<PAGE>
File No. 0-27654
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-SB/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
(Name of Small Business Issuer in its Charter)
NEW YORK 11-3232989
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
275 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (516) 454-1900
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered under Section 12(g) of the Act:
10,000 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
25,000 SHARES OF CLASS B COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Long Island Physician Holdings Corporation (the "Company" or
"LIPH") is a holding company controlled by physicians residing in
New York State and practicing on Long Island, New York.
At March 31, 1996, the Company owned a sixty-six and two-thirds
percent (66-2/3%) interest in MDLI Healthcare, Inc. ("MDLI"), a
newly licensed health maintenance organization ("HMO"). At March
31, 1996, the Company had invested approximately $6,720,000 for
this interest in MDLI. The remaining equity interest in MDLI was
owned by the Catholic Healthcare Network of Long Island, Inc.
("CHNLI"). The Company also owned a thirty-three and one-third
percent (33-1/3%) interest in NextStage Healthcare Management, Inc.
("NextStage"), a healthcare management company. As a result of
the Company's two-thirds ownership of MDLI, MDLI's financials are
consolidated into the Company's audited financial statements. As
a result of the Company's one-third ownership of NextStage, NextStage's
results are accounted for in the Company's audited financial
statements using the equity method.
In addition, the Company owns three (3) practice
associations (Island Practice Association I.P.A., Inc., Island
Behavioral Health Association I.P.A., Inc., and Island Dental
Professional Association I.P.A., Inc.) ("Practice Associations").
MDLI is an independent practice association model HMO
licensed by the State of New York to operate in Nassau and
Suffolk counties.
In consideration of a management fee payable out of premium
revenues by MDLI, NextStage provides the Company and the Practice
Associations with a wide range of management services, including
credentialing of providers pursuant to the terms of the
Management Services Agreement described below.
The Practice Associations are wholly-owned subsidiaries of
the Company. Each Practice Association has contracted with MDLI
for the provision of applicable healthcare services. Each
Practice Association is responsible for contracting with
individual healthcare providers. Oversight for the initial and
continuous screening of participating healthcare providers shall
also be vested in the Practice Associations. The Practice
Associations had no financial activity in 1995.
As of March 31, 1996, the Company had no full time
employees. Pursuant to a Management Services Agreement dated
October 11, 1995 (the "Management Services Agreement"), the
Company, CHNLI and MDLI retained NextStage to provide a variety
of management, administrative and operational services on behalf
of MDLI and the Practice Associations.
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The following table illustrates the ownership structure of
the Company as at March 31, 1996:
Organization Chart
Long Island
Physician Holdings Corp.
66-2/3% 33-1/3% 100% 100% 100%
MDLI NextStage Island Island Island Dental
Healthcare, Healthcare Practice Behavioral Professional
Inc. Management, Association Health Association Association
Inc. IPA, Inc. IPA, Inc. IPA, Inc.
The operations of MDLI, the Company and the Practice
Associations are subject to substantial regulations and to risks
associated with changes in such regulations. In management's
opinion, MDLI, the Company and the Practice Associations are
substantially in compliance with such regulations.
New York State regulates HMOs pursuant to Article 44 of the
Public Health Law. Subject to the provisions of Article 44, HMOs
are exempt from the Insurance Law and regulations. State laws
require that MDLI obtain a Certificate of Authority from the NYS
Department of Health in order to operate as an HMO, which
certificate was issued to MDLI on November 1, 1995. As an HMO,
MDLI is subject to a full panoply of regulatory requirements
imposed by the State of New York, including requirements
governing reporting, quality assurance, provider contracting,
management agreements, financial and solvency issues, rate-setting,
scope of benefits, marketing and related matters. In
addition, HMOs are subject to comprehensive on-site evaluations
conducted by the NYS Departments of Health and Insurance every
three years.
By law and regulation, MDLI is required to satisfy certain
financial and solvency requirements. In particular, pursuant to
New York State Department of Health regulation, MDLI must have
reserves of $100,000 or five percent (5%) of the estimated
expenditures for healthcare services for the year. MDLI had
available cash in excess of such amount as of December 31, 1995.
In addition, certain Federal and New York State laws limit
the extent to which healthcare providers may refer patients to
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businesses or facilities in which the healthcare provider has a
financial interest. In pursuing healthcare-related business
opportunities and investments in the future, the Company will be
required to limit its ownership, investment and payment practices
and procedures and may be unable to invest in, contract with, or
own certain healthcare entities unless the proposed arrangement
satisfies the terms of applicable Federal and New York State
laws.
Furthermore, fees paid by MDLI for management services
provided to the Company and Practice Associations by NextStage
pursuant to the Management Services Agreement are based on a
percentage of premium revenues and are subject to New York State
Department of Health approval.
It is difficult to predict whether additional regulatory
requirements may apply to the operations of MDLI, the Company and
the Practice Associations. It should be assumed, however, that
the healthcare delivery system in New York State will continue
to be subject to a high level of regulatory control, which may
impose additional limitations on the ability of the Company to
engage in various financial transactions.
Federal and New York State policymakers are continually
considering changes to laws and regulations applicable to HMOs.
Legislation currently under consideration in the New York State
Legislature would result in deregulation of hospital
reimbursement so that all payors, not just HMOs, could negotiate
hospital reimbursement rates. Over the past year, bills have
been introduced in the New York legislature which would require
HMOs to allow any physician to participate in the HMO regardless
of geographic need and other important factors and that would
subject HMOs to other new regulatory requirements. In addition,
Congress is considering significant changes to both the Medicare
and Medicaid programs.
The proposed regulatory changes described above, if enacted,
could increase healthcare costs and administrative expenses, and
could result in lower rates paid by private and public payors of
healthcare services reimbursement rates. In addition, the
various bills introduced in Congress and the state legislature
contain provisions which may facilitate entry of competing
managed care organizations into MDLI's service areas.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
GENERAL
The Company was organized to advance the cost-effective
delivery of high quality healthcare on Long Island, New York. In
order to achieve this, it was recognized that its healthcare
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professionals needed to be able to make the healthcare delivery
decisions for their patients.
Today, many of the healthcare decisions are made by
insurers, not doctors. As a result, the first project of LIPH
was the creation of a physician-owned HMO, MDLI.
Concurrent with the establishment of MDLI, a management
company, NextStage, was established both to provide the
administrative services for MDLI and LIPH as well as assist LIPH
in other endeavors that advance LIPH's interests. All the staff
supporting MDLI and LIPH, except the Medical Director (who by
statute is required to be an employee of the HMO) are NextStage
employees.
The creation of these entities has enabled LIPH to begin to
achieve the changes sought by its formation. As of November 1,
1995, MDLI received its New York State license as an HMO, and as
of January 1, 1996 MDLI enrolled its first subscribers.
LIPH has also authorized an investment in a new practice
management company, MainStreet Practice Management, Inc.
("MainStreet"). As of December 31, 1995, LIPH had advanced
$100,000 to MainStreet for working capital needs during the
start-up period.
MDLI's business plan for 1996 will require additional
investment from the Company. The Company has sufficient funds to
make this investment without the need to raise additional funds.
As a holding company, LIPH does not have any operations that
need or provide funds. LIPH's short-term future earnings will
come at least primarily and most likely exclusively from interest
on funds not invested in enterprises such as MDLI.
The stock of MDLI is illiquid as there is no ready market
for this stock, and there are conditions that limit its
transferability. MainStreet is another start-up company and as
such has no market value at this time.
While there can be no assurances of the future value of
LIPH's investments and while the healthcare industry is
constantly changing, the products being offered by the companies
that LIPH has invested in are currently thought by some to be
among the growth products in health care (i.e., provider-owned
HMO's and practice management companies).
OPERATIONS
RESULTS OF OPERATIONS
During 1995, the Company incurred significant costs during
the organizational stage of its development. The Company's loss
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before minority interest in net loss of subsidiary was
$4,258,028. Expenses included consulting and professional fees
of approximately $1.6 million, primarily for legal costs to
obtain appropriate licensing and for healthcare business
consultants utilized to develop and design the overall business
strategy and develop the provider network. During this period,
the Company began the process of hiring a qualified management
team and support staff to prepare for MDLI's inception of full
operations. Such salaries and related costs approximated
$900,000. General and administrative costs of approximately
$600,000 were incurred in connection with recruiting, rent,
printing and other general costs, including marketing and
advertisement of MDLI.
Interest income in 1995 relates to cash temporarily invested
in money market accounts.
Management expects consulting costs to significantly
decrease in 1996; however, the cost of operating MDLI will
increase overall costs in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $7.5 million of available cash
as of December 31, 1995, which it believes is more than adequate
to fund its operations and statutory reserve accounts of MDLI
through 1996. As MDLI may expand beyond Long Island, MDLI or
LIPH may raise additional capital.
ITEM 3. DESCRIPTION OF PROPERTY
The Company utilizes space in the subleased offices of
NextStage at 275 Broadhollow Road, Melville, New York. Such lease
expires June 30, 1999.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 31, 1996, the shareholders of record were:
1,523 shareholders of record of Class A Common Stock (the "Class
A Common Stock") and 4,319 shareholders of record of Class B
Common Stock (the "Class B Common Stock") (together, the Class A
Common Stock and the Class B Common Stock, the "Common Stock").
All shareholders of Class A Common Stock are also shareholders of
Class B Common Stock.
The following table sets forth certain information, as of
March 31, 1996, regarding the beneficial ownership of the
Company's Common Stock by (i) all persons known by the Company to
own beneficially more than 5% of its outstanding Common Stock,
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(ii) each director and officer of the Company and (iii) all
directors and officers of the Company as a group. Unless
otherwise stated, the Company believes that the beneficial owners
of the shares listed below have sole investment and voting power
with respect to such shares.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Title of Beneficial Beneficial Class of
Class Owner Ownership Common Stock(1)
- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Class A Class B Class A Class B
------- ------- ------- -------
Common Stock David J. Weissberg, M.D. 1 502(2) * 11.6
Common Stock M.A. Mirza, M.D. 1 2 * *
Common Stock Bala Hari Pillai, M.D. 1 1 * *
Common Stock Paul Kolker, M.D. 1 502(2) * 11.6
Common Stock Eli Anker, M.D. 1 2 * *
Common Stock Jeffrey R. Askin, M.D. 1 2 * *
Common Stock Marion Bergman, M.D. 1 2 * *
Common Stock Charles A. Calabrese, M.D. 1 2 * *
Common Stock Salvatore J. Caravella, M.D. 1 2 * *
Common Stock Anthony P. Caruso, M.D. 1 2 * *
Common Stock Lew E. Cibeu, M.D. 1 1 * *
Common Stock Martin B. Cohen, M.D. 1 1 * *
Common Stock Alan Dietzek, M.D. 1 2 * *
Common Stock Geri DiGiovanni, D.O. 1 1 * *
Common Stock Babu Easow, M.D. 1 502(2) * 11.6
Common Stock Jeffrey M. Epstein, M.D. 1 2 * *
Common Stock Franco Gallo, M.D. 1 2 * *
Common Stock Steven M. Goldberg, M.D. 1 2 * *
Common Stock David T. Goldman, M.D. 1 1 * *
Common Stock Linda Harkavay, M.D. 1 5 * *
Common Stock Robert A. Jason, M.D. 1 502(2) * 11.6
Common Stock Martin P. Kaplan, M.D. 1 1 * *
Common Stock Steven Kobren, M.D. 1 2 * *
Common Stock Amy Koreen, M.D. 1 2 * *
Common Stock Michael Ladinsky, D.O. 1 1 * *
Common Stock Steven A. Napoli, M.D. 1 2 * *
Common Stock Andrew A. Pastewski, M.D. 1 2 * *
Common Stock Asvin M. Patel, M.D. 1 1 * *
Common Stock Ronald R. Perrone, M.D. 1 2 * *
Common Stock Andrew J. Peters, M.D. 1 1 * *
Common Stock Reed Phillips, M.D. 1 2 * *
Common Stock Lynn Pierri, D.D.S., M.S. -- 20 * *
Common Stock Rosario Romano, M.D. 1 11 * *
Common Stock Robert Sarnataro, M.D. 1 4 * *
Common Stock Bruce A. Seideman, M.D. 1 2 * *
Common Stock Jitendra Shah, M.D. 1 1 * *
Common Stock William E. Shuell, M.D. 1 2 * *
Common Stock Gary Wohlberg, M.D. 1 2 * *
Common Stock All officers and directors 37 598 2.4 13.8
as a group (38 persons)
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</TABLE>
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(1) Percentages are computed on the basis of 5,842 shares of Common
Stock (1,523 Class A and 4,319 Class B) outstanding on March 31, 1996,
plus the number of shares which a person has the right to acquire
directly or indirectly within sixty (60) days.
(2) Collectively, the officers and directors of LIPH Bridge Partners, Inc.
have the power to direct the disposition of 500 shares of Class B Common
Stock of LIPH.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The table below sets forth the names, ages and titles of the
persons who are the directors and executive officers of the
Company as of March 31, 1996:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David J. Weissberg, M.D. 41 Chairman of the Board
and President
M.A. Mirza, M.D. 51 Director and Vice
President
Bala Hari Pillai, M.D. 49 Director and Secretary
Paul Kolker, M.D. 60 Director and Treasurer
Eli Anker, M.D. 47 Director
Jeffrey R. Ashkin, M.D. 52 Director
Marion Bergman, M.D. 44 Director
Charles A. Calabrese, M.D. 44 Director
Salvatore J. Caravella, M.D. 39 Director
Anthony P. Caruso, M.D. 46 Director
Lew E. Cibeu, M.D. 63 Director
Martin B. Cohen, M.D. 46 Director
Alan Dietzek, M.D. 39 Director
Geri DiGiovanni, D.O. 31 Director
Babu Easow, M.D. 47 Director
Jeffrey M. Epstein, M.D. 44 Director
Franco Gallo, M.D. 33 Director
Steven M. Goldberg, M.D. 41 Director
David T. Goldman, M.D. 41 Director
Linda Harkavay, M.D. 41 Director
Robert A. Jason, M.D. 38 Director
Martin P. Kaplan, M.D. 48 Director
Steven Kobren, M.D. 36 Director
Amy Koreen, M.D. 33 Director
Michael Ladinsky, D.O. 36 Director
Steven A. Napoli, M.D. 41 Director
Andrew A. Pastewski, M.D. 59 Director
Asvin M. Patel, M.D. 42 Director
Ronald R. Perrone, M.D. 48 Director
Andrew J. Peters, M.D. 61 Director
Reed Phillips, M.D. 48 Director
Lynn Pierri, D.D.S., M.S. 41 Director
Rosario Romano, M.D. 48 Director
Robert Sarnataro, M.D. 42 Director
Bruce A. Seideman, M.D. 38 Director
Jitendra Shah, M.D. 50 Director
William E. Shuell, M.D. 45 Director
Gary Wohlberg, M.D. 41 Director
</TABLE>
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Eli Anker, M.D. conducts a medical practice in general and
vascular surgery with the Island Surgical and Vascular Group,
P.C. in Islip Terrace, New York, a practice he has conducted
since 1977. Dr. Anker has been a director of the Company since
its inception.
Jeffrey R. Ashkin, M.D., conducts a medical practice in
gastroenterology in Bay Shore, New York, a practice he has
conducted since 1976. Dr. Ashkin has been a director of the
Company since its inception.
Marion Bergman, M.D., conducts a medical practice in
pulmonary diseases and internal medicine in Patchogue, New York,
a practice she has conducted since 1981. Dr. Bergman has been a
director of the Company since its inception.
Charles A. Calabrese, M.D., conducts a medical practice in
plastic surgery in Stony Brook, New York, a practice he has
conducted since 1987. Dr. Calabrese has been a director of the
Company since its inception.
Salvatore J. Caravella, M.D., conducts a medical practice in
pediatrics in Huntington, New York, a practice he has conducted
since 1988. Dr. Caravella is also employed as a neonatologist at
the Westchester County Medical Center, a position he has held
since 1988. Dr. Caravella has been a director of the Company
since its inception.
Anthony P. Caruso, M.D., conducts a medical practice in
otolaryngology in Southampton, New York, a practice he has
conducted since 1979. Dr. Caruso has been a director of the
Company since its inception.
Lew E. Cibeu, M.D., conducts a medical practice in
pediatrics in Islip Terrace, New York, a practice he has
conducted since 1962. Dr. Cibeu has been a director of the
Company since April 1995.
Martin B. Cohen, M.D., conducts a medical practice in
pediatrics in Huntington, New York, a practice he has conducted
since 1970. Dr. Cohen has been a director of the Company since
April 1995.
Alan Dietzek, M.D., conducts a medical practice in vascular
surgery in Great Neck, New York, a practice he has conducted
since 1993. Prior to that, Dr. Dietzek conducted a medical
practice in vascular surgery at North Shore University Hospital
from July 1990 through May 1993. Dr. Dietzek has been a director
of the Company since April 1995.
Geri DiGiovanna, D.O., conducts a medical practice in family
practice in Massapequa Park, New York, a practice she has
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conducted since 1993. Dr. DiGiovanna has been a director of the
Company since April 1995.
Babu Easow, M.D., conducts a medical practice in cardiology
in Riverhead, New York, a practice he has conducted since 1982.
Dr. Easow has been a director of the Company since its inception.
Jeffrey M. Epstein, M.D., conducts a medical practice in
neurosurgery in West Islip, New York, a practice he has conducted
since 1991. Dr. Epstein served as the Secretary of South Shore
Neurologic Association from June 1988 to November 1991. Dr.
Epstein has been a director of the Company since its inception.
Franco Gallo, M.D., conducts a medical practice in
gastroenterology with Gastroenterology Associates of Suffolk,
P.C., in Port Jefferson, New York, a practice he has conducted
since July 1994. Prior to joining this practice, Dr. Gallo was a
fellow in gastroenterology at Stony Brook University Hospital,
Stony Brook, New York, and the Northport VA Medical Center,
Northport, New York from July 1991 to June 1994. Dr. Gallo
served his internship and residency at Stony Brook University
Hospital and the Northport VA Medical Center from July 1988 to
June 1991. Dr. Gallo has been a director of the Company since
its inception.
Steven M. Goldberg, M.D., conducts a medical practice in
internal medicine and cardiology in Great Neck, New York, a
practice he has conducted since 1990. Dr. Goldberg has been a
director of the Company since April 1995.
David T. Goldman, M.D., conducts an urgent care and primary
care medical practice in Center Moriches, New York, a practice he
has conducted since 1988. Dr. Goldman has been a director of the
Company since its inception.
Linda Harkavy, M.D., conducts a medical practice in
radiology with, and serves as president of Sunrise Medical
Imaging, P.C., in Valley Stream, New York, a practice she has
conducted and a position she has held since 1992. Prior to
conducting her practice at Sunrise Medical Imaging, P.C., Dr.
Harkavy has been in the academic and private practice of
radiology since 1985. Dr. Harkavy has been a director of the
Company since its inception.
Robert A. Jason, M.D., conducts a medical practice in
gynecology in Great Neck, New York, a practice he has conducted
since 1986. Dr. Jason has been a director of the Company since
April 1995.
Marin P. Kaplan, M.D., conducts a medical practice in
pediatrics in Port Jefferson Station, New York, a practice he has
conducted since 1978. Dr. Kaplan has been a director of the
Company since April 1995.
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Steven Kobren, M.D., conducts a medical practice in internal
medicine in Great Neck, New York, a practice he has conducted
since 1989. Dr. Kobren has been a director of the Company since
April 1995.
Paul Kolker, M.D. conducts a medical practice in thoracic
and cardiovascular surgery in Roslyn, New York, a practice he has
conducted since 1969. Dr. Kolker has been a director of the
Company since its inception.
Amy Koreen, M.D., is an assistant professor of psychiatry
and a research psychiatrist at Long Island Jewish Medical
Center/Albert Einstein College of Medicine, positions she has
held since July 1993. She also conducts a medical practice in
psychiatry in Huntington, New York, a practice she has conducted
since 1994. Prior to that time, Dr. Koreen completed a
fellowship in biological psychiatry and neuropsychopharmocology
at Long Island Jewish Medical Center. Dr. Koreen has been a
director of the Company since its inception.
Michael Ladinsky, D.O., conducts a medical practice in
family practice in East Islip, New York, a practice he has
conducted since 1988. Dr. Ladinsky has been a director of the
Company since April 1995.
M.A. Mirza, M.D., conducts a medical practice in orthopedic
surgery in Smithtown, New York, a practice he has conducted since
1974. Dr. Mirza is the President of Moorewood Partners, a
position he has held since 1982, and President of Northshore
Smithtown Development, a position he has held since 1989. Dr.
Mirza is the Medical Director, since 1990, and President, since
1989, of Northshore Surgicenter, located in Smithtown, New York.
Dr. Mirza has been a director and the Vice President of the
Company since its inception.
Steven A. Napoli, M.D., conducts a medical practice in
ophthalmology in Port Jefferson, New York, a practice he has
conducted since 1987. Dr. Napoli has been a director of the
Company since its inception.
Andrew A. Pastewski, M.D., conducts a medical practice in
general surgery in Patchogue, New York, a practice he conducted
since 1973. Dr. Pastewski has been a director of the Company
since its inception.
Asvin M. Patel, M.D., conducts a medical practice in family
practice in Hicksville, New York, a practice he has conducted
since 1986. Dr. Patel has been a director of the Company since
April 1995.
Ronald R. Perrone, M.D., conducts a medical practice in
anesthesiology in Melville, New York, a practice he has conducted
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since 1989. Dr. Perrone has been a director of the Company since
its inception.
Andrew J. Peters, M.D., conducts a medical practice in
internal medicine in Rockville Centre, New York, a practice he
has conducted since 1966. Dr. Peters has been a director of the
Company since its inception.
Reed Phillips, M.D., conducts a medical practice in oncology
in Glen Head, New York, a practice he has conducted since 1980.
Dr. Phillips has been a director of the Company since its
inception.
Lynn S. Pierri, D.D.S., M.S., conducts a dental practice in
oral and maxillofacial surgery in Smithtown, New York, a practice
she has conducted since 1986. Dr. Pierri has been a director of
the Company since April 1995.
Bala H. Pillai, M.D., conducts a medical practice in
internal medicine in Riverhead, New York, a practice he has
conducted since 1976. Dr. Pillai has been a director and the
Secretary of the Company since its inception.
Rosario Romano, M.D., conducts a medical practice in
internal medicine in Port Jefferson, New York, a practice he has
conducted since 1985. Dr. Romano has been a director of the
Company since its inception.
Robert Sarnataro, M.D., conducts a medical practice in
internal medicine in Flushing, New York, a practice he has
conducted since 1985. Dr. Sarnataro has been a director of the
Company since April 1995.
Bruce A. Seideman, M.D., conducts a medical practice in
orthopaedic surgery with Orthopaedic Associates of Manhasset in
Manhasset, New York, a practice he has conducted since 1987. Dr.
Seideman has been a director of the Company since its inception.
Jitendra Shah, M.D., conducts a medical practice in family
medicine in Patchogue, New York, a practice he has conducted
since 1980. Dr. Shah has been a director of the Company since
April 1995.
William E. Shuell, M.D., conducts a medical practice in
obstetrics/gynecology in Southampton, New York, a practice he has
conducted since 1989. Dr. Shuell has been a director of the
Company since its inception
David J. Weissberg, M.D., conducts a medical practice in
orthopedic surgery with the Huntington Medical Group, in
Huntington Station, New York, a practice he has conducted since
1985. He has served as Chairman of the Board of Directors and as
the President of the Company since its inception.
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Gary Wohlberg, M.D., conducts a medical practice in
pulmonology in Bay Shore, New York, a practice he has conducted
since 1986. Dr. Wohlberg has been a director of the Company
since its inception.
The Company's by-laws provide for a Board of Directors that
is comprised of three classes of directors, each class serving a
term of three years. The Company intends to hold an Annual
Meeting of Shareholders in accordance with the by-laws for the
purpose of electing directors of the Company. At that time,
management will have divided its slate of nominees into three
classes for voting upon by the Company's shareholders entitled to
vote at the Annual Meeting of Shareholders of the Company.
The Company expects to pay a $250 fee to each of its
Directors for each meeting a Director attends.
ITEM 6. EXECUTIVE COMPENSATION
The Company did not pay any cash compensation to its
directors or officers in 1995. The remuneration of the
officers, if any, has not yet been determined by the Board of
Directors.
The Company will reserve for issuance upon exercise of "non-
qualified" stock options that number of shares of Class B Common
Stock equal to no more than fifteen percent (15%) of the total
number of shares outstanding on a fully-diluted basis. At March
31, 1996, the Company planned to issue 1,041 options to purchase
a share of Class B Common Stock at $2,000.00 per share,
exercisable at any time after July 1, 1998, to its directors who
were active in the organization of the Company. The proposed
options would be non-transferable and would expire on July 1,
2005.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As set forth above, MDLI has entered into a Management
Services Agreement with NextStage, the Company and CHNLI. This
Agreement provides, among other things, that NextStage will
provide management and consulting services to MDLI for a five
year period ending October 10, 2000. NextStage will perform most
administrative services (including marketing, claim services,
billing, credentialing, medical management and reporting
services) on behalf of MDLI. Under the terms of the Management
Services Agreement, MDLI currently provides NextStage with a
management fee equal to 100% of costs incurred by NextStage.
When MDLI's covered lives exceed 50,000, fees charged by
NextStage will be based on a percentage of premiums. Management
fee expenses incurred in 1995 were $2,990,836 and the amount due
to NextStage by MDLI at December 31, 1995 was $1,079,586.
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Management fee expenses included charges for the following:
<TABLE>
<S> <C>
Consulting and professional fees $ 1,330,827
Salaries and related costs 884,146
General and administrative expenses 595,808
Marketing expenses 180,055
----------
$ 2,990,836
-----------
-----------
</TABLE>
Previously, Mr. Richard Radoccia, Mr. Jay Kossman and Mr.
John Gaines served as consultants to the Company in connection
with the structure, formation and organization of the Company,
MDLI and NextStage. At March 31, 1996, each had an equity
interest in NextStage Holdings, Inc., which owned a one-third
interest in Nextstage. Messrs. Radoccia and Kossman are now
employees of NextStage and Mr. Gaines is employed by MainStreet.
These three individuals received $208,750 in aggregate consulting
fees in 1995. As of December 31, 1995, the Company had a
receivable from NextStage of approximately $711,357 that
represents funds advanced to NextStage to meet expenses paid on
behalf of MDLI. These advances have since been repaid to the
Company.
Beginning prior to the release of the offering proceeds from escrow, the
Company borrowed $850,000 from Founding Physicians Association, Inc.
("Founding Physicians") and $1,000,000 from LIPH Bridge Partners, Inc.
("Bridge Partners") in order to meet working capital needs during the
start-up period. The beneficial owners of Founding Physicians and Bridge
Partners include Paul Kolker, M.D., Robert A. Jason, M.D., Bala Hari Pillai,
M.D., David J. Weissberg, M.D., Eli Anker, M.D., Babu Easow, M.D., Marion
Bergman, M.D., Salvatore J. Caravella, M.D., Anthony P. Caruso, M.D., Jeffrey
R. Ashkin, M.D., Charles A. Calabrese, M.D., Jeffrey M. Epstein, M.D., David
T. Goldman, M.D., Martin P. Kaplan, M.D., Amy Koreen, M.D., Michael Ladinsky,
D.O., M. A. Mirza, M.D., Steven A. Napoli, M.D., Andrew A. Pastewski, M.D.,
Ronald R. Perrone, M.D., Reed Phillips, M.D., Lynn Pierri, D.D.S., M.S.,
Rosario Romano, M.D., Bruce A. Seideman, M.D., Jitendra Shah, M.D., William
Shuell, M.D., Gary Wohlberg, M.D., who are also officers and directors of the
Company. The loan from Founding Physicians has been repaid. Upon the
disbursement of the stock subscription proceeds, the loan from Bridge
Partners was converted to equity in Class B Common Stock at the stated
offering price of $ 2,000.00 per share.
Each of LIPH, CHNLI and NextStage Holdings, Inc. owns twenty
(20) shares of common stock of NextStage, with a subscription
receivable from NextStage Holdings, Inc. of $7,500.
In addition, NextStage issued options to purchase additional
shares of common stock to LIPH, NextStage Holdings, Inc. and
Bridge Partners. LIPH's 15 options are exercisable in groups of
five (5) shares, with exercise prices per share of $10,000,
$15,000 and $25,000, respectively. NextStage Holdings, Inc.'s
twenty (20) options are exercisable in groups of five shares with
an exercise price per share of $10,000, $15,000, $20,000 and
$25,000, respectively. Bridge Partners' five (5) options have an
exercise price of $20,000 per share. All of the above options
may be exercised in whole or in part at any time on or prior to
March 1, 2006.
- 14 -
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
There are 10,000 shares of Class A Common Stock and 25,000
shares of Class B Common Stock authorized. Class A Common Stock
can only be owned by physicians that are (i) bona fide residents
of New York State, (ii) office-based practitioners with practices
on Long Island, New York, who are not full-time employees of a
facility or entity licensed by Articles 28 or 44 of the Public
Health Law of the State of New York, and (iii) who otherwise meet
the credentialing and other requirements imposed by the
particular Practice Association. This restriction exists to
limit Class A Common Stock ownership to properly-credentialed
physicians in private practice on Long Island, New York. Class B
Common Stock is the non-voting stock except as provided in the
New York Business Corporation Law. The Board of Directors have
approved, subject to ratification by the shareholders, that one
share of Class B Common Stock, held by shareholders who do not
presently own any voting stock, will be converted into one (1)
share of Class A Common Stock. The Board of Directors has also
approved, subject to shareholder vote, restructuring its interest
in MDLI in the event MDLI changes its capitalization into voting
and non-voting stock.
Each Class A shareholder shall be entitled to cast one vote
on all matters properly presented to the Company's shareholders
for vote or consent. No shareholder of the Company is entitled
to own more than one share of Class A Common Stock. As a result
of the restriction placed on the ownership of shares of Class A
Common Stock, all primary care physician shareholders and
specialty care physician shareholders of the Company will have
equal voting rights on matters routinely voted on by holders of
voting stock under the Business Corporation Law of the State of
New York regardless of the total amount of money invested in the
Company by an individual shareholder.
Each Class A shareholder has, without limitation, the
preemptive rights granted under New York law.
Under certain circumstances, the Company has the right, but
not the obligation, to re-purchase Common Stock of the Company.
The Company's by-laws provide that in the event a shareholder
dies, the decedent's estate shall have two years within which to
sell such decedent's medical practice. Once the estate has
secured a purchaser for the practice, such purchaser shall have
the right to join the appropriate Practice Association (after
satisfying the then-existing qualifications and receiving the
approval of the credentialing committee) and purchase the
decedent's shares.
If, after the passage of two years, the estate has been
unable to find a purchaser, or, if during the two-year period the
estate finds a purchaser who either does not qualify for
membership in the appropriate Practice Association or does not
- 15 -
<PAGE>
want to join the appropriate Practice Association, the Company
shall have the right, but not the obligation, to purchase the
estate's shares in the Company. The Company's right to purchase
may be exercised in whole or in part. The purchase price for the
shares that the Company may elect to purchase shall be equal to
the per share value for such shares at the end of the most recent
fiscal year completed prior to such purchase. In the event the
Company chooses not to purchase any or all of the estate's
shares, the estate may offer the shares to another member of a
Practice Association; in such event, however, any Class A Common
Stock shall be automatically exchanged for one share of Class B
Common Stock to maintain the one physician-one vote structure.
The by-laws also provide that upon the termination of any
healthcare provider from participating in MDLI (or membership in
the appropriate Practice Association) for any reason other than
retirement, or the healthcare provider terminates the provider
agreement between such healthcare provider and the particular
Practice Association, the Company shall have the right, but not
the obligation, to purchase such terminated healthcare provider's
shares of Company Common Stock. The Company's right of first
refusal may be exercised in whole or in part. The purchase price
for the shares that the Company may elect to purchase shall be
equal to the per share value for such shares at the end of the
most recent fiscal year completed prior to such purchase. In the
event the Company chooses not to purchase any or all of such
shares, the healthcare provider may offer the shares to another
member of a Practice Association; in such event, however, any
Class A Common Stock shall be automatically exchanged for one
share of Class B Common Stock to maintain the one physician-one
vote structure.
The by-laws also provide that a retiring healthcare provider
has three options upon retirement with respect to the Common
Stock held by such healthcare provider. The healthcare provider
can either request that any share of Class A Common Stock held by
such retiring healthcare provider be exchanged for a share of
Class B Common Stock and the healthcare provider shall be
entitled to continue to hold all shares of Common Stock owned by
him or her; or the healthcare provider can find a purchaser for
his or her practice and sell the shares owned by him or her to
the purchaser of the practice, subject to (with respect to any
Class A Common Stock) the purchaser being fully qualified to hold
such stock; or the healthcare provider can request that any share
of Class A Common Stock held by such healthcare provider be
exchanged for a share of Class B Common Stock and sell any of the
shares of Common Stock of the Company owned by him or her to
another member of a Practice Association who is already a
shareholder of the Company.
The Company is not obligated to repurchase any shareholder's
shares of Common Stock. In the event that a circumstance arises
vesting in the Company the right, but not the obligation, to
- 16 -
<PAGE>
purchase shares of Common Stock held by a shareholder, the
purchase price of shares the Company elects to purchase, if any,
will be determined based on accepted methods of valuation. Such
purchase price may be substantially lower than the offering price
of the Common Stock, and a shareholder would bear the entire loss
in the event the Company elected to purchase any or all of his or
her shares. Additionally, a shareholder may not be able to find
a purchaser for his or her shares if a circumstance arises in
which the shareholder is permitted under the by-laws of the
Company to sell his or her shares. In this instance, the
shareholder, or such shareholder's estate, must bear the risk of
a partial or total loss of such shareholder's investment in the
Company.
The Company will reserve for issuance upon exercise of "non-
qualified" stock options that number of shares of Class B Common
Stock equal to no more than fifteen percent (15%) of the total
number of shares outstanding. At March 31, 1996, the Company
planned to issue 1,041 options to purchase a share of Class B
Common Stock at $2,000.00 per share, exercisable at any time
after July 1, 1998 to certain of its directors who were active in
the organization of the Company. The proposed options would be
non-transferable and would expire on July 1, 2005.
- 17 -
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
There is no present market for the shares of the Company. In
addition, the Company's Common Stock is subject to various
transfer restrictions. Under certain circumstances, the Company
has a right, but not the obligation, to purchase stock of the
Company to be transferred at a price based on the per share value
determined by an independent certified public accountant.
The Company has never paid any dividends on its Common
Stock, and does not anticipate that dividends on the Common Stock
will be declared and paid at any time in the foreseeable future.
Payment of dividends will be contingent upon the Company's
revenues and earnings, if any, and the capital requirements and
general financial condition of the Company and of its
subsidiaries. The payment of dividends in the future is entirely
within the discretion of the Company's Board of Directors. It is
the present intention of the Company's Board of Directors to
retain all earnings, if any, for use in connection with its
business operations and that of its subsidiaries, and
accordingly, the Board does not anticipate declaring any
dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
(a) The Company engaged Richard Sanderman, C.P.A. to audit
its financial statements for the period ended September 30,
1995. Such firm did not prepare any reports on the financial
statements of the Company, and accordingly, did not prepare any
reports on such financial statements that contained an adverse
opinion or a disclaimer of opinion or that were qualified as to
uncertainty, audit scope or accounting principles.
There were no disagreements with Richard Sanderman, C.P.A.
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
Pursuant to the approval of the Board of Directors, the
Company has retained Coopers & Lybrand L.L.P., as its independent
public accountants for purposes of auditing the Company's
financial statements for the year ended December 31, 1995. This
was done to simplify the process of preparing the consolidated
financial statements for the period ended December 31, 1995 in
- 18 -
<PAGE>
that Coopers & Lybrand L.L.P. was already the independent public
accountant for MDLI Healthcare, Inc.
(b) During the Company's initial fiscal year, neither the
Company nor anyone on its behalf consulted with Coopers & Lybrand
L.L.P. regarding any matters described in Regulation S-B Item
304(a)(2).
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1995, the Company offered
and sold 1,467 shares of Class A Common Stock and 4,270 shares of
Class B Common Stock pursuant to an intrastate offering
registered with the New York State Attorney General's Office
(#94-004) pursuant to Section 359-ff of the New York General
Business Law and exempt from registration pursuant to Section
3(a)(11) and Rule 147 of the Securities Act of 1933. Included in
the foregoing is 500 shares of Class B Common Stock issued to
Bridge Partners at the stated offering price of $2,000.00 per
share, thereby converting a previous loan of $1,000,000 from
Bridge Partners to the Company. No underwriter participated in
the offering. The Company sold the shares at a price of $2,000
per share, thereby raising $11,474,000 of equity in connection
with the offering, less offering costs (legal fees and expenses,
tax advisor fees and expenses, printing, postage, promotion and
selling expenses and miscellaneous) of $199,458. A release of
the escrow occurred on September 15, 1995. Approximately
$1,036,000 was held in escrow to provide for refunds to
healthcare providers that were not approved during the
credentialing process. The number of refunds actually made was
minimal.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that if any director,
officer, or employee of the Company is made a party to any civil
or criminal action or proceeding in any matter arising from the
performance by such director, officer or employee of his or her
duties for, or on behalf of, or at the request of the Company,
then, to the fullest extent permitted by law, the Company may (a)
advance all sums necessary to enable such person to conduct
his/her defense with a undertaking to repay such advances where
required by law, and (b) indemnify such person for all sums paid
by him/her for judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys fees.
- 19 -
<PAGE>
PART F/S
Part F/S of this form is contained in the financial statement
pages (F-1 et seq.) attached hereto at the end of this form.
- 20 -
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS
Page
3.1 Certificate of Incorporation . . . . . . . . . . . . .*
3.2 By-Laws. . . . . . . . . . . . . . . . . . . . . . . ***
3.3 Proposed Amended and Restated By-Laws. . . . . . . . **
10.1 Shareholders Agreement . . . . . . . . . . . . . . . . *
10.2 Management Services Agreement. . . . . . . . . . . . ***
16 Letter from Richard Sanderman, C.P.A . . . . . . . . ***
21 Subsidiaries of Registrant . . . . . . . . . . . . . .*
- ---------------
* Filed January 26, 1996 as Exhibit to Form 10-SB
** Filed January 26, 1996 as Exhibit to Form 10-SB and March
21, 1996 as Exhibit to Form 10-SB/A
*** Filed herewith
ITEM 2. DESCRIPTION OF EXHIBITS
3.1 Certificate of Incorporation
3.2 By-Laws
3.3 Proposed Amended and Restated By-Laws
10.1 Shareholders Agreement dated October 11, 1995
among MDLI Healthcare, Inc., Long Island Physician
Holdings Corporation and Catholic Healthcare
Network of Long Island, Inc.
10.2 Management Services Agreement dated October 11,
1995, among MDLI Healthcare, Inc., NextStage
Healthcare Management, Inc., Long Island Physician
Holdings Corporation and Catholic Healthcare
Network of Long Island, Inc.
16 Letter dated May 31, 1996 from Richard
Sanderman, C.P.A. to the Commission
21 Subsidiaries of Registrant
- 21 -
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized.
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
(Registrant)
Date: September 11, 1996
By: /s/ Paul Kolker
------------------------------
Paul Kolker, M.D., Treasurer
- 22 -
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGES
Report of Independent Accountants 2
Financial statements:
Consolidated Balance Sheet, December 31, 1995 3
Consolidated Statement of Operations and Accumulated Deficit
for the year ended December 31, 1995 4
Consolidated Statement of Cash Flows for the year ended
December 31, 1995 5
Notes to Consolidated Financial Statements 6-9
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Long Island Physician Holdings Corporation:
We have audited the accompanying consolidated balance sheet of Long Island
Physician Holdings Corporation as of December 31, 1995, and the related
consolidated statements of operations and accumulated deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Long Island
Physician Holdings Corporation as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
---------------------------
Melville, New York
March 1, 1996.
2
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS:
Cash and cash equivalents $ 7,566,472
Restricted cash 1,036,223
Due from affiliate 711,357
Advances to affiliate 100,000
Investment in NextStage Healthcare Management, Inc. 20,000
Other assets 32,982
------------
Total assets $ 9,467,034
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Due to affiliate for operating expenses 1,079,586
Other liabilities 10,934
------------
Total liabilities 1,090,520
Minority interest 40,404
Stockholders' equity:
Class A common stock, $.01 par value; 10,000 shares
authorized, 1,467 issued and outstanding 2
Class B common stock, $.001 par value; 25,000 shares
authorized, 4,270 issued and outstanding 4
Additional paid-in capital 11,274,536
Accumulated deficit (2,938,432)
------------
Total stockholders' equity 8,336,110
------------
Total liabilities and stockholders' equity $ 9,467,034
------------
------------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
for the year ended December 31, 1995
Expenses:
Management fees paid to related parties $ 2,990,836
General and administrative expenses 1,489,734
------------
Total expenses 4,480,570
Interest income 222,542
------------
Loss from operations before minority interest (4,258,028)
Minority interest in loss of subsidiary 1,319,596
------------
Net (loss) (2,938,432)
------------
Accumulated deficit, end of year $ (2,938,432)
------------
------------
Loss per share $ (512)
------------
------------
Weighted average shares 5,737
------------
------------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, 1995
Cash flows from operating activities:
Net loss $ (2,938,432)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Expenses paid by minority interest shareholders 360,000
Minority interest in loss of subsidiary (1,319,596)
Changes in assets and liabilities:
Other assets (32,982)
Liability for operating expenses 1,079,586
Other liabilities 10,934
Net advances to NextStage Healthcare Management, Inc. (711,357)
------------
Net cash used in operating activities (3,551,847)
------------
Cash flows from investing activities:
Cash advanced to affiliate (100,000)
Investment in NextStage Healthcare Management, Inc. (20,000)
------------
Net cash used in investing activities (120,000)
------------
Cash flows from financing activities:
Payments of stock issuance costs (199,458)
Proceeds from issuance of common stock 11,474,000
Payments to cash escrow reserve (1,036,223)
Proceeds from notes payable 1,850,000
Repayments of notes payable (850,000)
------------
Net cash provided by financing activities 11,238,319
------------
Cash and cash equivalents, end of year $ 7,566,472
------------
------------
Non-cash activity:
The Company issued 500 shares of Class B common stock as
repayment for $1,000,000 note payable.
MDLI issued 36 shares of Class B stock in lieu of expenses of
$360,000 paid by minority shareholder of MDLI
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
Long Island Physician Holdings Corporation (the "Company") was
incorporated on October, 11, 1994 in the State of New York as a
holding company for purposes aimed at advancing the delivery of
healthcare on Long Island, New York (Queens, Nassau and Suffolk
Counties). The Company is controlled by individual physicians
residing in New York State. The accompanying consolidated financial
statements include the activity of the Company and its two-third
owned subsidiary, MDLI Healthcare, Inc. ("MDLI"), a health
maintenance organization.
MDLIs a development stage enterprise whose operations will commence
on January 1, 1996. Expenses incurred in the current year relate
primarily to obtaining licensure in New York State, product design,
establishing organizational structure, developing a provider network
and soliciting membership. The source of MDLI's revenues will be
premiums charged to subscribers. MDLI began to generate revenue on
January 1, 1996.
The Company has also formed wholly-owned subsidiaries which consists
of Island Professional Associates, Inc., Island Behavioral Health
Association, Inc., and Island Dental Professional Associates, Inc.,
which companies have not had any financial activity in 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries (all inactive) and its
majority-owned subsidiary, MDLI. Intercompany balances and
activities are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company includes investments in highly liquid debt instruments
with an original maturity of three months or less to be cash
equivalents.
The Company maintains its excess cash reserves in a money market
account. In order to minimize risk of loss, such funds are
maintained with a major New York bank.
INVESTMENTS
The Company holds a 33 1/3% interest in the outstanding common stock
of NextStage Healthcare Management, Inc. ("NextStage"). The Company
recognizes their investment in NextStage using the equity method of
accounting. There are currently options outstanding to purchase an
additional 40 shares of NextStage common stock, of which the Company
holds options to purchase 15 additional shares of common stock of
NextStage. The Company's options are exercisable in groups of five
shares, with exercise prices per share of $10,000, $15,000 and
$25,000, respectively. As a result, the Company's ownership of
NextStage could range from 23.5% to 46.67% based on the exercise of
such options.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
RESTRICTED CASH
Restricted cash is held on deposit in an escrow account with a
third-party to cover the refund to any subscriber of common stock in
connection with the Company's intrastate securities offering. The
cash held in escrow at December 31, 1995 is expected to be released
upon completion of the "credentialing" process during 1996.
INCOME TAXES
Under the balance sheet-based liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", ("SFAS 109"), deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when the differences reverse. The
Company records a valuation allowance to reduce deferred tax assets
to the amount expected to be realized.
As of December 31, 1995, the Company's net operating loss for tax
purposes will differ from the loss for financial reporting purposes
as a result of certain costs being capitalized and expensed over a
five-year period for tax purposes. The Company has recorded a full
valuation allowance against the potential future benefit of such
deferred tax assets.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
LOSS PER SHARE
Loss per share is based on the number of shares of Class A common
stock and Class B common stock outstanding during the period. Such
shares were authorized for issuance in connection with the closing
of the private placement offering on September 22, 1995 and,
accordingly, are deemed outstanding for the full year.
3. MDLI HEALTHCARE, INC:
The Company holds 672 shares of MDLI's $.001 par value Class A
common stock, for which it paid $6,720,000. The Catholic Healthcare
Network of Long Island ("CHNLI") holds 336 shares of MDLI's $.001
par value Class B common stock for which it paid $1,360,000 and a
subscription receivable for $2,000,000. All conditions pertaining
to such subscription obligations have been satisfied. The
subscription is payable in installments from January 1, 1996 through
January 1, 1997. CHNLI's 33% ownership interest in MDLI is
reflected as minority interest in the accompanying consolidated
financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The holders of Class A common stock, voting as a class, shall elect 10
directors by the affirmative vote of the majority of the issued and
outstanding Class A common stock entitled to vote thereon. The holders of
Class B common stock, voting as a class, shall elect 4 directors by the
affirmative vote of the majority of the issued and outstanding Class B
common stock entitled to vote thereon.
CHNLI shall have the following additional rights:
- CHNLI, being the owner of 100% of MDLI's Class B common stock, shall
have the right to nominate and elect four members of the MDLI board of
directors, and have representation on certain key committees of the
MDLI board.
- A supermajority voting provision is included in the MDLI by-laws with
respect to (i) the selection and inclusion of network hospitals, (ii)
amendment, modification or change to the MDLI by-laws, (iii) any
modification or change to risk pool funding methodologies, (iv) the
issuance of additional shares of MDLI stock, and (v) the transfer by
either CHNLI or the Company of any MDLI stock held by either entity.
The separate and affirmative vote of (1) at least a majority of the
CHNLI-elected directors and (2) at least a majority of the
non-CHNLI-appointed directors shall be required to effect any of the
foregoing actions of the MDLI board.
- CHNLI hospitals shall be engaged by MDLI as the exclusive provider of
available in-patient services within each CHNLI member's local service
area. Certain of the CHNLI hospitals have also been granted exclusive
provider arrangements for specific specialty services, including the
engagement of St. Francis as MDLI's exclusive provider of tertiary
cardiac services such as open heart surgery.
- The Company and CHNLI will receive a management fee equal to one
percent of premiums after MDLI achieves break-even (defined as the
enrollment of 50,000 lives) divided in a ratio equal to two-thirds to
one-third, respectively. No compensation was provided to the Company
or CHNLI during 1995 as MDLI does not yet cover 50,000 lives.
4. State Reserve Requirements:
As a condition of continued licensure by the State of New York, MDLI is
required to maintain certain funded reserve accounts and a minimum level
of statutory capital. In particular, pursuant to New York State Department
of Regulation, MDLI must have reserves of $100,000 or five percent of the
estimated expenditures for healthcare services for the year. MDLI has
available cash in excess of such amount as of December 31, 1995.
5. Stockholder's Equity:
During 1995, the Company offered its shares through a private placement
offering to various office based physicians, psychologists, podiatrists and
dentists practicing on Long Island, New York (Queens, Nassau and Suffolk
Counties, New York).
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Shares of Class A and Class B common stock were offered to physicians based
on their service specialty at a price of $2,000 per share. The Class A
common stock is voting stock and has been offered only to primary care
physicians, specialty care physicians, anesthesiologists and oral surgeons.
The Class B common stock is non-voting stock. Holders of Class B common
stock will not be entitled to vote their shares of Class B common stock at
meetings of the Company's stockholders, except as provided by the Business
Corporation Law of the State of New York with respect to certain
extraordinary corporate transactions.
The Company has raised $11,474,000 of equity in connection with the
offering, less offering costs of $199,458.
The Company will reserve for issuance upon exercise of "non-qualified"
stock options that number of shares of Class B common stock equal to no
more than fifteen (15%) of the total number of shares currently
outstanding. The Company plans to issue to certain organizers 1,041
options to purchase a share of Class B common stock at $2,000 per share,
exercisable at any time after July 1, 1998. The options are
non-transferable and expire on July 1, 2005.
6. Related Parties:
MDLI has a management services agreement with NextStage. This agreement
stipulates that NextStage will provide management and consulting services
to MDLI for a five year period ending October 10, 2000. NextStage will
perform most administrative services (including marketing, claim services,
billings, credentialing, medical management and reporting services) on
behalf of MDLI. Under the terms of the agreement, MDLI is currently
providing NextStage a management fee of 100% of costs incurred. When
MDLI's covered lives exceed 50,000, fees charged by NextStage will be based
on a percentage of premiums. NextStage incurred costs of $2,990,836 in
1995 which were fully reimbursed by MDLI, resulting in no income or loss to
NextStage. Amounts due to NextStage at December 31, 1995 were $1,079,586.
Management fee expenses included charges for the following:
Consulting and professional fees $ 1,330,827
Salaries and related costs 884,146
General and administrative expenses 595,808
Marketing expenses 180,055
-------------
2,990,836
-------------
-------------
Shareholders of LIPH, primarily physicians who are members of practice
associations, and CHNLI will provide the majority of healthcare services to
MDLI.
The Company borrowed $850,000 from Founding Physicians Association, Inc., a
corporation owned by certain physicians associated with the Company, which
was used to fund a variety of working capital costs relating to the
business operations of the Company. The loan balance was repaid in full
during 1995.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The Company borrowed $1,000,000 from LIPH Bridge Partners, Inc., a
corporation owned by certain physicians associated with the Company. This
loan was repaid in 1995 through the exchange of 500 shares of Class B
common stock.
The Company advanced $100,000 to an affiliated entity, Mainstreet, Inc..
The Company advanced funds of $760,000 to NextStage during 1995 to cover
working capital expenses. Charges from NextStage to the Company for
certain administrative expenses were $48,643 in 1995. The outstanding
amount due from NextStage at December 31,1995 is $711,357, which was fully
repaid in 1996.
Individuals who have an indirect interest in NextStage have served as
consultants to the Company and received $208,750 in aggregate consulting
fees in 1995. Such individuals have now become employees of NextStage.
10
<PAGE>
FORM 10-SB/A-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
EXHIBITS
<PAGE>
Index to Exhibits
Page
3.1 Certificate of Incorporation . . . . . . . . . . . . .*
3.2 By-Laws. . . . . . . . . . . . . . . . . . . . . . . .***
3.3 Proposed Amended and Restated By-Laws. . . . . . . . **
10.1 Shareholders Agreement . . . . . . . . . . . . . . . .*
10.2 Management Services Agreement. . . . . . . . . . . . .***
16 Letter from Richard Sanderman, C.P.A . . . . . . . . .***
21 Subsidiaries of Registrant . . . . . . . . . . . . . .*
_____________
* Filed January 26, 1996 as Exhibit to Form 10-SB
** Filed January 26, 1996 as Exhibit to Form 10-SB and March
21, 1996 as Exhibit to Form 10-SB/A
*** Filed herewith
E-1
<PAGE>
Exhibit 3.2
BY-LAWS
OF
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
ARTICLE I- NAME AND OFFICE
Long Island Physician Holdings Corporation ("LIPHC" or the
"Corporation") is the name of the Corporation. Its principal offices will be
located in the County of Nassau, State of New York.
ARTICLE II - PURPOSE
The purposes of LIPHC are:
To establish a holding company, controlled by Long Island physicians,
to establish and operate a HMO as a subsidiary Corporation of LIPHC in order to
provide high quality medical services in a cost-effective manner to residents of
Long Island; to inform physician shareholders concerning the manner in which
physicians can play a more productive and central part in the improvement of
health care services to such residents; to establish various enterprises and
joint ventures that will promote the interests of its physician-shareholders; to
purchase, hold and dispose of the stocks, shares, bonds and other evidences of
indebtedness of any Corporation, domestic or foreign, and issue in exchange
therefor its shares, bonds or other obligations; and to undertake such steps as
may be necessary to improve the organization of medical and health care services
on Long Island.
ARTICLE III - SHAREHOLDERS
Section 1. LIMITATION ON HOLDERS OF VOTING STOCK.
(a) The certificate of incorporation of LIPHC authorizes
the issuance of 2,500,000 shares of Class A Common Stock, par value $.001 per
share (the "Class A Common Stock"). The Class A Common Stock has full voting
rights. The opportunity to hold shares of Class A Common Stock shall be
extended to only primary care physicians and specialty care physicians, duly
licensed by the State of New York, who are office-based practitioners on Long
Island and who are not full-time employees of a facility or organization
licensed under Articles 28 or 44 of the Public Health Law of the State of New
York. For purposes of these by-laws, a "Primary Care Physician" shall include
any family medicine, general internal medicine, emergency medicine or pediatric
practitioner otherwise meeting the above requirements for holding shares of
Class A Common Stock. A "Specialty Care
<PAGE>
Physician" is any other physician, psychiatrist and maxillofacial surgeon who
otherwise meets the above requirements for holding shares of Class A Common
Stock.
(b) No holder of Class A Common Stock shall be entitled to
hold more than one (1) share of Class A Common Stock at any time. In the event
that any holder of LIPHC Common Stock or any other person or entity should
acquire any shares of Class A Common Stock and such shareholder or other person
or entity already owns a share of Class A Common Stock, any subsequently
acquired shares of Class A Common Stock automatically shall be exchanged for a
like number of shares of Class B Common Stock of LIPHC.
Section 2. HOLDERS OF NON-VOTING STOCK.
The certificate of incorporation of LIPHC authorizes the issuance of
10,000,000 shares of Class B Common Stock, par value $.001 per share (the "Class
B Common Stock"). The Class B Common Stock has no voting rights, except as
specifically provided in the Business Corporation Law of the State of New York,
as the same may be amended from time to time, with respect to certain
extraordinary corporate events and transactions.
Section 3. PLACE OF MEETINGS.
Meetings of shareholders of LIPHC shall be held at the principal
office of the Corporation or at such place within or without the State of New
York as the Board of Directors of the Corporation shall authorize.
Section 4. ANNUAL MEETING.
The annual meeting of the shareholders shall be held on the 1st day of
May at 10 a.m., local time, in each year if not a legal holiday, and, if a legal
holiday, then on the next business day following at the same hour, when the
shareholders shall elect a board of directors and transact such other business
as may properly come before the meeting.
Section 5. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the Board or by
the President and shall be called by the President or the Secretary at the
request in writing of a majority of the Board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding
and entitled to vote at such meeting. Such request shall state the purpose or
purposes of the proposed special meeting. Business transacted at a special
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<PAGE>
meeting shall be confined to the purposes stated in the notice.
Section 6. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
Board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty (50) nor
less than ten (10) days before the date of such meeting, nor more than fifty
(50) days prior to any other action. If no record date is fixed it shall be
determined in accordance with the provisions of law.
Section 7. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose
or purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten (10) nor more than fifty (50) days
before the date of the meeting. If action is proposed to be taken that might
entitle shareholders to payment for their shares, the notice shall include a
statement of that purpose and to that effect. If mailed, the notice is given
when deposited in the United States mail, with postage thereon prepaid, directed
to the shareholder at his address as it appears on the record of shareholders,
or, if he shall have filed with the Secretary a written request that notices to
him be mailed to some other address, then directed to him at such other address.
Section 8. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
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<PAGE>
Section 9. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at a meeting of shareholders for the transaction of any business,
provided that when a specified item of business is required to be voted on by a
class or classes, the holders of a majority of the shares of such class or
classes shall constitute a quorum for the transaction of such specified item of
business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence
of a quorum.
Section 10. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided by
law.
Section 11. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every voting share standing in his name on the
record of shareholders, unless otherwise provided in the certificate of
incorporation.
Section 12. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation:
(a) Directors shall be elected by a plurality of the votes cast
at a meeting of shareholders by the holders of shares entitled to vote in the
election; and
(b) All other corporate action shall be authorized by a majority
of the votes cast.
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<PAGE>
Section 13. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon or signed by such lesser number
of holders as may be provided for in the certificate of incorporation.
ARTICLE IV - BOARD OF DIRECTORS
Section 1. NUMBER, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
The Board of Directors of the Corporation shall consist of
twenty-seven (27) members. To the extent practicable, it shall be the objective
to nominate a Board that is representative of both Primary Care Physicians and
Specialty Care Physicians. The number of directors may be increased or
decreased by action of a majority of the entire board subject to the limitation
that no decrease shall shorten the term of any incumbent director.
Each director shall be a shareholder of the Corporation, and shall
serve a term as director of three years, unless such director is removed or
resigns in accordance with applicable statutes, the certificate of incorporation
or these by-laws.
Section 2. CLASSIFICATION.
The Board of Directors shall be divided into three classes hereby
designated as Class A, Class B and Class C. There shall be nine directors in
each class, or such other number as the majority of the entire board may direct;
PROVIDED, that the number of directors of each class shall be equal or as near
to equal as possible in the event that the number of directors is increased or
decreased by the board in accordance with Section 1 of this Article IV of these
By-laws. At the first annual meeting of shareholders of LIPHC, management shall
propose a slate of directors divided into Class A, Class B and Class C. The
term of office of the initial Class A directors shall expire at the next
succeeding annual meeting of shareholders, the term of office of the initial
Class B directors shall expire at the second succeeding annual meeting of
shareholders, and the term of office of the initial Class C directors shall
expire at the third succeeding annual meeting of shareholders. Thereafter each
class of directors shall continue in office for a term of three years.
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<PAGE>
Section 3. MEETINGS OF THE BOARD OF DIRECTORS.
Regular meetings of the Board of Directors shall be held at least
eight times per year. Special meetings may be called by the President of the
Corporation, provided that the Board is notified five days in advance of the
date of the proposed meeting.
Section 4. QUORUM.
A majority of the directors are required to be present at a meeting
for the Board to conduct business. As permitted by Section 708(c) of the
Business Corporation Law or any successor law, as such may be amended from time
to time, any one or more members of the Board or any committee thereof may
participate in a meeting of the Board or any committee thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time, or by such
other means as may be authorized under any successor statute. Participation by
any means authorized by this By-law shall constitute presence in person at a
meeting.
Section 5. FILLING OF VACANCIES.
The Board may fill by majority vote of all of its remaining members
any vacancies developing between elections. Board members so elected shall
serve until the next annual meeting of shareholders at which the election of the
class of directors in which the vacancy that was filled is in the regular order
of business of such meeting. In filling vacancies, the board shall, to the
extent practicable, attempt to maintain the balance between Primary Care
Physicians and Specialty Care Physicians.
Section 6. POWERS.
The Board shall have all corporate powers set forth by law to conduct
and control the affairs of the Corporation, subject to the limitations
established by these By-laws, the certificate of incorporation and the actions
of the shareholders.
Section 7. REMOVAL OF BOARD MEMBERS.
Any board member may be removed (i) with or without cause by a vote of
the majority of shareholders eligible to vote or (ii) with cause by a two-thirds
vote of the board. A board member shall automatically be removed in the event
that he or she no longer is a shareholder of LIPHC.
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<PAGE>
Section 8. RESIGNATION.
A member of the Board of Directors may resign at any time by giving
written notice to the Board, President or Secretary of LIPHC. Unless otherwise
specified in such notice, the resignation shall take effect upon receipt thereof
by the Board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
ARTICLE V - OFFICERS
Section 1. ELECTED OFFICERS.
The elected officers of the Corporation shall be a President,
Vice-President, Treasurer and a Secretary. Only shareholders may serve as
elected officers.
Section 2. ELECTION AND TERM OF OFFICE.
All officers shall be elected by the board to hold office for the term
of one (1) year and shall each hold office for such term and until his successor
has been elected and qualified.
Section 3. DUTIES OF OFFICERS.
The duties of elected officers will be those usually pertaining to
their positions.
(a) The President shall: call all meetings of shareholders and
the Board; preside over all shareholder and Board meetings; appoint, with the
approval of the Board, the chairpersons of all standing committees; appoint all
chairpersons of any special committees; and serve as an EX OFFICIO member of all
committees.
(b) The Vice-President shall assist the President in the
discharge of his/her duties and preside at meetings of the Corporation and/or
the Board in the absence of the President. In any case where the President is
unable to act, the Vice-President shall perform the duties of the office of
President. The Vice-President shall assume the office of President upon
resignation of the President or upon expiration of the normal term of office of
the President and in instances where no successor has been elected, or in the
event that the President is no longer a shareholder in LIPHC.
(c) The Treasurer shall have care and custody of all the funds
and securities of LIPHC, and shall be responsible for funds in the name of LIPHC
in such banks or trust companies as the Board of Directors may select.
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<PAGE>
The Treasurer and President shall sign all checks, drafts and orders for the
payment of money in excess of $10,000, as may be authorized by the Board of
Directors; where the Treasurer is unavailable, the President and one other
officer of the Corporation may sign checks, drafts and orders in such amounts
for such payments. All expenditures shall be authorized by and be in accordance
with a budget adopted by the Board. At the end of each fiscal year, the
Treasurer shall cause an audit or review of the accounts of the Corporation, as
may be required by law, to be made by an independent auditor selected by the
Board at a regular meeting of the Board, and will ensure that, upon completion,
such audit or review results shall be presented in writing to the Board of
Directors and shall be made available upon request to shareholders.
(d) The Secretary shall ensure that the notices of meetings are
provided and that the minutes of all meetings of shareholders and the Board of
Directors are prepared, distributed, amended if needed, and approved by the
Board at the following meeting. The Secretary shall ensure that a current list
of the shareholders of the Corporation is maintained and made available at any
official meeting of the shareholders.
Section 4. REMOVAL OF OFFICERS.
Any officer elected by the board may be removed by the board with or
without cause.
Section 5. VACANCIES.
If the office of any officer becomes vacant, the directors may appoint
any qualified person to fill such vacancy, who shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified.
ARTICLE VI - SHARES
Section 1. CERTIFICATES.
The shares of the Corporation shall be represented by certificates.
They shall be numbered and entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the President or a Vice-President and the Treasurer or the
Secretary and shall bear the corporate seal.
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<PAGE>
Section 2. LOST OR DESTROYED CERTIFICATES.
The Board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum and with such surety or sureties as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
Section 3. TRANSFERS OF SHARES
(a) Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the older certificate; provided, however, that such transfer
is in accordance with these By-laws and that the transferee satisfies the
requirements of Section 1 of Article III herein. Every such transfer shall be
entered on the transfer book of the Corporation which shall be kept at its
principal office. No transfer shall be made within ten (10) days next preceding
the annual meeting of shareholders.
(b) The Corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim or to interest in such share on
the part of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by the laws of New York.
Section 4. TRANSFER RESTRICTIONS.
Only Primary Care Physicians and Specialty Care Physicians shall be
permitted to own voting shares of the Corporation, and no shares of the
Corporation's capital stock may be owned by any persons other than members of
various practice associations (the "Practice Associations") providing
professional health care providers to any HMO established or caused to be
established by the Corporation
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<PAGE>
except as otherwise provided herein. Accordingly, the following restrictions on
transfer shall apply to shares of the Corporation's capital stock:
(a) QUALIFICATIONS FOR SHARE OWNERSHIP.
(i) GENERAL. Subject to certain exceptions set forth
below, shares of the Corporation's capital stock may be owned and held only by
health care providers who are members in good standing of various Practice
Associations, who are office-based, New York state-licensed practitioners not
employed on a full-time basis by any facility or entity licensed by Articles 28
or 44 of the Public Health Law of the State of New York, or any such successor
laws relating to the same subject matter, and who are bona fide residents of the
State of New York. In the event that a shareholder no longer satisfies these
criteria, he or she must comply with the provisions of these By-laws.
(ii) OWNERSHIP OF VOTING SHARES. Only Primary Care
Physicians and Specialty Care Physicians still practicing medicine who otherwise
qualify for share ownership in the Corporation shall be entitled to hold and own
voting shares of the Corporation. For purposes of these By-laws, (i) a Primary
Care Physician is defined as any duly New York State-licensed general, family,
internal medicine, emergency medicine or pediatric practitioner not otherwise
identified by the Corporation or any of its affiliates as practicing any kind of
medical or surgical specialty or subspecialty, and (ii) a Specialty Care
Physician is defined as any duly New York State-licensed physician practicing a
medical or surgical specialty or subspecialty. New York State-licensed
psychiatrists and maxillofacial surgeons are deemed to be Specialty Care
Physicians for purposes of these By-laws.
(b) GENERAL TRANSFER RESTRICTIONS. Except as specifically
permitted by these By-laws, no shares of the Corporation's capital stock nor any
interest therein may be validly sold, assigned, encumbered or otherwise
transferred for consideration or otherwise, and no purported transferee will be
recognized as a shareholder of the Corporation for any purpose whatsoever unless
the purported transfer has been made in accordance with applicable Federal and
state securities laws and the terms and conditions of the transfer restrictions
set forth below. Any assignment, encumbrance, disposition or other attempt to
transfer any of the Corporation's shares other than as provided for herein shall
be void and of no effect, and the Corporation may refuse to carry out such
transaction on its books, attempt to set aside the transaction and/or exercise
any other legal
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<PAGE>
remedy. It will be a condition to the Corporation transferring any shares on
its books and issuing a new share certificate evidencing such transferred shares
in the name of the transferee that (i) the transferee shall execute any and all
documents and take any and all actions, including applying for and being
accepted as a member of the appropriate Practice Association, as the Corporation
may reasonably require to ensure that the rights of the Corporation and its
shareholders are adequately protected, and (ii) the Corporation satisfies itself
that such transfer complies in all respects with the requirements imposed by all
applicable Federal and state securities laws. Notwithstanding anything set
forth herein to the contrary, any shareholder who is no longer an active member
in good standing with a Practice Association affiliated with the Corporation or
a HMO established or caused to be established by the Corporation may not hold
any voting shares of the Corporation. In the event any such non-member
shareholder does own a voting share of the Corporation, such voting share shall
be exchanged for a non-voting share upon such non-member shareholder's
termination or retirement from the Practice Association, or two years from the
date of death of such shareholder all as more fully explained below.
(c) TRANSFER UPON DEATH OF A SHAREHOLDER. Upon the death of a
shareholder, the decedent's estate shall have two years from the date of death
within which it may sell shares of the Corporation to the purchaser of the
decedent's practice; PROVIDED, that any potential purchaser of the shares shall
otherwise meet the criteria for share ownership and membership in the
appropriate Practice Association before any sale of decedent's shares of the
Corporation is consummated; and PROVIDED, FURTHER, that in the event that the
decedent's practice is purchased by a Primary Care Physician or Specialty Care
Physician who already holds one share of Class A Common Stock of the
Corporation, any share of Class A Common Stock held by the estate and proposed
to be sold in connection with the sale of the decedent's practice shall
automatically be exchanged for one share of Class B Common Stock immediately
prior to the consummation of any sale. During this two-year period, the
executor (or administrator) of the decedent's estate shall be entitled to vote
any share of voting stock held by the decedent.
If, after the passage of two years from the date of the
shareholder's death, the estate has been unable or unwilling to find a purchaser
for the practice, or the estate has found a purchaser but such purchaser either
does not otherwise qualify for share ownership in the Corporation or chooses not
to purchase any of the decedent's shares, the Corporation shall have the right,
but not the obligation, to
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<PAGE>
purchase any or all of the decedent's shares of Corporation stock from the
estate. The Corporation's right to purchase such shares may be exercised in
whole or in part, and may be exercised by giving written notice of such exercise
to the estate no later than sixty (60) days following the expiration of the
two-year period following the decedent's death. The purchase price for the
shares of stock that the Corporation elects to purchase shall be equal to the
per share value for such shares determined by the Corporation's independent
certified public accountants at the end of the most recent fiscal year completed
prior to such purchase.
In the event that the Corporation elects to purchase none or less
than all of the shares of the Corporation held by the estate, the estate may
offer and sell the shares remaining after the Corporation's election to any
other member of any independent practice association affiliated with the
Corporation or any HMO established or caused to be established by the
Corporation; in such event, however, any share of Class A Common Stock
previously held by the decedent shall automatically be exchanged for one share
of Class B Common Stock immediately prior to the consummation of any sale.
(d) TRANSFER UPON TERMINATION FROM MEMBERSHIP IN PRACTICE
ASSOCIATION. In the event that any shareholder's membership in one of the
Practice Associations is terminated for any reason other than retirement of such
shareholder from the active practice of such shareholder's health care
profession (such reasons to include, but not be limited to, voluntary
termination by the shareholder), the Corporation shall have the right, but not
the obligation, to purchase any or all of the terminated shareholder's shares
from the shareholder. The Corporation's right to purchase such shares may be
exercised in whole or in part, and may be exercised by giving written notice of
such exercise to the shareholder no later than sixty (60) days following the
effective date of termination of the shareholder from the Practice Association.
The purchase price for the shares of stock that the Corporation elects to
purchase shall be equal to the per share value for such shares determined by the
Corporation's independent certified public accountants at the end of the most
recent fiscal year completed prior to such purchase.
In the event that the Corporation elects to purchase none or less
than all of the shares of the Corporation held by the terminated shareholder,
the terminated shareholder may offer and sell the shares remaining after the
Corporation's election to any other member of any Practice Association; in such
event, however, any share of Class A Common Stock previously held by the
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<PAGE>
terminated shareholder shall automatically be exchanged for one share of Class B
Common Stock immediately prior to the consummation of any sale.
(e) RETIREMENT FROM PROFESSIONAL PRACTICE. In the event that
any shareholder retires from the active practice of his or her chosen health
care profession (and is thus no longer eligible for membership in the
appropriate Practice Association), the retiring shareholder may either (i) sell
the shares of Corporation stock owned by such shareholder to any purchaser of
such retiring shareholder's practice; PROVIDED, that any potential purchaser of
the shares shall otherwise meet the criteria for share ownership and membership
in the appropriate Practice Association before any sale of such retiring
shareholder's shares of the Corporation be consummated; and PROVIDED, FURTHER,
that in the event that the retiring shareholder's practice is purchased by a
Primary Care Physician or Specialty Care Physician who already holds one share
of Class A Common Stock of the Corporation, any share of Class A Common Stock
held by the retiring shareholder and proposed to be sold in connection with the
sale of the retiring shareholder's practice shall automatically be exchanged for
one share of Class B Common Stock immediately prior to the consummation of any
sale; or (ii) make a written request addressed to the President of the
Corporation that any share of Class A Common Stock held by such retiring
shareholder be exchanged for one share of Class B Common Stock, and the retiring
shareholder shall be able to continue to hold all such shares of Class B Common
Stock of the Corporation; or (iii) make a written request addressed to the
President of the Corporation that any share of Class A Common Stock held by such
retiring shareholder be exchanged for one share of Class B Common Stock, and the
retiring shareholder shall be entitled to sell any or all shares of Class B
Common Stock held by such retiring shareholder to any other member of an
independent practice association affiliated with the Corporation and a HMO
established or caused to be established by the Corporation.
Section 5. CLOSING TRANSFER BOOKS.
The Board shall have the power to close the share transfer books of
the Corporation for a period of not more than ten (10) days during the thirty
(30) day period immediately preceding (1) any shareholders' meeting, or (2) any
date upon which shareholders shall be called upon to or have a right to take
action without a meeting, or (3) any date fixed for the payment of a dividend or
any other form of distribution, and only those shareholders of record at the
time the transfer books are closed, shall be recognized as such for the purpose
of (1) receiving notice of or voting
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at such meeting, or (2) allowing them to take appropriate action, or (3)
entitling them to receive any dividend or other form of distribution.
ARTICLE VII - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding shares of the Corporation may be
declared in such amounts and at such time or times as the Board may determine.
Before payment of any dividend, there may be set aside out of the net profits of
the Corporation available for dividends such sum or sums as the Board from time
to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board shall think
conducive to the interests of the Corporation, and the Board may modify or
abolish any such reserve.
ARTICLE VIII - COMMITTEES
Section 1. COMMITTEES.
The Board shall appoint chairpersons of any committees.
Each chairperson will be appointed from the members of the Board of
Directors, except for the chairperson of the Nominating Committee. The Board
may establish such additional committees as may be necessary, with such powers
and for such purposes as are designated by the Board.
Section 2. TERM OF COMMITTEE CHAIRPERSONS.
The chairpersons of committees will serve until the next election of
officers following their appointment, or until their successors are named. The
President may remove a committee chairperson at any time.
Section 3. NOMINATING COMMITTEE.
The Board will appoint a Nominating Committee of five shareholders of
whom not more than three may be members of the Board. An appointee who is not a
member of the Board of Directors is to be named as chairperson.
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ARTICLE IX - AMENDMENTS
Section 1. AMENDMENTS PROPOSED BY SHAREHOLDERS.
Amendments to these By-laws may be proposed by any shareholder. A
proposed amendment shall be considered by the Board of Directors and may be
adopted by a two-thirds vote of the Board.
Section 2. AMENDMENTS PROPOSED BY THE BOARD OF DIRECTORS.
The Board of Directors may either adopt, by a two-thirds vote,
amendments to these By-laws or it may submit amendments to the shareholders for
consideration and vote by mail ballot or by vote at a meeting of shareholders.
When the Board submits the vote to a mail ballot of the shareholders,
proposed amendments and ballots must be mailed to the shareholders and
postmarked no less than 30 days prior to the date stated on the ballot or in the
materials accompanying the ballot as of the last date by which completed ballots
will be accepted by the Corporation. Any such proposed amendment shall be
approved and shall become effective immediately upon the affirmative vote of 2/3
of the ballots received. When amendments will be decided at a meeting of the
shareholders, proposed amendments must be mailed to shareholders and postmarked
no less than 30 days prior to the meeting date. Any such proposed amendment
shall be approved and shall become effective immediately upon the affirmative
vote of 2/3 of the shareholders present.
ARTICLE X - INDEMNIFICATION AND INSURANCE
Section 1. INDEMNIFICATION.
If a director, officer or employee of LIPHC is made a party to any
civil or criminal action or proceeding in any matter arising from the
performance by such director, officer or employee of his or her duties for, on
behalf of, or at the request of the LIPHC, then, to the full extent permitted by
law, LIPHC may:
(a) Advance to such director, officer or employee all sums
necessary and appropriate to enable the director, officer or
employee to conduct his or her defense, or appeal, in the
action or proceeding and upon receipt from the officer,
director or employee of an
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undertaking to repay such advancements of the type required
by Sections 723(c) and 725(a) of the Business Corporation Law
or any successor provision, as such may be amended from time
to time; and
(b) Indemnify such director, officer or employee for all sums
paid by him or her for judgments, fines, amounts paid in
settlement, and reasonable expenses, including attorneys'
fees actually and necessarily incurred, in connection with
the action or proceeding, or appeal therein, subject to the
proper application of credit for any sums advanced to the
director, officer or employee pursuant to clause (a) of this
paragraph.
The indemnification provided for herein shall not be deemed exclusive
of any other rights to which the persons so indemnified may be entitled under
any By-law, agreement, vote of disinterested shareholders, vote of disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity by holding such office.
Section 2. INSURANCE.
LIPHC is authorized to purchase and maintain insurance on behalf of
any person who is a director, officer or employee of LIPHC or is serving at the
request of LIPHC as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability of or asserted against such person and incurred by such person in his
capacity as such, whether or not LIPHC would have the power to indemnify such
person against such liability under the provisions of this Article.
ARTICLE XI - CORPORATE SEAL
The seal of the Corporation shall be circular in form and bear the
name of the Corporation, the year of its organization and the words "Corporate
Seal, New York." The seal may be used by causing it to be impressed directly on
the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate obligation
for the payment of money may be a facsimile, engraved or printed.
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ARTICLE XII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
counter-signed, executed, verified or acknowledged by such officer or officers
or other person or persons as the Board may from time to time designate.
ARTICLE XIII - FISCAL YEAR
The fiscal year shall begin the first day of January in each year.
ARTICLE XIV - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in these By-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
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Exhibit 10.2
EXECUTION COPY
MANAGEMENT SERVICES AGREEMENT
This Agreement entered into as of this 11th day of October, 1995 by
and among MDLI Healthcare, Inc. (the "HMO"), a New York health maintenance
organization, with its principal place of business at 1800 Northern Boulevard,
Suite 109, Roslyn, New York 11576; NextStage Healthcare Management, Inc. (the
"Manager"), a Delaware corporation, with its principal place of business at 1800
Northern Boulevard, Suite 109, Roslyn, NY 11576; Long Island Physician Holdings
Corporation ("LIPH"), a New York corporation having an address at 1800 Northern
Boulevard, Suite 109, Roslyn, NY 11576; and Catholic Healthcare Network of Long
Island, Inc. ("CHNLI"), a New York not-for-profit corporation having an address
at 50 North Park Avenue, Rockville Centre, New York 11570 (CHNLI and LIPH shall
be referred to as the "Holding Companies", and each as a "Holding Company").
RECITALS
WHEREAS, the HMO operates a health maintenance organization under
Article 44 of the Public Health Law of the State of New York (the "PHL");
WHEREAS, each Holding Company owns, is affiliated with and/or controls
various practice associations (each a "Practice Association", and, collectively,
the "Practice Associations");
WHEREAS, the Practice Associations represent the physicians and other
healthcare providers of the HMO (the "Healthcare Providers");
WHEREAS, each Practice Association, upon its formation, shall, and the
HMO and each Holding Company shall cause each Practice Association to, indicate
its agreement to the terms of this Agreement by executing a consent in the form
of Exhibit A hereto;
WHEREAS, the Manager is in the business of providing management and
consulting services to health maintenance organizations, provider networks and
other managed care organizations;
WHEREAS, the HMO and each Holding Company, on its own behalf and on
behalf of the Practice Associations owned by it or under its control or
affiliated with it, desire to retain the services of the Manager to obtain the
benefit of the Manager's skills, supervision and personnel in the management,
administration and operation of the HMO and the Practice Associations and the
Manager desires to provide
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such services under the terms hereinafter set forth, subject at all times to the
recognition and acceptance by the Manager that the full authority and ultimate
control of the HMO shall, at all times, remain exclusively with the HMO's
governing authority (the "HMO Board") and that the full authority and ultimate
control of each Practice Association shall, at all times, remain exclusively
with such Practice Association's governing authority (the "Practice Association
Board");
WHEREAS, the services to be provided by the Manager to the HMO and the
Practice Associations shall include, but not be limited to:
1. Establishing goals and objectives for the operation of the HMO;
2. Seeking to maintain a favorable public image for the HMO,
including providing for, or arranging for the provision of, marketing and public
information programs;
3. Operating the HMO at appropriate levels of staffing with the
objective of satisfying HMO members with customer service and patient care;
4. Providing, or arranging for the provision of:
(a) effective information systems, including financial
management, accounting, reporting and medical management systems;
(b) effective HMO member services programs;
(c) efficient claim administration, including billing and
collection procedures;
(d) an effective sales and marketing campaign designed to
achieve the HMO's membership and growth targets;
(e) a network of Practice Associations that meets the needs of
HMO members;
(f) policies and procedures for each Practice Association to
achieve its utilization and quality performance targets; and
(g) quality assurance, utilization review and risk management
programs for each Practice Association.
5. Providing such other managerial services as the parties hereto
may mutually agree.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the obligations
undertaken by the parties pursuant hereof, the parties hereby agree as follows:
ARTICLE 1. ENGAGEMENT; DUTIES OF MANAGER
1.1 MANAGER AND ADMINISTRATOR. (a) Subject to Section 1.2 of this
Agreement, the HMO and each Holding Company, on its own behalf and on behalf of
each Practice Association owned or controlled by or affiliated with it, hereby
retain the Manager (and each Practice Association shall hereby be deemed to so
retain the Manager) on an exclusive basis, and the Manager hereby agrees to act,
as the manager and administrator of the HMO and of each Practice Association to
perform, or cause to be performed, the services provided for in this Agreement,
subject to all applicable provisions of the PHL, the Insurance Law of the State
of New York, the regulations of the Commissioner of the New York State
Department of Health (the "Commissioner of Health") and the Superintendent of
the New York State Department of Insurance, and all other federal, state and
local laws, rules and regulations (collectively, the "Laws").
1.2 DUTIES OF HMO BOARD AND PRACTICE ASSOCIATION BOARDS. The HMO,
each Holding Company, on its own behalf and on behalf of each Practice
Association owned or controlled by or affiliated with it, and the Manager agree
and recognize that the responsibilities of the HMO Board and the Practice
Association Boards are in no way obviated by this Agreement, and that any powers
not specifically delegated to the Manager under this Agreement shall remain with
the HMO Board or the Practice Association Boards, as the case may be. Without
limitation of the foregoing, the HMO Board and the Practice Association Boards
shall have the responsibility and authority with respect to the following
matters as and to the extent required by law: policies governing management
contracting, provider contracting, health care services delivery, quality
assurance and utilization review and business and financial affairs of the HMO;
oversight of overall services rendered by Manager under this Agreement; hiring
and terminating of any chief executive officer and any other employees of the
HMO and retaining an independent auditor and legal counsel; adoption of the HMO
budgets; oversight of the Medical Director's performance, including compliance
with 10 N.Y.C.R.R. Section 98.12; oversight of marketing plan and public
information programs; oversight of enrollment and service practices, including
non-discrimination on the basis of race, color, sex, sexual preference, age,
religion, national origin, or source of
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payment; statutory and regulatory compliance; and approval of the Executive
Director, Director of Finance and Medical Director and any associate medical
directors.
1.3 AUTHORITY AND DUTIES OF THE MANAGER. As manager and
administrator of the HMO, the Manager shall have authority and responsibility to
conduct, supervise and manage the day-to-day operations of the HMO, including,
without limitation, quality assurance, member services, marketing, development
of proposed HMO subscriber rates, financial services and management. The
Manager shall also develop proposed medical policies and standards, which
policies and standards shall be subject to approval of the HMO Board. As
manager and administrator of the Practice Associations, the Manager shall have
responsibility to conduct, supervise and manage the credentialing, medical
management and reporting services of each Practice Association and to adjudicate
the claims of the Healthcare Providers. The Chairman of the HMO Board, or an
individual designated by the HMO Board, shall oversee the Manager's activities
with respect to the HMO under this Agreement, and the Chairman of each Practice
Association Board, or an individual designated by such Practice Association
Board, shall oversee the Manager's activities with respect to such Practice
Association under this Agreement. Any powers not specifically delegated to the
Manager by the terms of this Agreement shall remain with the HMO Board and the
Practice Association Boards. In the absence of oral or written directions or
written policies of the HMO Board or the Practice Association Boards, the
Manager shall exercise reasonable judgment in its activities. The Manager is
hereby specifically granted authority and responsibility, subject to the
direction and approval and the written policies of the HMO Board and the
Practice Association Boards, and the budgets approved by the HMO Board as
hereinafter provided, to perform the following activities for the HMO and the
Practice Associations, as applicable:
(a) STRATEGIC PLANNING. The Manager shall develop a five-year
strategic plan (the "Strategic Plan") for the HMO that seeks to achieve the
goals and objectives established by the HMO Board. The Strategic Plan shall
include, without limitation, supporting and background information and
membership and financial projections required, or based on assumptions agreed
to, by the HMO Board. The Strategic Plan shall be revised by the Manager
annually to reflect changing market conditions, competitive pressures,
applicable Laws, national and local economic factors, and the goals and
objectives of the HMO Board. The Strategic Plan, and the annual revisions
thereto, shall be subject to the approval of the HMO Board.
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(b) PERSONNEL ADMINISTRATION. Except as otherwise provided in
Article 2 of this Agreement, the Manager shall (i) - hire, supervise, manage and
discharge all employees of the HMO, if any, taking into consideration the
staffing requirements of the HMO necessary for quality patient care; (ii)
determine from time to time the number and qualifications of employees necessary
to staff departments and provide services of the HMO, if any; and (iii)
establish, revise, administer and/or determine wage scales and rates, conditions
of employment, training, attendance at seminars or conferences, staffing
schedules and job descriptions with respect to all employees of the HMO, if any.
The Manager shall develop personnel policies which shall be subject to the
approval of the HMO Board.
(c) FINANCIAL MANAGEMENT. The Manager shall prepare and
implement prudent financial policies and procedures that provide for sound and
effective controls over the financial affairs of the HMO. Such activities shall
include, but shall not be limited to, the following:
(i) COLLECTION OF ACCOUNTS. The issuance of bills for
services and materials furnished by the HMO and the collection of accounts and
monies owed to the HMO under any contracts or in connection with the rendering
of services. Such services shall include, without limitation, the processing of
all reports and information concerning the provision of medical services; the
preparation and distribution of invoices; the receipt of payments from members
and other third party payors; the processing of all payments, credits and
adjustments to accounts; responding to account inquiries; preparing and
furnishing to the HMO Board reports summarizing all monies collected for the
HMO; using best efforts to maximize collections, including turning accounts over
to a collection agency for collection; and endorsing and depositing in the
depository accounts of the HMO any checks, notes, insurance payments or other
instruments payable to the HMO. Policies to implement the foregoing and
policies regarding any extension of credit for services rendered or materials
furnished shall be approved by the HMO Board.
(ii) PAYMENT OF ACCOUNTS AND INDEBTEDNESS. The payment of
payroll, trade accounts, short term and long term indebtedness, taxes and all
other obligations of the HMO; provided that the Manager shall exercise
reasonable diligence and care in applying any funds collected in the operation
of the HMO to obligations of the HMO in a timely and prudent manner. Nothing
contained in this Agreement shall be construed to (A) constitute the Manager as
a guarantor with respect to any obligations of the HMO; (B) cause the Manager to
assume any responsibility
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for any past or future obligations of the HMO; or (C) permit the Manager to
incur indebtedness for borrowed money on behalf of the HMO without the prior
written authorization of the HMO Board. By this Agreement, the HMO does not
delegate to the Manager, and the Manager does not have, and shall not exercise,
any authority on behalf of the HMO to incur liabilities not normally associated
with the day-to-day operations of the HMO.
(iii) ACCOUNTING AND FINANCIAL RECORDS. The
establishment and administration of accounting procedures and controls, in
accordance with generally accepted accounting principles, and of systems for the
development, preparation and safekeeping of records and books of account
relating to the business and financial affairs of the HMO, all subject to the
approval of the HMO Board. All such records shall remain the property of the
HMO and at all times remain under the control of the HMO. The Manager shall, at
its option, be entitled to retain copies of accounting and financial records
relating to its services hereunder. Included in the foregoing shall be the
following:
(A) preparation and delivery to the HMO Board, as
soon as possible but in no event later than thirty (30) days after the end of
each calendar month, of an unaudited balance sheet as at the end of such month
and an unaudited statement of income and expenses (or similar operating
statement) as of the end of such month;
(B) preparation and delivery to the HMO Board,
within ninety (90) days after the end of each fiscal year of the HMO, of an
audited balance sheet as at the end of such fiscal year and an audited statement
of income and expenses (or similar operating statement) as of the end of such
fiscal year;
(C) preparation and filing, from time to time as
may be required by applicable Laws or the Commissioner of Health or as the HMO
Board may deem necessary, of other forms and reports; and
(D) preparation and submission, as applicable, of
reports, supporting data and other material required in connection with
reimbursement under third-party payment programs.
(iv) BUDGETS. The preparation and delivery to the HMO
Board, not later than thirty (30) days prior to the end of each fiscal year of
the HMO, of the following proposed budgets covering the next fiscal year:
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(A) CAPITAL EXPENDITURES. A capital expenditure
budget outlining a program of capital expenditures.
(B) OPERATING BUDGET. An operating budget
setting forth an estimate of operating revenues and expenses, together with an
explanation of anticipated changes in utilization, services offered to patients,
capitation rates for services, payroll rates, staffing, non-wage cost increases,
and any other factors differing significantly from the current year. The HMO
Board shall review and may recommend changes to the proposed budgets and the
Manager shall make such changes thereto as shall be agreed to by the HMO Board
and the Manager.
(C) CASH FLOW PROJECTION. A projection of cash
receipts and disbursements based upon the proposed operating and capital
budgets, together with recommendations as to the use of projected cash flow in
excess of short-term operating requirements and as to the sources and amounts of
additional cash flow that may be required to meet operating and capital
requirements.
(v) MONTHLY REPORTS. Preparation and delivery to the HMO
Board, within thirty (30) days after the end of each calendar month of (A)
reports on the financial condition of the HMO and the steps, if any, being taken
to implement improvements; (B) progress reports summarizing Manager activities
and results; and (C) such other reports as shall be necessary or appropriate for
the HMO Board to remain informed as to the status and condition of the HMO and
to monitor the goals and objectives of the HMO established by this Agreement.
(vi) DEPOSITORIES OF FUNDS. Maintenance of accounts
(which may be interest bearing or non-interest bearing) in such banks, savings
and loan associations and/or other financial institutions as the HMO Board may
select, and maintenance of such balances therein as the HMO Board shall deem
appropriate and as shall be consistent with good health maintenance organization
management and the goal of maximizing revenue of the HMO, taking into account
the operating needs of the HMO and the disbursement from such accounts of funds
as the Manager shall determine appropriate in the discharge of its
responsibilities under this Agreement; provided, however, that the Manager shall
have no obligation to provide, out of its own funds, working capital for the
HMO. All accounts shall be maintained in the name of the HMO and instruments
withdrawing funds from such accounts shall be signed in the manner determined by
the HMO Board.
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(vii) PURCHASES AND LEASES. Purchases and leases of
equipment, supplies, inventory, fixtures and other materials and services which
the Manager shall reasonably deem necessary in the operation and best interest
of the HMO. All such purchases and/or leases shall be in the name of the HMO
and shall comply with the HMO Board's procurement rules. The HMO shall be
solely responsible for payment therefor, and the Manager shall not be deemed a
merchant or reseller with respect thereto, within the meaning of applicable
Laws. Any purchase or lease agreement which will obligate the HMO beyond the
term of this Agreement reflecting obligations in excess of $25,000, the disposal
of any long-term asset and the purchase or lease of capital equipment (other
than capital expenditures which are in the annual budget approved by the HMO
Board or which cost less than $25,000) shall be subject to approval of the HMO
Board.
(d) INSURANCE MANAGEMENT. The Manager shall present to the HMO
Board for its approval insurance carriers to provide coverage, as available on
an economic basis, for risks associated with the operation of the HMO,
including, without limitation, the insurance coverage required by Article 9 of
this Agreement.
(e) INFORMATION SYSTEMS. The Manager shall provide and manage
comprehensive management information systems, including claims processing,
personnel and financial information systems, that efficiently and effectively
process data, including a claims processing system for the adjudication of
medical claims in accordance with the payment terms established by the HMO Board
and the Practice Association Boards and as described in any Healthcare Provider,
Practice Association or facility participation agreements. The Manager shall
also provide to the HMO reports of the following information on a monthly basis
(or quarterly, where specified) as and to the extent requested by the HMO Board:
medicaid enrollment by premium category; voluntary and involuntary disenrollment
summary; grievance summary; stop-loss summary (on a quarterly basis); inpatient
utilization report (days and admission) by provider; and ambulatory care
utilization report by provider. Costs of purchasing and/or leasing computer
hardware and software shall be included in the budget referred to in Section
5.1(a) of this Agreement but after the HMO has achieved Break Even enrollment
shall be at the cost and expense of the Manager.
(f) NETWORK DEVELOPMENT AND MANAGEMENT. The Manager, under the
direction of the HMO and the Practice Associations, shall develop a network of
Practice Associations that meets the needs of the HMO members and the
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applicable credentialing criteria established by the HMO Board and/or the
Practice Association Boards. Upon formation of a Practice Association network,
the Manager shall develop and implement effective policies and procedures to
enable interactions between the HMO and Practice Associations to meet the
requirements established by the HMO Board and the Practice Association Boards.
(g) CREDENTIALING. The Manager shall verify and review the
qualifications, and perform site and medical record reviews, if appropriate, of
Healthcare Providers in the Practice Associations for initial credentialing and
recredentialing purposes, in each case, in accordance with criteria established
by the HMO Board and/or the Practice Association Boards, and shall verify that
the credentials of Healthcare Providers in the Practice Associations meet
applicable HMO requirements and are in accordance with applicable Laws.
(h) MARKETING, ADVERTISING AND PUBLIC RELATIONS. (i) The Manager
shall develop and implement a comprehensive sales and marketing plan that is of
a factual and accurately descriptive nature and which shall include, without
limitation, a sales plan by market segment, a broker-relations program, an
advertising campaign, a public relations and promotional plan and a corporate
positioning plan, which each seek to maintain a favorable image for the HMO and
to achieve the enrollment and membership targets established by the HMO Board.
The comprehensive sales and marketing plan shall be subject to the approval of
the HMO Board. The Manager shall hire and train a sales force with designated
individuals to exclusively serve the HMO and shall coordinate the activities of
professional advertising and public relations firms. The cost of training a
dedicated sales force and the cost of all professional advertising and public
relations firms shall be the responsibility of the Manager, but shall be
included in the budget referred to in Section 5.1(a) of this Agreement;
provided, that the costs of direct advertising and promotion shall at all times
be paid and/or reimbursed by the HMO. The HMO Board and the Manager shall from
time to time agree upon the appropriate number of salespersons.
(ii) The Manager shall be responsible for marketing the Practice
Associations under "administrative services only" arrangements directly to other
insurers, health plans and customers, which services shall be rendered pursuant
to Administrative Services Agreements to be entered into between the Manager and
the applicable Practice Association(s). Fees for services to any Practice
Association(s) shall be in addition to the fees set forth in Section 5.1 of this
Agreement and shall be paid
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for by the Practice Association(s) for whom such services are rendered in
accordance with the applicable Administrative Services Agreement(s).
(i) MEMBER SERVICES. The Manager shall develop and implement
effective policies and procedures to enable interactions between the HMO and its
members to meet the requirements established by the HMO Board. The Manager
shall also develop and implement grievance policies and procedures.
(j) QUALITY ASSURANCE, UTILIZATION REVIEW AND RISK MANAGEMENT.
The Manager shall develop and implement effective policies and procedures that
seek to achieve the utilization and quality performance targets established by
the HMO and each Practice Association. The Manager shall evaluate all quality
assurance, utilization review and risk management aspects of each Practice
Association according to guidelines established by the HMO Board, and shall
implement, with the approval of the HMO Board and each Practice Association
Board, quality assurance, utilization review and risk management programs
designed to meet standards imposed by appropriate certifying agencies and to
maintain a high standard of health care in accordance with the policies of the
HMO Board and the Practice Association Boards and resources available to the HMO
and the Practice Associations.
(k) CONTRACTS FOR SERVICES. The Manager shall negotiate,
administer and monitor, on behalf of each Practice Association, contracts for
services by Healthcare Providers and other medical and paramedical persons
and/or organizations (whether as independent contractors or otherwise), subject
to the approval of the Practice Association Boards and in accordance with
applicable Laws, and shall make recommendations to the Practice Association
Boards with respect to entering into or terminating contracts for services.
1.4 PERFORMANCE OBJECTIVES. The Manager shall comply with the
following performance objectives (collectively, the "Performance Objectives"):
(a) timely and accurate preparation of the reports required by
Sections 1.3(c) and 1.3(e) of this Agreement and as required pursuant to all HMO
regulations;
(b) adjudication of 80% of all clean claims within 30 days;
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(c) payment of all monthly capitation amounts in accordance with
contracts with participating providers; and
(d) enrollment and retention at the levels agreed upon by the
HMO and the Manager.
Performance Objectives will be reviewed by the parties at the end of each full
year of operation and may be revised upon the mutual agreement of the parties.
1.5 SPECIFIC EXCLUSIONS. The Manager shall have no authority,
without the prior approval of the HMO Board and the Practice Association Boards,
as applicable, to, on behalf of the HMO or any Practice Association: acquire,
sell, lease or mortgage real estate; enter into or materially amend any
collective bargaining agreement; enter into or materially amend any affiliation,
inter-institutional, joint venture, research and development, or other contract
with any person or organization not in the ordinary course of business; create
or materially amend any employee benefit plan; adopt policies affecting the
delivery of health care services; or take any other action which, pursuant to 10
N.Y.C.R.R. Section 98.11(i), is reserved to the HMO Board.
1.6 EVENTS EXCUSING PERFORMANCE. The Manager shall not be liable to
the HMO, the Holding Companies or the Practice Associations for failure to
perform any of the services required herein in the event of labor strikes,
lock-outs, calamities, acts of God, the unavailability of supplies, market
conditions or other events beyond the Manager's reasonable control for so long
as such events continue and for a reasonable period of time thereafter.
1.7 GUARANTEE OF CERTAIN TRANSACTIONS. At the request of the
Manager, the HMO shall guarantee, for no additional consideration, the Manager's
obligations under agreements or transactions, subject to specific approval by
the HMO, involving the purchase or lease by the Manager of equipment to be used
by the Manager in the performance of services under this Agreement.
1.8 EXPANSION OF NETWORK. The HMO, the Holding Companies and the
Manager may agree from time to time to take actions to expand the HMO and the
network of Healthcare Providers to regions outside Long Island and Queens. The
HMO and the Holding Companies shall reimburse the Manager for all additional
costs not otherwise reimbursed hereunder incurred by the Manager in connection
with such efforts to expand the HMO to such outside regions; provided, that any
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reimbursement for such expenses received from third parties shall be credited to
the HMO.
1.9 STAFFING; EQUIPMENT. Attached as SCHEDULE A hereto is a table
which sets forth the staffing to be provided by the Manager in connection with
the Manager's performance of its obligations hereunder. Attached as SCHEDULE B
hereto is a schedule of major equipment and computer and information systems to
be used by the Manager in connection with the Manager's performance of its
obligations hereunder.
ARTICLE 2. EMPLOYEES
2.1 GENERAL. (a) Except as otherwise provided in this Article 2 with
respect to the Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer (collectively, the "Key Management Employees") and Special
Employees (as defined in Section 2.5), the HMO hereby authorizes the Manager to
recruit, hire, train, promote, assign, set the compensation level of and
discharge all operating and service employees as necessary for the proper
operation and maintenance of the HMO. Such employees shall be employees of and
shall be carried on the payroll of the Manager. Direct expenses incurred by the
Manager in the replacement of employees employed by and on the payroll of the
Manager shall be paid by the Manager. In exercising the foregoing authority,
the Manager shall at all times act in accordance with personnel policies
approved by the HMO Board from time to time.
(b) The Manager shall, during the term hereof, provide the HMO
with the services of Key Management Employees, each of whose initial and
continuing appointment and qualifications and credentials shall be approved by
the HMO Board, and each of whom shall be and remain an employee of the Manager,
not of the HMO, for the term of this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary,
nothing herein contained shall provide the Manager with the authority to
independently hire and discharge the Key Management Employees, which authority
shall remain with the HMO Board.
2.2 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
authority to oversee the administrative management of the HMO, to develop and
administer all management policies and procedures to ensure that the needs of
the HMO are met, to implement procedures to ensure compliance with regulatory
requirements and applicable Laws and to oversee all Healthcare Provider,
Practice
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Association, member and government relations. Notwithstanding the foregoing,
nothing herein contained shall be deemed to constitute a delegation to the Chief
Executive Officer of authority in excess of that permitted by applicable Laws.
2.3 CHIEF OPERATING OFFICER. The Chief Operating Officer shall have
authority to oversee all operations functions of the HMO, including, without
limitation, the development of a Practice Association network, member services,
credentialing, Healthcare Provider and Practice Association relations, claims
processing, billing and general administration, and shall work with the other
Key Management Employees and the Medical Director to ensure that all general
operations properly support all other functional areas of the HMO.
2.4 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have
authority to oversee all internal accounting and financial operations of the
HMO, including, without limitation, financial management, claims administration
and human resources
2.5 SPECIAL EMPLOYEES. (a) With the prior written approval of the
HMO Board, the Manager may employ other persons (hereinafter "Special
Employees") on a full or part time basis to provide services to the HMO. In
such event, the HMO shall reimburse the Manager for compensation and Fringe
Benefits (as defined in Section 2.7) paid to or on behalf of such Special
Employees; provided that the HMO shall have the right to approve Fringe Benefit
programs and compensation policies in advance.
(b) If a Special Employee is discharged from employment, the
recruiting fees and moving expenses for any replacement who is approved by the
HMO Board shall be paid as follows:
(i) If such discharge was demanded by the HMO, the
actual fees and expenses for a replacement shall be billed to and shall be paid
by the HMO to the Manager in six (6) equal monthly installments, provided that
the HMO Board has approved such fees and expenses in advance; or
(ii) If such discharge was by the Manager, without demand
therefor from the HMO, or if such discharge was at the sole request of the
Special Employee, the actual fees and expenses for replacement shall be paid by
the Manager.
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2.6 MEDICAL DIRECTOR. The medical director (the "Medical Director")
and any associate medical directors (the "Associate Medical Directors") shall be
employees of the HMO and authority to appoint and discharge the Medical Director
and any Associate Medical Director shall remain with the HMO Board. The Medical
Director and any Associate Medical Directors shall have authority to assure
Healthcare Provider and Practice Association commitment and the delivery of
comprehensive high quality health care to members of the HMO, to oversee
adherence to quality and utilization standards, to identify HMO member needs, to
develop and evaluate education and health promotion programs and to establish
effective cooperative relationships between the HMO and the Practice
Associations
2.7 FRINGE BENEFITS. For the purposes of this Article 2, "Fringe
Benefits" shall mean and include the employer's contribution to F.I.C.A.,
unemployment compensation and other employment taxes, pension plan
contributions, recruiting and relocation costs, worker's compensation, life and
accident and health insurance premiums, disability insurance and other benefits
and benefit plans. Without the prior approval of the HMO Board, each employee's
Fringe Benefits shall not exceed 30% of the direct salary of such employee.
2.8 EXPENSES. The HMO shall pay for reasonable travel, lodging and
other out-of-pocket expenses of Key Management Employees and any Special
Employees for their attendance at meetings or conferences on behalf of the HMO,
which fees shall be covered by the percentage revenue fee set forth in Section
5.1(b) of this Agreement; provided, that until the HMO shall have achieved Break
Even enrollment, such costs shall be included in the budget referred to in
Section 5.1(a) of this Agreement to be paid by the HMO.
ARTICLE 3. HMO BOARD AND PRACTICE ASSOCIATION BOARDS; MEDICAL STAFF; MANAGER
REPRESENTATIVE
3.1 HMO BOARD AND PRACTICE ASSOCIATION BOARDS. (a) The HMO Board and
each Practice Association Board shall retain all authority designated to it by
applicable Laws, its certificate of incorporation and its Bylaws and shall
retain such other authority as shall not have been specifically delegated by it
to the Manager pursuant to the terms of this Agreement.
(b) In any situation in which, pursuant to the terms of this
Agreement, the HMO Board or a Practice Association Board shall be required or
permitted to take any action, to give any approval, or to receive any report,
the
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Manager shall be entitled to rely upon the written statement of the
representative or representatives of the HMO Board or the applicable Practice
Association Board, as the case may be, who shall be designated in writing by the
HMO Board or such Practice Association Board, as the case may be, to act on its
behalf under this Agreement.
(c) The Manager shall not have any liability for, and shall not
be responsible for any loss resulting from, the failure of the HMO Board or a
Practice Association Board, as applicable, to render a decision (regarding any
action subject to approval by the applicable Board) within a reasonable time
period requested by the Manager. In the event that the HMO Board or a Practice
Association Board, as applicable, shall fail to render a decision on any matter
within the reasonable time period requested by the Manager, the Manager shall be
entitled to rely upon the then last policies and procedures adopted by such
Board, until such time as such Board authorizes a change.
3.2 MANAGER REPRESENTATIVE. A senior officer of the Manager shall
attend all meetings of the HMO Board and of each Practice Association Board;
provided, that the HMO Board and/or Practice Association Board shall have the
right, if and when they deem appropriate, to exclude the Manager from any
portion of a meeting.
ARTICLE 4. COVENANTS
4.1 COVENANTS. (a) The Manager, the HMO and each Holding Company, on
its own behalf and on behalf of each Practice Association owned or controlled by
or affiliated with it, covenants and agrees (i) to take all reasonable steps
necessary to keep the HMO fully licensed in accordance with applicable Laws,
(ii) to cooperate with the others in performing their obligations under this
Agreement, including, without limitation, cooperating in filing and obtaining
any necessary approvals from any regulatory body, including without limitation,
the Commissioner of Health, and cooperating with legal counsel, accountants
and/or other consultants, (iii) to consult one another to discuss problems,
issues and/or matters regarding each party's performance under this Agreement,
and (iv) to abide by applicable Laws pertaining to the HMO's ownership and
operation, the Manager's services to the HMO and the Practice Associations and
the performance of this Agreement. Notwithstanding any other provision in this
Agreement, the parties hereto agree that the HMO Board and each Practice
Association Board shall remain solely responsible for ensuring compliance by the
HMO or the Practice Association Board, as the case may be, with all applicable
Laws. The
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Manager agrees to use its best efforts to achieve Break Even enrollment.
(b) Except as provided by Section 7.5 of this Agreement, each of
the Holding Companies and the Manager covenant and agree that each Practice
Association which enters into a provider agreement with the HMO or its
affiliated health maintenance organizations or the successors of any thereof
shall be managed by the Manager pursuant to the terms and provisions of this
Agreement.
ARTICLE 5. COMPENSATION
5.1 MANAGEMENT FEE. As compensation for all services rendered by the
Manager under this Agreement and subject to the approval of the Commissioner of
Health in connection with the approval of this Agreement, the HMO shall pay to
the Manager a monthly management fee (the "Management Fee") as follows:
(a) for that period of time commencing when the HMO is
authorized by the Commissioner of Health to enroll members and ending when
membership in the HMO has achieved enrollees of 50,000 ("Break Even"), an amount
equal to that set forth in the annual operating budget of the HMO as amended
from time to time;
(b) for that period of time after the HMO has achieved Break
Even enrollment, an amount equal to the sum of (i) (A) for such time as
membership in the HMO is 50,001 to 100,000 enrollees, 12% of premium revenue for
such month; (B) for such time as membership in the HMO is 100,001 to 150,000
enrollees, 10-1/2% of premium revenue for such month; and (C) from and after
such time as membership in the HMO has achieved and maintains enrollees of
150,001 or greater, 9% of premium revenue for such month, plus, in each case,
the direct costs of advertising and promotion for such month; plus (ii)
one-twelfth of $50 per Healthcare Provider for credentialing and
recredentialing.
(c) fees payable for administrative services associated with any
self-insured programs successfully marketed on behalf of Practice Associations
shall be paid in accordance with the terms of the applicable Administrative
Services Agreement.
5.2 PAYMENT OF MANAGEMENT FEE. The estimated Management Fee shall be
due and payable monthly, by the first business day of each month for which it is
due, commencing the month in which this Agreement becomes effective. Each
monthly payment shall be made by the HMO upon submission of an estimated billing
by the Manager at or
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prior to the beginning of each month during which the Manager renders services.
Immediately following each calendar quarter, the Manager shall reconcile the
estimated and actual Management Fees for the preceding calendar quarter and, by
no later than the fifth business day of the month immediately succeeding such
calendar quarter, shall notify the HMO whether based on such calculation (a)
estimated fees paid exceeded actual fees due, in which case the amount of such
excess shall be credited to the monthly payment due to the Manager from the HMO
for the following month, or (b) actual fees due exceeded estimated fees paid, in
which case the amount of such excess shall be added to the monthly payment due
to the Manager from the HMO for the following month.
5.3 DEPOSIT. On the date of execution of this Agreement, the HMO
shall deposit with the Manager the sum of $150,000, which is estimated to be one
month's then current Management Fee (the "Deposit"). On each anniversary of
this Agreement, the amount of the Deposit shall be adjusted so that it is equals
one-month's then current Management Fee; provided, that the Deposit shall not be
increased to the extent and for so long as the Manager and the HMO agree that
the HMO has sufficient capital resources such that no additional deposit is
necessary. Upon expiration or termination of this Agreement, the Manager shall
return to the HMO the Deposit net of all amounts owed by the HMO to the Manager.
5.4 OTHER EXPENSES. Prior to Break Even enrollment, the Manager
shall be reimbursed for expenses incurred on behalf of the HMO which are within
the annual operating budget of the HMO, as amended from time to time. The
Manager shall also be reimbursed (whether before or after Break Even enrollment)
for expenses incurred at the request of and on behalf of the HMO which are not
incurred in the ordinary course of performance of its obligations under this
Agreement, such reimbursable expenses to include, without limitation, direct
advertising and promotion costs, costs incurred in connection with efforts to
expand the HMO network consistent with Section 1.8 of this Agreement, costs in
connection with "administrative services only" arrangements with Practice
Associations consistent with Section 1.3(h)(ii) of this Agreement, and expenses
incurred in connection with sponsorships and the sponsoring of any charity or
other event. After Break Even enrollment, expenses incurred by the Manager in
the ordinary course of performance of its obligations under this Agreement shall
be covered by the percentage revenue set forth in Section 5.1(b) of this
Agreement. Reimbursable expenses shall be due and payable to the Manager upon
the HMO's receipt of an invoice or billing by the Manager.
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5.5 INSURANCE. The HMO shall cooperate with the Manager in
procuring, if necessary or appropriate, director and officer liability insurance
covering the directors and officers of the Manager with the goal of minimizing
the cost of such insurance. Any such insurance expense paid by the Manager
allocable to the Manager's services hereunder shall be reimbursed by the HMO
upon the HMO's receipt of an invoice or billing therefor.
5.6 EXTRAORDINARY TRANSACTION FEE. In the event of (i) the transfer,
by sale, merger, consolidation, subscription or otherwise, of more than 50% of
the stock of the HMO, or all or any substantial portion of the HMO's assets or
business, or (ii) a public offering by the HMO (each an "Extraordinary
Transaction"), the owners of the HMO or the HMO, as the case may be, shall pay
to the Manager, concurrently with the consummation of such Extraordinary
Transaction, two percent (2%) of the gross proceeds of such Extraordinary
Transaction; provided, that the foregoing fee shall not apply to the issuance by
the HMO, or the sale by the owners of the HMO, of securities to Healthcare
Providers participating in the HMO in connection with the expansion of the HMO.
ARTICLE 6. EFFECTIVE DATE; TERM OF AGREEMENT
6.1 EFFECTIVE DATE. This Agreement shall become effective upon the
date it is approved by the Commissioner of Health.
6.2 TERM. Unless sooner terminated as otherwise provided, this
Agreement shall remain in effect for a period of five (5) years from its
effective date and shall be automatically renewed for consecutive five year
periods (upon the same terms and conditions of this Agreement except for
adjustments of the Management Fee (which shall be mutually agreed upon by the
parties hereto in writing) and adjustments to the Performance Objectives (as
shall be reasonably agreed to by the parties)), subject only to (i) the
authorization, if then required by applicable Law, of the Commissioner of Health
(which authorization shall be subject to 10 N.Y.C.R.R. Part 98), and (ii) the
Manager then being in compliance in all material respects with the Performance
Objectives (after notice of and a reasonable opportunity to cure any failures to
comply). The HMO and the Manager shall take all actions and execute all
agreements, instruments and documents necessary or required to submit
applications for renewal to the Commissioner of Health at- least ninety (90)
days prior to expiration of the then current term and to gain authority for such
renewal.
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ARTICLE 7. TERMINATION; REQUEST BY PRACTICE ASSOCIATION
7.1 TERMINATION BY THE MANAGER. (a) Notwithstanding anything to the
contrary in this Agreement, the Manager may terminate this Agreement for cause
(as provided below) at any time by giving written notice to the HMO and the
Commissioner of Health. Termination for cause shall be effective ninety (90)
days after the date such notice is given (unless otherwise expressly stated
below). In each case, the HMO's obligations to the Manager shall be limited to
payment of the Management Fee and any expenses owed to the Manager pursuant to
this Agreement for such period as well as any and all other obligations accrued
but unpaid as of the effective date of termination.
(b) The Manager shall have cause for termination:
(i) if the HMO shall materially default in the
performance of any covenant, agreement, term or provision of this Agreement to
be kept, observed or performed by the HMO, including, without limitation, the
payment of any sum due to the Manager from the HMO, and such default shall
continue for a period of thirty (30) days after written notice is given to the
HMO by the Manager stating the specific default; or
(ii) if, through no fault of the Manager, any licensure
or certificate necessary for the HMO to operate as a health maintenance
organization cannot be obtained or is at any time suspended, terminated or
revoked and such suspension, termination or revocation shall continue unstayed
and in effect for a period of thirty (30) consecutive days; or
(iii) if the HMO ceases operation as a health maintenance
organization under Article 44 of the PHL; or
(iv) if the HMO shall apply for or consent to the
appointment of a receiver, trustee, or liquidator of the HMO or of all or a
substantial part of its assets; file a voluntary petition in bankruptcy or admit
in writing its inability to pay its debts as they become due; make a general
assignment for the benefit of creditors; file a petition or an answer seeking
organization or arrangement with creditors; take advantage of any insolvency
law; or, if an order, judgment or decree shall be entered by a court of
competent jurisdiction, on the application of a creditor, adjudicating the HMO
bankrupt or insolvent or approving a petition seeking reorganization of the HMO
or appointing a
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receiver, trustee or liquidator of the HMO or all or a substantial part of its
assets.
7.2 TERMINATION BY THE HMO. (a) Notwithstanding anything to the
contrary contained in this Agreement, the HMO shall retain the authority to
discharge the Manager from its position for cause (as provided below) at any
time by giving written notice to the Manager and the Commissioner of Health, as
well as submitting to the Commissioner of Health at such time a plan for the
operation of the HMO. Termination for cause shall be effective ninety (90) days
after the date such notice is given (unless otherwise expressly stated below).
(b) The HMO shall have cause for termination:
(i) if the Manager shall materially default in the
performance of any covenant, agreement, term or provision of this Agreement to
be kept, observed or performed by the Manager and (A) if such material default
is of a nature that can reasonably be cured within thirty (30) days, the Manager
fails to remedy such default within thirty (30) days after written notice is
given to the Manager by the HMO Board stating the specific default, or (B) if
such material default is of a nature that cannot reasonably be cured within
thirty (30) days, the Manager does not make a diligent effort to cure such
default within thirty (30) days after written notice is given to the Manager by
the HMO Board stating the specific default; or
(ii) if the Manager shall apply for or consent to the
appointment of a receiver, trustee, or liquidator of the Manager or of all or a
substantial part of its assets; file a voluntary petition in bankruptcy or admit
in writing its inability to pay its debts as they become due; make a general
assignment for the benefit of creditors; file a petition or an answer seeking
organization or arrangement with creditors; take advantage of any insolvency
law; or, if an order, judgment or decree shall be entered by a court of
competent jurisdiction, on the application of a creditor, adjudicating the
Manager bankrupt or insolvent or approving a petition seeking reorganization of
the Manager or appointing a receiver, trustee or liquidator of the Manager or
all or a substantial part of its assets; or
(iii) if the HMO Board determines to surrender the
operating certificate of the HMO, in which event the Manager shall be entitled
to ninety (90) days' advance written notice.
7.3 TERMINATION BY THE COMMISSIONER OF HEALTH. The parties hereto
acknowledge that this Agreement shall be
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terminated not more than sixty (60) days after notification to the HMO Board and
the Manager by the Commissioner of Health of a determination that this Agreement
should be terminated because the HMO is not providing adequate care or otherwise
assuring the health, safety and welfare of its members.
7.4 FINAL PAYMENTS. Upon termination of this Agreement for any
reason, all amounts due to the Manager from the HMO shall be paid within ten
(10) days of submission of a final invoice by the Manager.
7.5 REQUEST BY PRACTICE ASSOCIATION. A Practice Association may
request the right to retain for itself a manager other than the Manager, subject
to the agreement of the HMO Board and the Manager and without affecting the
Management Fee. The Manager's and the HMO Board's agreement to such new manager
shall be subject to such factors and conditions as each shall deem appropriate
in their sole discretion, including, without limitation, that the new manager
can meet the Manager's standard of performance hereunder and satisfactorily
perform all duties being performed by the Manager hereunder, including, without
limitation, compliance with all legal requirements, and that the retaining of
the new manager shall not affect in any way the Manager's ability to perform its
obligations hereunder. Any Manager retained pursuant to this Section 7.5 shall
be subject to the approval of the Commissioner of the Department of Health.
Notwithstanding anything to the contrary set forth herein, the Manager shall not
be liable for any liabilities, losses, damages, claims, causes of action, costs
or expenses incurred by any party as a result of any acts or omissions by any
new manager retained by a Practice Association or with respect to the duties and
obligations on behalf of such Practice Association assumed by such new manager.
ARTICLE 8. DEFICIENCIES; INDEMNIFICATION; EXCULPATION
8.1 DEFICIENCIES. To the extent that there exist deficiencies in the
medical, quality assurance, administrative, financial and/or ancillary service
systems in the HMO or any Practice Association, the Manager shall use its best
efforts to address such deficiencies but shall not be liable for any failure to
cure such deficiencies or any consequential or incidental damages flowing
therefrom.
8.2 INDEMNIFICATION. (a) The Manager shall indemnify and hold
harmless the HMO and the Practice Associations, and their respective directors,
officers, employees, and agents from and against any and all claims, suits,
actions, proceedings, demands, judgments, damage,
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loss liability and expense (including court costs and reasonable attorneys fees)
arising out of the act(s) or omission(s) of the Manager or any of its directors,
officers, employees or agents (i) in performing its responsibilities under or in
connection with this Agreement, provided that such act(s) or omission(s) are the
result of the Manager's willful misconduct or gross negligence or a failure to
use ordinary care and reasonable diligence as described below, or (ii) in
rendering management services to persons or entities other than the HMO,
Practice Associations, Holding Companies and affiliates thereof.
(b) In the performance of its duties herein, the Manager shall
use ordinary care and reasonable diligence in accordance with generally accepted
standards for the administration of managed care programs, but shall not be
liable for any act(s) or omission(s) resulting from a mistake of judgment,
including, but not limited to, reasonable business judgment exercised by the
Manager in adjudicating and paying for a claim based upon instructions and
direction from the HMO, reasonable interpretation and application of documents
describing the HMO program, including using the meanings customarily applied by
administrative professionals in interpreting Medicaid and other health benefit
plans, or information available to the Manager at the time of claim adjudication
which is customarily provided by a physician, hospital or other provider of
health services.
(c) The HMO and each Practice Association shall, and each
Holding Company shall cause the HMO and Practice Associations it owns, controls
or is affiliated with, to, jointly and severally, indemnify and hold harmless
the Manager and its affiliates, shareholders, directors, officers, employees,
and agents from and against any and all claims, suits, actions, proceedings,
demands, judgments, damage, loss, liability and expense (including court costs
and reasonable attorneys fees) (collectively, "Losses") arising out of the
act(s) or omission(s) of any of such indemnifying parties, or any of their
respective directors, officers, employees or agents; provided, that such parties
shall not indemnify the Manager for Losses incurred by the Manager in connection
with the Manager's rendering services to persons or entities other than the HMO,
Practice Associations and Holding Companies and/or affiliates thereof.
(d) Each party shall promptly notify the other in writing of any
claim that might give rise to indemnification hereunder.
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8.3 EXCULPATION OF MANAGER. Except for acts of gross negligence or
willful misconduct or a failure to use ordinary care and reasonable diligence as
described in Section 8.2, the Manager shall not be liable for any liabilities,
losses, damages, claims, causes of action, costs or expenses incurred by the
HMO, the Holding Companies and/or the Practice Associations as a result of any
acts or omissions by the Manager pursuant to this Agreement.
ARTICLE 9. INSURANCE
9.1 GENERAL. The HMO, at its sole cost and expense, shall obtain the
insurance coverage outlined below, or shall establish a self-insurance program
with such coverage, during the term of this Agreement. Such coverage shall be
as normally carried with respect to comparable prepaid plans, including, without
limitation:
(a) insurance against fire and other risks insured against by
extended coverage (including on all buildings and their contents);
(b) general and professional liability insurance with limits of
not less than One Million Dollars ($1,000,000.00) per claim and Three Million
Dollars ($3,000,000.00) in the aggregate;
(c) mandatory statutory insurance coverage (including worker's
compensation insurance); and
(d) director and officer liability insurance with respect to the
directors and officers of the HMO with limits of not less than One Million
Dollars ($1,000,000.00) per claim and Three Million Dollars ($3,000,000.00) in
the aggregate.
9.2 CERTIFICATE. The HMO shall provide the Manager with a
certificate from its insurer evidencing the insurance coverage required by
Section 9.1 and agreeing to notify the Manager at least thirty (30) days in
advance of any cancellation or modification of such insurance coverage.
9.3 ADDITIONAL INSURED. All policies maintained pursuant to Section
9.1 and all policies covering similar or related perils or matters shall name
the Manager and its principals as additional insureds.
ARTICLE 10. INDEPENDENT CONTRACTOR; NO PARTNERSHIP OR JOINT VENTURE
10.1 DISCLAIMER OF EMPLOYER OF THE HMO EMPLOYEES. Except as
otherwise specified herein, no person employed by
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the HMO, if any, shall be an employee of the Manager and the Manager shall have
no liability for payment of wages, payroll taxes, and other expenses of
employment of such employees, if any, except that the Manager shall have the
obligation to apply available HMO funds to the payment of such wage and payroll
taxes.
10.2 DISCLAIMER OF PARTNERSHIP OR JOINT VENTURE. The Manager's
relationship to the HMO, to each Holding Company and to each Practice
Association is that of an independent contractor. The Manager shall not by
virtue of this Agreement be deemed a partner or joint venturer in the operation
of the HMO, any Holding Company, any Practice Association or any related entity.
The parties agree that the Manager is hereby retained by the HMO and each
Holding Company, on its own behalf and on behalf of each Practice Association it
owns, controls or is affiliated with, to manage the HMO and the Practice
Associations in accordance with this Agreement, and that the Manager is
constituted the agent of the HMO and each Practice Association only for the
purpose of and to the extent necessary to carry out its obligations under this
Agreement.
ARTICLE 11. CONFLICTS OF INTEREST
11.1 ABSENCE OF CONFLICTS OF INTEREST. (a) During the term of this
Agreement, any person who serves as a member of the HMO Board or a Practice
Association Board and who shall have a "Conflict of Interest" (as defined below)
shall be required to disclose the same to the Manager. For the purposes hereof,
a "Conflict of Interest" shall mean any financial interest or investment, direct
or indirect, in the HMO, a Holding Company, a Practice Association or any
department thereof, or being a party to any contract or contracts for the
provision of any goods or services to the HMO or a Practice Association.
(b) The Manager, except as otherwise disclosed,
represents that, to the best of its knowledge, there is no conflict of interest
pertaining to any directors, officers, employees or agents of the Manager in
respect of the HMO, any Holding Company or any Practice Association.
(c) The Manager agrees that it shall not render
management services of the nature described herein to any entity in connection
with such entity's business in direct competition with the HMO.
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ARTICLE 12. BOOKS AND RECORDS; CONFIDENTIALITY; ACCESS
12.1 BOOKS AND RECORDS. The HMO Board and each Practice Association
shall retain independent control over their respective books and records, which
shall at all times be maintained within the State of New York.
12.2 MANAGER ACCESS TO THE HMO; CONFIDENTIALITY OF RECORDS. During
the term of this Agreement, the Manager shall be given complete access to the
HMO and Practice Associations, their respective books and records, offices and
facilities, in order that it may carry out its obligations hereunder, subject to
requirements of confidentiality as to patient medical records as established by
applicable Law, the HMO Board or the applicable Practice Association, disclosing
the same only as directed by applicable Law, the HMO Board or the applicable
Practice Association in any particular instance.
ARTICLE 13. MISCELLANEOUS
13.1 ASSIGNMENT. None of the Manager, the HMO, any Holding Company
or any Practice Association may assign its interest in, or delegate the
performance of its obligations under, this Agreement (except for arrangements,
subject to the consent of the HMO Board and, if applicable, the Practice
Association Boards, not to be unreasonably withheld, where the Manager remains
responsible for the supervision of such performance) to any person or entity
without obtaining the prior written consent of the other party and of the
Commissioner of Health.
13.2 SUCCESSORS. The terms, provisions, covenants, obligations and
conditions of this Agreement shall be binding upon and shall inure to the
benefit of the successors in interest and the approved assigns of the parties
hereto, provided that no assignment, transfer, pledge or mortgage by or through
either party, as the case may be, in violation of the provisions of this
Agreement, shall vest any rights in the assignee, transferee, pledgee or
mortgagee.
13.3 NOTICES. Any notice by either party to the other shall be in
writing addressed to the party at its address as set forth in this Agreement (or
such other address as may have been designated by the party in a notice given
pursuant to this Section 13.3) and shall be deemed to have been given the
earlier of the date on which it is delivered personally or four (4) days after
it is deposited in the U.S. mail, postage prepaid, certified with return receipt
requested.
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13.4 ENTIRE AGREEMENT. This Agreement, as approved by the
Commissioner of Health, is the sole agreement between the parties hereto for the
purposes of management of the HMO and the Practice Associations and payment to
the Manager for management services provided hereunder and constitutes the
entire understanding of the parties hereto with respect to the subject matter
hereof. Any and all prior agreements, promises, proposals, negotiations or
representation, whether written or oral, not expressly set forth in this
Agreement are hereby superseded and are of no force and effect.
13.5 AMENDMENTS. This Agreement may not be amended, modified or
terminated orally, and no amendment, modification, termination or attempted
waiver shall be valid unless in writing signed by the party against whom the
same is sought to be enforced; provided, however, that any amendment,
modification or termination approved in writing by the HMO shall be valid as
respects the Holding Companies and all the Practice Associations.
Notwithstanding the foregoing, the amendment of any provision which affects, in
any material respect, the rights or duties of a Practice Association or the
responsibilities of the Manager to such Practice Association shall require the
consent of such Practice Association. Any amendments to this Agreement shall be
effective only with the prior written consent of the Commissioner of Health.
13.6 GOVERNING LAW. This Agreement shall be governed by the
internal laws of the State of New York, without reference to conflict of laws
principles.
13.7 SEVERABILITY. This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable
term or provision, the parties hereto intend that there shall be added as a part
of this Agreement a provision as similar in substance to such invalid or
unenforceable provision as may be possible and be valid and enforceable.
13.8 HEADINGS. The headings of the Articles, Sections and
paragraphs are inserted for convenience only and in no way define, limit or
prescribe the intent of this Agreement.
13.9 FURTHER ASSURANCES. The parties agree to execute such other
agreements, instruments and documents and take or cause to be taken such other
actions as may be
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<PAGE>
reasonably required to carry out the terms and fulfill the intent of this
Agreement.
13.10 CONFIDENTIALITY. (1) (a) Except for disclosure to bankers,
underwriters, lenders, investors, accountants or legal counsel, or as required
by applicable Laws or the Commissioner of Health, the parties hereto shall not
disseminate or release to any third party any information regarding this
Agreement or any information regarding the other obtained in the course of the
negotiations or performance of this Agreement without the other's prior written
consent.
(b) The Manager shall at all times during the term of
this Agreement and thereafter maintain (and cause its officers, directors,
agents and employees to maintain) the confidentiality of the books, records,
business plans, customer lists and other proprietary information, documents and
data of the HMO of whatsoever kind or nature, shall not use such information in
connection with any product other than the HMO and its affiliated Practice
Associations, and shall make available to the HMO and its agents, and to
representatives of the New York State licensing authorities and the U.S.
Department of Health and Human Services, at reasonable times during usual
business hours and upon reasonable prior notice, books, records and other
materials maintained by the Manager pertaining to the HMO and shall promptly
respond to any questions with respect to such books, records or other materials.
The Manager agrees to deliver or to make available to the HMO all such books,
records and other materials within fifteen (15) days after the effective date of
termination of this Agreement.
(c) All records, whether business, medical or otherwise,
relating to the operation of the HMO or its beneficiaries or providers,
including but not limited to all books of account, enrollment records, general
administrative records and patient records, shall be and remain the sole
property of the HMO. Except for information that may be otherwise required by
law, contractual obligations or governmental regulation to be reported or
disclosed, the Manager shall not knowingly reveal confidential or proprietary
information contained in those records or in those systems without the prior
written consent of the HMO and shall take reasonable steps to insure that such
confidential and proprietary information is not disclosed. Each of the HMO and
the Holding Companies agrees that it shall not disclose, reveal or provide any
confidential or proprietary information relating to the Manager's management of
the HMO without the prior written consent of the Manager and shall take
reasonable steps to ensure that such information is not disclosed.
Notwithstanding the
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<PAGE>
foregoing, the restrictions on the Manager and the HMO under this Section 13.10
shall not apply to information which: (i) is required by law, governmental
regulations, or contractual obligations to be disclosed; (ii) is known by, or
generally available to hospitals and/or the managed health care industry; (iii)
is, at the time of disclosure, already in the possession of, or known to such
party; (iv) has been previously published, or is now or becomes public knowledge
other than as a result of unauthorized disclosure by the obligated party; (v) is
independently developed by such party without any use, directly or indirectly,
of any proprietary information provided by the other party, or (vi) was obtained
by such party from a third party not under any obligation of confidentiality to
the other party.
(d) The provisions of this Section 13.10 shall survive
the termination of this Agreement.
13.11 COUNTERPARTS. This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed by their authorized representative as of this 11th day of October,
1995.
MDLI HEALTHCARE, INC.
By: /S/ SALVATORE J. CARAVELLA
------------------------------------
Name: Salvatore J. Caravella, M.D.
Title: President
NEXTSTAGE HEALTHCARE MANAGEMENT, INC.
By: /S/ RICHARD RADOCCIA
------------------------------------
Name: Richard Radoccia
Title: President
LONG ISLAND PHYSICIAN HOLDINGS
CORPORATION
By: /S/ DAVID WEISSBERG
------------------------------------
Name: David Weissberg, M.D.
Title: President
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<PAGE>
CATHOLIC HEALTHCARE NETWORK OF
LONG ISLAND, INC.
By: /S/ ALAN J. PLACA
------------------------------------
Name: Rev. Msgr. Alan J. Placa
Title: Board Chair
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<PAGE>
The undersigned practice association hereby consents to the Management Services
Agreement dated as of October 11, 1995 by and among MDLI Healthcare, Inc.,
NextStage Healthcare Management, Inc., Long Island Physician Holdings
Corporation and Catholic Healthcare Network of Long Island, Inc. (the
"Management Services Agreement"), and agree that it shall be subject to the
terms and provisions thereof.
Name of Practice Association:
ISLAND BEHAVIORAL HEALTH
ASSOCIATION, INC.
By: /S/ SALVATORE J. CARAVELLA
------------------------------------
Name: Salvatore J. Caravella, M.D.
Title: President
<PAGE>
The undersigned practice association hereby consents to the Management Services
Agreement dated as of October 11, 1995 by and among MDLI Healthcare, Inc.,
NextStage Healthcare Management, Inc., Long Island Physician Holdings
Corporation and Catholic Healthcare Network of Long Island, Inc. (the
"Management Services Agreement"), and agree that it shall be subject to the
terms and provisions thereof.
Name of Practice Association:
ISLAND PROFESSIONAL
ASSOCIATION, INC.
By: /S/ AMY KOREEN
------------------------------------
Name: Amy Koreen, M.D.
Title: President
<PAGE>
The undersigned practice association hereby consents to the Management Services
Agreement dated as of October 11, 1995 by and among MDLI Healthcare, Inc.,
NextStage Healthcare Management, Inc., Long Island Physician Holdings
Corporation and Catholic Healthcare Network of Long Island, Inc. (the
"Management Services Agreement"), and agree that it shall be subject to the
terms and provisions thereof.
Name of Practice Association:
ISLAND DENTAL PROFESSIONAL
ASSOCIATION, INC.
By: /S/ LYNN PIERRI
------------------------------------
Name: Lynn Pierri, D.D.S., M.S.
Title: Co-Chairperson
<PAGE>
Exhibit 16
Richard Sanderman
Certified Public Accountant
Licensed in New Jersey
Post Office Box H
Bushkill, PA 18324
May 31, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
I have read the statements made by Long Island Physician Holdings
Corporation, which are included in Item 4 of Amendment No. 1 and 2 of Form 10-
SB. I agree with the statements concerning my firm in such filing.
Very truly yours,
/s/ Richard Sanderman
Richard Sanderman, CPA
