Governance &
Nominating Committee is independent.
ITEM
14. PRINCIPAL ACCOUNTING
FEES AND SERVICES
Independent
Registered Public Accounting Firm Fees
Aggregate fees billed to us for the
fiscal years ended December 31, 2009 and December 31, 2008 by our independent
registered public accounting firm, Grant Thornton, are as follows:
Type of Fees
2009
2008
Audit
Fees (1)
$
524,333
$
650,574
Audit
Related Fees
—
—
Tax
Fees (2)
—
—
All
Other Fees
—
—
(1) Represents
the aggregate fees billed to us by Grant Thornton during the applicable fiscal
year for professional services rendered for the audits 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 over financial reporting, and/or services normally provided by Grant
Thornton in connection with statutory or regulatory filings or engagements by us
during such fiscal year.
31
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.
(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 and 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.
32
All of the 2008 and 2009 fees paid to
Grant Thornton described above were pre-approved by the full Audit Committee in
accordance with the Audit and Non-Audit Services Pre-Approval
Policy.
ITEM
15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
(a) The
following documents are filed as part of this Report on
Form 10-K/A
(3) Exhibits
The following exhibits are referenced
or included in this report:
Exhibit Description
31.1. Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
of 2002*
31.2. Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
of 2002*
* Filed
Herewith
33
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 30th day of April
2010.
METROPOLITAN
HEALTH NETWORKS, INC.
By:
/s/ MICHAEL M.
EARLEY
Michael M.
Earley
Chief Executive
Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
