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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
MD HEALTHSHARES CORPORATION
(Name of Small Business Issuer in its charter)
LOUISIANA 72-130480
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 ST. CHARLES AVENUE
SUITE 4400
NEW ORLEANS, LOUISIANA 70170
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (504) 582-1489
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
N/A N/A
Securities to be registered under section 12(g) of the Act:
JUNIOR PREFERRED VOTING STOCK, $1.00 PAR VALUE, $1,000 LIQUIDATION PREFERENCE
(Title of class)
CLASS A NON-VOTING COMMON STOCK, $0.10 PAR VALUE
(Title of Class)
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Securities and Exchange Commission
Form 10-SB/A
Amendment No. 1
MD HEALTHSHARES CORPORATION
PART I
(ALTERNATIVE 2)
ITEM 6: DESCRIPTION OF BUSINESS
GLOSSARY OF TERMS
The following terms are defined herein:
"Capitation" or "capitated" refers to a method of medical services
compensation in managed care plans whereby providers agree to render specified
medical services on a prepaid fixed fee per enrollee basis.
"Class A Stock" refers to the Class A Common Stock of the Company.
"COA" refers to the Certificate of Authority to operate a HMO issued
by the LDOI.
"Company" refers to MD HealthShares Corporation.
"Eligible Resale Purchaser" refers to a physician who is licensed to
practice medicine in Louisiana and is a member of the LSMS.
"HMO" refers to a health maintenance organization, which is a prepaid
comprehensive medical services plan.
"HMO/MSA" refers to a managed care plan that combines a MSA with a
HMO.
"HMO/POS" refers to a managed care plan that combines a POS with a
HMO.
"IPA" refers to an independent practice association of physicians.
"LDOI" refers to the Louisiana Department of Insurance.
"LSMS" refers to the Louisiana State Medical Society.
"MSA" refers to a Medical Savings Account, a federal tax-advantaged
medical financing plan.
"Pass-through PPOs" refers to non-risk bearing PPOs, in which
providers are reimbursed for medical services on a discounted fee for service
basis.
"PCI" refers to Patients' Choice, Inc., the Company's principal
operating subsidiary.
"POS" refers to point-of-service plans, which are supplements to
managed care plans which permit enrollees to seek medical services outside the
provider network of the managed care plan.
"PPO" refers to a preferred provider organization, which is a form of
a managed care plan under which enrollees may receive medical services on a
discounted fee basis from specified plan providers.
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"Premium-paid PPOs" refers to risk-bearing PPOs, in which providers
are compensated for medical services on a prepaid premium basis.
"Recapitalization" refers to the plan approved by the Company's
shareholders whereby each share of the Company's formerly outstanding Class A
Common Stock was cancelled and converted into one share of Voting Preferred
Stock and 500 shares of Class A Stock.
"Regional IPAs" refer to the six regional IPAs established by the
Company in Louisiana.
"Voting Preferred Stock" refers to the Junior Preferred Voting Stock
of the Company.
THE COMPANY
MD HealthShares Corporation (the "Company") is a physician-owned
healthcare financing holding company. The long-term objective of the Company is
to own or operate and offer to employers, third party payors and consumers in
Louisiana an array of health financing plans, including managed care plans, such
as health maintenance organizations ("HMOs") and preferred provider
organizations ("PPOs"). The Company was incorporated as a for-profit
corporation in the State of Louisiana on July 18, 1995. On August 17, 1996 the
Company completed its initial public offering with the sale of 2,142 shares of
Class A Common Stock to 2,142 Louisiana physicians. On March 22, 1997, the
Company's shareholders approved a Plan of Recapitalization pursuant to which all
of the Company's outstanding shares of Class A Common Stock were cancelled and
each such share was converted into one share of Junior Preferred Voting Stock
(the "Voting Preferred Stock") and five hundred shares of Class A Non-Voting
Common Stock (the "Common Stock") (the "Recapitalization"). See Part I, Item
12.
On January 8, 1997, the Company's subsidiary, Patient's Choice, Inc.
("PCI"), received a Certificate of Authority ("COA") from the Louisiana
Department of Insurance ("LDOI") to operate a HMO, and the LDOI has approved
PCI's applications to offer a HMO plan with certain point-of-service ("POS")
features (the "HMO/POS"), and certain risk-bearing PPO plans ("premium-paid
PPOs"). In addition, PCI plans to market certain non-risk bearing PPO plans
("pass-through PPOs"). PCI has applied with the LDOI for approval of a benefit
plan that would combine a Medical Savings Account ("MSA") with PCI's HMO
("HMO/MSA"). See "-Managed Care Plans of the Company".
In order to effect state-wide coverage for the managed care plans to
be offered by PCI, the Company has divided the state into six regional catchment
areas, New Orleans, Baton Rouge, Lafayette/Lake Charles, Alexandria, Monroe and
Shreveport, and has incorporated six independent practice associations ("IPAs")
(the "regional IPAs") that will enter into contracts with PCI for the
performance of managed care physician services in the catchment areas. PCI will
also contract for medical services with hospitals and other non-physician
providers in each catchment area. Marketing of PCI's managed care plans will be
rolled-out on a regional basis as contracting with medical services providers is
completed in the catchment areas. The Company anticipates that the managed care
plans of PCI will be marketed state-wide by the end of the third quarter of
1997. See "-Managed Care Plans of the Company;-Marketing".
THE MANAGED CARE INDUSTRY
The healthcare industry in the United States is undergoing a period of
rapid and, to a large extent, unpredictable change. Due to a number of
demographic, technological, fiscal and other factors, healthcare costs in the
United States have been increasing at rates substantially exceeding the rate of
inflation and growth in the gross national product for a number of years. These
cost increases have lead to significant governmental, private industry and
consumer pressure for healthcare plans that achieve lower costs and reduced
premiums as compared to traditional indemnity insurance plans. Managed care
plans are a private industry response to these pressures. According to the
American Association of Health Plans, approximately 26% of the United States
population was enrolled in HMOs of the end of 1995.
Managed care attempts to use market forces and active management of
the utilization of medical services to control costs. There are a number of
types of managed care plans in the United States, each of which has a wide
variety of possible organizational and operational structures. Some of the
primary types of managed care plans are outlined below.
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Health Maintenance Organizations. HMOs are prepaid health plans that
undertake the provision of comprehensive out-patient and in-patient medical
services to enrollees through affiliated physicians or physician groups, who may
be employees of the HMO or independent contractors, and other affiliated medical
service providers such as hospitals, ambulatory surgery facilities, laboratories
and radiology centers. Because such services are provided on a prepaid premium
basis, the financial risk of medical costs in a HMO contract is shifted from the
premium payor to the HMO. HMOs compensate their affiliated providers for
services under various payment methods, including, with respect to non-employee
physician providers, capitated and negotiated fee payments. In most HMO models,
physicians assume a portion of the HMO's financial risk in providing healthcare
services for enrollees.
There are five common models of HMOs. In the STAFF MODEL, the
physicians are employees of the HMO. A staff model HMO is a "closed panel" HMO
because only employees of the HMO may be physician-providers. Of all HMO
models, the staff model HMO provides the greatest opportunity for HMO control
over physician utilization and treatment. However, there is the least
opportunity in a staff model HMO for physician selection by patients.
In the GROUP MODEL, the HMO contracts with a multispecialty physician
group. A group model HMO is a closed-panel HMO, and it may perform medical
services for the HMO on an exclusive ("captive group") or non-exclusive basis
("independent group"). From the viewpoint of the patient there may be little
apparent difference between a staff model and a group model HMO.
In the NETWORK MODEL, the HMO contracts with more than one group
practice for medical services. These groups may be large multispecialty groups,
or groups of primary care physicians. The network model may be an open panel,
in which the HMO will contract with any group which meets credentialing
criteria.
In the IPA MODEL, the HMO contracts with one or more IPAs to provide
medical services. An IPA is a legal entity composed of physicians who have, in
most cases, individual private medical practices outside of the IPA. IPAs
contract to provide medical services to defined populations in a managed care
context. IPAs often are established by physicians in order to achieve group
bargaining power in a managed care context while retaining their individual
private medical practices. An IPA model HMO is an open panel plan. However,
physician membership in IPAs organized by the HMO or other entities such as
hospitals may be more restrictive than in IPAs organized by physicians.
IPA model HMOs currently predominate in the HMO market. According to
one study, as of the end of 1993, approximately 65% of all HMO plans were IPA
model HMOs, and as of July, 1993, over 49% of all HMO enrollees in the United
States were enrolled in IPA model HMOs.
In an IPA model HMO, the affiliated IPA or IPAs may assume some or all
of the HMO's financial risk for physician and non-physician services covered by
the HMO's benefit plan. In most cases, a HMO-affiliated IPA is compensated for
physician services by the HMO in the form of capitation payments. The IPA in
turn compensates its physician members on a discounted fee or a capitation
basis. Primary care services are often compensated on a capitation basis, and
specialist services are often compensated on a discounted fee basis, though
capitation for specialists is becoming more common. Discounted fee payments may
be funded from budgeted primary care and specialist care risk pools, and such
payments ordinarily are subject to reduction if aggregate fees exceed budgeted
amounts. If the IPA assumes the financial risk for non-physician services, it
will fund risk pools from a portion of the HMO's capitation payments for the
payment of hospital expenses and other non-physician medical costs of enrollees.
Often, a portion of both capitation and discounted fee payments for medical
services are withheld by the IPA from its physician members and reserved for
application to unbudgeted overutilization costs (for specialist care or hospital
costs, for example). Unexpended withholds and excess risk pool amounts are
usually distributed to physicians at regular intervals, sometimes on the basis
of utilization performance reviews. Thus, the risk pools and compensation
withholds are designed to provide both for physician assumption of risk (in
addition to primary care or specialist care capitation risk) and physician
incentive. UM/QA standards are more difficult to administer in the IPA model
HMO than in the staff model or the group model, which can result in greater
administrative costs. IPA model HMOs often seek to control specialist use by
enrollees through the requirement of primary physician specialist referrals (a
"gatekeeper system").
In the DIRECT CONTRACT MODEL, the HMO contracts directly with
individual physicians rather than with IPAs. The direct contract model HMO
often uses a gatekeeper system.
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PCI's HMOs will be operated as IPA model HMOs and physician-providers
to PCI's HMOs who are members of the Company's regional IPAs will bear the
primary financial risk of overutilization medical services. See "-Managed Care
Plans of the Company".
Preferred Provider Organizations. A PPO is an organization of
healthcare providers which agrees to render medical services on a discounted fee
basis. The organizing entity of a PPO is generally responsible for assembling
the network of participating providers, negotiating fee schedules with the
providers and payors, designing and implementing UM/QA requirements, marketing
the PPO and processing provider claims and reimbursements. In a pass-through
PPO, the provider reimbursement claims are typically paid by an employer-funded
employee health plan or indemnity insurance company, and the PPO passes through
the payments to the providers after deduction of an administrative fee. In a
premium-paid PPO, the PPO funds provider reimbursement claims from premium
payments received from, typically, a small employer. The premium-paid PPO thus
bears the financial risk of overutilization of both its network and out-of-
network providers. PCI plans to offer both pass-through PPOs and premium-paid
PPOs. See "-Managed Care Plans of the Company".
Point-of-Service Plans. Point-of-service plans ("POS") are indemnity-
like supplements to managed care plans that allow enrollees to determine, at the
point at which it is necessary to seek medical services, whether to utilize a
managed care network provider or an out-of-network provider. Enrollees
typically incur substantial out-of-pocket expense in exercising the out-of-
network option. PCI plans to offer a HMO with a POS feature. See "-Managed
Care Plans of the Company".
Managed Indemnity Plans. Many traditional indemnity insurance plans,
service plans (e.g., Blue Cross and Blue Shield) and self-insured plans now
require beneficiaries and providers to observe a variety of utilization
management requirements.
HEALTH CARE REFORM
Acting as a spur to the development of private market solutions to
increasing costs of healthcare have been various proposals at the federal level
to provide universal medical coverage and to impose federal controls on the
financing of the private medical services marketplace. The enactment of any
such federal or state initiatives could have a significant and unpredictable
impact on the operations and prospects of the Company. There have been a number
of proposals in Louisiana to enroll all or a part of the state's Medicaid-
eligible population into one or more HMOs. It is not possible to predict what,
if any, effect the adoption of any such proposal would have on the operations or
prospects of the Company. See "-Regulation of HMOs and PPOs".
REGULATION OF HMOS AND PPOS
State Regulation. PCI is subject to regulation and supervision by the
LDOI. PCI has made and will be required to maintain a $1,000,000 deposit in
Louisiana financial institutions to secure against its insolvency. In addition,
PCI will be required to maintain capital and surplus of at least $2,000,000.
PCI is required to file periodic statutory and audited financial reports with
the LDOI. In addition, as a HMO holding company, the Company is required to
register with the LDOI and to file periodic holding company reports.
Louisiana law requires HMOs to provide coverage (subject to lifetime
maximum benefits) for "basic healthcare services" in their enrollee contracts.
Basic healthcare services include emergency care, inpatient hospital and
physician care, outpatient medical services, routine gynecological care
(including care relating to pregnancy) and radiology services. Coverage for
alcohol or drug abuse health services must be offered as an option to a HMO
contract. Chiropractic services are included as basic healthcare services to
the extent they arise out of a referral by a physician for orthopedic or
neurological conditions. HMO benefit packages may include, in addition to
required basic healthcare services, other healthcare services, including oral
surgery and podiatric and psychological care.
In general, the rate structures of HMOs are not regulated in
Louisiana. However, HMOs that provide coverage to certain "small employers" (3
to 35 employees) must use a modified community rate structure. Louisiana HMOs
are required to establish procedures for the continuous review of quality of
care, performance of providers, utilization of health services and facilities,
and costs of operations.
Federal HMO Qualification. The Company does not at this time intend
to qualify PCI's HMOs under federal law. The advantages of federal HMO
qualification are that the HMO may obtain a Medicare risk contract from
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the federal government and market its plan to the Medicare population. The
disadvantages to federal qualification include the requirement that the HMO have
a minimum of 5,000 enrollees, an extensive application process, minimum
healthcare benefits which are more extensive than those required to be provided
under Louisiana law, and, with respect to Medicare patients, federally-mandated
rate structures and enrollment and marketing requirements. PCI may seek federal
qualification of its HMOs at a later date, however, if business considerations
indicate that such qualification would benefit the Company.
Federal Regulation. PCI will be subject to the "guaranteed issue"
provisions of the Health Insurance Portability and Accountability Act of 1996,
which requires insurance and managed care companies which service the small
business market (2 to 50 employees) to accept all small businesses which apply
for coverage, and which mandates renewability and portability of healthcare
coverage. Both the federal Anti-Kickback Statute, a criminal law, and the
federal Stark II Amendments, a civil statute, provide penalties for,
respectively, the payment of remuneration for the purpose of inducing patient or
medical services referrals, and the self-referral of certain medical services to
an entity in which a physician (or an immediate family member) has a financial
interest. Presently, both these statutes are applicable only to the Medicaid
and Medicare programs. PCI does not at this time intend to secure Medicare risk
contracts, and no federal waiver of the fee provisions of the federal Medicaid
enabling law has been granted to permit Louisiana to enroll a substantial number
of Medicaid-eligible beneficiaries in HMOs. However, Louisiana has in the past
sought such a waiver and it may do so in the future. If such a waiver
permitting Medicaid-eligible beneficiaries to enroll in state-qualified HMOs
were granted, PCI's HMOs may seek to enter that market. In that case, it would
become subject to the federal legislation discussed above. Moreover, such
federal legislation may be made applicable at same future date to HMO or other
managed care contracts. The Company believes that the operations of PCI's
managed care plans as currently contemplated would not violate such federal
legislation were it applicable to either of them, but expansion of the coverage
of federal law or clarification of its scope could require PCI's managed care
plans to modify the provider structures or operations which could have a
material adverse effect on the Company.
Antitrust Regulation. The activities of PCI's managed care plans will
be subject to federal and state antitrust laws and regulations. The interaction
between such laws and regulations and the numerous legal and economic
arrangements that exist and are being formed in the rapidly changing healthcare
marketplace are uncertain. There is a risk that because of such laws and
regulations the Company will not be able to adopt organizational or operational
arrangements that would be optimal for the business of PCI's managed care plans,
or that it may have to change such optimal arrangements at some later date to
satisfy federal or state antitrust laws and regulations. The antitrust rules
applicable in the PPO area are particularly in doubt at present, and there are
indications that a PPO which has substantial market power, as the Company
contemplates in regard to PCI's PPOs, may violate certain antitrust laws if it
fails to assume some of the financial risk of payors.
COMPETITION
The managed care business is highly competitive in Louisiana. As of
February 20, 1997, there were 25 companies in Louisiana holding COAs for HMO
operations, and several applications for COAs are pending before the LDOI. It
is estimated that 16 of the licensed HMOs in Louisiana are currently in
operation. Market penetration of HMOs is relatively low in Louisiana, with
estimated enrollment of 10% of the population in HMOs at the end of 1995 as
compared to an estimated enrollment of 26% of the population nationally.
Many of the HMOs that PCI will be in competition with, such as Aetna
Health Plans of Louisiana, Inc., CIGNA Health Care of Louisiana, Inc., and
United Healthcare of Louisiana, Inc., are owned by large, national companies
whose financial resources far exceed those that are available to the Company,
and such companies and the other HMOs operating in Louisiana have provider
relationships, enrollment contracts, and managerial and administrative resources
that the Company does not have and must develop to achieve profitable
operations. The Company will enter this competitive arena on a staged-basis as
a state-wide competitor. Although there are a number of HMO competitors in
Louisiana with substantially greater financial and managerial resources and
operative experience than the Company, to the Company's knowledge only one HMO,
the Ochsner Health Plan, which reportedly has over 130,000 enrollees, currently
conducts state-wide operations.
PPOs are not subject to federal or state regulation and data
concerning competition in the PPO segment of the healthcare financing industry
are difficult to ascertain. It has been estimated that there are at least 20
PPOs operating in Louisiana with over 1.5 million enrollees.
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The Company believes that HMOs and PPOs compete in large part for
different segments of the healthcare financing market. As a prepaid plan, a HMO
offers, in general, cost protection to payors, the elimination of deductibles
and significant copayments for beneficiaries, and in many cases, lower premium
rate structures. As a provider arm for traditional indemnity insurance and
self-funded employer plans, a PPO often offers greater freedom of patient choice
and, within the PPO provider network, discounted fees for payors and
beneficiaries. However, HMOs and pass-through PPOs compete for business with
indemnity insurers and self-funded employer benefit plans which have determined
to chose either a HMO or a PPO as the primary healthcare financing vehicle, and
HMOs and premium-paid PPOs compete for business with smaller employers that do
not self-fund their medical benefit plans.
MANAGED CARE PLANS OF THE COMPANY
In order to implement state-wide coverage for PCI's managed care
plans, the Company has divided the state into six regional catchment areas, New
Orleans, Baton Rouge, Lafayette/Lake Charles, Alexandria, Monroe and Shreveport,
and has organized six subsidiary IPAs that will enter into contracts with PCI
for the performance of managed care physician services in the catchment areas.
PCI will also contract for medical services on a discounted fee basis with
hospitals, surgery centers, laboratories and other medical services providers in
each catchment area, and with non-IPA member physicians to the extent necessary
to achieve on a regional basis appropriate numbers of physicians or physician
practice coverage ratios. PCI believes that its HMOs will offer an array of
medical, diagnostic, hospitalization, surgical and other medical services
competitive with the services offered by other HMOs in Louisiana.
Currently, PCI plans to market five types of managed care plans, a
HMO, HMO/POS, HMO/MSA, pass-through PPO and premium-paid PPO. Each of PCI's
managed care plans will be offered in a variety of configurations of price,
benefits, deductibles and copayments.
PCI's HMO will offer an array of prepaid medical services to
enrollees. After deduction of an administrative fee, PCI will distribute the
premium income in accordance with actuarial models among certain budgeted pools
for the provision of non-physician services (and a budgeted pool for non-network
physician services on an emergency or approved call basis), and to the Company's
regional IPAs on a capitation basis for the provision of physician services.
The Company's IPAs will distribute the capitation payments in accordance with
actuarial models among budgeted primary care and specialist physician pools.
PCI will reconcile its budgeted pools periodically, and the physician budgeted
pools of the regional IPAs will be reconciled periodically by the Company. In
the event of overutilization of PCI's budgeted pools, PCI may reduce capitation
payments to the IPAs. In such an event or in the event of overutilization of
the IPA budgeted pools, the Company may reduce the physician reimbursement
schedules of the IPAs. Thus, IPA-member physicians will bear the primary
financial risk of PCI's HMOs.
PCI's HMO/POS will be a HMO with a point-of-service feature. Under
the POS, PCI will reimburse out-of-network providers on the basis of the
Company's discounted fee schedule, subject to substantial deductibles and
coinsurance obligations of enrollees. PCI will bear the financial risk of
enrollee overutilization of the POS feature of the HMO/POS.
PCI has filed an application with the LDOI to market a Medical Savings
Account coupled with PCI's HMO. A MSA is a federal tax-advantaged account
established by certain qualifying individuals for the payment of out-of-pocket
medical expenses, which is combined with a high-deductible indemnity insurance
or managed care plan. There can be no assurance that the LDOI will approve
PCI's application to market a HMO/MSA.
Under PCI's premium-paid PPO, in return for the premium paid by the
employer or other enrolling group, PCI will reimburse network providers on the
basis of its discounted fee schedule, subject to certain enrollee copayment
requirements, and it will reimburse out-of-network providers on a reasonable and
customary fee basis, subject to substantial deductibles and coinsurance
requirements applicable to enrollees. PCI will bear the financial risk of
overutilization of both network and out-of-network providers of the premium-paid
PPO.
PCI's pass-through PPO network will contract with self-funded employer
health plans and indemnity insurers for the provisions of medical services on a
discounted fee basis. If PCI's pass-through PPO contracts with indemnity
insurers, it is anticipated that it would administer network provider
reimbursement claims and remit reimbursement payments to providers after
deduction of an administrative fee. If PCI's pass-through PPO contracts with a
self-funded employer plan, it is anticipated that PCI may, on a fee basis,
administer all claims under the plan. Medical services providers, including
out-of-network providers, would submit reimbursement claims to PCI, which
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will process the claims, determine the applicable deductibles, copayments and
coinsurance, receive payments from the employer or other enrolling group, and
remit the payment balances to the medical services providers. PCI will not bear
substantial financial risk in the administration of the pass-through PPO.
The Company and PCI may at any time change the structure, terms or
other material aspects of, or terminate the Company IPAs or PCI's managed care
plans at any time, subject only to express contractual obligations.
PROVIDERS; CREDENTIALING
Only record owners of the Company's Voting Preferred Stock who are
members of the Louisiana State Medical Society ("LSMS") may be members of the
Company's regional IPAs and physician-providers for PCI's benefit plans, except
that the Company reserves the right to permit physician-providers who are not
shareholders or LSMS members to become members of the Company's IPAs if such
non-shareholder physician members are necessary to achieve on a regional basis
appropriate numbers of physicians or physician specialty practice ratios.
Members of the Company's regional IPAs will be required to be providers to all
of PCI's managed care plans offered in the applicable catchment area. Provider
contracts will be subject to non-renewal or termination if providers fail to
observe or meet the requirements thereof, including UM/QA standards and, with
respect to shareholder-providers, continuing LSMS membership.
All Voting Preferred Stock shareholders who seek to become members of
the Company's IPAs will be required to meet the standard credentialing
requirements promulgated by the National Committee on Quality Assurance
("NCQA"). Voting Preferred Stock shareholders who fail to meet NCQA
credentialing may have their Voting Preferred Stock redeemed under certain
limited circumstances.
PLANS AND STRATEGY OF THE COMPANY; COMPETITIVE ISSUES
The Company anticipates that PCI's managed care plans will be marketed
state-wide by the end of the third-quarter of 1997. The Company expects that it
will incur losses on operations until PCI's HMOs attain an enrollment of
approximately 22,500 persons, which the Company anticipates will occur by the
first quarter of 1999. The Company expects that aggregate negative cash flow
from PCI's operations during the period prior to the achievement of positive
operating results may exceed $7 million. The Company believes its capital
resources are sufficient to fund operations during such period. The Company
does not anticipate that it will be necessary for it to raise additional capital
in the next six months.
As of June 1, 1997, there were 119 enrollees in PCI's HMO. PC has not
commenced the marketing of its PPO plans and there are no enrollees under such
plans, or under PCI's HMO/POS or HMO/MSA.
The Company's business strategy is two-fold: first, to distinguish
itself from its competitors by providing competitively-priced managed care
products state-wide through a network of physicians that is larger than that of
any other managed care provider; and second, to distinguish itself from its
competitors by offering employers and other payors competitively priced HMO
products that provide employees and other enrollees the greatest possible
freedom in the selection of physicians, and the greatest possible freedom
(consistent with appropriate and economically-sound medical practices) for
physicians to prescribe medical treatments.
The Company believes that all of the currently operating HMOs against
which it will compete restrict the number of provider physicians in their panels
in accordance with various ratios determined on the basis of economic
experience. Because any properly credentialed record holder of Voting Preferred
Stock may become a provider for PCI's managed care plans, it will not have such
provider restrictions. For cost-control purposes, patient utilization of HMO
resources can be more efficiently controlled in the context of a restricted
panel of primary care and specialist physicians. Unrestricted panels could
require the HMO to devote more administrative personnel and funds to utilization
review than its competitors in market areas where the HMO may have a surplus of
providers, and it could result in reduced margins for the HMO on its premium
revenues as compared to some HMO competitors.
PCI has adopted an open access system for HMO enrollee utilization of
specialists rather than a gatekeeper system. The Company is not aware of any
HMO competitor in Louisiana which utilizes such an open access system. Although
an open access system will increase enrollees' freedom of choice, and perhaps
increase the attractiveness of PCI's HMOs to employers and other payors, self-
referral by patients to specialists likely will
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increase specialist utilization by enrollees of PCI's HMOs as compared to such
utilization by enrollees of PCI's competitors, and could raise overall costs of
patient treatment. Again, such increased costs could have a material adverse
effect on the Company.
It is the understanding of the Company that it is not customary for a
HMO to have extensive procedures for review of determinations to terminate or
not renew physician-provider contracts. However, PCI is developing procedures
to assure a reasonable degree of fair process in determinations to terminate or
not to renew such contracts, and such procedures could result in increased
administrative costs and paperwork for PCI and its physician-providers.
MARKETING
PCI plans to market its HMOs and premium-paid PPOs to mid-size
employers, including hospitals, physician groups and other healthcare provider
organizations, school systems and private businesses, and to market its pass-
through PPOs to employer funded medical plans and indemnity insurance companies.
Sales will be effected through independent licensed insurance agents. Marketing
of PCI's managed care plans will be rolled-out on a regional basis as the
Company's regional IPA provider panels are filled and PCI enters into provider
contracts with hospitals and other non-physician medical services providers. It
is anticipated that PCI's managed care plans will be marketed in all six
catchment areas by the end of the third quarter of 1997.
THIRD PARTY ADMINISTRATION
All data processing for PCI and the Company will be performed by
Managed Care Consultants, Inc. ("MCC"). MCC will also undertake on behalf of
the Company and PCI premium billing and collection, precertification of
inpatient hospital admissions, outpatient surgical procedures and other
procedures specified by PCI, and claims processing and payment.
EMPLOYEES
The Company and its subsidiary PCI have ten employees, eight of whom
are full-time employees.
ITEM 7. DESCRIPTION OF PROPERTIES.
The Company has no material properties.
-8-
<PAGE>
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
The following table sets forth certain information with respect to the
directors, executive officers and certain significant employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ------------------ -------------------------------
<S> <C> <C>
Rene G. Abadie 49 Director of Provider Relations
Brian W. Amy, M.D. 45 Director
Lawrence L. Braud, M.D. 55 Director
Ralph W. Colpitts, M.D 46 Director
Jimmy R. Coughran, M.D. 31 Director
Wallace E. Dunlap, M.D 61 Director
Daniel G. Dupree, M.D. 48 Director
Michael S. Ellis, M.D. 55 Director
Melanie C. Firmin, M.D. 39 Director and Vice President
Frank D. Irwin, M.D. 54 Vice President-Medical
Management
Patricia H. Jackson 42 Director of Medical Management
C. Clinton Lewis, M.D. 55 Director and Treasurer
Thomas P. McCabe 49 Interim Chief Executive Officer
Jay Neukomm 51 Vice President - Sales and
Marketing
David R. Raines, Jr., M.D. 56 Director
William M. Roeling, M.D 68 Director and Secretary
Jay M. Shames, M.D. 61 Director
F. Jeff White, M.D. 38 Director
James A. White III, M.D 57 Director, Chairman and
President
R. Bruce Williams, M.D. 47 Director
</TABLE>
RENE G. ABADIE Mr. Abadie has been Director of Provider
201 St. Charles Avenue Relations since 1996. Prior to joining the
Suite 4400 Company, Mr. Abadie had been Director of Public
New Orleans, Louisiana 70130 Affairs for the LSMS for over ten years.
Director of Provider Relations
Brian W. Amy, M.D. Dr. Amy has practiced surgery in Abbeville,
2625 North Drive Louisiana for 12 years. A graduate of the LSU
P.O. Drawer 398 School of Medicine, Dr. Amy is a Diplomate of
Abbeville, Louisiana the American Board of Surgery and a Fellow of
70511-0398 the American College of Surgeons. Dr. Amy has
Director served as Clinical Assistant Professor of
Surgery at the L.S.U. School of Medicine and is
a member of the Board of Directors of
University Hospital, Lafayette, Louisiana.
Dr. Amy has been a director of the Company
since 1997.
Lawrence L. Braud, M.D. Dr. Braud has practiced Otolaryngology-Head
7777 Hennessy Boulevard and Neck Surgery in Baton Rouge, Louisiana
Suite 400 for over 21 years. A graduate of the LSU
Baton Rouge, Louisiana School of Medicine, Dr. Braud is a Fellow of
70808 the American College of Surgeons and the
Director American Academy of Otolaryngology and a
Diplomate of the American Board of
Otolaryngology-Head and Neck Surgery. Dr. Braud
is Immediate Past-President of the LSMS, which
he previously served as President (1996),
President-Elect (1995), Vice President (1994)
and Chairman of the Board of Councilors (1989-
93). Dr. Braud served as President of the
Louisiana Academy of Otolaryngology in 1994, and
has been an Assistant Clinical Instructor at the
LSU School of Medicine since 1979. Dr. Braud has
been a director of the Company since 1995.
-9-
<PAGE>
Ralph W. Colpitts, M.D. Dr. Colpitts has practiced Plastic and
643 South Ryan Reconstructive Surgery in Lake Charles, Louisiana
Lake Charles, Louisiana for 15 years. A graduate of St. Louis University
70601 School of Medicine, Dr. Colpitts is a Diplomate of
Director the American Board of Plastic Surgery and is a
Fellow of the American Society of Plastic and
Reconstructive Surgery. Dr. Colpitts is Chief of
Surgery at Columbia Hospital, Lake Charles,
Louisiana, and is a former President of the
Calcasieu Parish Medical Society. Dr. Colpitts
has been a director of the Company since 1997.
Jimmy R. Coughran, M.D. Dr. Coughran has practiced Family Medicine in
2106-A Loop Road Winnsboro, Louisiana since 1995. A graduate of
Winnsboro, Louisiana 71295 the LSU Medical Center- Shreveport, Dr. Coughran
Director is a Diplomate of the American Board of Family
Practice and is Chief of Staff of the Franklin
Medical Center. Dr. Coughran has been a director
of the Company since 1997.
Wallace H. Dunlap, M.D. Dr. Dunlap is President of the Company's
888 Tara Boulevard subsidiary Patient's Choice, Inc. A graduate of
Baton Rouge, Louisiana Kansas University Medical School, Dr. Dunlap has
70806 practiced Pediatric Medicine in Baton Rouge,
Director Louisiana for 30 years. Dr. Dunlap is a Diplomate
of the American Board of Pediatrics and a Fellow
of the American Academy of Pediatrics. Dr. Dunlap
is Secretary-Treasurer of the LSMS and has served
as the Chairman of the LSMS Council on Legislation
and as President of the East Baton Rouge Parish
Medical Society. Dr. Dunlap has been a director
of the Company since 1997.
Daniel G. Dupree, M.D. Dr. Dupree has practiced Dermatology in Lafayette,
1101 S. College Road Louisiana for over 18 years. A graduate of the
Suite 305 LSU School of Medicine, Dr. Dupree is a Diplomate
Lafayette, Louisiana 70503 of the American Board of Dermatology and a Fellow
Director of the American Academy of Dermatology. Dr.
Dupree is Immediate Past-President and has served
as Vice President and Secretary-Treasurer of the
Lafayette Parish Medical Society, served as
Vice-Chairman of LAMPAC in 1994-95, was a delegate
to the 1995 LSMS meeting, and is an alternate
delegate to Council on Legislation of the LSMS.
Dr. Dupree has been a director of the Company
since 1996.
Michael S. Ellis, M.D. Dr. Ellis, a graduate of LSU School of Medicine,
#8 Park Island Drive has practiced Otolaryngology-Head and Neck Surgery
New Orleans, Louisiana in New Orleans, Louisiana for 23 years. Dr. Ellis
70122 is a clinical professor in the Department of
Director Otolaryngology and Head and Neck Surgery at the
LSU School of Medicine in New Orleans. He is a
Fellow of the American College of Surgeons and the
American Academy of Facial Plastic and
Reconstructive Surgery, and is a Diplomate of the
American Board of Otolaryngology-Head and Neck
Surgery and the American Board of Cosmetic
Surgery. Dr. Ellis is President-Elect of the
LSMS, President of the St. Bernard Medical
Society, an LSMS Alternate Delegate to the
American Medical Association, and has served as
President of the Louisiana Academy of
Otolaryngology-Head and Neck Surgery, Chalmette
General Hospital and De La Ronde Hospital. Dr.
Ellis has been a director of the Company since
1996.
-10-
<PAGE>
Melanie C. Firmin, M.D. Dr. Firmin has practiced Anesthesiology in
720 Madison Alexandria, Louisiana for 12 years. A graduate of
Alexandria, Louisiana the LSU Medical Center-Shreveport, Dr. Firmin is a
71301 Fellow of the American Society of Anesthesiology
Director and Vice and a Diplomate of the American Board of
President Anesthesiology. She is Past President of the
Rapides Parish Medical Society, is on the Board of
Directors of the Central Louisiana Ambulatory
Surgery Center and the Southfield Care Center (a
nursing home facility), and has served as a
director of the Rapides Regional Women's Hospital.
Dr. Firmin is a member of the Board of Directors
of Rapides Bank & Trust, Alexandria, Louisiana,
and has been a director and Vice President of the
Company since 1995.
Frank D. Irwin, M.D. Dr. Irwin became Vice President of Medical
201 St. Charles Avenue Management and Physician Affairs effective July 7,
Suite 4400 1997. During 1996 and in 1997, prior to joining
New Orleans, Louisiana the Company, Dr. Irwin was Chief Medical Officer
70130 of Health Control, Inc., Harrisburg, Pennsylvania,
Vice President of a start-up HMO. From 1991 until 1996, Dr. Irwin
Medical Management held several positions with FHP, Inc., Tamaning,
Guam, an Asian Pacific region HMO, including
Associate Medical Director (1991-93), Medical
Director (regional) (1993-95) and Senior Medical
Director (1995-96).
Patricia H. Jackson, R.N. Ms. Jackson became Director of Medical Management
201 St. Charles Avenue in February, 1997. Prior to joining the Company,
Suite 4400 Ms. Jackson was Director of Medical Management for
New Orleans, Louisiana Woman's Physician Health Organization, Baton
70130 Rouge, Louisiana, from 1995 to 1996, and between
Director of Medical 1990 and 1995 held various positions, including
Management Vice President for Medical Management, with Gulf
South Health Plans, Baton Rouge, Louisiana.
C. Clinton Lewis, M.D. Dr. Lewis has practiced Radiology for 29 years,
1005 Loreauville Road and for the last 17 of those years in New Iberia,
New Iberia, Louisiana Louisiana. A graduate of the LSU School of
70560 Medicine, Dr. Lewis is a Diplomate of the American
Director and Treasurer Board of Radiology, a member of the American
College of Radiology, and a member of the
Radiology Society of North America. Dr. Lewis was
Chief of Staff at Dauterive Hospital, New Iberia,
Louisiana in 1996, is Chairman of the Credentials
Committee of LSMS House of Delegates, and served
as the 9th District Councilor to the Board of
Governors of the LSMS from 1990 to 1995. Dr.
Lewis has been a director of the Company since
1996.
Thomas P. McCabe, J.D., MBA Mr. McCabe became Interim Chief Executive Officer
201 St. Charles Avenue in 1997 pursuant to a consulting agreement with
Suite 4400 the Company. In addition to his contractual
New Orleans, Louisiana services for the Company, Mr. McCabe has a medical
70130 care consulting and legal practice in Long Beach,
Interim Chief Executive California. Formerly, Mr. McCabe was Executive
Officer Counsel for the Friendly Hills Healthcare
Foundation, LaHabra, California, Assistant to the
Chief Executive Officer of the Friendly Hills
Medical Group, LaHabra, California, and Executive
Director of the United Medical Group Association,
Long Beach, California.
-11-
<PAGE>
Jay Neukomm Mr. Neukomm became Vice President-Sales and
201 St. Charles Avenue Marketing in March, 1997. Prior to joining the
Suite 4400 Company, Mr. Neukomm had been Vice President-Sales
New Orleans, Louisiana and Marketing for HealthCentral, Inc., Harrisburg,
70130 Pennsylvania during 1996, Director of Sales and
Vice President-Sales Marketing for Health Systems International,
and Marketing Sacramento, California, from 1993 to 1995, and
Regional Sales Manager for TakeCare Health Plan,
Sacramento, California from 1990 to 1993.
David R. Raines, Jr., M.D. A graduate of Hahnemann Medical College,
611 Grammont Street Philadelphia, Pennsylvania, Dr. Raines has
Monroe, Louisiana 71201 practiced Gastroenterology in Monroe, Louisiana
Director for 19 years. Dr. Raines is a Diplomate of the
American Board of Internal medicine
(Gastroenterology) and a Fellow of the American
Society of Internal Medicine, the American College
of Gastroenterology and the American Society of
Gastrointestinal Endoscopy. Dr. Raines has been a
director of the Company since 1997.
William R. Roeling, M.D. Dr. Roeling has practiced Obstetrics and
4720 I-10 Service Road Gynecology in New Orleans, Louisiana for 35 years.
Suite 400 A graduate of LSU School of Medicine, Dr. Roeling
Metairie, Louisiana 70001 has served as Chairman of the
Director and Secretary Obstetrics/Gynecology Departments at Mercy
Hospital (1970) and Lakeside Hospital (1980-1981),
as a clinical instructor at Tulane University
Medical School (1961-1993), and as President
(1988-1989) and member of the Board of Trustees of
Lakeside Hospital (1985-1991). Dr. Roeling served
as President of the Jefferson Parish Medical
Society in 1985, was on the Executive Committee of
the JPMS from 1991 through 1996, and has been a
member of the LSMS House of Delegates for over 25
years. Dr. Roeling has been a director of the
Company since 1995.
Jay M. Shames, M.D. Dr. Shames has practiced Internal Medicine and
3525 Prytania Street, Pulmonology in New Orleans, Louisiana since 1968.
Suite 526 A 1961 graduate of Tulane University School of
New Orleans, Louisiana Medicine, Dr. Shames is a Diplomate of the
70115 American Board of Internal Medicine and the
Director American Board of Pulmonary Diseases, is a Fellow
of the American College of Physicians and the
American College of Chest Physicians, and is a
Member of the American Society of Internal
Medicine and the American Thoracic Society. Dr.
Shames was President of the LSMS in 1994-1995, is
on the Board of Governors of Touro Infirmary,
serves as a clinical professor at Tulane
University School of Medicine and the LSU School
of Medicine, and served as the President of the
Orleans Parish Medical Society in 1984-85. Dr.
Shames has been a director of the Company since
1995.
-12-
<PAGE>
James A. White III, M.D. Dr. White, a graduate of Tulane University School
2920 Jackson Street of Medicine, has practiced Otolaryngology-Head and
Alexandria, Louisiana Neck Surgery in Alexandria, Louisiana for 25
71301 years. Dr. White is a Fellow of the American
Director and President College of Surgeons, the American Academy of
Otolaryngology, and the American Academy of
Otolaryngologic Allergy, and is a Diplomate of the
American Board of Otolaryngology-Head and Neck
Surgery. Dr. White serves as a clinical
instructor of Otolaryngology at Tulane University
School of Medicine. Dr. White was President of
the LSMS in 1993-94, and served two consecutive
terms as President of the Rapides Parish Medical
Society in 1988 and 1989. Dr. White has been
President and a director of the Company since
1995. In 1992, Louisiana Wine Partners, a
Louisiana limited partnership of which Dr. White
was the general partner, filed a petition for
relief under Chapter 7 of the United States
Bankruptcy Code.
F. Jeff White III, M.D. Dr. White has practiced Cardiology in Shreveport,
2751 Virginia, Suite 5B Louisiana since 1988. A 1982 graduate of the LSU
Shreveport, Louisiana School of Medicine-Shreveport, Dr. White is a
71103 Diplomate of the American Board of Internal
Director Medicine and the American Board of Cardiovascular
Diseases, and is a Fellow of the American College
of Cardiology and the American College of Chest
Physicians. Dr. White has been a member of the
Board of Directors of the Shreveport Medical
Society since 1992, and has served on a number of
committees of the Society and the LSMS. Dr. White
is Vice-Chief of Medicine at the Willis Knighton
Medical Center. Dr. White has been a director of
the Company since 1995.
R. Bruce Williams, M.D. Dr. Williams has practiced Pathology in
2600 Greenwood Road Shreveport, Louisiana since 1979. A graduate of
Shreveport, Louisiana Vanderbilt University Medical School, Dr. Williams
71103 is a Fellow of the College of American
Director Pathologists and a Diplomate of the American Board
of Pathology. Dr. Williams is President of the
LSMS and has served as Speaker of the LSMS House
of Delegates and as President of the Shreveport
Medical Society. Dr. Williams also serves as
clinical associate professor of the LSU Medical
Center in Shreveport, Louisiana. Dr. Williams has
been a director of the Company since 1995.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
Directors receive no compensation for serving on the Board of Directors other
than reimbursement of reasonable expenses in attending meetings of the Board of
Directors and committees thereof. All officers of the Company during 1996 were
non-compensated corporate officers elected from the Board of Directors, and the
Company had no executive officers in 1996.
On February 7, 1997, the Company engaged Thomas P. McCabe as its Interim Chief
Executive Officer under a consulting services agreement. The agreement provided
that Mr. McCabe will be compensated for his services at the rate of $175 per
hour, with a maximum daily rate of $1,800, plus Mr. McCabe's travel costs and
lodging expenses while in New Orleans, Louisiana. Mr. McCabe is a resident of
California. Through May, 1997, Mr. McCabe had invoiced the Company $123,712 for
consulting fees and $15,056 for expenses. The Company also paid consulting fees
and expenses of $1,157,445 in 1996 and $402,464 during the first quarter of 1997
to Arthur Andersen Consulting for services in designing the Company's managed
care plans, developing the Company's provider networks, fee schedules, marketing
plans and claims processing, and coordinating executive management searches and
physician credentialing and orientation.
-13-
<PAGE>
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth the number of shares of the voting securities
of the Company owned of record by each of the directors and executive officers
of the Company, and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Percentage
Amount of
Title of Class Name and Address of Owner* Owned Class**
- ------------------------------- --------------------------- ------ ----------
<S> <C> <C> <C>
Junior Preferred Voting Stock Brian W. Amy, M.D. 1
Lawrence L. Braud, M.D. 1
Ralph W. Colpitts, M.D. 1
Jimmy R. Coughran, M.D. 1
Wallace E. Dunlap, M.D. 1
Daniel G. Dupree, M.D. 1
Michael S. Ellis, M.D. 1
Melanie C. Firmin, M.D. 1
Frank D. Irwin, M.D. 0
C. Clinton Lewis, M.D. 1
Thomas P. McCabe 0
Jay Neukomm 0
David R. Raines, Jr., M.D. 1
William M. Roeling, M.D. 1
Jay M. Shames, M.D. 1
F. Jeff White III, M.D. 1
James A. White III, M.D. 1
R. Bruce Williams, M.D. 1
All directors and executive
officers as a group 15
</TABLE>
- -------------------------------------------
* For addresses, see Part I, Item 8.
** All amounts less than 1%
-14-
<PAGE>
The following table sets forth the number of shares of the non-voting
securities of the Company owned of record by each of the directors and executive
officers of the Company, and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Percentage
Amount of
Title of Class Name and Address of Owner* Owned Class**
- --------------------------- --------------------------- ------ ----------
<S> <C> <C> <C>
Class A Non-Voting Common
Stock Brian W. Amy, M.D. 500
Lawrence L. Braud, M.D. 500
Ralph W. Colpitts, M.D. 500
Jimmy R. Coughran, M.D. 500
Wallace E. Dunlap, M.D. 500
Daniel G. Dupree, M.D. 500
Michael S. Ellis, M.D. 500
Melanie C. Firmin, M.D. 500
Frank D. Irwin, M.D. 0
C. Clinton Lewis, M.D. 500
Thomas P. McCabe 0
Jay Neukomm 0
David R. Raines, Jr., M.D. 500
William M. Roeling, M.D. 500
Jay M. Shames, M.D. 500
F. Jeff White III, M.D. 500
James A. White III, M.D. 500
R. Bruce Williams, M.D. 500
All directors and executive
officers as a group 7,500
</TABLE>
- ---------------------------------------
* For addresses, see Part I, Item 8.
** All amounts less than 1%.
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
Not applicable.
ITEM 12. SECURITIES BEING REGISTERED.
RECAPITALIZATION
On March 22, 1997, the Company's shareholders approved a Plan of
Recapitalization pursuant to which each of the Company's 2,142 outstanding
shares of Class A Common Stock was cancelled and converted into (i) one share of
Voting Preferred Stock and (ii) 500 shares of Class A Stock.
JUNIOR PREFERRED VOTING STOCK
Voting, Dividend and Liquidation Rights. The Voting Preferred Stock is the
principal voting security of the Company. Only one share of the other voting
security of the Company, the Class B Common Stock, is authorized under the
Company's Articles of Incorporation, and it is held of record by the LSMS. The
Class B Common Stock shareholder elects 3 out of the 15 directors of the
Company, and votes along with the Voting Preferred Stock shareholders on all
other matters voted upon by the shareholders. Every outstanding share of Voting
Preferred Stock has one vote on all matters voted upon by the shareholders,
except the election of directors that are elected by the Class B Common Stock.
Voting as a class, the Voting Preferred Stock shareholders elect 12 of the 15
directors of the Company, provided that the Voting Preferred Stock shareholders
shall elect all the Company's directors if the Class B Common Stock is not
outstanding.
-15-
<PAGE>
No dividends may be paid on the Voting Preferred Stock. The Voting
Preferred Stock, upon voluntary or involuntary liquidation, dissolution or
winding up of the Company, ranks junior to any other class or series of stock
issued by the Company and designated as senior to the Voting Preferred Stock
("Senior Securities"), and ranks senior to the Company's Class A Stock. In the
event of any such liquidation, dissolution or winding up of the Company, subject
to the rights of creditors of the Company and the holders of any Senior
Securities, the holders of the Voting Preferred Stock shall be entitled to be
paid out of the assets of the Company available for distribution to shareholders
the sum of $1,000 for each outstanding share of Voting Preferred Stock, provided
that if the assets of the Company are not sufficient to pay in full such
liquidation payments then the holders of the Voting Preferred Stock shall share
ratably in any distribution of such assets. After payment in full of such
liquidation amount to all the holders of Voting Preferred Stock, such holders
will not be entitled to any further participation in any distribution of the
assets of the Company.
Holders of Voting Preferred Stock, as such, have no conversion,
preemptive or other subscription rights. Upon issuance, all shares of Voting
Preferred Stock will be fully paid and nonassessable.
Restrictions on Transfer. The Company's Bylaws prohibit the donation
of Voting Preferred Stock, and permit the resale or other transfer of Voting
Preferred Stock only to persons who are licensed Louisiana physicians and LSMS
members (each such person, an "Eligible Resale Purchaser"), and who does not
already own a share of Voting Preferred Stock. In addition, the Bylaws provide
a right of first refusal to the Company, pursuant to which a shareholder who
wishes to sell, transfer, assign or otherwise dispose of his or her Voting
Preferred Stock to an Eligible Resale Purchaser (a "selling shareholder") must
give prior notice of such proposed sale and the terms thereof to the Company.
Such notice must be accompanied by a written offer to purchase the Voting
Preferred Stock from the proposed purchaser which states, among other matters,
that the proposed purchaser is an Eligible Resale Purchaser and does not own any
Voting Preferred Stock. Upon the receipt of such notice, the Company is
entitled, at its option, to purchase the Voting Preferred Stock from the selling
shareholder for the price equal to the Liquidation Value. All certificates for
shares of Voting Preferred Stock bear a written legend giving notice of these
restrictions.
Ownership Restrictions. The Company's Bylaws prohibit the ownership
by any person of more than one share of Voting Preferred Stock and prohibit the
transfer of Voting Preferred Stock to any person who is not an Eligible Resale
Purchaser or who already owns a share of Voting Preferred Stock.
Redemption. The Company's Bylaws provide for optional redemption of
Voting Preferred Stock by the Company in certain limited circumstances. The
Company may redeem, at its option and in its discretion, the Voting Preferred
Stock owned by any shareholder (a) who shall be deceased, or (b) who shall
request in writing that the Company redeem his or her stock and who (i) shall
have permanently retired from the practice of medicine and shall have been so
retired for the one year period immediately preceding the date of such request,
(ii) shall have been unable because of disability to practice medicine in a
manner substantially consistent with such shareholder's manner of practice
immediately preceding such disability for the one year period immediately
preceding the date of such request, (iii) shall have lost his or her license to
practice medicine in Louisiana for the one year period preceding the date of
such request, (iv) shall have become divorced after his or her purchase of such
stock, which stock shall have been the community property of such shareholder
and his or her former spouse, or (v) shall have failed to meet the Company's
credentialing requirements. The redemption price of such redeemed Voting
Preferred Stock is the $1,000 liquidation value thereof.
CLASS A NON-VOTING COMMON STOCK
Voting, Dividend and Liquidation Rights. The Class A Stock has no
voting rights, except that under Louisiana law, the Class A Stock has the right
to vote as a class on any proposal to amend the Company's Articles of
Incorporation that would adversely affect the rights of the Class A Stock
shareholders. Any such amendment would be required to be approved by the vote
of at least two-thirds of the Class A Stock shares present in person or by proxy
at a meeting of the shareholders.
The Class A Stock may receive dividends when, as and if declared by
the Company out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of the Class
A Stock and the Class B Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
the liquidation preference of any Senior Securities, including the
-16-
<PAGE>
Voting Preferred Stock. Holders of Class A Stock, as such, have no conversion,
preemptive or other subscription rights. Upon issuance, all shares of Class A
Stock will be fully-paid and nonassessable.
Restrictions on Transfer. The Company's Bylaws prohibit the resale or
other transfer of the Class A Stock to any person who is not an Eligible Resale
Purchaser. The Bylaws also provide that the Board of Directors may impose
additional transfer restrictions on the Class A Stock upon the issuance thereof.
In connection with the Recapitalization, the Board of Directors resolved that
resale or other transfer of the 500 shares of Class A Stock received by each
shareholder in the Recapitalization shall be prohibited until such shares are
released from such resale prohibition on the following timing schedule: 100
shares of the Class A Stock will be released from the resale prohibition on
March 22, 1998; an additional 200 shares will be released from the resale
prohibition on March 22, 1999; and the final 200 shares will be released from
the resale prohibition on March 22, 2000. All certificates for shares of Class
A Stock bear a written legend giving notice of such restrictions.
Redemption. There is no provision in the Company's Bylaws for
redemption of the Class A Stock.
Ownership Restrictions. The Company's Bylaws prohibit the ownership
by any person of more than 2% of the outstanding shares of Class A Stock, and
prohibit the transfer of Class A Stock to any person who is not an Eligible
Resale Purchaser. However, the Bylaws permit the Company to issue up to 6% of
the outstanding Class A Stock to executive officers of the Company (who need not
be Eligible Resale Purchasers) pursuant to stock options, stock grants and other
executive compensation plans.
OTHER AUTHORIZED CLASSES OF STOCK
Class B Common Stock. The LSMS holds the single share of Class B
Common Stock authorized by the Company's Articles of Incorporation. Except in
the case of the election of directors, the Class B Common Stock votes with the
Voting Preferred Stock on all matters brought for a vote before the
shareholders. The Class B Common Stock elects 3 out of the 15 directors of the
Company. The Class B Common Stock shares dividend and liquidation rights on a
parity with the Class A Stock.
Serial Preferred Stock. The Articles of Incorporation of the Company
authorize the issuance of 2,000,000 shares of Preferred Stock, $1.00 par value.
The Board of Directors is authorized to issue the Preferred Stock in one or more
series by resolution or resolutions fixing the designations, preferences, and
relative, participating, optional or other special rights of the shares of each
of such series, and the qualifications, limitations or thereon, provided that no
series of Preferred Stock may be granted voting rights other than those
expressly required by law. The Board of Directors has not authorized the
issuance of any Preferred Stock.
-17-
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
There is no market for the Class A Stock or the Voting Preferred Stock
of the Company, and no dividends have been declared or paid by the Company on
the Class A Stock or the Voting Preferred Stock. The Class A Stock and the
Voting Preferred Stock are held jointly by 2,042 shareholders of record.
ITEM 2. LEGAL PROCEEDINGS.
Not applicable.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On August 17, 1996 the Company completed its initial public offering
("IPO") with the sale of 2,142 shares of its former Class A Common Stock to
2,142 Louisiana physicians for gross proceeds of $12,852,000 and approximate net
proceeds of $11.8 million. The Company's selling agent in the IPO was Trident
Securities, Inc., Raleigh, North Carolina, which received commissions totaling
$515,080. The IPO was made without registration under the Securities Act of
1933 ("Act") in reliance upon the exemption provided by Section 3(a)(11) of the
Act, as implemented by Rule 147 of the Securities and Exchange Commission. All
the conditions to the safe-harbor provided by Rule 147 were met by the Company
in the IPO. More particularly, the Company met all the conditions of Rule
147(c), offers were made only to persons resident within the State of Louisiana
as required by Rule 147(d), and the Company undertook the precautions against
interstate offers and sales specified in Rule 147(f).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide for
indemnification by the Company to the fullest extent permitted by law for
expenses, judgment, fines and settlement and amounts actually and necessarily
incurred in connection with proceedings arising by reason of the fact that a
person is or was a director or officer of the Company.
The Company's Articles of Incorporation also provide that directors of
the Company shall not be personally liable to the Company or its shareholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the directors' duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) knowingly, or
without the exercise of reasonable care or inquiry, voting in favor of the
payment of a dividend in violation of Section 92(D) of the Louisiana Business
Corporation Law, or (iv) for any transaction from which the director derives an
improper personal benefit. The provision does not apply to claims against
directors for violations of certain laws, including federal securities laws.
-18-
<PAGE>
PART F/S
The Company's financial statements required by Item 310 of Regulation
S-B follow immediately:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report 20
Consolidated Balance Sheets: December 31, 1996 and 1995 21
Consolidated Statements of Operations: Year Ended December 31,
1996 and Periods from July 18, 1995 (Date of Incorporation)
to December 31, 1995 and to December 31, 1996 (Since
Incorporation) 22
Consolidated Statements of Stockholder's Equity (Deficit):
Year Ended December 31, 1996 and Period from July 18, 1995
(Date of Incorporation) to December 31, 1995 23
Consolidated Statements of Cash Flows: Year Ended December 31,
1996 and Periods from July 18, 1995 (Date of Incorporation)
to December 31, 1995 and to December 31, 1996 (Since
Incorporation) 24
Notes to Consolidated Financial Statements 25
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets: March 31, 1997 and December 31,
1996 30
Consolidated Statements of Operations: Three Months Ended
March 31, 1997 and 1996 and Period from July 18, 1995
(Date of Incorporation) to March 31, 1997 (Since
Incorporation) 31
Consolidated Statements of Cash Flows: Three Months Ended
March 31, 1997 and 1996 and Period from July 18, 1995
(Date of Incorporation) to March 31, 1997 (Since
Incorporation 32
Notes to Consolidated Financial Statements 33
-19-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
MD HealthShares Corporation:
We have audited the accompanying consolidated balance sheets of MD HealthShares
Corporation and subsidiary (a development stage enterprise) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1996 and the periods from July 18, 1995 (date of incorporation) to
December 31, 1995 and to December 31, 1996. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the year ended December 31, 1996 and the periods from July 18, 1995
(date of incorporation) to December 31, 1995 and to December 31, 1996, in
conformity with generally accepted accounting principles.
The Company is in the development stage as of December 31, 1996. As discussed
in Note 7 to the consolidated financial statements, the Company obtained capital
to fulfill its development activities during 1996 and obtained regulatory
approval on January 8, 1997 to operate as an HMO. As further discussed in
Note 7 to the consolidated financial statements, the Company's attainment of
profitable operations is dependent upon future events, including achieving a
level of revenues adequate to support the Company's cost structure.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 28, 1997
-20-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 9,147,525 $ 48,874
Marketable securities (Note 2) - 200,755
Interest receivable 57,473 2,489
Prepaid expenses 147,747 50,000
----------- -----------
Total current assets 9,352,745 302,118
----------- -----------
RESTRICTED INVESTMENTS (Note 8) 1,071,777 -
EQUIPMENT, net of accumulated
depreciation of $3,825 13,844 -
OTHER 5,225 -
----------- -----------
TOTAL $10,443,591 $ 302,118
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable
Related parties (Note 5) $ - $ 245
Others 355,847 40,693
Current portion of note payable
to LSMS (Note 3) - 84,357
Interest payable - 4,500
Other accrued expenses 9 -
Developmental funds provided by the
medical community - 456,710
----------- -----------
Total current liabilities 355,856 586,505
----------- -----------
NOTE PAYABLE TO LSMS, less current
portion (Note 3) - 91,105
-----------
CONTINGENCIES (Note 8) - -
STOCKHOLDERS' EQUITY (DEFICIT) (Note 4):
Common stock:
Class A, no par value, 1,000,000
shares authorized, 2,142 shares -
1996 and 100 shares - 1995 issued
and outstanding 11,826,306 100
Class B, no par value, 1 share
authorized, issued and outstanding 100 -
Deficit accumulated during the
development stage (1,738,671) (376,202)
Unrealized gain on available-for-sale
securities - 610
----------- -----------
Total stockholders' equity (deficit) 10,087,735 (375,492)
----------- -----------
TOTAL $10,443,591 $ 302,118
=========== ===========
-21-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND PERIODS FROM JULY 18, 1995 (DATE OF
INCORPORATION) TO DECEMBER 31, 1995 AND TO DECEMBER 31, 1996
(SINCE INCORPORATION)
- --------------------------------------------------------------------------------
JULY 18, 1995
YEAR TO
ENDED DECEMBER 31, SINCE
1996 1995 INCORPORATION
REVENUE - Investment income $ 222,666 $ 2,634 $ 225,300
----------- ---------- -----------
EXPENSES:
Consulting fees 1,157,445 168,296 1,325,741
Legal fees 149,431 17,101 166,532
Office supplies and other 67,444 3,725 71,169
Employee recruiting 55,482 - 55,482
Travel and meetings 31,351 6,237 37,588
Salaries and wages 29,998 - 29,998
Sales and marketing 23,596 - 23,596
Accounting fees 16,652 - 16,652
Postage 14,564 3,515 18,079
Temporary staffing 14,485 - 14,485
Interest 10,862 4,500 15,362
Administrative services 10,000 - 10,000
Feasibility study - 175,462 175,462
Depreciation 3,825 - 3,825
----------- ---------- -----------
Total expenses 1,585,135 378,836 1,963,971
----------- ---------- -----------
NET LOSS $(1,362,469) $ (376,202) $(1,738,671)
=========== ========== ===========
NET LOSS PER COMMON SHARE $ (1,433) $ (3,762) $ (2,607)
=========== ========== ===========
AVERAGE OUTSTANDING COMMON
SHARES 951 100 667
=========== ========== ===========
See notes to consolidated financial statements.
-22-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
JULY 18, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DEFICIT UNREALIZED
COMMON STOCK ACCUMULATED GAIN ON
-------------------------------------- DURING THE AVAILABLE-
CLASS A CLASS B DEVELOPMENT FOR-SALE
SHARES AMOUNT SHARES AMOUNT STAGE SECURITIES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDER'S DEFICIT,
July 18, 1995 - $ - - $ - $ - $ - $ -
ISSUANCE OF COMMON STOCK 1 100 - - - - 100
UNREALIZED GAIN ON AVAILABLE-FOR-SALE
SECURITIES - - - - - 610 610
NET LOSS - - - - (376,202) - (376,202)
-------- ---------- ------- -------- ----------- ---------- -----------
STOCKHOLDERS DEFICIT,
December 31, 195 1 100 - - (376,202) 610 (375,492)
ISSUANCE OF COMMON STOCK 2,142 11,826,306 1 100 - - 11,826,406
REDEMPTION OF COMMON STOCK (1) (100) - - - - (100)
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - (610) (610)
NET LOSS - - - - (1,362,469) - (1,362,469)
-------- ---------- ------- -------- ----------- ---------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1996 2,142 $11,826,306 1 $ 100 $(1,738,671) $ - $10,087,735
======== =========== ======= ======== =========== ========== ===========
</TABLE>
See notes to consoliated financial statements.
-23-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND PERIODS FROM JULY 18, 1995 (DATE OF
INCORPORATION) TO DECEMBER 31, 1995 AND TO DECEMBER 31, 1996
(SINCE INCORPORATION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 18, 1995
YEAR TO
ENDED DECEMBER 31, SINCE
1996 1995 INCORPORATION
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,362,469) $ (376,202) $ (1,738,671)
Adjustments to reconcile net loss to cash flows from
operating activities:
Feasibility study - 175,462 175,462
Loss on sales of available-for-sale securities 15,328 - 15,328
Depreciation 3,825 - 3,825
Changes in operating assets and liabilities:
Interest receivable (54,984) (2,489) (57,473)
Prepaid expenses (97,747) (50,000) (147,747)
Other (5,225) - (5,225)
Accounts payable 314,909 40,938 355,847
Interest payable (4,500) 4,500 -
Other accrued expenses 9 - 9
------------- ------------ ------------
Net cash used in operating activities (1,190,854) (207,145) (1,398,645)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (355,663) (200,145) (555,808)
Sales of available-for-sale securities 540,480 - 540,480
Purchases of restricted investments (1,071,777) - (1,071,777)
Purchases of equipment (17,669) - (17,669)
------------- ------------ ------------
Net cash used in investing activities (904,629) (200,145) (1,104,774)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 11,826,406 100 11,826,506
Redemption of common stock (100) - (100)
Developmental funds provided by the medical community 585,250 456,710 1,041,960
Developmental funds returned to the medical community (1,041,960) - (1,041,960)
Repayment of LSMS note payable (175,462) - (175,462)
------------- ------------ ------------
Net cash provided by financing activities 11,194,134 456,810 11,650,944
------------- ------------ ------------
NET INCREASE IN CASH 9,098,651 48,874 9,147,525
CASH AND CASH EQUIVALENTS, Beginning of period 48,874 - -
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 9,147,525 $ 48,874 $ 9,147,525
============= ============ ============
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Note payable issued $ - $ 175,462 $ 175,462
============= ============ ============
Change in unrealized gain on available-for-sale securities $ (610) $ 610 $ -
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
-24-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM JULY 18, 1995 (DATE OF
INCORPORATION) TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION - MD HealthShares Corporation
("MDH") was incorporated on July 18, 1995 for the purpose of creating a
health maintenance organization ("HMO") and other healthcare financing
vehicles that provide medical services to HMO enrollees of the HMO and other
types of plans, primarily through contractual arrangements with a network of
hospitals and physicians located in the state of Louisiana. On October 2,
1996, MDH created Patient's Choice, Inc. ("PCI"), a wholly-owned subsidiary
organized to operate on a state-wide basis an independent practice
association HMO, and to administer on a state-wide basis a PPO. The
accompanying consolidated financial statements include the accounts of the
MDH and PCI ("the Company"). Material intercompany balances and transactions
are eliminated in consolidation.
USE OF 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. Estimates also affect the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include investments in
highly liquid debt instruments with a maturity of three months or less when
purchased, excluding restricted investments.
MARKETABLE SECURITIES - Marketable securities have been categorized as
available-for-sale and, as a result, are stated at fair value with the
unrealized holding gains and losses reported as a separate component of
stockholder's equity. All marketable debt securities are available for
current operations and, therefore, have been classified as current assets.
RESTRICTED INVESTMENTS - Restricted investments, which represent investments
pledged to secure a stand-by letter of credit, are recorded at cost which
approximates fair value at December 31, 1996 (see Note 8).
EQUIPMENT - Equipment is recorded at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective equipment.
DEVELOPMENTAL FUNDS PROVIDED BY THE MEDICAL COMMUNITY - Prior to the offering
of 2,142 shares of common stock at $6,000 per share to licensed physicians
who are members of the Louisiana State Medical Society ("LSMS") and whose
principal residences and medical offices (if a practicing physician) are
located in Louisiana, MDH solicited voluntary contributions ("developmental
funds") from the medical community to fund the Company's developmental
(primarily consulting) costs. The Board of Directors resolved to repay all
such developmental funds when the minimum number of shares (2,000) was
issued. Accordingly, such developmental funds (which were non-interest
bearing) were reflected in the accompanying 1995 financial statements as
developmental funds provided by the medical community.
-25-
<PAGE>
MDH ceased solicitation of such developmental funds on February 14, 1996. In
December 1996, MDH repaid all of its developmental funds ($1,041,960) which
were provided by the medical community.
COMMON STOCK - The authorized common stock of MDH consists of Class A and
Class B common stock. No person may own of record or beneficially more than
one share of Class A stock. The Class A and Class B common stock may not be
sold, assigned, transferred or otherwise disposed of by any person unless, in
the case of the Class A common stock, MDH fails to exercise its right of
first refusal. The right of first refusal specifies that MDH may purchase the
Class A common stock from any person at the lesser of the book value per
share or the seller's cost to purchase the stock. The Class B common stock,
which was issued on November 23, 1996, may, at MDH's option and discretion,
be redeemed for $100 upon written request of the Class B common stockholder,
which is LSMS. Additionally, the Class A and Class B common stockholders
elect twelve and three, respectively, of the fifteen Directors of MDH.
NET LOSS PER COMMON SHARE - Net loss per common share is computed based on
the weighted average number of common shares outstanding during the period.
INCOME TAXES - There are temporary differences in reporting certain expenses
for financial statement and federal income tax purposes. The principal
difference relates to accounting for organizational expenses. A deferred
income tax benefit has not been recorded as its realization is not considered
probable. The Company has net operating loss carryforwards at December 31,
1996 of approximately $237,000, which may be used to offset taxable income in
future years. Such carryforwards expire by 2011.
RECLASSIFICATIONS - Certain amounts in the 1995 consolidated financial
statements have been reclassified to conform to the 1996 presentation.
2. MARKETABLE SECURITIES
Marketable securities at December 31, 1995 include the following:
FAIR
VALUE COST
U.S. government and agency securities $101,078 $100,455
Corporate notes 81,073 81,086
Other debt securities 18,604 18,604
-------- --------
$200,755 $200,145
======== ========
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.
3. NOTE PAYABLE TO LSMS
On September 6, 1995, MDH purchased a feasibility study for the development
of a physician-owned, state-wide HMO from the LSMS for $175,462. This
purchase was effected by the issuance of a note payable to the LSMS. The note
payable provided for interest at a rate of 8.0% per annum and was payable in
equal annual instalments (including interest) of $98,394 on September 5, 1996
and 1997. On October 9, 1996, MDH repaid the outstanding principle and
accrued interest of $15,345 related to this note payable.
-26-
<PAGE>
4. STOCKHOLDERS' EQUITY
On August 17, 1996, MDH completed a public offering of 2,142 shares of its
Class A common stock, at a public offering price of $6,000 per share (the
"Offering"). The net proceeds from the Offering of approximately $11.8
million will be used to organize and operate on a state-wide basis an
independent practice association model HMO, and to organize and administer on
a state-wide basis a preferred provider organization ("PPO").
5. RELATED PARTY TRANSACTIONS
Certain members of the LSMS's board of directors are members of the board of
directors of MDH. Certain expenses of MDH were borne initially by either the
LSMS or members of the board of directors. These expenses, approximating
$10,079 for the period ended December 31, 1995, were then reimbursed by MDH
and are reflected in the accompanying consolidated financial statements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value
because of the nature of these instruments.
Marketable securities - The fair values of marketable securities are
estimated based on quoted market price for those or similar investments.
Restricted investments - The fair values of restricted investments are
estimated based on quoted market price for those or similar investments.
Note payable to LSMS - The Company does not believe that bank or any other
type of financing would have been available for the purchase of the
feasibility study; therefore, a reasonable estimate of fair value could not
be made due to the nature of the payment terms and the forgiveness feature.
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995 are as follows:
1996 1995
------------------------ -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Cash and cash equivalents $ 9,147,525 $ 9,147,525 $ 48,874 $ 48,874
Marketable securities - - 200,755 200,755
Restricted investments 1,071,777 1,071,777 - -
Note payable to LSMS - - (175,462) -
-27-
<PAGE>
7. DEVELOPMENT STAGE ENTERPRISE
The Company is in the development stage. It has minimal professional
management and no prior operating history. On January 8, 1997, PCI received a
Certificate of Authority ("COA") from the Louisiana Department of Insurance
("LDOI") to operate as an HMO. Once regulatory approval was obtained, the
Company commenced marketing of its HMO and other benefit plans. There can be
no assurance that the Company will be able to ever achieve profitable
operations.
8. COMMITMENTS AND CONTINGENCIES
LETTER OF CREDIT - In connection with the filing for a COA and as an ongoing
requirement of the State of Louisiana, PCI has a $1,000,000 stand-by letter
of credit issued by Hibernia National Bank, payable to the LDOI as
beneficiary in lieu of a $1,000,000 statutory deposit. Such stand-by letter
of credit is secured by a pledge of a $1,100,000 stated value U.S. treasury
security.
REGULATORY REQUIREMENTS - The state of Louisiana has implemented financial
regulations for HMOs requiring, among other things, minimum net worth
requirements. As of December 31, 1996, admitted assets, as defined, less
liabilities, must be at least equal to $800,000 as reported in the statutory
filing of such calendar year. PCI was in compliance with the state statutory
net worth requirement at December 31, 1996. The minimum state statutory net
worth requirement will increase to $1.5 million and $2.0 million by July 1,
1997 and 1998, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
On March 22, 1997, the Company's stockholders approved a plan of
recapitalization and amendments to the Company's articles of incorporation.
In connection therewith, 7,500 shares of Junior Preferred Voting Stock,
2,000,000 shares of Preferred Stock and 8,000,000 shares of Class A Non-
Voting Stock were authorized. Additionally, all of the Company's 2,142
outstanding shares of Class A Common Stock were cancelled, and each former
share of Class A Common Stock was converted into one share of Junior
Preferred Voting Stock and 500 shares of Class A Non-Voting Common Stock.
-28-
<PAGE>
The following table sets forth the pro forma effect of this recapitalization
as of December 31, 1996:
AS ADJUSTED
FOR THE
RECAPITALIZATION
DECEMBER 31, DECEMBER 31,
1996 1996
STOCKHOLDERS' EQUITY:
Junior preferred voting stock,
$1.00 par value, liquidation
value $1,000, 7,500 shares
authorized, 2,142 shares issued
and outstanding $ N/A $ 2,142
Preferred stock, $1.00 par value,
2,000,000 shares authorized,
none issued and outstanding N/A -
Common Stock:
Class A, no par value, 1,000,000
shares authorized, 2,142 shares
issued and outstanding 11,826,306 N/A
Class B, no par value, 1 share
authorized, issued and outstanding 100 N/A
Class A non-voting, $0.10 par value,
8,000,000 shares authorized,
1,071,000 shares issued and outstanding N/A 107,100
Class B, $0.10 par value, 1 share
authorized and outstanding N/A -
Additional paid-in capital - 11,717,164
Deficit accumulated during the
development stage (1,738,671) (1,738,671)
---------- ----------
Total stockholders' equity $10,087,735 $10,087,735
=========== ===========
******
-29-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996 - UNAUDITED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,306,271 $ 9,147,525
Interest receivable 59,487 57,473
Other receivable 1,310 -
Prepaid expenses 198,681 147,747
----------- -----------
Total current assets 8,565,749 9,352,745
RESTRICTED INVESTMENTS 1,071,777 1,071,777
EQUIPMENT, net of accumulated depreciation of $6,155
and $3,825, respectively 27,169 13,844
OTHER 42,354 5,225
----------- -----------
TOTAL $ 9,707,049 $10,443,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 378,567 $ 355,847
Other accrued expenses - 9
----------- -----------
Total current liabilities 378,567 355,856
----------- -----------
CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Junior preferred voting stock, $1.00 par value,
liquidation value $1,000, 7,500 shares
authorized, 2,142 shares issued and out-
standing in 1997; none in 1996 2,142 -
Preferred stock, $1.00 par value, 2,000,000
shares authorized, none issued and outstanding
in 1997 and 1996 - -
Common stock:
Class A, no par value, 1,000,000 shares
authorized, 2,142 shares issued and outstanding
in 1996; none in 1997 - 11,826,306
Class B, no par value, 1 share authorized, issued
and outstanding in 1996; none in 1997 - 100
Class A non-voting, $0.10 par value, 8,000,000
shares authorized, 1,071,000 shares issued and
outstanding in 1997; none in 1996 107,100 -
Class B, $0.10 par value, 1 share authorized and
outstanding in 1997; none in 1996 - -
Additional paid-in capital 11,717,164 -
Deficit accumulated during the development stage (2,497,924) (1,738,671)
----------- -----------
Total stockholders' equity 9,328,482 10,087,735
----------- -----------
TOTAL $ 9,707,049 $10,443,591
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-30-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND PERIOD FROM
JULY 18, 1995 (DATE OF INCORPORATION) TO MARCH 31, 1997
(SINCE INCORPORATION) - UNAUDITED
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31, SINCE
1997 1996 INCORPORATION
REVENUES:
Investment income $ 124,592 $ 4,852 $ 349,892
Other 1,310 - 1,310
---------- ---------- -----------
Total revenues 125,902 4,852 351,202
---------- ---------- -----------
EXPENSES:
Consulting fees 464,214 259,816 1,789,955
Legal fees 69,384 4,232 235,916
Office supplies and other 96,738 467 167,907
Employee recruiting 17,260 - 72,742
Travel and meetings 5,838 5,809 43,426
Salaries and wages 32,319 - 62,317
Sales and marketing 82,668 - 106,264
Accounting fees 29,603 - 46,255
Postage 14,924 2,080 33,003
Temporary staffing 69,876 - 84,361
Interest - 3,461 15,362
Administrative services - - 10,000
Feasibility study - - 175,462
Depreciation 2,330 - 6,155
---------- ---------- -----------
Total expenses 885,154 275,865 2,849,125
---------- ---------- -----------
NET LOSS $(759,252) $ (271,013) $(2,497,923)
========== ========== ===========
NET LOSS PER COMMON SHARE $ (2.11) $(2,710.13) $ (48.17)
========== ========== ===========
AVERAGE OUTSTANDING COMMON SHARES 359,143 100 51,878
========== ========== ===========
See notes to consolidated financial statements.
-31-
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND PERIOD FROM
JULY 18, 1995 (DATE OF INCORPORATION) TO MARCH 31, 1997
(SINCE INCORPORATION) - UNAUDITED
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
------------------------- SINCE
MARCH 31, MARCH 31, INCORPORATION
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (759,252) $ (271,013) $(2,497,923)
Adjustments to reconcile net
loss to cash flows from operating
activities:
Feasibility study - - 175,462
Loss on sales of available-for-
sale securities - - 15,328
Depreciation 2,330 - 6,155
Changes in operating assets
and liabilities:
Interest receivable (2,014) (8,916) (59,487)
Other receivable (1,310) - (1,310)
Prepaid expenses (50,935) - (198,682)
Other (37,129) - (42,354)
Accounts payable 22,720 57,021 378,567
Interest payable - 3,461 -
Other accrued expenses (9) - -
------------ ----------- -----------
Net cash used in
operating activities $ (825,599) $ (219,447) $(2,224,244)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for sale
securities - (370,936) (555,808)
Sales of available-for-sale
securities - - 540,480
Purchases of restricted investments - - (1,071,777)
Purchases of equipment (15,655) - (33,324)
------------ ----------- -----------
Net cash used in
investing activities (15,655) (370,936) (1,120,429)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock - - 11,826,506
Redemption of common stock - - (100)
Developmental funds provided by
the medical community - 585,250 1,041,960
Developmental funds returned to the
medical community - - (1,041,960)
Repayment of LSMS note payable - - (175,462)
------------ ----------- -----------
Net cash provided by
financing activities - 585,250 11,650,944
------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH (841,254) (5,133) 8,306,271
CASH AND CASH EQUIVALENTS, Beginning
of period 9,147,525 48,874 -
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, End of
period $ 8,306,271 $ 43,741 $ 8,306,271
============ =========== ===========
NON-CASH INVESTING AND FINANCING
TRANSACTIONS:
Note payable issued $ - $ - $ 175,462
============ =========== ===========
Change in unrealized gain on
available-for-sale securities $ - $ 7,408 $ -
============ =========== ===========
See notes to consolidated financial statements.
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<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND PERIOD FROM
JULY 18, 1995 (DATE OF INCORPORATION) TO MARCH 31, 1997 (SINCE INCORPORATION) -
UNAUDITED
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with Rule 310(g) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
For a summary of significant accounting policies, refer to Note 1 of Notes
to Consolidated Financial Statements included in the Company's General Form
of Registration of Securities of Small Business Issuers on Form 10-SB for
the year ended December 31, 1996.
2. RECAPITALIZATION
On March 22, 1997, the Company's stockholders approved a plan of
recapitalization and amendments to the Company's articles of incorporation.
In connection therewith, 7,500 shares of Junior Preferred Voting Stock,
2,000,000 shares of Preferred Stock and 8,000,000 shares of Class A Non-
Voting Stock were authorized. Additionally, all of the Company's 2,142
outstanding shares of Class A Common Stock were cancelled, and each former
share of Class A Common Stock was converted into one share of Junior
Preferred Voting Stock and 500 shares of Class A Non-Voting Common Stock.
3. DEVELOPMENT STAGE ENTERPRISE
The Company is in the development stage. It has minimal professional
management and no prior operating history. On January 8, 1997, PCI received
a Certificate of Authority ("COA") from the Louisiana Department of
Insurance ("LDOI") to operate as an HMO. Once regulatory approval was
obtained, the Company commenced marketing of its HMO and other benefit
plans. There can be no assurance that the Company will be able to ever
achieve profitable operations.
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<PAGE>
4. COMMITMENTS AND CONTINGENCIES
Letter of Credit - In connection with the filing for a COA and as an ongoing
requirement of the State of Louisiana, PCI has a $1,000,000 stand-by letter
of credit issued by Hibernia National Bank, payable to the LDOI as
beneficiary in lieu of a $1,000,000 statutory deposit. Such stand-by letter
of credit is secured by a pledge of a $1,100,000 stated value U.S. treasury
security.
Regulatory Requirements - The state of Louisiana has implemented financial
regulations for HMOs requiring, among other things, minimum net worth
requirements. As of December 31, 1996, admitted assets, as defined, less
liabilities, must be at least equal to $800,000 as reported in the statutory
filing of such calendar year. PCI was in compliance with the state statutory
net worth requirement at December 31, 1996. The minimum state statutory net
worth requirement will increase to $1.5 million and $2.0 million by July 1,
1997 and 1998, respectively.
******
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<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
2(a)* Restated Articles of Incorporation of MD HealthShares
Corporation dated March 22, 1997
2(b) Amended and Restated Bylaws of MD HealthShares
Corporation dated June 7, 1997
6(a)* Consulting Services Agreement by and among MD
HealthShares Corporation, Patient's Choice, Inc. and Thomas
P. McCabe dated February 7, 1997
6(b)* Third Party Administration Agreement by and among MD
HealthShares Corporation, Patient's Choice, Inc. and Managed
Care Consultants, Inc. dated January 1, 1997
6(c)* Consulting Services Agreement by and between MD
HealthShares Corporation and Arthur Andersen LLP dated
November 22, 1995
6(d) Supplemental Letter Consulting Agreement between MD
HealthShares Corporation and Arthur Andersen dated October 29,
1996
6(e) Supplemental Letter Consulting Agreement between MD
HealthShares Corporation and Arthur Andersen dated February 1,
1997
6(f) Letter Employment Agreement between MD HealthShares Corporation
and Jay Neukomm dated March 22, 1997
6(g) Letter Employment Agreement between MD HealthShares Corporation
and Frank D. Irwin, M.D., dated May 21, 1997
- ------------------------
*Previously filed.
ITEM 2. DESCRIPTION OF EXHIBITS.
The Company's Exhibits are included elsewhere in this Registration
Statement.
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<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.
MD HEALTHSHARES CORPORATION
Date: June 30, 1997 By: /s/ Thomas P. McCabe
-------------------------------
Thomas P. McCabe
Interim Chief Executive Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2(a)* Restated Articles of Incorporation of MD HealthShares
Corporation dated March 22, 1997
2(b) Amended and Restated Bylaws of MD HealthShares Corporation
dated June 7, 1997
6(a)* Consulting Services Agreement by and among MD HealthShares
Corporation, Patient's Choice, Inc. and Thomas P. McCabe
dated February 7, 1997
6(b)* Third Party Administration Agreement by and among MD
HealthShares Corporation, Patient's Choice, Inc. and Managed
Care Consultants, Inc. dated January 1, 1997
6(c)* Consulting Services Agreement between MD HealthShares
Corporation and Arthur Andersen LLP dated November 22, 1995
6(d) Supplemental Letter Consulting Agreement between MD
HealthShares Corporation and Arthur Andersen dated October 29,
1996
6(e) Supplemental Letter Consulting Agreement between MD
HealthShares Corporation and Arthur Andersen dated February 1,
1997
6(f) Letter Employment Agreement between MD HealthShares
Corporation and Jay Neukomm dated March 22, 1997
6(g) Letter Employment Agreement between MD HealthShares
Corporation and Frank D. Irwin, M.D., dated May 21, 1997
- ------------------------
*Previously filed.
<PAGE>
EXHIBIT 2(b)
BYLAWS
__________
Amended and Restated
June 7, 1997
__________
Preamble
These Bylaws, as amended and restated hereby, and as the same may be amended
from time to time as provided herein, govern the organization and conduct of the
business and affairs of MD HealthShares Corporation (the "Corporation").
PART 1--OFFICES
(S) 1.1 OFFICES. The Corporation may establish and maintain offices at such
places as the Board of Directors may from time to time determine or the business
of the Corporation may require.
PART 2--SHAREHOLDERS' MEETINGS
(S) 2.1 PLACE OF MEETINGS. All meetings of the shareholders shall be held at
the principal office of the Corporation or at such other place, within or
without the state of Louisiana, as may be designated by the Board of Directors
and specified in the notice of the meeting.
(S) 2.2 ANNUAL MEETING. An annual meeting of the shareholders shall be held
each year at such time and place as the Board of Directors may designate, for
the purpose of electing directors and for the transaction of such other business
as may properly be brought before the meeting.
(S) 2.3 NOTICE OF MEETINGS
(a) General. Except as otherwise provided herein, by law, or the Articles
of Incorporation of the Corporation, the authorized person or persons calling
a shareholders' meeting shall cause written notice of the time, place and
purpose of the meeting to be given by the Secretary to all shareholders
entitled to vote at such meeting at least ten (10) days and not more than
sixty (60) days prior to the date fixed for the meeting. Such notice shall be
given, by United States mail postage prepaid, to each shareholder of record of
the Corporation at his, her or its last known address; provided, however, that
any failure to mail notice of any regularly scheduled meeting, or any
irregularity therein, shall not affect the validity of such meeting or of any
of the proceedings thereat; and further provided that any notice may be waived
in writing. Notice of the annual meeting need not state the purpose thereof,
unless action is to be taken at the meeting as to which notice is required by
law, by the Articles of Incorporation of the Corporation, or by these Bylaws.
(b) Waiver of Notice. Notice of any shareholders' meeting may be waived
in writing by any shareholder at any time. The written waiver need not
specify the purpose of or the business to be transacted at the meeting; and
such notice shall be deemed to have been given to or waived by all
shareholders present or represented at any such meeting except any shareholder
who, at the beginning of the meeting, objects to the transaction of any
business because the meeting is not lawfully called or convened.
<PAGE>
(c) Unlawful Communications. Notice need not be given to any shareholder
with whom communication is made unlawful by any law of the United States of
America or of the State of Louisiana or by any rule, regulation, proclamation,
or executive order issued under any such law, and any action or meeting taken
or held without notice to any such shareholder shall have the same force and
effect as if notice had been given to him as otherwise required.
(S) 2.4 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, may be called at any time by the Board of Directors or upon
the written request of any shareholder or shareholders holding in the aggregate
at least Twenty Percent (20%) of the total voting power of the Corporation.
(S) 2.5 NOTICE OF SPECIAL MEETINGS. Except as otherwise provided in (S) 2.4
hereof, or by law, the authorized person or persons calling a shareholders'
meeting shall cause written notice of the time, place and purpose of the
meeting to be given by the Secretary to all shareholders entitled to vote at
such meeting, at least 10 days and not more than 60 days prior to the day fixed
for the meeting.
(S) 2.6 VOTING. Each shareholder shall have one (1) vote for each share of
stock having voting power registered in such shareholder's name on the books of
the Corporation at the time of the meeting or on the record date for the
determination of shareholders entitled to vote at the said meeting if the Board
of Directors shall have fixed such a record date. At every meeting of
shareholders, a list of shareholders entitled to vote, arranged alphabetically
and certified by the Secretary or by the agent of the Corporation having charge
of transfers of shares, showing the number and class of shares held by each such
shareholder on the record date for the meeting shall be produced on the request
of any shareholder. There is no cumulative voting.
(S) 2.7 QUORUM. Except as otherwise provided by law or the Articles of
Incorporation, the presence, in person or by proxy, of the holders of one-
quarter of the total voting power of issued stock shall be requisite and shall
constitute a quorum at all meetings of the shareholders.
(S) 2.8 VOTE REQUIRED. When a quorum is present at any meeting, the vote of
the holders of a majority of issued stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of law, of the
Articles of Incorporation of the Corporation or of these Bylaws, a different
vote is required, in which case such express provision shall govern and control
the decision of such question.
(S) 2.9 PROXIES. At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such shareholder, filed with the
Secretary at or before the meeting, and bearing a date not more than six months
prior to the meeting. A proxy shall be revocable at will unless otherwise
validly provided by agreement or by any provision of the proxy. The proxy holder
need not be a shareholder of the Corporation.
(S) 2.10 ADJOURNMENT. Adjournments of any annual or special meeting of
shareholders may be taken without new notice being given unless a new record
date is fixed for the adjourned meeting, but any meeting at which directors are
to be elected shall be adjourned only from day to day until such directors shall
have been elected.
(S) 2.11 ABSENCE OF QUORUM. If a meeting cannot be organized because a quorum
has not attended, a majority of those present may adjourn the meeting to such
time and place as they may determine, subject, however, to the provisions of (S)
2.10 hereof.
(S) 2.12 RECORDS OF MEETINGS, ELECTIONS AND OTHER MATTERS. A record shall be
made of the shareholders represented in person and by proxy, after which the
shareholders shall proceed to the election of directors, if the meeting is the
annual meeting or such election is one of the purposes of the special meeting,
and to the transaction of any other business that may properly come before the
meeting. This record shall show the number of shares voted for each resolution
or voted for each candidate for director.
-2-
<PAGE>
PART 3--DIRECTORS
(S) 3.1 CONSTITUTION; AUTHORITY. The business and affairs of the Corporation
shall be managed by a Board of Directors. The Board may exercise all powers and
authority of the Corporation and do all such lawful acts and things which are
not by law or by the Articles of Incorporation or by these Bylaws directed or
required to be done by the shareholders.
(S) 3.2 NUMBER AND TERM OF DIRECTORS AND QUALIFICATIONS
(a) Number of Directors. The Corporation shall have a Board of Directors
of fifteen (15) natural persons. The Board of Directors shall have the power
to decrease or increase the number of directors by amendment to the Bylaws.
No decrease in the number of directors authorized by these Bylaws shall have
the effect of shortening the term of any incumbent director nor of reducing
the number of directors below the minimum number permitted by the Articles of
Incorporation of the Corporation. With respect to any increase in the number
of directors authorized by these Bylaws, the total number of authorized
directors shall not exceed the maximum number permitted by the Articles of
Incorporation of the Corporation, and, so long as the filling of any and all
vacancies created thereby is in compliance with (S) 3.5, the Board of
Directors may immediately fill the vacancies thus created by the vote of a
majority of directors then holding office, and the additional directors so
elected shall serve until such time as they are subject to re-election, and
their respective successors are elected and qualified.
(b) Term Classes of the Directors. The directors shall be divided into
three classes, to-wit, Class I, Class II and Class III (each a "Term Class"
and collectively the "Term Classes"). Each Term Class shall consist of four
directors who shall be elected by the holders of the Junior Preferred Voting
Stock of the Corporation ("Voting Preferred") (each a "Class A Director") and
one director who shall be elected by the holders of the Class B Common Stock
of the Corporation (the "Class B Director"); provided that, if there should be
no Class B Common Stock shareholder of the Corporation, all five directors in
a Term Class shall be elected by the Voting Preferred shareholders.
(c) Terms of Directors. Except as set forth below with respect to the
initial terms of the directors, the directors of the Corporation shall serve
three year terms and until their successors are elected and are
qualified.
(d) Initial Terms of Directors. Notwithstanding the provisions of
(S) 3.2(c), the initial term of the Class I directors shall expire on the date
of the 1997 annual shareholders' meeting of the Corporation, and the Class I
directors elected at that meeting shall be elected for full three year terms;
the initial term of the Class II directors shall expire on the date of the
1998 annual shareholders' meeting of the Corporation, and the Class II
directors elected at that meeting shall be elected for full three year terms;
and the initial term of the Class III directors shall expire on the date of
the 1999 annual shareholders' meeting of the Corporation, and the Class III
directors elected at that meeting shall be elected for full three year terms.
(e) Term Limits. No director of the Corporation may be elected to a third
consecutive three-year term as a director. A director who is disqualified
from reelection as a director by virtue of this (S) 3.2(e) may stand again for
election as a director of the Corporation three years or more after the end of
his or her last term as a director.
(f) Qualifications and Vacancy. Every director shall own one share of
Junior Preferred Voting Stock, shall apply to become credentialed as a provider
for the Company's managed care plans, and, if so credentialed, shall be such a
provider. The directors of the Company may declare vacant the office of any
director who fails to meet such qualifying criteria during his or her term as a
director.
(S) 3.3 VOTING. All directors shall have one vote on all corporate matters.
(S) 3.4 VACANCIES
(a) Automatic Vacancies. The office of a director shall become vacant if
he or she dies or resigns.
-3-
<PAGE>
(b) Declared Vacancies. The Board of Directors may declare vacant the
office of a director if he or she: (1) is interdicted or adjudicated an
incompetent; (2) is adjudicated a bankrupt; (3) becomes incapacitated by
illness or other infirmity to perform his duties for a period of six months or
longer; (4) ceases at any time to have the qualifications required by the
Articles of Incorporation or Bylaws; or (5) is convicted of a felony.
(S) 3.5 FILLING VACANCIES. If a vacancy occurs with respect to the seat of a
Class A or Class B Director (including any vacancy resulting from an increase in
the authorized number of directors, or from failure of the shareholders to elect
the full number of shareholders authorized in these Bylaws), the remaining Class
A or Class B directors, respectively, as the case may be, may be a majority vote
fill such vacancy for the unexpired term, provided that the holders of the
Voting Preferred and the Class B Common Stock, respectively, as the case may be,
shall have the right, at any special meeting called for such purpose prior to
such action by the Board, to fill the vacancy.
(S) 3.6 REMUNERATION. Directors, as such, shall receive such compensation for
their services as may be fixed by resolution of the Board of Directors and shall
receive their actual expenses of attendance, if any, for each regular or special
meeting of the Board or of any committee thereof; provided that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
(S) 3.7 REMOVAL OF DIRECTORS. The holders of the Voting Preferred and the
Class B Common Stock of the Corporation, respectively, as the case may be, by
vote of a majority of the total voting power of either such class, as the case
may be, at any special meeting called for that purpose, unless the Articles of
Incorporation provide for a greater amount, may remove from office any one or
more of the Class A or Class B directors, respectively, as the case may be,
notwithstanding that his or her or their terms of office may not have expired,
and may forthwith at such meeting proceed to elect a successor for the unexpired
term.
(S) 3.8 EXECUTIVE COMMITTEE
(a) Constitution and Composition. An Executive Committee shall be
constituted from among the members of the Board of Directors, comprising the
Chairman of the Board and each of the officers of the Corporation (excepting
any office held by a majority of the directors) who are directors of the
Corporation, and such additional members of the Board of Directors, provided
that they shall not be less than two, as may be required to have a minimum of
five directors on the Executive Committee, who shall be annually elected by
the Board of Directors at the Organizational Meeting specified in
(S)4.2.
(b) Authority. The Executive Committee shall have and may exercise,
between meetings of the Board of Directors, all powers and authority of the
Corporation as conferred upon the Board of Directors by the Articles of
Incorporation or the Bylaws of the Corporation.
(c) Meetings. Meetings of the Executive Committee may be called by the
Chairman or the President, and shall be called by the President upon the
request of a majority of the members of the Executive Committee, on reasonable
prior notice given to each member of the Executive Committee, either
personally or by telephone, mail, facsimile or other electronic communication.
Such meetings of the Executive Committee may be held at such place as the
person calling the meeting may direct or may be held by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear and communicate with each other.
(d) Action by Consent. Any action which may be taken at a meeting of the
Executive Committee may be taken by a consent in writing signed by all of the
members of the Executive Committee and filed with the records of proceedings
of the Executive Committee.
(e) Minutes of Meetings. The Secretary of the Corporation shall, promptly
following each meeting of the Executive Committee, prepare or cause to be
prepared complete and accurate written minutes of such meeting, indicating the
members of the Executive Committee in attendance and participating and
recording all actions of the Executive Committee. Such minutes shall be
submitted to and reviewed by the Board of Directors at the next meeting of the
Board following each meeting of the Executive Committee.
(S) 3.9 CONFLICT OF INTEREST
(a) Statement of Policy. Any person who is a director, officer or
employee of or has a significant financial interest in any health care
financing entity which is or may reasonably be engaged in business in direct
competition with the Corporation or any of its subsidiaries or affiliates, or
who otherwise owes a fiduciary duty to any person, firm or entity in conflict
with the fiduciary duty of an officer or director of the Corporation, shall
-4-
<PAGE>
be disqualified from election or service as a director or officer of the
Corporation. The directors of the Company may declare vacant the office of any
director of the Corporation who, during his or her term of office, becomes
disqualified to hold such office pursuant to this Section.
(b) Definitions. As used in this Section --
(1) a "health care financing entity" means any health maintenance
organization, health insurance company, preferred provider organization or
other association, organization or entity which provides any means,
mechanism or plan for financing health care for residents of the state of
Louisiana.
(2) a "significant financial interest" means that such person or a
member of such person's immediate family (a spouse or child):
(A) holds, directly or indirectly, an ownership or investment
interest established through debt, equity or other means, which
represents, in dollar amount or value, one percent (1%) or more of
the voting securities or interests of the equity in which such
interest is held; or
(B) receives compensation from the entity, pursuant to contract
or otherwise, other than for professional medical services to
individual patients as a health care provider on the same terms as
all other similarly-situated providers with respect to members or
enrollees of the entity's health plan.
(c) Acknowledgment of Policy. Each director and officer of the
Corporation, shall, upon election to and as a condition of assuming office and
in such form as may be prescribed by the Board of Directors, execute an
acknowledgment of the conflict of interest policy prescribed by these Bylaws
and declare that they are not disqualified from serving in office pursuant to
such policy.
PART 4--MEETINGS OF THE BOARD
(S) 4.1 PLACE OF MEETINGS. The meetings of the Board of Directors may be held
at such place within or without the State of Louisiana as a majority of the
directors may from time to time appoint.
(S) 4.2 ORGANIZATIONAL MEETING. The Board of Directors shall have a meeting
for the purpose of organization, election of officers and the transaction of
business immediately following each annual shareholders' meeting at the same
place as the annual meeting, and no notice to the continuing directors or the
newly-elected directors of such meeting of the Board of Directors shall be
necessary in order legally to constitute the meeting.
(S) 4.3 REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such time and place either within or without the state of Louisiana as
shall from time to time be determined by the Board.
(S) 4.4 SPECIAL MEETINGS. Special meetings of the directors may be called by
the Chairman and shall be called by the Chairman at the request of one-third of
the directors of the Corporation, on two days' notice given to each director,
either personally or by telephone, mail or telegram.
(S) 4.5 TELEPHONE MEETINGS. Nothing contained in these Bylaws shall be deemed
to restrict the power of members of the Board of Directors, or any committee
designated by the Board of Directors, to participate in a meeting of the Board
of Directors, or a committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear and communicate with each other. Participation in a meeting
pursuant to this Subsection shall constitute presence in person at such meeting
except where the person participates for the sole, express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. All participants in such a meeting, by virtue of
their participation and without further action on their part, shall be deemed to
have consented to the recording of such meeting, by an electronic recording
device or otherwise and the written transcript thereof, in order that minutes
thereof shall be available for the records of the Corporation.
(S) 4.6 QUORUM; VOTE REQUIRED. A number in excess of a majority of the Board
shall be necessary to constitute a quorum for the transaction of business, and
except as otherwise provided by law, the Articles of
-5-
<PAGE>
Incorporation of the Corporation or these Bylaws, the acts of a majority vote of
the directors present at a meeting at which a quorum is present shall be the
acts of the Board.
(S) 4.7 ACTION BY CONSENT. Any action which may be taken at a meeting of the
Board or any committee thereof, may be taken by a consent in writing signed by
all of the directors or by all members of the committee, as the case may be, and
filed with the records of proceedings of the Board or such committee.
(S) 4.8 VOTING BY PROXY. If the Articles of Incorporation so provide, a
director absent from a meeting of the Board of Directors may be represented by
any other director or shareholder, who may cast the vote of the absent director
according to the written instructions, general or special, of the absent
director.
PART 5--NOTICES
(S) 5.1 FORM OF NOTICE. Any written notice required or permitted by law, the
Articles of Incorporation or the bylaws to be given to any shareholder or
director shall be deemed to have been given to such shareholder or director five
business days after such notice is placed in the United States mail, postage
prepaid, addressed to such shareholder or director at his last known address.
(S) 5.2 WAIVER OF NOTICE. Whenever any notice is required to be given by law
or the Articles of Incorporation, or the bylaws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
PART 6--OFFICERS
(S) 6.1 APPOINTMENT. The officers of the Corporation shall be elected by the
Directors and shall be a President, Secretary and Treasurer. The Corporation
may but shall not be required to have one or more Vice-Presidents. Any two
offices may be combined in one person, provided that no person holding more than
one office may sign, in more than one capacity, any certificate or other
instrument required by law to be signed by two officers.
(S) 6.2 OTHER OFFICERS. The Board of Directors may appoint such other
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
(S) 6.3 SALARIES. The compensation of all officers and agents of the
Corporation shall be fixed by the Board.
(S) 6.4 TERM OF OFFICE. The officers of the Corporation shall be elected
annually by the Board of Directors and shall hold office at the pleasure of the
Board.
(S) 6.5 CHAIRMAN OF THE BOARD. The Board of Directors shall elect one of its
members to be Chairman of the Board of Directors to serve at the pleasure of the
Board of Directors. The Chairman shall preside at all meetings of the Board of
Directors, shall have, and may exercise, those specific powers conferred by
these Bylaws, and shall also have, and may exercise, such further powers and
duties as from time to time may be conferred or assigned by the Board of
Directors.
(S) 6.6 DUTIES AND POWERS OF PRESIDENT. The President shall be the chief
executive officer of the Corporation; he shall preside at all meetings of the
shareholders, shall have general and active management of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. If a Chairman of the Board of Directors has
not been elected, the President, if a director, shall preside at all meetings of
the Board.
(S) 6.7 DUTIES AND POWERS OF VICE-PRESIDENT. If a vice-president is elected,
he shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties as the
President of the Board of Directors shall prescribe.
(S) 6.8 DUTIES AND POWERS OF SECRETARY. The Secretary shall attend all
meetings of the shareholders and of the Board of Directors and record all votes
and the minutes of all proceedings in a book to be kept for that purpose. He
shall give, or cause to be given, notice of all meetings of the
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shareholders and special meetings of the Board, and shall perform such other
duties as may be prescribed by the Board or President. He shall keep in safe
custody the seal of the Corporation, and when authorized by the Board, affix the
same to any instrument requiring it and, when so affixed, it shall be attested
by his signature.
(S) 6.9 DUTIES AND POWERS OF TREASURER. The Treasurer shall have the custody
of the Corporation's funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board, taking proper vouchers for such disbursements, and
shall render to the President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. Unless such duties
are assigned by the Board to another officer, the Treasurer shall be the
principal financial officer and the principal accounting officer of the Company.
PART 7-STOCK
(S)7.1 TRANSFER RESTRICTIONS ON JUNIOR PREFERRED VOTING STOCK. The Voting
Preferred of the Corporation may not be sold, assigned, transferred or otherwise
disposed of by any person except in compliance with the provisions of this (S)
7.1.
(a) Restrictions on Transfer Following Exempt Offering. No shareholder who
purchases a share of Voting Preferred in any offering made by the Corporation in
reliance upon an exemption from registration under the Securities Act of 1933,
as amended (the "Securities Act"), and/or the Louisiana Securities Law, as
amended (the "LSL"), and/or pursuant to any rule or regulation of the Securities
and Exchange Commission or the Louisiana Commissioner of Securities implementing
or providing a safe harbor with respect to any such exemption, shall sell,
transfer, assign or otherwise dispose of the Voting Preferred except in
compliance with the restrictions, limitations and requirements imposed with
respect to any such sale, assignment, transfer or other disposition under any
such exemption, rule or regulation.
(b) Prohibition Against Donations. No shareholder shall donate or
otherwise gratuitously transfer, assign or dispose of the Voting Preferred to
any person, and no such purported donation or other disposition shall be
recognized by the Corporation or recorded on the stock transfer books of the
Corporation. Voting Preferred transferred on the death of a shareholder shall
be subject to redemption by the Company as provided in (S) 7.13.
(c) Prohibition Against Transfers to Certain Persons. No shareholder shall
sell, transfer, assign or otherwise dispose of the Voting Preferred to any
person unless such person is both (i) a licensed doctor of medicine or a
licensed doctor of osteopathy, and (ii) a member of the Louisiana State Medical
Society (an "Eligible Purchaser"), and does not own of record any shares of
Voting Preferred, and no shareholder shall sell, transfer, assign or otherwise
dispose of the Voting Preferred except in compliance with Section 7.1(d).
(d) Right of First Refusal.
(i) No shareholder shall sell, transfer, assign or otherwise dispose
of the Voting Preferred to any Eligible Purchaser unless such shareholder
("Selling Shareholder") shall first receive a bona fide written offer to
purchase such stock, signed by the offering person (the "Offering Person")
and stating that: (A) the Offering Person is an Eligible Purchaser as
defined in (S) 7(c); (B) the price offered for the purchase of the Voting
Preferred held of record by the Selling Shareholder (the "Price"); (C) the
payment of the Price shall be in cash and is not subject to any prior
condition or contingency; and (D) the Offering Person agrees that if the
Corporation fails to exercise its right of first refusal under this (S)
7.1(d), and if for any reason the purchase and sale of the stock by and
between such Selling Shareholder and such Offering Person is not
consummated within 45 days from the date of delivery of the Notice of
Proposed Sale (as defined below), the Corporation shall have the right
during the 10 day period following such 45th day to tender one share of the
Voting Preferred to such Offering Person and upon such tender the Offering
Person shall be obligated to purchase such stock for the Price, payable to
the Corporation in cash within two business days after the date of such
tender (any such written bona fide offer, an "Eligible Offer").
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(ii) Immediately upon the receipt of any Eligible Offer, the Selling
Shareholder, if such Shareholder wishes to sell his or her Voting Preferred
to the Offering Person pursuant to the Eligible Offer, shall deliver a copy
of the Eligible Offer to the Corporation, accompanied by such Selling
Shareholder's written and signed notice to the Corporation that he or she
intends to sell such stock to the Offering Person pursuant to the terms of
the Eligible Offer (such notice, with the accompanying Eligible offer, the
"Notice of Proposed Sale"). Such Notice of Proposed Sale shall be
addressed to the President of the Corporation at the Corporation's
principal executive offices and shall be deemed to have been delivered to
the Corporation on the date of actual receipt thereof by the Corporation.
(iii) Delivery of the Notice of Proposed Sale to the Corporation shall
constitute the irrevocable offer and election of the Selling Shareholder to
sell such Selling Shareholder's Voting Preferred to the Corporation for the
First Refusal Price (as defined below) upon the Corporation's delivery of
its Notice of Purchase (as defined below).
(iv) The Corporation shall have 15 days from the date of its receipt
of the Notice of Proposed Sale to deliver written notice to the Selling
Shareholder that it will purchase such Shareholder's Voting Preferred for
the First Refusal Price (such notice, the "Notice of Purchase"). The Notice
of Purchase shall be deemed to have been delivered by the Company to the
Selling Shareholder on the date of mailing of such Notice to the Selling
Shareholder.
(v) The First Refusal Price shall be $1,000 ("Liquidation Value").
(vi) The delivery of the Notice of Purchase by the Corporation shall
constitute, ipso facto and with no additional action on the part of any
person required, the sale of the Voting Preferred held by the Selling
Shareholder to the Corporation, and such transfer shall be recorded on the
stock transfer books of the Corporation without the necessity of the
delivery or receipt of the certificate for such stock, which shall be
automatically canceled.
(vii) The First Refusal Price shall be paid by the Corporation to the
Selling Shareholder within 10 days after delivery of the Notice of
Purchase.
(viii) If the Corporation fails to exercise its right of first refusal
as set forth in this (S) 7.1, the Selling Shareholder shall have 30 days to
consummate the sale of such Shareholder's Voting Preferred to the Offering
Person, provided that if such sale is not effected in such 30-day period,
the Selling Shareholder's Notice of Proposed Sale shall be void and such
Shareholder may not therefore sell such stock without compliance with this
(S) 7.1.
(S) 7.2 LIMITATION ON OWNERSHIP OF VOTING PREFERRED. No person may own
beneficially or of record more than one share of Voting Preferred.
(S) 7.3. TRANSFER RESTRICTIONS ON CLASS A NON-VOTING COMMON STOCK.
(a) Restrictions on Transfer Following Exempt Offering. No shareholder
who purchases a share of Class A Non-Voting Common Stock ("Class A Stock") in
any offering made by the Corporation in reliance upon an exemption from
registration under the Securities Act and/or the Louisiana Securities Law and/or
pursuant to any rule or regulation of the Securities and Exchange Commission or
the Louisiana Commissioner of Securities implementing or providing a safe harbor
with respect to any such exemption, shall sell, transfer, assign or otherwise
dispose of the Class A Stock except in compliance with the restrictions,
limitations and requirements imposed with respect to any such sale, assignment,
transfer or other disposition under any such exemption, rule or regulation.
(b) Prohibition Against Transfers to Certain Persons. No shareholder
shall sell, transfer, assign, donate or otherwise dispose of the Class A Stock
to any person who is not an Eligible Purchaser. The Corporation may refuse to
authorize any transfer under this Section 7.3(b) unless the selling shareholder
establishes to the Company's satisfaction that the proposed purchaser is an
Eligible Purchaser.
(c) Other Restrictions. The Board of Directors may impose additional
transfer restrictions on the Class A Stock upon the issuance thereof.
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(S) 7.4 LIMITATION ON OWNERSHIP OF CLASS A NON-VOTING COMMON STOCK. No person
and no group of persons acting in concert may own of record or beneficially more
than 2% of the outstanding Class A Stock.
(S) 7.5 ISSUANCE OF CLASS A NON-VOTING COMMON STOCK TO EXECUTIVE OFFICERS.
The Board of Directors may approve the issuance of up to 6% of the outstanding
Class A Stock to executive officers of the Corporation pursuant to stock
options, stock grants, and other executive compensation plans.
(S) 7.6 PROHIBITION AGAINST TRANSFER OF CLASS B COMMON STOCK. The Class B
Common Stock of the Corporation may not be sold, assigned, transferred or
otherwise disposed of by the holder thereof, provided that the Corporation may
redeem such Class B Common Stock as provided in (S) 7.13.
(S) 7.7 CERTIFICATES.
(a) General. Certificates of stock in the Corporation, numbered and signed
by the President or a Vice President, and the Secretary, shall be issued to
shareholders, and when stock is transferred, the certificate evidencing such
transferred stock shall be returned to the Corporation, canceled, preserved, and
a new certificate evidencing such new ownership shall be issued. Each
certificate of stock shall have written upon its face that such certificate and
the underlying ownership evidenced thereby is transferable only upon the books
of the Corporation. If the stock certificates are countersigned by a transfer
agent or by a registrar, the signatures of the corporate officers may be
facsimiles. No certificate shall be invalid by reason of the fact that any
officer whose real or facsimile signature appear thereon ceased to be an officer
of the Corporation before the certificate was issued.
(b) Legends. Every certificate of stock of the Corporation shall bear
thereon a written legend stating that transfer of such stock is restricted by
the provisions of these Bylaws, and, if applicable, a written legend stating any
restriction on transferability imposed by the federal or state securities laws
or by resolution of the Board of Directors.
(S) 7.8 TRANSFER RECORDS. A stock transfer book shall be maintained by the
Corporation, which book shall record all issuances, assignments and transfers of
stock. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for a share fully endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and provided that
the provisions of (S) 7.1 have been met in connection with such transfer, it
shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
(S) 7.9 REGISTERED SHAREHOLDERS. Except as otherwise provided by law, the
Corporation and its directors, officers and agents, may recognize and treat a
person, firm , corporation or other entity registered on its records as the
owner of shares, as the owner in fact thereof for all purposes, and as the
person, firm, corporation or entity exclusively entitled to have and to exercise
all rights and privileges incident to the ownership of such shares, and rights
attendant upon ownership of such shares shall not be affected by any actual or
constructive notice which the Corporation or any of its directors, officers or
agents, may have to the contrary.
(S) 7.10 LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, mutilated, or destroyed, or
mailed and not received, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate, the Board may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, mutilated, destroyed or mailed and not received certificate, 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 as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the replacement of the certificate alleged to have been lost, stolen,
mutilated, or destroyed, or mailed and not received, or to pay or reimburse the
Corporation or its Transfer Agent for any bond, insurance or indemnity premium
with respect thereto.
(S) 7.11 RECORD DATE. For the purpose of determining shareholders entitled to
notice of and to vote at a meeting, to receive a dividend, to receive or
exercise subscription or other rights, or to participate in a reclassification
of stock, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a record date for
determination of shareholders for such purpose, such date to be not more than 60
days and , if fixed for the purpose of determining shareholders entitled to
notice of and to vote at a meeting, not less
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than 10 days prior to the date on which the action requiring the determination
of shareholders is to be taken. Except as the Board of Directors may provide
otherwise, if no record date is fixed for the purpose of determining
shareholders entitled to notice of and to vote at a meeting, the close of
business on the day before the notice of the meeting is mailed, or if notice is
waived, the close of business on the day before the meeting shall be the record
date for such purpose, or for any other purpose, the close of business on the
day on which the Board of Directors adopts the resolution relating thereto shall
be the record date for such purpose. A determination of shareholders entitled
to notice of and to vote at a meeting shall apply to any adjournment thereof
unless otherwise provided by the Board of Directors.
(S) 7.12 DIVIDENDS. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, dividends upon the stock of the Corporation may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash or in property.
(S) 7.13 REDEMPTION OF VOTING PREFERRED.
(a) The Corporation may redeem, at its option and in its discretion,
the Voting Preferred owned by any shareholder (a) who shall be deceased, or (b)
who shall request in writing that the Corporation redeem his or her stock and
who (i) shall have permanently retired from the practice of medicine and shall
have been so retired for the one year period immediately preceding the date of
such request, (ii) shall have been unable because of disability to practice
medicine in a manner substantially consistent with such shareholder's manner of
practice immediately preceding such disability for the one year period
immediately preceding the date of such request, (iii) shall have lost his or her
license to practice medicine in Louisiana for the one year period preceding the
date of such request, (iv) shall have become divorced after his or her purchase
of such stock, which stock shall have been the community property of such
shareholder and his or her former spouse, or (v) shall have failed to meet the
credentialing requirements of the Company's HMO or PPO. The price paid by the
Corporation in redemption of the Voting Preferred as provided by this (S) 7.13
shall be the Liquidation Value of such stock (as defined in (S) 7.1(d)(v)) (the
"Redemption Price"); provided that the Company may, in its discretion, redeem
Voting Preferred under clause (v) above for the purchase price paid by such
shareholder for such stock. Such redemption shall be effective, ipso facto and
with no any additional action on the part of any person required, upon the
delivery by the Corporation of written notice of redemption ("Notice of
Redemption") to the shareholder or his or her representative or successor, and
such redemption shall be immediately recorded in the stock transfer books of the
Corporation. The Notice of Redemption shall be deemed to have been delivered by
the Corporation on the date of mailing of the Notice of Redemption. The
Redemption Price shall be due and payable by the Corporation within 10 days
after the date the Notice of Redemption shall have been given.
(S) 7.14 REDEMPTION OF CLASS B COMMON STOCK. The Corporation may redeem, at
its option and in its discretion, the Class B Common Stock at any time after
receipt of the written request of the Class B Common Stockholder that such stock
be redeemed. The redemption price for the Class B common stock shall be $100.
PART 8--MISCELLANEOUS
(S) 8.1 CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
(S) 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be concurrent
with the calendar year.
(S) 8.3 SEAL. The Board of Directors may adopt a corporate seal, which seal
shall have inscribed thereon the name of the Corporation. The seal may be used
by causing it or a facsimile thereof to be impressed upon or affixed to or
otherwise reproduced on any instrument. Failure to impress, affix or reproduce
the seal shall not, however, affect the validity of any instrument.
(S) 8.4 CONFIDENTIALITY. No director, officer or employee of the Corporation
shall disclose to any third person, firm or entity any information, data,
records, plans, methods or techniques which are confidential or proprietary to
the Corporation or any of its affiliates, without the explicit authorization of
the Board of Directors of the Corporation. Authority to grant authorization for
disclosure may, by resolution of the Board of Directors, be delegated by the
Board of Directors to any officer of the Corporation of any of its affiliates.
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PART 9--INDEMNIFICATION OF DIRECTORS AND OFFICERS
(S) 9.1 GENERALLY. To the fullest extent authorized or permitted by La. Rev.
Stat. (S) 12:227, as the same may hereafter be amended to broaden such
authority, or as otherwise permitted by law, the Corporation shall indemnify
each person who was or is a party or is threatened to be made a party to any
action, suit or proceeding, whether civil, criminal administrative, or
investigative (including any action by or in the right of the Corporation), by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee or agent of another business or foreign
corporation, partnership, joint venture or other enterprise, against any and all
expenses (including attorneys' fees), judgments, fines, penalties, and amounts
paid in settlement, actually and reasonably incurred by such person in
connection with such action, suit or proceeding, subject only to such
limitations and restrictions which the Corporation is compelled to observe by
force of law. Such indemnification shall be a contract right in favor of each
such person, as indemnitee, and shall include the right to receive payment in
advance of any expenses incurred by the indemnitee in connection with any such
proceeding. In furtherance of the indemnification authorized and mandated
herein, the Corporation may enter into contracts with any director or officer of
the Corporation and may create a reserve or trust fund, grant a security
interest, or employ any other means to ensure the payment of such amounts as may
be necessary to effect indemnification as provided in this Part.
(S) 9.2 INDEMNIFICATION NOT EXCLUSIVE. The right of indemnification provided
in this article shall not be exclusive of any other rights to which persons
entitled to indemnification may otherwise be entitled, and the provisions of
this Part shall inure to the benefit of the heirs and legal representatives of
any person entitled to indemnity under this Part and shall be applicable to
proceedings commenced or continuing after adoption of this Part, whether
arising from acts or omissions occurring before or after such adoption.
(S) 9.3 PROCEDURE. In furtherance but not in limitation of the foregoing
provisions of this Part, the following procedures and presumptions shall apply
with respect to the advancement of expenses and the right to indemnification
under this Part.
(a) All reasonable expenses incurred by or on behalf of an indemnitee in
connection with any proceeding shall be advanced to the indemnitee within 20
days after the receipt by the Corporation of a statement from the indemnitee
requesting such advance from time to time, whether prior to or after final
disposition of such proceeding. Such statement shall reasonably evidence the
expenses incurred by the indemnitee and, if required by law at the time of
such advance, shall include or be accompanied by an undertaking by or on
behalf of the indemnitee to repay the amounts if it should ultimately be
determined that the indemnitee is not entitled to be indemnified against such
expenses pursuant to this Part.
(b) To obtain indemnification under this Part, an indemnitee shall submit
to the Secretary of the Corporation a written request, including such
documentation as is reasonably available to the prospective indemnitee and
reasonably necessary to determine whether and to what extent the indemnitee is
entitled to indemnification. The determination of the indemnitee's
entitlement to indemnification shall be made not later than 60 days after
receipt by the Corporation of the written request for indemnification together
with the supporting documentation. The Secretary of the Corporation shall,
promptly upon receipt of such a request for indemnification, advise the Board
of Directors in writing that the indemnitee has requested indemnification.
The indemnitee's entitlement to indemnification under this Article shall be
determined by a majority vote of the disinterested directors, if they
constitute a quorum of the Board of Directors; by written opinion of
independent counsel, if a quorum of the Board of Directors consisting of the
disinterested directors is not obtainable; or as provided in paragraph (c) of
this Section.
(c) Except as otherwise expressly provided herein, the indemnitee shall
be presumed to be entitled to indemnification under this Part upon submission
of a request for an indemnification together with supporting documentation
pursuant to paragraph (b) of this Section, and thereafter, the Corporation
shall have the burden of proof to overcome that presumption in reaching a
contrary determination. In any event, if the person or persons empowered under
paragraph (b) of this Section to determine entitlement to indemnification
shall not have been appointed or shall not have made a determination within 60
days after receipt by the Corporation of the requests therefor together with
supporting documentation, the indemnitee shall be entitled to indemnification
unless the indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification, or such indemnification is prohibited
by law. Determination of any proceeding, or of any claim, issue or matter
therein,
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by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, adversely affect the right
of the indemnitee to indemnification or create a presumption that the
indemnitee did not act in good faith.
(S) 9.4 INSURANCE. The Corporation may procure insurance on behalf of any
person who is or was an incorporator, director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another business, nonprofit or foreign
corporation, partnership, joint venture or other enterprise against any
liability asserted against or incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the Business Corporations Law of
Louisiana, as amended.
(S) 9.5 REPEAL, AMENDMENT; PRESERVATION OF RIGHTS. Neither the repeal of or
any amendment to the Sections of this Part shall apply to or have any effect on
the obligation of the Corporation or on the entitlement of any person to
indemnification in accordance with this Part for or with respect to any action,
suit or proceeding, whensoever brought or asserted, arising out of any act or
omission of such person occurring prior to such repeal or amendment, absent the
express consent of such a person, or of the person's heirs or legal
representatives, to such repeal or amendment.
PART 10--AMENDMENTS
(S) 10.1 PROCEDURE. These Bylaws may be adopted, changed, altered, amended or
repealed by the vote of not less than two-thirds of the Board of Directors or
not less than a majority of the shareholders at any regular, special or annual
meeting of the Board of Directors or of the shareholders, provided notice of the
proposed amendment or repeal be contained in the notice of such regular, special
meeting and provided further that any such bylaws shall not be inconsistent with
the provisions of the Articles of Incorporation of the Corporation or with any
provision or requirement of law.
CERTIFICATION
OF BYLAWS
__________
I HEREBY CERTIFY, as the elected and appointed Secretary-Treasurer of MD
Healthshares Corporation (the "Corporation") that the above and foregoing Bylaws
truly, correctly and completely set forth the bylaws of the Corporation, as
amended and restated by resolution of the Board of Directors of the Corporation
on the 7th day of June, 1997.
New Orleans, Louisiana, this 7th day of June, 1997.
/s/ William M. Roeling, M.D.
----------------------------
William M. Roeling, M.D.
Secretary-Treasurer
Attest:
/s/ James A. White III, M.D.
- ----------------------------
James A. White III, M.D.
Chairman
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EXHIBIT 6(d)
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
October 29, 1996
James A. White, III, MD ------------------------
President Arthur Andersen LLP
MD HealthShares
201 St. Charles Avenue ------------------------
Suite 4400 Suite 2200
New Orleans, LA 70170 225 Peachtree Street NE
Atlanta, GA 30303-1731
404 221 1511
Dear Dr. White:
We appreciate the opportunity to continue to serve MD HealthShares and Patient's
Choice Inc. in the development and start-up operations of the HMO and PPO plans.
Arthur Andersen is committed to the success of MD HealthShares and its
subsidiary and looks forward to continued involvement as the organization
evolves and expands.
Per our discussion, the following outlines our proposed arrangement for
additional services necessary for MD HealthShares and Patient's Choice Inc.,
outside of the scope of the original arrangement. In addition, we have attached
a matrix (Attachment I) outlining some of the mentioned delays and the impacts
upon the target operational date of January 1, 1997.
Longer than estimated completion times have resulted in delays, i.e. the COA
filing (original RFP initially estimated to be completed by April 1),
capitalization, finalizing TPA contract, site selection, and ability to
effectively conduct a search for key management positions without a defined
compensation package and location selection. In Arthur Andersen's original plan,
we had anticipated that all hiring would be completed by October 1st and at that
point we would be able to assist the new management team on a limited basis. As
a result of these delays, Arthur Andersen has taken a greater role in the
ongoing implementation of the managed care organization. Arthur Andersen will
continue to facilitate critical operational decisions until a permanent
management team is hired to run the operations of the organization, estimated to
be through the first part of 1997 or until the board deems appropriate. The
board will ultimately make the decisions for the organization; however, Arthur
Andersen will present choices and recommendations to the board or designee for
approval.
Additional resources will be required to assist in these responsibilities.
Budgeted salaries for the senior management team such as the Executive Director,
Medical Director, Chief Financial Officer, Director of Medical Management,
Director of Provider Relations, and Vice President of Sales and Marketing
average $48,000 per month excluding benefits. In addition, all other support
staff personnel are budgeted at $33,000 per month within the first year of
operation excluding benefits. The total budget salaries excluding benefits is
$81,000 per month or $98,250 per month including benefits.
<PAGE>
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
October 29, 1996
Due to the delays to date, we are proposing a roll out strategy for the 6
catchment areas based upon MDHS' physician participation rate and coverage,
hospital coverage, and strategic significance of the catchment. The following
indicates the projected target roll out of the HMO/PPO products in each
catchment area:
Catchment Area Completion Date
- --------------------------------------------------------------------------------
Alexandria January 1, 1997
Lafayette/St. Charles Immediately Following
Monroe Immediately Following
Baton Rouge Immediately Following
New Orleans Immediately Following
Shreveport Immediately Following
- --------------------------------------------------------------------------------
We would like to bring to your attention work which was not in the scope of the
original proposal but due to delays aforementioned in Attachment I, will impact
Patient's Choice Inc.'s ability to achieve the January 1, 1997 HMO/PPO
operational date. We believe Patient's Choice, Inc. needs additional assistance
over the next 8 to 12 weeks beginning immediately in order to roll out the
Alexandria catchment including the following:
. Hospital, ancillary, and physician contract negotiations including such
activities as:
* Coordination of meetings with hospital and ancillary organizations
* Conduct contract meetings with hospitals (11 targeted in Alexandria
catchment area), ancillaries (5-7), and physicians (161 shareholders within
the Alexandria catchment area)
* Contact and coordinate negotiations with other targeted hospitals within
the other 5 catchment areas
* Develop provider collaterals on fee schedules, and plan processes
* Negotiate and coordinate the signing of effective contracts in conjunction
with Patient's Choice Inc. roll out strategy
. Coordinate broker marketing and roll out of product offers to meet start date
targets including:
* Marketing materials - benefit summaries, proposal materials, rate summary
* Enrollment materials - applications, ID cards, changes family status,
evidence of insurability, claims forms
* Quoting system - census request, mechanism for determining rates, new
business vs. reoccurring business, tracking and payment
* Broker education - commission rates and other incentives, plan design and
points of differentiation, set up broker meetings and presentation
* Marketing and distribution: target marketing, premium setting vs.
commission payment, development and distribution of broker marketing
materials.
Scott Blackard will oversee the completion of the above work.
2
<PAGE>
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
October 29, 1996
. Strategic partnering - Screen and recommend strategic partners to provide
basic and supplement life insurance, dental, short and long term disability
Scott Blackard will also coordinate the above work.
. Physician contract/credentialing:
* Phone calls on physicians who have not submitted credentialing materials
Send out physician credentialing information and conduct follow-up
communications with shareholders.
. Coordinate and complete physician site visits for credentialing. The
Credentialing Committee has made the decision to hold off on all site visit
reviews until the Managed Care Coordinators can be hired. NCQA guidelines
require the managed care organization to conduct a site visit at each
physician site prior to credentialing.
Professional fees for the above activities are based upon the level of effort,
hours necessary, and skills required. We estimated fees for operationalizing the
Alexandria catchment area by January 1, 1997 assuming no further delays to be
between $213,000 and $430,000. We will make every attempt to perform roll out
tasks such as hospital and physician contract negotiations simultaneously with
the roll out of the Alexandria area in order to jump start the roll out of
Patient's Choice, Inc. HMO/PPO products.
In addition to the above work, Rene Abadie, Director of Provider Relations, will
handle the development of the following:
. Chiropractic network contracting and implementation includes such activities
as:
* Contact all viable chiropractic networks across 6 catchment areas
* Establish communications to set up meetings
* Develop case rates for chiropractic care
* Develop chiropractic provider collaterals including case rates, referral
process, and covered services
* Negotiate contract arrangement.
. Psychiatric network contracting and implementation would include activities
such as:
* Establish groups under IPA for case rate contracting
* Establish communications to set up meetings with psychiatric groups
* Develop case rates for psychiatric care
* Develop psychiatric provider materials including case rates, referral
process, and covered services
* Contract with psychiatric hospitals
* Negotiate contract with psychiatrists to insure geographic coverage.
3
<PAGE>
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
October 29, 1996
. Selection of vendor and coordination of set up and printing of provider
directories and Member ID cards.
If Arthur Andersen needs to assume a greater role in completing these
activities, additional fees would be incurred.
The difference between the low end estimate of all the above Arthur Andersen
designated work is $213,000 vs MDHS' staff budgeted amount of $196,500 over an 8
week period of time. The higher end of the estimated fees represent potential
increases in level of effort and resources required caused by delays in hiring
full time management and personnel, higher levels of resistance, and unforeseen
events outside of our control. We will notify you in advance of any delays which
could impact the January 1, 1997 start up date for the first catchment area roll
out. Expenses are not included in these estimates and typically run 20% of
professional fees. As always we will take every measure to keep these expenses
to a minimum.
We are committed to making Patient's Choice Inc. thrive and be a long-term
dominant managed care health plan within Louisiana. In order to meet the
aggressive objectives and targets, we must move forward rapidly with
operationalizing the company. We will continue to complete all work within the
scope of the original arrangement and will support any of the above defined
roles you chose.
If the terms presented regarding Arthur Andersen's extended role in coordinating
the operationalization of Patient's Choice Inc. and additional services outlined
in this letter meet with your approval, please indicate so by signing one copy
of this letter and returning it to me. Incorporated by reference in this
arrangement letter is the consulting services agreement outlining terms and
conditions in Adams and Reese's correspondence dated November 16, 1995. We look
forward to our continued relationship with MD HealthShares and its subsidiary.
Very truly yours
Arthur Andersen LLP
By /s/ Mary L. Brandt
-------------------------
Mary L. Brandt
APPROVED:
/s/ James A. White, M.D.
- ---------------------------
James A. White, M.D.
MD HealthShares, Inc.
4
<PAGE>
EXHIBIT 6(e)
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
February 1, 1997
James A. White, III, MD
President
MD HealthShares
Suite 4400
201 St. Charles Avenue
New Orleans, LA 70170
Dear Dr. White:
We appreciate the opportunity to continue to serve MD HealthShares and Patient's
Choice, Inc. with the operationalization of its managed care products. As we
have discussed, the following outlines our proposed arrangement for additional
services and continued support of the work outlined in the October 29, 1996
arrangement letter with MD HealthShares. In the October 29, 1996 arrangement
letter, we estimated a minimal of 8 weeks for the Alexandria catchment area to
be operational by January 1, 1997, in addition to providing assistance with
ongoing network development across the state. We indicated that we would notify
you of any issues, which would delay MD HealthShares targeted rollout deadlines.
Several factors have lead to a slower operational implementation of the HMO and
PPO products than expected in the Alexandria catchment area. These include:
* Delays in the approval of the COA
* Slower than expected response from physicians concerning
. Credentialing
. Contracting
* Delayed detailed compensation and benefit package for senior management
These delays will result in Arthur Andersen's continued support until a
management team can be hired. We will continue to work with the selected search
firms to secure the senior management team. We will do everything we can to
expedite the product rollout and to transition our involvement to the full-time
MD HealthShares personnel.
MD HealthShares Board's recognizes its desire and responsibility to meet the
shareholders expectations for a "Fast Track" development and implementation of
its products across the state. The following work continues to be performed and
supported by the Arthur Andersen team.
<PAGE>
ARTHUR
ANDERSEN
February 1, 1997 ARTHUR ANDERSEN & CO. SC
HOSPITAL/PROVIDER CONTRACTING AND CLAIMS ADMINISTRATION
Due to slower than anticipated hiring, we will continue to support the roles of
provider and hospital contracting in addition to other critical work necessary
to ongoing operations of Patient's Choice. These roles will transition as
employees are hired on and can effectively assume these roles including:
. Continue Hospital contract negotiations across the state
. Continue coordinating physician contracting
. Development and rollout of provider education materials
. Recommendation and coordinate physician education on compensation structure
. Finalize set-up of TPA for claims
. Develop and finalize physician reports
SALES AND MARKETING
Additionally, due to slower than anticipated staff hiring, several sales and
marketing tasks that we had not originally anticipated providing now need to be
done. These tasks are those the vice president of sales and marketing will
perform. They include, but are not limited to, the following:
. Targeting rates in each catchment area
. Developing target industries
. Providing aggregate rate level assessment by catchment area
. Underwriting groups and supervising thereof
. Holding rollout meeting
. Testing rating manual
. Responding to interested employers and shareholders
Given that we are currently rolling out product in Alexandria, soon to be
followed by other catchment areas, it is imperative that these tasks be
performed in the coming weeks.
We have now completed the review phase of the POS and MSA products. A summary of
our review, recommendations, and resource estimates follows:
POS This product offers the opportunity for MDHS to offer a product that
looks like a PPO under the HMO Certificate of Authority ("COA"). This is
especially appealing given the difficulties we have had in finding a PPO
insurance partner. Adams and Reese anticipate that, upon filing, such a product
would be approved in 2-3 weeks.
We anticipate the POS product to be received favorably by the market,
since members will not be locked in to a particular set of doctors.
Additionally, since out of network benefits are substantially below in-network
benefits, the POS behaves much like the HMO - returns should be comparable to
those under the HMO.
However, since this product was not anticipated, our contractors are not
currently aware that we are considering offering such a product. Further
2
<PAGE>
ARTHUR
ANDERSEN
February 1, 1997 ARTHUR ANDERSEN & CO. SC
negotiations and education of vendors will be required as we bring this
product to market.
RECOMMENDATION:
Unless the PPO selection process proceeds substantially more favorably
than is now indicated, we should file a POS plan such that a POS could
be quickly brought to market. Arthur Andersen is prepared to provide the
following professional services to facilitate this process:
(1) Designing plan of benefits
(2) Pricing the POS plan
(3) Facilitating DOI approval with Adams and Reese
(4) Preparing preliminary marketing strategies
(5) Preparing budget projections
(6) Coordinating with hospitals and other contractors to smooth product
offering process
(7) Facilitating production of marketing materials
MSA This product offers MDHS very high returns while closely matching MDHS'
mission of preserving local control of the physician-patient
relationship. It appears that the marketplace has not yet recognized the
opportunity that an HMO/MSA combination would offer. Adams and Reese
believe that DOI approval might not be forthcoming promptly, due to the
unconventional nature of this product. However, this product will
present substantial administrative and organizational challenges
eliciting from its recent arrival.
RECOMMENDATION:
MDHS should proceed immediately and aggressively toward offering an MSA
product. Arthur Andersen is prepared to provide assistance with the
following professional services to facilitate this process:
(1) Designing plan of benefits
(2) Pricing the MSA
(3) Facilitating DOI approval with Adams and Reese
(4) Developing a distribution structure and marketing plan
(5) Preparing budget projections
(6) Coordinating with hospitals and other contractors to smooth
product-offering process
(7) Facilitating the selection of and contracting with the MSA
record-keeper
(8) Facilitating production of marketing materials
Professional fees for the above work will be based upon the level of effort and
anticipated Arthur Andersen staff. As we discussed, Arthur Andersen will
continue support the work outlined in the October 29, 1997 arrangement letter
under its same terms and conditions. Arthur Andersen's fees will be reduced as
our roles and responsibilities are transferred to the newly hired staff.
Professional fees do not include expenses, which typically run 20% of
professional fees. As always, we will strive to minimize these expenses.
3
<PAGE>
ARTHUR
ANDERSEN
February 1, 1997 ARTHUR ANDERSEN & CO. SC
In addition to Arthur Andersen's professional fees, Milliman & Robertson have
estimated a budget for the additional tasks required to file the product and
produce a rating program for the POS and MSA with a high deductible HMO product;
without which, MD HealthShares would not be able to rate and sell these new
products. Additional support will be required from Milliman & Robertson for the
following items:
* Actuarial opinion
* Review of Louisiana regulations to ensure compliance
* Premium rate manual
* Rate diskette in Lotus or Excel
Milliman & Robertson estimates that the professional fees for the above tasks,
in addition to cost over runs, are approximately $12,000.
If the terms presented regarding the development and implementation of POS and
MSA products meet with your approval, please so indicate by signing one copy of
this letter and returning it to me. Incorporated by reference in this
arrangement letter is the consulting service agreement outlining terms and
conditions in Adams and Reese's correspondence dated November 16, 1995.
Sincerely,
Arthur Andersen, L.L.P.
By
/s/ James T. Schweikert
APPROVED:
4
<PAGE>
EXHIBIT 6(f)
MD HEALTHSHARES
- --------------------------------------------------------------------------------
3501 North Causeway Boulevard Suite 800 Metairie, LA 70002
(504)832-9815 FAX (504) 833-7685
March 21, 1997
Mr. Jay Neukomm
RD 1 Box 330A
Annville, PA 17003
Re: Offer of Employment
Dear Mr. Neukomm:
This will confirm the terms upon which you are being offered full-time
employment as the Vice President of Sales and Marketing of MD HealthShares
Corporation (the "Company") in accordance with the position description attached
hereto. As one of only a few employees of this newly organized company, some
benefits being offered to you are necessarily subject to establishing and/or
securing the appropriate employee benefit plans, programs and policies through
which such policies are subject to a variety of federal and state laws and
regulations and those laws and regulations may require or warrant changes in or
elimination of some of the benefits outlined below. Consequently, while the
company contemplates providing you with the benefits as outlined, this offer of
benefits is qualified and the benefits contingent upon a final decision to
establish or secure the necessary employee benefits plans, programs, and
policies and actual terms of such plans, programs and policies.
Your employment will be "at will" and nothing in this letter shall be
construed as creating an employment contract or agreement with company for any
fixed term.
Subject to the foregoing, your employment by the company will include the
following terms:
. Annual base salary of $100,000, payable bi-weekly while employed at the
company.
. Eligibility for an annual bonus of up to 25% of your base salary. The annual
bonus will be based upon targets to be set by mutual agreement between you and
the Company shortly after commencement of your employment and will be modified
annually as the Company deems prudent.
<PAGE>
MD
------------
HEALTHSHARES
. Restricted stock grants of the Company's Class A Non-Voting Common Stock
("New Common Stock") upon completion of 18, 36, 48, and 60 months of
satisfactory employment, in the amounts of 1,000, 2,000, 2,000, and 3,000
respectively. Actual ownership in each restricted stock grant will vest at
the rate of 1/3 per year pursuant to the attached step schedule. You will,
however, be entitled to receive any dividends, income, or other ownership
privileges from each restricted stock grant at the time of the grant.
For example, upon the completion of 18 months of satisfactory employment
service you will receive a grant of 1,000 shares. You will be given actual
ownership of 333 at that time and be entitled to dividends, income or other
ownership privileges in the remaining 667 shares. One year following the date
of the initial grant, you will be entitled to actual ownership of another 333
shares with the actual ownership of the final 334 shares provided two years
following the date of the initial grant.
It is expressly understood that no such stock grant may be given unless and
until the shareholders of the Company approve amendments to the Articles of
Incorporation and Bylaws of the Company to authorize the New Common Stock and
to approve the ownership of the Company's securities by non-physicians
(Expect to get approval 3/22/97). It is also expressly understood that,
assuming the issuance of New Common Stock, the terms and conditions of your
rights to and in any such New Common Stock shall be set forth in a separate
agreement or agreements which shall, among other things, outline any
restrictions on the shares of New Common Stock.
. The Company will pay for family health benefits coverage through "Patients
Choice", the Company's HMO subsidiary, or alternative health benefits
coverage available to the Company's employees.
. The Company will pay for standard long-term disability insurance that will
provide for salary continuation in an amount equal to 50% of your annual base
salary at the time of disability. Eligibility for and duration of long-term
disability benefits will be subject to the policy terms in force at the time
of disability.
. A flexible Perk Program allowing you to direct an amount equal to five (5)
percent of your annual base salary toward payment of an employee fringe
benefit(s) of your choice (e.g., a car allowance). It is expressly understood
that the establishment of the Flexible Perk Program shall be subject to and
contingent upon an analysis of the relevant tax, ERISA and other legal and
financial considerations.
. The company will pay for standard Group Term Life Insurance valued at (2)
times your annual base salary. Benefits will be subject to the policy terms
in force at the time of death.
. Participation in a defined contribution retirement plan based upon a percent
of your base salary. Participation and benefits will be subject to the terms
of the applicable plan documents in force at the time of retirement. It is
expressly understood that establishment of such a defined contribution
retirement plan shall be subject to and contingent upon an
<PAGE>
MD
------------
HEALTHSHARES
analysis of the relevant tax, ERISA, and other legal and financial
considerations. The company retains the right to amend, modify or terminate
any such plan hereafter established in accordance with the terms of the plan
document.
. You will be eligible for participation in the Company's retiree health
program. Eligibility for, participation in, and benefits available will be
subject to the terms of the applicable plan documents in force at the time of
retirement. It is expressly understood that establishment of such a retiree
health plan shall be subject to and contingent upon an analysis of relevant
tax, ERISA, and other legal and financial considerations. The Company retains
the right to amend, modify or terminate any such plan hereafter established
in accordance with the terms of the plan document.
. Reasonable travel expenses will be reimbursed for travel on Company-related
business upon submission of supporting documentation. This shall include
reasonable costs of trips to New Orleans area for the purpose of selecting a
home. In addition the Company shall reimburse for no more than six weekend
commuting trips to and from New Orleans.
. Relocation expenses to be covered by MD HealthShares. Should you not complete
one full year of employment for any other reason that the Company's
convenience, the relocation expenses will be recouped from your final
compensation.
. Temporary living arrangements will be made available to you for a period of
up to six (6) months up to $7,000. Reasonable effort should be made to locate
permanent housing during this period at which time temporary housing will be
eliminated.
. You will be entitled to three weeks paid vacation annually.
. It is expressly understood and agreed that you are an at-will employee and
that the Company has the right to terminate your employment at any time with
or without stated or actual reason. In the event of termination of your
employment relationship, you will be eligible for the following benefits:
For Cause Termination. The Company may terminate your employment at any time
for cause and such termination will be effective immediately. For the
purposes of this paragraph "for cause" shall mean dishonest, fraudulent, or
illegal acts, activity harmful to the reputation of the Company, conduct
deemed by the Company as not in the best interest of the Company, a violation
of any statutory or common law duty of the Company. If you are terminated
"for cause", you will be entitled to payment of any accrued salary and
benefits through the date of termination and an additional lump-sum payment
of one month's base salary. Any shares of New Common Stock that have vested
must be sold back to the Company at the greater of book value or market
price, if a market has been established. All shares of New Common Stock in
which you have not yet vested in an actual ownership interest will revert to
the Company. Purchase of shares shall occur within 90 days of the date of
termination.
<PAGE>
MD
------------
HEALTHSHARES
Termination for the Company's Convenience. The Company may, for its own
convenience, terminate your employment at any time, without a "for cause"
showing, by giving at least 30 days prior written notice. If your employment
is terminated for the Company's Convenience, you will be entitled to payment
of any accrued salary and benefits through the date of termination. In
addition, you will be paid an additional six (6) months of base salary (no
benefits except those required by law) as severance. Any shares of New Common
Stock that have vested must be sold back to the Company at the greater of
book value or market price, if a market has been established. All shares of
New Common Stock in which you have not yet vested in an actual ownership
interest will revert to the Company. Purchase of shares shall occur within 90
days of the date of termination.
Voluntary Termination. You may terminate your employment with the Company at
any time, for any reason, by giving the Company at least thirty (30) days
prior written notice. If you terminate your employment, you will be entitled
to payment of the accrued salary and benefits through the date of
termination. Your will be eligible for no additional severance payments. Any
shares of New Common Stock that have vested must be sold back to the Company
at the greater of book value or market price, if a market has been
established. All shares of New Common Stock in which you have not yet vested
in an actual ownership interest will revert to the Company. Purchase of
shares shall occur within 90 days of the date of termination.
Please acknowledge your understanding of and agreement to these terms and
conditions by signing the letter where indicated below. We look forward to your
joining the MD HealthShares team as we move forward.
Sincerely,
MD HEALTHSHARES CORPORATION
By: /s/ JAMES A. WHITE, M.D.
---------------------------
James A. White, M.D.
Chairman, Board of Directors
Acceptance:
/s/ JAY NEUKOMM
- ------------------
Jay Neukomm
Effective Date: 3/22/97
<PAGE>
EXHIBIT 6(g)
MD
------------
HEALTHSHARES
May 14, 1997
Frank Dennis Irwin, M.D.
4712 Laurel Dr.
Harrisburg, PA 171700
Re: Offer of Employment (Revision 4)
Dear Dr. Irwin:
This will confirm the terms upon which you are being offered full-time
employment as the Vice President of Medical Management and Physician Affairs of
MD HealthShares Corporation and its subsidiaries and affiliates, including
Patient's Choice, Inc. (collectively, the "Company") in accordance with the
position description attached hereto. As one of only a few employees of this
newly organized Company, some benefits being offered to you are necessarily
subject to establishing and/or securing the appropriate employee benefit plans,
programs and policies. Such policies are subject to a variety of federal and
state laws and regulations and those laws and regulations may require or warrant
changes in or even possibly elimination of some of the benefits outlined below.
Consequently, while the Company contemplates providing you with the benefits as
outlined, this offer of benefits is qualified and the benefits contingent upon a
final decision by the Board to establish or secure the necessary employee
benefits plans, programs, and policies and actual terms of such plans, programs
and policies.
The position of Vice President of Medical Management and Physician Affairs
reports to the Chief Executive Officer of the company and whose authority he is
subject to and to whom he is accountable. Duties and responsibilities of the
position are outlined in the attached job description. The Vice President of
Medical Management and Physician Affairs will be required to maintain a
Louisiana medical license.
Your employment will be "at will" and nothing in this letter shall be
construed as creating an employment contract or agreement with Company for any
fixed term.
Subject to the foregoing, your employment by the Company will include the
following terms:
. Annual base salary of $180,000, payable biweekly while employed at the
Company.
. Eligibility for an annual bonus of up to 15% of your base salary. The annual
bonus will be based upon targets to be set by mutual agreement between you
and the Company shortly after commencement of your employment and will be
modified annually as the Company deems prudent.
<PAGE>
MD
------------
HEALTHSHARES
. Restricted stock grants of the Company's Class A Non-Voting Common Stock upon
completion of 18, 36, 48, and 60 months of satisfactory employment, in the
amounts of 1,800, 3,500, 3,500, and 5,000 respectively. Actual ownership in
each restricted stock grant will vest at the rate of 1/3 per year pursuant to
the attached step schedule. You will, however, be entitled to receive any
dividends, income, or other ownership privileges from each restricted stock
grant at the time of the grant.
For example, upon the completion of 18 months of satisfactory employment service
you will receive a grant of 1,800 shares. You will be given actual ownership
of 600 at that time and be entitled to dividends, income or other ownership
privileges in the remaining 1,200 shares. One year following the date of the
initial grant, you will be entitled to actual ownership of another 600 shares
with the actual ownership of the final 600 shares provided two years
following the date of the initial grant.
The terms and conditions of your rights to and in any such Common Stock shall be
set forth in a separate agreement or agreements which shall, among other
things, outline any restrictions on the shares of Common Stock.
. The Company will pay for family health benefits coverage through "Patients
Choice", the Company's HMO subsidiary, or alternative health benefits
coverage available to the Company's employees.
. The Company will pay for standard long-term disability insurance that will
provide for salary continuation in an amount equal to 50% of your annual base
salary at the time of disability. Eligibility for the duration of long-term
disability benefits will be subject to the policy terms in force at the time
of disability.
. The Company will pay for standard Group Term Life Insurance equal to your
annual base salary. Benefits will be subject to the policy terms in force at
the time of death.
. Participation in a defined contribution retirement plan based upon a percent
of your base salary. Participation and benefits will be subject to the terms
of the applicable plan documents in force at the time of retirement. It is
expressly understood that establishment of such a defined contribution
retirement plan shall be subject to and contingent upon an analysis of the
relevant tax, ERISA, and other legal and financial considerations. The
Company retains the right to amend, modify to terminate any such plan
hereafter established in accordance with the terms of the plan document.
. You will be eligible for participation in the Company's retiree health
program. Eligibility for, participation in, and benefits available will be
subject to the terms of the applicable plan documents in force at the time of
retirement. It is expressly understood that establishment of such a retiree
health plan shall be subject to and contingent upon an analysis of relevant
tax, ERISA, and other legal and financial considerations. The Company retains
the right to amend, modify or terminate any such plan hereafter established
in accordance with the terms of the plan document.
<PAGE>
MD
------------
HEALTHSHARES
. Reasonable travel expenses will be reimbursed for travel on Company-related
business upon submission of supporting documentation. This shall include
reasonable costs of trips to the Louisiana area for the purpose of selecting
a home. Prior approval may be required on certain amounts defined by the
Chief Executive Officer.
. Car allowance of $500.00 per month.
. Reasonable relocation expenses to be covered by MD HealthShares. Should you
not complete one full year of employment for any other reason than the
Company's convenience, the relocation expenses will be recouped from your
final compensation.
. Temporary living arrangements will be made available to you for a period of
up to six (6) months up to $7,000. Reasonable effort should be made to locate
permanent housing during this period at which time temporary housing will be
eliminated.
. You will be entitled to three weeks paid vacation annually.
. It is expressly understood and agreed that you are an at-will employee and
that the Company has the right to terminate your employment at any time with
or without stated or actual reason. In the event of termination of your
employment relationship, you will be eligible for the following benefits.
For Cause Termination. The Company may terminate your employment at any time
for cause and such termination will be effective immediately. For the
purposes of this paragraph "for cause" shall mean dishonest, fraudulent, or
illegal acts, activity harmful to the reputation of the Company, conduct not
in the best interest of the Company's good name, failure by employee to
wilfully perform his obligations under the terms of this agreement, a
violation of any statutory or common law duty of the Company. If you are
terminated "for cause", you will be entitled to payment of any accrued salary
and benefits through the date of termination and an additional lump-sum
payment of one month's base salary. Any shares of Common Stock that have
vested must be sold back to the Company at the greater of book value or
market price, if a market has been established. All shares of Common Stock in
which you have not yet vested in an actual ownership interest will revert to
the Company. Purchase of shares shall occur within 90 days of the date of
termination.
Termination for the Company's Convenience. The Company may, for its own
convenience, terminate your employment at any time, without a "for cause"
showing, by giving at least 30 days prior written notice. If your employment
is terminated for the Company's Convenience, you will be entitled to payment
of any accrued salary and benefits through the date of termination. In
addition, you will be paid an additional six (6) months of base salary (no
benefits except those required by law) as severance. Any shares of Common
Stock that have vested must
<PAGE>
MD
------------
HEALTHSHARES
be sold back to the Company at the greater of book value or market price, if
a market has been established. All shares of Common Stock in which you have
not yet vested in an actual ownership interest will revert to the Company.
Purchase of shares shall occur within 90 days of the date of termination.
Voluntary Termination. You may terminate your employment with the Company at
any time, for any reason, by giving the Company at least thirty (30) days
prior written notice. If you terminate your employment, you will be entitled
to payment of the accrued salary and benefits through the date of
termination. You will be eligible for no additional severance payments. Any
shares of Common Stock that have vested must be sold back to the Company at
the greater of book value or market price, if a market has been established.
All shares of Common Stock in which you have not yet vested in an actual
ownership interest will revert to the Company. Purchase of shares shall occur
within 90 days of the date of termination.
You, stipulate and agree that you shall not, during or after termination of
your employment by the Company, disclose or communicate any information or
knowledge of a confidential nature relating to the Company or its shareholders,
directors, officers, employees, healthcare providers, members or enrolees, the
Company's trade or business secrets, or any information in respect of which the
Company owes an obligation of confidence to any third party (i.e. any person,
firm or corporation not affiliated with the Company) or in any manner use any
such information or knowledge other than for the benefit of the Company. All
information, data, computer software and all documents or records, in whatever
form, relating to the Company's business shall be regarded as confidential. Such
information, knowledge and materials shall be used only in the proper course of
employment by the Company and shall neither be removed from the premises nor
disclosed or communicated to persons not employed by the Company without the
written consent of an officer of the Company. All documents, files, records,
lists, notes, memoranda, magnetic computer media and other records of
information or work carried out in the Company's employment belong solely to the
Company and shall be returned to the Company before or immediately upon
termination of employment.
This agreement shall become and be effective on and as of the [anticipated
start date], or such later date as you assume the actual performance of duties
for the Company under this agreement; provided, however, that this agreement
shall be legally binding on the parties hereto on the date on which it has been
signed by you and the Company.
Please acknowledge your understanding of and agreement to these terms and
conditions by signing the letter where indicated below. We look forward to your
joining the MD HealthShares team as we move forward.
<PAGE>
MD
------------
HEALTHSHARES
Sincerely,
MD HEALTHSHARES CORPORATION
By: /s/ JAMES A. WHITE, M.D.
------------------------------
James A. White, M.D.
Chairman, Board of Directors
ACCEPTANCE:
/s/ FRANK DENNIS IRWIN, M.D.
- ---------------------------------
Frank Dennis Irwin, M.D.
Date: 5/21/97
