<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
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
incorporation or organization) Identification No.)
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)
<PAGE>
Securities and Exchange Commission
Form 10-SB
MD HEALTHSHARES CORPORATION
PART I
(ALTERNATIVE 2)
ITEM 6: DESCRIPTION OF BUSINESS
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").
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"). See "Managed Care Plans of the Company;--The Managed
Care Industry--Preferred Provider Organizations".
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 ("AAHP"), 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
<PAGE>
variety of possible organizational and operational structures. Some of the
primary types of managed care plans are outlined below.
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, ther 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 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").
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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 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.
-4-
<PAGE>
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.
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 four types of managed care plans, HMO,
HMO/POS, 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.
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 will
process the claims, determine the applicable deductibles, copayments and
coinsurance, receive payments from
-5-
<PAGE>
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 NCQA. Voting Preferred Stock shareholders who
fail to meet NCQA credentialing may have their Voting Preferred Stock redeemed
under certain limited circumstances. See Part I, Item 12.
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.
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 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.
-6-
<PAGE>
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 seven employees, six of whom are
full-time employees.
ITEM 7. DESCRIPTION OF PROPERTIES.
The Company has no material properties.
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:
Name Age Position
---- --- --------
Rene G. Abadie 49 Director of Provider Relations
Lawrence L. Braud, M.D. 55 Director
David G. Bryan, M.D. 44 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
Lynn E. Hickman, M.D. 60 Director and Secretary/Treasurer
Patricia H. Jackson 42 Director of Medical Management
C. Clinton Lewis, M.D. 55 Director
Thomas P. McCabe 49 Interim Chief Executive Officer
Jay Neukomm 51 Vice President - Sales and
Marketing
Jere Price, Jr., M.D. 42 Director
William M. Roeling, M.D. 68 Director
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
-7-
<PAGE>
RENE G. ABADIE Mr. Abadie has been Director of Provider
201 St. Charles Avenue Relations since 1996. Prior to joining
Suite 4400 the Company, Mr. Abadie had been
New Orleans, Louisiana 70130 Director of Public Affairs for the LSMS
Director of Provider for over ten years.
Relations
LAWRENCE L. BRAUD, M.D. Dr. Braud has practiced Otolaryngology--
7777 Hennessy Boulevard Head and Neck Surgery in Baton Rouge,
Suite 400 Louisiana for over 21 years. A graduate
Baton Rouge, Louisiana 70808 of the LSU School of Medicine, Dr. Braud
Director is a Fellow of the American College of
Surgeons and the 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.
DAVID G. BRYAN, M.D. Dr. Bryan has practiced Obstetrics and
Suite 300 Gynecology in Monroe, Louisiana for 11
312 Grammont Street years. A graduate of the LSU School of
Monroe, Louisiana 71201 Medicine--Shreveport, Dr. Bryan is a
Director Diplomate of the American Board
Obstetrics and Gynecology, a Fellow of
the American College of Obstetrics and
Gynecology, and a Member of the American
Fertility Society and the American
Association of Laproscopists. Dr. Bryan
is President of The Woman's Clinic of
Monroe, Inc. Dr. Bryan has been a
director of the Company since 1996.
DANIEL G. DUPREE, M.D. Dr. Dupree has practiced Dermatology in
1101 S. College Road Lafayette, Louisiana for over 18 years. A
Suite 305 graduate of the LSU School of Medicine,
Lafayette, Louisiana 70503 Dr. Dupree is a Diplomate of the American
Director Board of Dermatology and a Fellow 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
#8 Park Island Drive Medicine, has practiced Otolaryngology--
New Orleans, Louisiana 70122 Head and Neck Surgery in New Orleans,
Director Louisiana for 23 years. Dr. Ellis is a
clinical professor in the Department of
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.
-8-
<PAGE>
MELANIE C. FIRMIN, M.D. Dr. Firmin has practiced Anesthesiology
720 Madison in Alexandria, Louisiana for 12 years. A
Alexandria, Louisiana 71301 graduate of the LSU Medical Center--
Director and Vice President Shreveport, Dr. Firmin is a Fellow of the
American Society of Anesthesiology and a
Diplomate of the American Board of
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.
LYNN E. HICKMAN, M.D. Dr. Hickman has practiced Internal
4224 Houma Boulevard, Medicine in Metairie, Louisiana for over
Suite 630 26 years. A graduate of Tulane University
Metairie, Louisiana 70006 School of Medicine, Dr. Hickman is a
Director and Secretary- Member of the American College of
Treasurer Physicians and a Member of the American
Society of Internal Medicine and the New
Orleans Academy of Internal Medicine. He
has served as Secretary-Treasurer of the
LSMS since 1992, served on the LSMS Board
of Counselors from 1989 to 1991, is Vice
President of the Louisiana Society of
Internal Medicine and was President of
the Orleans Parish Medical Society in
1988-89. Dr. Hickman has been a Director
and Secretary/Treasurer of the Company
since 1996.
Patricia H. Jackson, R.N. Ms. Jackson became Director of Medical
201 St. Charles Avenue Management in 1997. Prior to joining the
Suite 4400 Company, Ms. Jackson was Director of
New Orleans, Louisiana 70130 Medical Management for Woman's Physician
Director of Medical Health Organization, Baton Rouge,
Management Louisiana, from 1995 to 1996, and between
1990 and 1995 held various positions,
including 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
1005 Loreauville Road years, and for the last 17 of those years
New Iberia, Louisiana 70560 in New Iberia, Louisiana. A graduate of
Director the LSU School of Medicine, Dr. Lewis is
a Diplomate of the American 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
201 St. Charles Avenue Officer in 1997 pursuant to a consulting
Suite 4400 agreement with the Company. In addition
New Orleans, Louisiana 70130 to his contractual services for the
Interim Chief Executive Company, Mr. McCabe has a medical care
Officer consulting and legal practice in Long
Beach, California. Formerly, Mr. McCabe
was Executive 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.
-9-
<PAGE>
JAY NEUKOMM Mr. Neukomm became Vice President-Sales
201 St. Charles Avenue and Marketing in 1997. Prior to joining
Suite 4400 the Company, Mr. Neukomm had been Vice
New Orleans, Louisiana 70130 President-Sales and Marketing for
Vice President-Sales HealthCentral, Inc., Harrisburg,
and Marketing Pennsylvania during 1996, Director of
Sales and Marketing for Health Systems
International, Sacramento, California,
from 1993 to 1995, and Regional Sales
Manager for TakeCare Health Plan,
Sacramento, California from 1990 to 1993.
JERE (KENT) PRICE, JR., M.D. Dr. Price has practiced Anesthesiology in
4150 Nelson Road Lake Charles, Louisiana for over 6 years.
Lake Charles, Louisiana 70602 A 1981 graduate of the LSU School of
Director Medicine, Dr. Price completed his
residency at the University of Texas
Medical Center in 1984. Dr. Price is a
Fellow of the American Society of
Anesthesia and a Diplomate of the
American Board of Anesthesiology. Dr.
Price has been a director of the Company
since 1995.
WILLIAM R. ROELING, M.D. Dr. Roeling has practiced Obstetrics and
4720 I-10 Service Road Gynecology in New Orleans, Louisiana for
Suite 400 35 years. A graduate of LSU School of
Metairie, Louisiana 70001 Medicine, Dr. Roeling has served as
Director Chairman of the 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
3525 Prytania Street, Medicine and Pulmonology in New Orleans,
Suite 526 Louisiana since 1968. A 1961 graduate of
New Orleans, Louisiana 70115 Tulane University School of Medicine, Dr.
Director Shames is a Diplomate of the American
Board of Internal Medicine and the
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.
-10-
<PAGE>
JAMES A. WHITE III, M.D. Dr. White, a graduate of Tulane
2920 Jackson Street University School of Medicine, has
Alexandria, Louisiana 71301 practiced Otolaryngology--Head and Neck
Director and President Surgery in Alexandria, Louisiana for 25
years. Dr. White is a Fellow of the
American 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.
Dr. White has practiced Cardiology in
F. JEFF WHITE III, M.D. Shreveport, Louisiana since 1988. A 1982
2751 Virginia, Suite 5B graduate of the LSU School of Medicine--
Shreveport, Louisiana 71103 Shreveport, Dr. White is a Diplomate of
Director the American Board of Internal 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
Shreveport, Louisiana 71103 graduate of Vanderbilt University Medical
Director School, Dr. Williams is a Fellow of the
College of American 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. The Company had no executive officers during
the 1996 fiscal year. The Company has no plans or arrangements with its
executive officers for remuneration payments proposed to be made in the future.
-11-
<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:
Percentage
Amount of
Title of Class Name and Address of Owner* Owned Class**
-------------- -------------------------- ------ ----------
Junior Preferred Voting Stock Lawrence L. Braud, M.D. 1
David G. Bryan, M.D. 1
Daniel G. Dupree, M.D. 1
Michael S. Ellis, M.D. 1
Melanie C. Firmin, M.D. 1
Lynn E. Hickman, M.D. 0
C. Clinton Lewis, M.D. 1
Thomas P. McCabe 0
Jay Neukomm 0
Jere Price, 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 12
______________________
* For addresses, see Part I, Item 8.
** All amounts less than 1%
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:
Percentage
Amount of
Title of Class Name and Address of Owner* Owned Class**
-------------- --------------------------- ------ ----------
Class A Non-Voting Common
Stock Lawrence L. Braud, M.D. 500
David G. Bryan, M.D. 500
Daniel G. Dupree, M.D. 500
Michael S. Ellis, M.D. 500
Melanie C. Firmin, M.D. 500
Lynn E. Hickman, M.D. 0
C. Clinton Lewis, M.D. 500
Thoms P. McCabe 0
Jay Neukomm 0
Jere Price, 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 6,000
______________________
* For addresses, see Part I, Item 8.
** All amounts less than 1%.
-12-
<PAGE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
Not applicable.
ITEM 12. SECURITIES BEING OFFERED.
No securities are being offered in connection with this Form 10-SB or
pursuant to a Registration Statement under the Securities Act of 1933. The
following descriptions relate to the securities being registered.
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.
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 Common 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.
Resale of the Voting Preferred Stock to non-residents of the State of
Louisiana is prohibited during the period specified in Rule 147(e) of the
Securities and Exchange Commission, and all certificates for shares of Voting
Preferred Stock bear a written legend giving notice of such prohibition.
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.
-13-
<PAGE>
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 Common Stock has no voting
rights, except that under Louisiana law, the Common 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 Common Stock shareholders. Any such
amendment would be required to be approved by the vote of at least two-thirds of
the Common Stock shares present in person or by proxy at a meeting of the
shareholders.
The Common 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 Common 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 Voting Preferred
Stock. Holders of Common Stock, as such, have no conversion, preemptive or
other subscription rights. Upon issuance, all shares of Common Stock will be
fully-paid and nonassessable.
Restrictions on Transfer. The Company's Bylaws prohibit the resale or
other transfer of the Common 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 Common Stock upon the issuance thereof.
In connection with the Offering, the Board of Directors has resolved that
resale or other transfer of the shares of Common Stock included in the Units
issued in the Offering shall be prohibited until such shares are released from
the resale prohibition on the same timing schedule established for the shares of
Common Stock issued in the Recapitalization (see "--The Recapitalization"), as
follows: 100 shares of the Common Stock included in each Unit sold in the
Offering will be released from the resale prohibition on March 22, 1998; an
additional 100 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 Common Stock bear a written
legend giving notice of such restrictions.
Resale of Common Stock to non-residents of the State of Louisiana is
prohibited during the period specified in Rule 147(e) of the Securities and
Exchange Commission, and all certificates for shares of Common Stock bear a
written legend giving notice of such prohibition.
Redemption. There is no provision in the Company's Bylaws for redemption of
the Common Stock and purchasers of Units must be prepared to hold the Common
Stock indefinitely.
Ownership Restrictions. The Company's Bylaws prohibit the ownership
by any person of more than 2% of the outstanding shares of Common Stock, and
prohibit the transfer of Common 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 Common 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.
-14-
<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 Common Stock of the Company, and no dividends
have been declared or paid by the Company on the Common Stock. The Common Stock
is held 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. 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 and five hundred
shares of Class A Non-Voting Common Stock. 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 encessarily
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.
-15-
<PAGE>
PART F/S
The Company's financial statements required by Item 310 of Regulation S-B
follow immediately:
-16-
<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
-17-
<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
=========== ===========
-18-
<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.
-19-
<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.
-20-
<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.
-21-
<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.
22
<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.
23
<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 - - 200,755 100,755
Restricted investments 1,071,777 1,071,777 - -
Note payable to LSMS - - (175,462) -
24
<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.
25
<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 and 4,642
shares issued and outstanding,
respectively $ 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 and 2,071,000 shares
issued and outstanding,
respectively 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
=========== ===========
******
26
<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 March 22, 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
ITEM 2. DESCRIPTION OF EXHIBITS.
The Company's Exhibits are included elsewhere in this Registration
Statement.
27
<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: April 23, 1997 By: /s/ Thomas P. McCabe
--------------------
Thomas P. McCabe
Interim Chief Executive Officer
28
<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 March 22, 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
<PAGE>
EXHIBIT 2(a)
MD HEALTHSHARES CORPORATION
RESTATED ARTICLES OF INCORPORATION
The undersigned, James A. White III, M.D. and Lynn E. Hickman, M.D., do
hereby certify that:
1. They are the President and Secretary, respectively, of M.D.
HealthShares Corporation (the "Company"), which was incorporated under the laws
of the State of Louisiana on July 18, 1995.
2. The Articles of Incorporation of the Company are hereby restated this
22nd day of March, 1997 to read in their entirety as follows:
Article I
CORPORATE NAME;
DURATION OF EXISTENCE
The name of the corporation shall be MD HealthShares Corporation
(hereinafter the "Corporation"), and it shall have and enjoy perpetual
existence.
Article II
OBJECTS AND PURPOSES;
CORPORATE POWERS
SECTION 1. The objects and purposes for which the Corporation is organized
are to engage in any lawful business or activity for which corporations may be
organized and in which they may engage under the laws of the State of Louisiana
including, but without limitation, to organize, establish, invest in and hold
and vote the shares of subsidiary and other corporations and entities providing
health care services and financing plans to residents of the state of Louisiana.
SECTION 2. The Corporation shall have and may exercise all powers, rights,
authorities and privileges which are now or may hereafter be conferred upon or
permitted to corporations organized under the Business Corporations Law, La.
Rev.Stat.(S) (S) 12:1-178, as such Law may be amended from time to time.
Article III
CAPITAL STOCK
SECTION 1. AUTHORIZED STOCK. The total number of shares of capital stock
which the Corporation shall have authority to issue is 10,007,501, consisting of
(i) 2,000,000 shares of Preferred Stock, $1.00 par value, (ii) 7,500 shares of
Junior Preferred Voting Stock, $1.00 par value, (iii) 8,000,000 shares of Class
A Non-Voting common Stock, $0.10 par value, and (iv) 1 share of Class B Common
Stock, $0.10 par value. The Class A Non-Voting Common Stock and the Class B
Common Stock are referred to collectively as the "Common Stock."
SECTION 2. CONVERSION OF FORMER CLASS A COMMON STOCK. Upon the effective
date of this Article III, as amended, under the Louisiana Business Corporation
Law, each outstanding share of the Company's Class A Common Stock formerly
authorized by this Article III shall be automatically canceled and converted
into one share of Junior Preferred Voting Stock and five hundred shares of Class
A Non-Voting Common Stock.
SECTION 3. SERIAL PREFERRED STOCK. The Board of Directors is hereby
expressly authorized, by resolution or resolutions from time to time adopted, to
amend these Articles of Incorporation to provide, out of the unissued shares of
Preferred Stock, for the issuance of serial Preferred Stock. Before any shares
of any such series are issued, the Board of Directors shall fix and state, and,
except as set forth herein, the Board of Directors is expressly empowered to
fix, by such resolution or resolutions, the designations, preferences, and
relative, participating, optional or other special rights of the shares of each
such series, and the qualifications, limitations or restrictions thereon,
including but not limited to, determination of any of the following:
<PAGE>
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(b) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and if so, from what dates, the conditions and
dates upon which such dividends shall be payable and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other series of this class;
(c) whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other terms and conditions of
such redemption;
(d) the amount or amounts payable upon shares of such series upon, and the
rights of the holder of such shares in the voluntary or involuntary liquidation,
dissolution or winding up, or sale of a substantial portion of the assets of the
Corporation;
(e) whether the shares of such series shall be subject to the operation of
a retirement or sinking fund and if so the extent to and manner in which any
such retirement or sinking fund shall be applied to the purchase or redemption
of the shares of such series for retirement or other corporate purposes and the
terms and provisions relative to the operation thereof;
(f) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of such
class or any other class or classes of securities and if so, the price or prices
or the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange, provided that no such shares shall be convertible into or exchangeable
for voting securities of the Corporation,
(g) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of such class;
(h) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of the class
or of any other class; and
(i) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions
thereof, provided that the Corporation may not issue any series of Preferred
Stock that shall have voting rights other than those expressly required by law.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative. The
Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing series by a resolution adding to such series
authorized and unissued shares of the Preferred Stock not designated for any
other series. The Board of Directors may decrease the number of shares of
Preferred Stock designated for any existing series by a resolution subtracting
from such series unissued shares of the Preferred Stock designated for such
series and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
SECTION 4. COMMON STOCK.
(a) The Class A Non-Voting Common Stock shall have no voting rights.
(b) The Class B Common Stock shall have one vote and, except as to the
election of directors and as otherwise required by law or provided in these
Articles of Incorporation, shall vote together with the Junior Preferred
-2-
<PAGE>
Voting Stock (as defined in this Article III) as a single class on all matters
brought before the shareholders of the Corporation.
(c) The record owner holder of the Class B Common Stock shall have the
right to elect one director of the Corporation at every annual meeting of the
Corporation held for the purpose of electing directors.
(d) Except as to voting rights, the Class A Non-Voting Common Stock and
the Class B Common Stock shall have equal and identical powers, preferences and
rights. Subject to the provisions of law and the rights of the Preferred Stock
and any other class or series of stock having a preference as to dividends over
the Common Stock then outstanding, dividends may be paid on the Common Stock out
of assets legally available for dividends, but only at such times and in such
amounts as the Board of Directors shall determine and declare. Upon the
dissolution, liquidation or winding up of the Corporation, after any
preferential amount to be distributed to the holders of the Preferred Stock and
any other class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its shareholders ratably
in proportion to the number of shares held by them, respectively.
(e) At any time the Class B Common Stock is outstanding, Section 3(c) of
this Article III may not be amended without the affirmative vote of the Class B
Common Stock shareholder voting as a separate class.
SECTION 5. JUNIOR PREFERRED VOTING STOCK. The terms, preferences, rights,
restrictions and qualifications of the Junior Preferred Voting Stock shall be
fixed as follows:
(a) Rank. The Junior Preferred Voting Stock ("Voting Preferred") shall,
with respect to and upon liquidation, dissolution or winding up of the
Corporation, rank (1) junior to any other class or series of stock issued by
this Corporation designed as senior to the Voting Preferred ("Senior
Securities"), (2) senior and prior to the Common Stock, and to any other stock
issued by this Corporation designated as junior to the Voting Preferred
(collectively, including, without limitation, the Common Stock, herein called
the "Junior Securities") and (3) on a parity with any other class or series of
stock of this Corporation, the terms of which specifically provide that such
class or series shall rank on a parity with the Voting Preferred (the "Parity
Securities").
(b) Dividends. The Voting Preferred shall not be entitled to receive
dividends.
(c) Liquidation Preference.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of this Corporation, then, before
any distribution or payment shall be made to the holders of any Junior
Securities, including the Common Stock, and subject to the rights of
creditors and holders of Senior Securities, the holders of Voting Preferred
then outstanding shall be entitled to be paid out of the assets of this
Corporation available for distribution to its shareholders an amount in
cash equal to $1,000 for each share outstanding (which amount is
hereinafter referred to as the "Liquidation Preference"), together with an
amount in cash equal to all declared and unpaid dividends thereon to the
date fixed for liquidation, dissolution or winding up. Except as provided
in the preceding sentence, holders of Voting Preferred shall not be
entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of this Corporation. If the assets of this
Corporation are not sufficient to pay in full the liquidation payments
payable to the holders of outstanding shares of the Voting Preferred or any
Parity Securities, then the holders of all such shares shall share ratably
in any distribution of assets in accordance with the respective amounts
which would be payable on such shares if all amounts payable thereon were
paid in full. After payment of the full amount of the Liquidation
Preference (together with an amount in cash equal to all declared but
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up) to which each holder is entitled, such holders of shares of
Voting Preferred will not be entitled to any further participation in any
distribution of the assets of this Corporation.
(ii) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of this Corporation, the holders
of Voting Preferred then outstanding shall be entitled to receive payment
of the Liquidation Preference (together with an amount in cash equal to all
declared but unpaid
-3-
<PAGE>
dividends thereon to the date fixed for liquidation, dissolution or winding
up) only after the holders of Senior Securities outstanding at the time
have received fully the amount to which they are entitled.
(iii) For the purpose of this paragraph (d), neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of
the property or assets of this Corporation nor the consolidation or merger
of this Corporation with any other corporation shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up of this
Corporation, unless such voluntary sale, conveyance, exchange or transfer
shall be in connection with a plan of liquidation, dissolution or winding
up of this Corporation.
(d) Redemption. To this extent this Corporation shall have funds legally
available for such redemption, this Corporation may redeem shares of Voting
Preferred in the circumstances and on the terms and conditions as may be set
forth in the Bylaws of the Corporation.
(e) Voting Rights.
(i) Each share of Voting Preferred shall have one vote, and
except as required by law or provided by these Articles, the Voting
Preferred shall vote together with the Class B Common Stock as a single
class on all matters brought before the shareholders of the Corporation.
(ii) The Voting Preferred shareholders shall have exclusive
voting rights with respect to the election of directors of the Corporation;
excepting that, at any time the Class B Common Stock is issued and
outstanding, the holder of the Class B Common Stock shall be entitled to
such voting rights with respect to the election of directors as provided in
Section 3(c) of this Article III.
(iii) So long as any shares of Voting Preferred remain outstanding,
this Corporation will not, either directly or indirectly or through merger
or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with our without a meeting of the
holders of at least 50% in number of shares of Voting Preferred then
outstanding, amend, alter or repeal any of the provisions of the Articles
of Incorporation of the Corporation so as in any such case to affect
adversely the rights, preferences or powers of the Voting Preferred;
provided, however, that neither the amendment of the Articles of
Incorporation so as to increase the authorized amount of any of the
Corporation's Junior Securities, nor the amendment of the Articles of
Incorporation to fix the designations, preferences, and special rights of
one or more series of Preferred Stock, including Preferred Stock
constituting Senior Securities, shall be deemed to affect adversely the
powers, rights or preferences of the holders of shares of Voting Preferred
unless any such amendment shall create or authorize a class or series of
capital stock that shall be granted parity of voting rights with the Voting
Preferred.
(g) Ownership Restrictions. The Voting Preferred shall be subject to such
restrictions and limitations on aggregate record or beneficial ownership by any
person or any group of persons acting in consent with respect to the Voting
Preferred as may be set forth in the Bylaws of the Corporation.
Article IV
CORPORATE ACTION OF
SHAREHOLDERS; CONSENTS
SECTION 1. If shareholder action or approval is required by law in
connection with the amendment of these articles or any merger, consolidation,
transfer of corporate assets or dissolution of or involving the Corporation,
such action or approval shall be taken or given only upon the affirmative vote
of not less than fifty percent (50%) of the number of shares entitled to vote on
the particular question.
SECTION 2. Whenever the affirmative vote of shareholders is required to
authorize or constitute corporate action, the consent in writing to such action
signed only by shareholders holding that proportion of the total voting power on
the question which is required by law or by these Articles of Incorporation,
whichever requirement is higher, shall be sufficient for the purpose, without
the necessity of a meeting of shareholders.
-4-
<PAGE>
Article V
BOARD OF DIRECTORS;
OFFICERS
SECTION 1. The corporate powers and governance of the Corporation shall be
vested in and exercised through a Board of Directors, comprising not more than
25 nor fewer than three persons, unless all of the outstanding shares of the
Corporation are held by fewer than three persons, in which case the number of
directors shall be not fewer than the number of such shareholders. The Bylaws
of the Corporation shall fix the number, qualifications and compensation of the
Board of Directors, their terms of office and the mode and manner of their
nomination and election, and provide for the filling of vacancies, removal, the
number of directors constituting a quorum, and the duties and responsibilities
of the directors. Any director absent from a meeting of the Board of Directors
or any committee thereof may be represented by any other director, who may cast
the vote of the absent director according to the written instruction, general or
special, of the absent director.
SECTION 2. The officers of the Corporation shall be the president, the
secretary, the treasurer, and such other officers as may be provided for by the
Bylaws of the Corporation. Any or all of such officers may be combined in one
person.
Article VI
BYLAWS OF THE CORPORATION
The Board of Directors of the Corporation shall have the power to make,
adopt, alter, amend, rescind or repeal such bylaws, not inconsistent with these
Articles, as they deem necessary or proper for the governance and management of
the business and affairs of the Corporation, its officers, shareholders,
committees, employees and agents.
Article VII
LIMITATION OF LIABILITY
No director or officer of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director or officer, except in the case of breach of the director's or
officer's duty of loyalty to the Corporation or its shareholders; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; knowingly, or without the exercise of reasonable care and
inquiry, voting in favor of the payment of a dividend in violation of La. Rev.
Stat. (S) 12:92(D); or any transaction from which the director or officer
derived and improper personal benefit. Neither the repeal or nor any amendment
to this Article shall apply to or have any effect on the liability or alleged
liability of any director or officer of the Corporation for or with respect to
any act or omission of such director or officer occurring prior to such repeal
or amendment, absent the express consent of such a director or officer, or of
the director's or officer's heirs or legal representatives, to such repeal or
amendment.
Article VIII
INDEMNIFICATION OF
INCORPORATOR, DIRECTORS
AND OFFICERS
SECTION 1. To the fullest extent authorized or permitted by La. Rev. Stat.
(S) 12:83, 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
-5-
<PAGE>
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 any 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 Article. 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 Article
shall inure to the benefit of the heirs and legal representatives of any person
entitled to indemnity under this Article and shall be applicable to proceedings
commenced or continuing after adoption of this Article, whether arising from
acts or omissions occurring before or after such adoption.
SECTION 2. The Bylaws of the Corporation shall prescribe the manner and
procedures by which the indemnification provided by this Article shall be
invoked and effected.
SECTION 3. Neither the repeal of or any amendment to this Article 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 Article 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.
SECTION 4. The Board of Directors may provide in the Bylaws of the
Corporation, to the extent permitted by and not inconsistent with law or with
these Articles, for the indemnification of employees, servants and agents of the
Corporation.
IN WITNESS WHEREOF, the undersigned have executed these Restated Articles
of Incorporation this 22nd day of March, 1997.
/s/ James A. White III, M.D.
----------------------------
James A. White III, M.D.
President
/s/ Lynn E. Hickman, M.D.
----------------------------
Lynn E. Hickman, M.D.
Secretary
-6-
<PAGE>
EXHIBIT 2(b)
BYLAWS
__________
Amended and Restated
March 22, 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 principal office shall be located at Suite 4400, 201
St. Charles Avenue, New Orleans, Louisiana 70170. The Corporation may establish
and maintain offices at such other 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-half
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 holder 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. A record of the shareholders' meeting, giving the names of the
shareholders present and the number of shares of stock held by each, the names
of the shareholders represented by proxy and the number of shares held by each,
and the names or proxies, shall be entered into the records of the meeting in
the minute book of the Corporation. This record shall show the number of shares
voted for each resolution or voted for each candidate for director.
-2-
<PAGE>
(S) 2.13 SHARES HELD BY CORPORATION OR PARTNERSHIP. A corporation owning
shares in this Corporation may vote the same by its president, any
vice-president, secretary, or treasurer, or by proxy appointed in writing by any
of such officers, unless some other person appointed by bylaws or resolution of
the board of directors to vote the shares shall produce a certified copy of such
bylaws or resolution, in which case the other person shall be entitled to vote
the shares. A partnership owning shares in this Corporation may vote the same
by its managing partner or by any other person so authorized by resolution
adopted by such partnership or the governing body thereof.
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. The directors shall be elected at the
annual meeting of the shareholders and shall hold office for one year and until
their successors are elected to and qualified for office. No director need be a
shareholder.
(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.
(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.
(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 each
of the officers of the Corporation who are directors of the Corporation, and
two additional members of the Board of Directors who shall be elected by the
Board of Directors.
(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. Any director or officer of the Corporation who, during his or her
term of office, becomes disqualified to hold such office pursuant to this
Section shall be required to resign from office with the Corporation or may be
removed from office upon a finding of disqualification by majority vote of the
Board of Directors.
(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 hold office at
the pleasure of the directors.
(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 shareholders and
special meetings of the
-6-
<PAGE>
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 Junior
Preferred Voting Stock of the Corporation ("Voting Preferred") 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) 7.12.
(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, and does not own of record any shares of Voting Preferred (an "Eligible
Purchaser"), and no shareholder shall sell, transfer, assign or otherwise
dispose of the Voting Preferred to any Eligible Purchaser 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: (A) that 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) that
the payment of the Price shall be in cash and is not subject to any prior
condition or contingency; and (D) that 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").
-7-
<PAGE>
(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.
-8-
<PAGE>
(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 Non-Voting Common 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, with the
seal of the Corporation affixed thereto 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.
(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
-9-
<PAGE>
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) 7.12
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.
-10-
<PAGE>
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,
-11-
<PAGE>
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 22nd day of March, 1997.
New Orleans, Louisiana, this 22nd day of March, 1997.
/s/ Lynn E. Hickman, M.D.
--------------------------
Lynn E. Hickman, M.D.
Secretary-Treasurer
Attest:
/s/ James A. White III, M.D.
- ----------------------------
James A. White III, M.D.
President
-12-
<PAGE>
EXHIBIT 6(a)
CONSULTING SERVICES
AGREEMENT
--------
BY AND BETWEEN
MD HEALTHSHARES CORPORATION,
PATIENT'S CHOICE, INC.
AND
THOMAS P. MCCABE
--------
THIS CONSULTING SERVICES AGREEMENT is made and executed by and between MD
HEALTHSHARES CORPORATION, a Louisiana Corporation having its principal offices
at Suite 4400, 201 St. Charles Avenue, New Orleans, Louisiana, 70170, for itself
and on behalf of its wholly-owned subsidiary, PATIENT'S CHOICE, INC.
(collectively, the "MDHS Companies"); and THOMAS P. MCCABE, ("McCabe"), a person
of the full age of majority having his principal place of business at 6063 Lido
Lane, Long Beach, California 90803-4128.
(S)1 SERVICES TO BE PROVIDED. The MDHS Companies hereby retain McCabe to
provide consulting services, specifically as the Chief Executive Officer (CEO)
of the MDHS Companies on an interim basis, and to assist the MDHS Companies in
evaluating, assessing and carrying out the MDHS Companies' business plan in
operating a health maintenance organization ("HMO") in the state of Louisiana.
McCabe shall be responsible to the Boards of Directors and Executive Committees
of the MDHS Companies and shall work in cooperation with the staff and other
consultants retained by the MDHS Companies. It is understood that McCabe is
consulting with the MDHS Companies on the basis of his extensive experience in
healthcare on both the Provider and Payor side of the HMO industry.
(S)2 PROFESSIONAL FEES. McCabe shall be compensated for his services by the
MDHS Companies at the rate of $175.00 per hour, with a maximum daily rate of
$1,800.00.
(S)3 REIMBURSABLE EXPENSES. In addition to the fees otherwise provided for
in this section, the MDHS Companies will reimburse McCabe for usual, customary
and reasonable expenses for travel, lodging, duplication, communication and
other out-of-pocket costs, necessarily or appropriately incurred or advanced by
McCabe in his performance of services under this Agreement; provided that
expenses for travel and lodging shall be reimbursed only when any such travel or
lodging has been approved by the MDHS Companies prior to being incurred by
McCabe, and provided further that the MDHS Companies' payment of expenses which
are reimbursable hereunder will be made only pursuant to a written invoice
itemizing such expenses and the dates on which they were incurred, accompanied
by appropriate documentation in the form of receipts and/or invoices for any
such expenses in excess of $200.
(S)4 INVOICING AND PAYMENT. Invoices for professional fees and reimbursable
expenses will be prepared and rendered by McCabe on a semi-monthly basis, with
such invoices reflecting the dates and hours or services devoted by McCabe to
the performance of consulting services for the MDHS Companies and itemizing
reimbursable expenses incurred by McCabe in accordance with (S)3 of this
Agreement. Payment on any such invoices will be made by the MDHS Companies
within Fifteen (15) calendar days of their receipt thereof thereafter.
(S)5 EFFECTIVE DATE; TERM. This agreement is on an as needed basis, and is
considered to be at will. This agreement shall become and be effective on the
date that it has been executed by both parties hereto and shall continue in
force thereafter until terminated by either party, with or without cause, upon
10 days' prior written notice. Upon termination, all compensation accrued by
McCabe shall be due and payable
<PAGE>
CONSULTING SERVICES
THOMAS P. MCCABE AGREEMENT 2
- ------------------------------------------------------------------------------
within ten (10) working days of the date of termination, and shall include final
travel arrangements and expenses.
(S)5 HOLD HARMLESS. The MDHS Companies, acknowledging that McCabe does not
carry errors and omissions (E&O) insurance, specifically agrees to indemnify and
hold harmless McCabe from and against any and all claims, damages, suits or
losses of any kind whatsoever arising out of the consulting services provided to
the MDHS Companies hereunder unless such claim, suit or damage results directly
from gross negligence, or the commission or omission of egregious acts by McCabe
in the performance of his duties hereunder.
(S)7 INDEPENDENT CONTRACTOR. In the performance of consulting services under
this Agreement, it is mutually understood and agreed that McCabe is at all times
acting and performing as an independent contractor. McCabe shall be solely
responsible for all of his federal, state and municipal income taxes, social
security, retirement and all other taxes and the MDHS Companies shall not
withhold taxes or be obligated in any manner therefore for any of McCabe's taxes
or charges. No relationship of employer and employee is created by this
Agreement, nor is a partnership, joint venture, or principal agent relationship
created by this Agreement. McCabe shall have no claim under this Agreement or
otherwise against the MDHS Companies for vacation pay, sick leave, retirement
benefits, social security, worker's compensation, disability, or unemployment
insurance benefits, or employee benefits of any kind.
IN WITNESS WHEREOF, the McCabe has subscribed and executed this Agreement and
the MDHS Companies have caused this Agreement to be subscribed and executed, in
duplicate original, by their undersigned duly authorized officer on the date(s)
hereinafter indicated.
MD HEALTHSHARES CORPORATION
BY: /s/ JAMES A. WHITE, III, M.D. /s/ THOMAS P. MCCABE
------------------------------- --------------------------------------
James A. White, III, M.D. Thomas P. McCabe
President
Date: 2-7-97 Date: 2-7-97
----------------------------- ---------------------------------
<PAGE>
EXHIBIT 6(b)
MANAGED CARE CONSULTANTS, INC.
--------
THIRD PARTY ADMINISTRATION AGREEMENT
FOR
MD HEALTH SHARES CORPORATION
AND ITS SUBSIDIARY,
PATIENT'S CHOICE, INC.
--------
MANAGED CARE CONSULTANTS, INC. (hereinafter referred to as "TPA"), a
corporation organized under the laws of the State of Nevada and with an address
of 4160 South Pecos Road, Las Vegas, Nevada 89121, and MD HEALTHSHARES
CORPORATION (HEREINAFTER REFERRED TO AS "MDHS") and its subsidiary, PATIENT'S
CHOICE, INC. (hereinafter referred to as "Patient's Choice"), with an address of
Suite 4400, 201 St. Charles Avenue, New Orleans, Louisiana, 70170, both
Louisiana Corporations.
This Agreement is effective the 1st day of January 1997.
Whereas, Patient's Choice has been organized and capitalized to operate
throughout the State of Louisiana as a health maintenance organization
(hereinafter referred to as "HMO")
Whereas, Patient's Choice desires to engage TPA to provide certain services
necessary and appropriate to implementation and administration of health benefit
plans offered and contracted by Patient's Choice and for the benefit of its Plan
Members as described infra.
NOW THEREFORE, the Parties, for lawful consideration and intending to be
legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.01 The term "Plan" shall mean the contract, certificate, policy, health plan
document or any other document offered or sponsored by Patient's Choice
under which a Covered Person may be entitled to receive
reimbursement/payment for health care services.
1.02 The term "Covered Person" or "Member" shall mean an employee or dependent
who is eligible under the Plan and whose enrollment materials have been
properly completed and submitted to and accepted by Patient's Choice and
who has made payment or on whose behalf payment has been made to Patient's
Choice for providing or arranging for the provision of Covered Services.
1.03 The term "Covered Services" means the medically necessary medical,
hospital and other health care services specified as such by the Plan and
described in its Benefits Summary.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 2
- -------------------------------------------------------------------------------
1.04 The term "Participating Provider" means any licensed physician, other
health professional, ancillary service provider, hospital or other entity
or institutional health care provider who or which has entered into a
contractual agreement with Patient's Choice, directly or indirectly, to
provide Covered Services to Members.
1.05 The term "Contract Physician" means a licensed physician who is a
Participating Provider as defined herein but is not a shareholder of MDHS.
1.06 The term "Regional IPA" means one of the six regionally organized
independent practice associations with which Patient's Choice has
contracted to provide Covered Services to Members through the physicians
members of the IPA.
ARTICLE II
DUTIES AND RESPONSIBILITIES OF TPA
2.01 DATABASE MAINTENANCE, ACCESS AND SECURITY
A. TPA shall, based on information and data furnished by Patient's
Choice, create, establish, and maintain, to the best of TPA's ability,
an accurate, complete and current computer database record of:
1. the enrolled Members of all Patient's Choice Plans it administers,
including all data elements as may be necessary or appropriate to
properly identify such Members and the covered groups with which
they are affiliated and to the timely and efficient performance of
the functions and services of TPA provided for in this Agreement;
and
2. Patient's Choice's Participating Providers (with Contract
Providers and non-physician ancillary providers being separately
designated as such) including such data elements as may be
necessary or appropriate to properly identify the Participating
Providers, their respective medical specialties and the Regional
IPA with which they are affiliated, and otherwise as may be
necessary or appropriate to the timely and efficient performance
of the functions and services of TPA provided for in this
Agreement.
B. TPA shall also establish, and maintain, using the Benefit Management
Systems ("BMS") database management and claims paying system under
license from BMS, as customized by TPA for Patient's Choice, an
accurate complete and current computer database record of claims for
reimbursement for Covered Services submitted by Participating
Providers to and processed by TPA pursuant to Section 2.04-2.05 of
this Agreement.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 3
- -------------------------------------------------------------------------------
C. TPA shall provide for Patient's Choice and each of the Regional IPAs to
have computer access, by modem, dial-up telephone line, to each of the
Patient's Choice databases maintained by TPA pursuant to this Agreement.
TPA shall provide Patient's Choice and its Regional IPAs with such
communications and other computer software and technical and user support
as may be necessary or appropriate to access, view and download such data
and generate reports from the database management system(s) utilized by
TPA.
D. TPA shall operate a toll-free automated telephone system, maintained at
Patient's Choice's expense in accordance with (S) 8.02 of this Agreement,
allowing Participating Providers to verify Member eligibility 24 hours a
day, seven days a week.
E. TPA shall ensure the physical and electronic integrity and security of
all data which it maintains for and on behalf of Patient's Choice
relating to Members, Participating Providers and claims. Security
provisions shall include, at a minimum, having a commercially reasonable
disaster recovery plan in the event of the complete or partial loss of
data or malfunction of computer systems and maintaining current off-site
backup copies of all of the Patient's Choice data files at a location
known to Patient's Choice and to which Patient's Choice has access at all
times upon reasonable prior notice. TPA shall furnish Patient's Choice
with a written log of the tapes or other computer media in the off-site
location monthly after each update of such data. Duplicates of the
magnetic tapes or other media containing the current records of Patient's
Choice shall be furnished by TPA to Patient's Choice once every six
months during the term of this Agreement. Additional or more frequent
duplicates as may be requested by Patient's Choice will be supplied by
TPA at cost, at the expense of Patient's Choice.
F. TPA shall also ensure, through any and all measures, policies and
procedures as may be necessary or appropriate, that no person, firm or
entity other than TPA, its officers and employees having responsibilities
with respect to the provision of services hereunder, and such persons as
may be Authorized by Patient's Choice, shall have access to the computer
data and other records of Patient's Choice maintained by TPA under this
Agreement.
G. Within fifteen (15) days of the date on which proper notice of
termination of this Agreement is given by one party to the other pursuant
to Article 6 of this Agreement, TPA shall transfer and deliver to
Patient's Choice on magnetic tape or other computer readable media a
complete, accurate and current copy of all computer databases and other
files and records than maintained by TPA on behalf of Patient's Choice
pursuant to this Agreement, together with the computer-readable and
executable software for the BMS
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 4
- -------------------------------------------------------------------------------
claims payment system and other database management systems, if any,
used by TPA, as the same may have been customized by or for TPA for
its provision of services hereunder and any and all manuals and other
written or printed documentation with respect thereto. Concurrently,
TPA shall ensure that Patient's Choice and MDHS are granted, at no
additional cost, expense or fee to Patient's Choice or MDHS, a
perpetual, non-exclusive license, or sublicense, to use the BMS claims
payment system and other database management systems delivered to
Patient's Choice hereunder.
2.02 PREMIUM BILLING AND COLLECTION
A. In accordance with Plan specifications, Member and Group enrollment
information and premium rates specified by Patient's Choice, TPA
shall, in the name of Patient's Choice or such other name in which it
elects to do business and so advises TPA, render initial and monthly
invoices to the persons, firms and entities constituting Groups
identified by Patient's Choice for the payment of Plan premiums and
other charges for or on behalf of Members.
B. Premium payments received by TPA from Patient's Choice Member Groups
shall be verified, reconciled and recorded by TPA and deposited in a
segregated account for premium receipt established by and in the name
of Patient's Choice.
C. TPA shall give written notice to Member Groups in accordance with Plan
specifications of any delinquency or deficiency in the payment of Plan
premiums and shall otherwise make commercially reasonable efforts to
collect all premium payments due Patient's Choice.
D. TPA shall notify Patient's Choice by an accounts receivable report of
any and all premium payments which remain unpaid within 45 days of the
date on which an invoice for such premiums was rendered.
E. TPA shall give written notice of termination or cancellation to any
Member Group for nonpayment of premiums when so authorized and
directed by Patient's Choice.
2.03 PRECERTIFICATION: HMO PLAN DESIGN
A. In accordance with applicable provisions of Plan certificates of
coverage, Managed Care Consultants, Inc. ("MCC") shall on behalf of
Patient's Choice review and if medically necessary and appropriate,
authorize, Participating Provider requests for pre-certification of
all inpatient hospital admissions, outpatient surgical procedures, and
not more than ten (10) addi-
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 5
- -------------------------------------------------------------------------------
tional procedures which are Covered Services and which Patient's
Choice may designate for precertification prior to the effective date
of this Agreement.
B. MCC's precertification function shall be performed by licensed
physicians or licensed registered nurses employed or contracted by
MCC, or by such other class of licensed healthcare practitioner as may
be approved by Patient's Choice. No admission or procedure shall be
denied precertification except upon the approval of MCC's Medical
Director, who shall be a doctor of medicine licensed to practice
medicine, with the concurrence of Patient's Choice given through its
Medical Director or other designee.
C. MCC shall respond to and provide notice of precertification decisions
with respect to hospital admissions on the same business day as the
request is received, except in cases where a hospital admission is
urgently required, in which case, MCC shall respond immediately so as
not to delay care pending the receipt of sufficient information for
retroactive certification. With respect to all other procedures for
which precertification is required, MCC shall respond and provide
notice of precertification decisions within not more than 24 hours or
one business day of a request for and reasonably sufficient
information pertaining to precertification, except as to purely
elective Covered Services for which precertification is required, in
which case MCC shall respond within 72 hours.
2.04 CLAIMS PROCESSING
A. TPA shall receive and review all claims to determine if such allocated
claims are within the predetermined limits of the corresponding fee
schedule. In all cases where there is a submitted bill that is greater
than allocated limit(s), TPA shall re-factor such payment(s)
accordingly. Re-factoring of payments shall not be applicable to
Contract Providers or Participating Providers who or which are not
shareholders of MDHS and members of a Regional IPA.
B. TPA shall complete its review of all claims after complete proof of
claim is received by TPA in accordance with the State of Louisiana's
applicable laws and regulations.
C. TPA shall make provision for the electronic submission and filing of
claims by Participating Providers.
D. TPA shall process all HMO claims in the order received and shall use
its best efforts, consistent with either industry standards or
statutory guidelines, to compute reimbursements based on claims to
funding ratios.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 6
- -------------------------------------------------------------------------------
E. TPA shall process all PPO and indemnity claims in the order received and
shall use its best efforts, consistent with industry standards, to
compute the benefits payable, if any, in accordance with the Plan. TPA
will process completed claims in the order received. All contested claims
will be subject to the appeal procedures set forth in the Plan.
2.05 CLAIMS PAYMENT/REIMBURSEMENT
A. Claims shall be paid/reimbursed in the order processed and based on
claims to funding ratios.
B. TPA shall manage, pay, and/or reimburse all claims according to the
appropriate payment structure (capitated, per diem, and fee schedule) as
it pertains to each of the six (6) Regional IPAs.
C. All clean claims for payment received by TPA from Participating
Providers on or before the fifth business day of each calendar month
with respect to Covered Services provided to Members during the preceding
calendar month shall be paid by TPA on or before the 10th business day of
such month, provided, however, that TPA's payment of Participating
Provider submitted to manually, in writing or other than by electronic
filing may be deferred for not more than an additional 10 days beyond the
date when payment of such claims would otherwise be due.
D. TPA shall transmit with each payment made to a Participating Provider who
is subject to refactoring of claims an explanation of benefits (EOB) or
equivalent written explanation of the factor by which the claim was
reduced by TPA pursuant to (S) 2.04 of this Agreement.
2.06 UTILIZATION MANAGEMENT
TPA shall flag and report, via first class mail, Health Information Network
(hereinafter referred to as "HIN"), fax, and/or telephone, to each IPA, if
applicable, when agreed upon Milliman & Robertson designated length of stay(s)
falls out of range. Notification shall be given to both the IPA's case managers
and the Director of Medical Management.
2.07 REPORTS
A. TPA shall provide to Patient's Choice, on diskette, a Physician/Provider
Directory from information supplied by CompHealth, a credentialing
verification organization.
B. TPA shall prepare and provide to Patient's Choice the following reports:
1. Disbursements/reimbursements made to or on behalf of participants.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 7
- -------------------------------------------------------------------------------
2. Total number of claims received during a specific month and
turnaround time to process. Claims to be broken down according to
type of Plan Covered Person is enrolled in; HMO or PPO.
3. Eligibility: Total number of lives on the last day of each month.
4. Breakdown by specific IPA of the total number of Milliman & Robertson
designated length of stays falling out of range.
5. Phone statistics: Total number of calls that come into TPA for
specific month broken down by type of question(s).
6. Ad-hoc or focus reports shall be generated in consultation with
Patient's Choice.
7. Failure of Patient's Choice to object, in writing, to any reports
delivered to it by TPA within thirty (30) days of the date of mailing
shall constitute Patient's Choice's approval of TPA's acts and
information described therein.
2.08 RESPONSE PERFORMANCE STANDARDS
A. Telephone Response Time: TPA shall respond to 90% of all status
inquiries, eligibility, and provider relations phone calls not answered
live, within 6 hours and 100% within two (2) business days or forty-
eight (48) hours.
B. Mail Response Time: All correspondence shall be responded to within ten
(10) business days of receipt.
C. Member Concerns Response Time: TPA shall coordinate with Patient's
Choice to respond to Member concerns regarding providers within three
(3) business days or seventy-two (72) hours of receipt.
D. Claims Investigation Response Time: TPA shall coordinate with Patient's
Choice to respond to providers or Members regarding claims payments
issues within three (3) business days or seventy-two (72) hours of
receipt. TPA shall verify provider contract and utilization management
information necessary to make a determination of claims payment
accuracy.
E. Utilization Management Issues: TPA shall report and respond to
utilization management issues for all sources within three (3) business
days or seventy-two (72) hours.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 8
- -------------------------------------------------------------------------------
2.09 RECORDS AND CONFIDENTIALITY
A. TPA shall maintain, at its office, adequate Plan records, in such form
as may be convenient to TPA, whether hard copy, electronic data, or any
other format, regarding all transactions in which TPA engages relating
to the Plan. All records that identify a Member are confidential.
B. TPA and Patient's Choice shall allow each other reasonable access to
Plan records. TPA shall, with thirty (30) days written notice from
Patient's Choice, allow Patient's Choice or its authorized agent to
inspect or audit all records and files maintained by TPA at the office
of TPA during normal business hours. Patient's Choice shall be
responsible for all costs associated with the inspection or audit. Any
agent or auditor that has access to the records and files maintained by
TPA shall agree not to disclose any proprietary or confidential
information of TPA.
C. Plan records shall be maintained for Plan year to which they relate and
for the seven (7) year period following such Plan year, regardless of
the date of termination of this Agreement. TPA shall maintain the Plan
records in accordance with prudent standards of insurance record-keeping
and in accordance with (S) 6.03 (D) infra.
D. TPA and Patient's Choice shall comply with applicable laws and
regulations of the State of Louisiana regarding confidentiality or
privacy of all records and other Plan records and to cooperate to ensure
such compliance.
E. During the time Plan records are in its custody or control, TPA shall
take all reasonable precautions to prevent disclosure or use for a
purpose unrelated to administration of the Plan. TPA shall disclose such
information only:
(i) in response to a court order,
(ii) for an examination conducted by an authorized state governmental
authority, or by the federal government under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
(iii) to or at the expressed written request of Patient's Choice, or
(iv) with written consent of Plan participant or his/her legal
representative.
F. The applicable state insurance departments and other regulatory bodies
may have access to such records as often as necessary for the purpose of
examination, audit, and inspection, providing advanced written notice of
five (5) business days is given.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 9
- -------------------------------------------------------------------------------
G. Each party to this Agreement agrees that all information provided it by
the other party and not otherwise available to the public shall be held
and maintained by such party, its employees, agents, and affiliates, in
the strictest confidence and shall not be divulged in any way, either
directly or indirectly, without the prior written consent of the other
party. Upon termination of this Agreement, all such information shall be
returned to the party from which it was received or shall be destroyed.
If the information is of such a character that it cannot reasonably be
returned to the other party and is destroyed by the party holding the
information pursuant to this Article, the party so holding the
information shall provide affidavits in a form reasonably satisfactory
to the other party attesting to the proper destruction of such.
2.10 COMMISSION PAYMENT
TPA shall pay all commissions associated with the sale of the Plan(s) to selling
broker and agents appointed and in accordance with commission rates prescribed
by Patient's Choice. Such payments will be made from an account established by
and in the name of Patient's Choice, which will from time to time deposit
sufficient funds in such account for the payment of commissions by TPA.
2.11 CLAIM ADJUSTMENTS
TPA shall perform all adjustments, refunding and payment of prescribed bonuses,
if any, to Participating Provider physicians on a quarterly basis; provided,
however, that no such adjustments shall be made or bonuses paid from Patient's
Choice Regional IPA distribution pools for the first 12 months during which the
Plan is operative. In connection with such quarterly adjustments and payments,
TPA shall provide to Patient's Choice and each Regional IPA a profile of
Participating Providers utilization relative to other Participating Providers
within a Regional IPA and of each Regional IPAs utilization relative to the
other Regional IPAs.
2.12 GOVERNMENTAL AUDITS
If Patient's Choice is investigated or audited by any state or federal
governmental agency, TPA shall fully cooperate with such agency's reasonable and
lawful requests for information. Any and all costs of such investigation shall
be paid by Patient's Choice.
2.13 INSURANCE
TPA shall, at all times, maintain Third Party Administrators Professional
Liability Insurance of with indemnity limits of not less than One Million
Dollars And No/100 ($1,000,000.00) for each wrongful act or series of
continuous, repeated, or interrelated
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 10
- -------------------------------------------------------------------------------
wrongful acts and One Million Dollars And No/100 ($1,000,000.00) aggregate, and
shall, within thirty (30) days of a written request, present evidence of such to
Patient's Choice.
2.14 LICENSURE
TPA shall be a licensed TPA in the State of Louisiana and shall maintain such
licensure, at its expense, throughout the term of this Agreement.
ARTICLE III
DUTIES AND RESPONSIBILITIES OF PATIENT'S CHOICE
3.01 PROVISION OF INFORMATION
Patient's Choice shall provide eligibility and all other necessary Plan data to
TPA in a computer format compatible with the BMS claims paying system.
On a timely basis, but not later than the tenth (10th) day of each month,
Patient's Choice shall provide TPA with information which shall permit TPA
to identify all individuals entitled to participate in the Plan.
3.02 DISTRIBUTION OF INFORMATION
Patient's Choice shall distribute to all Covered Persons all necessary Plan
documents and materials, including summary Plan descriptions, Plan amendments,
identification cards, enrollment forms, and applications and notice forms, as
may be necessary for the operation of the Plan or to satisfy the requirements of
all applicable laws and regulations of the State of Louisiana. Furthermore,
Patient's Choice shall direct Plan Members to present the identification card to
contracting providers at the time medical services are received.
3.03 COLLECTION OF IDENTIFICATION CARDS
If an individual ceases to be eligible for benefits under the Plan, Patient's
Choice shall make reasonable efforts to collect and destroy such individual's
Plan identification cards by the date the individual ceases to be eligible to
participate in the Plan. Patient's Choice, and not TPA, shall be liable for any
and all claims resulting from failure of Patient's Choice to collect
identification cards as required by this Section.
3.04 ELIGIBILITY: DETERMINATION OF BENEFITS
Patient's Choice shall have sole authority to determine which persons/
individuals are eligible to receive benefits under the Plan. Moreover, Patient's
Choice shall have final authority in establishing the terms and conditions of
the Plan. However, Patient's Choice acknowledges that any stop loss insurance
policy issued to Patient's Choice may limit
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 11
- -------------------------------------------------------------------------------
coverage to claims eligible and paid under the written terms and conditions of
the policy. TPA shall not be liable for claims paid in good faith reliance on
eligibility information provided to or acts or omissions not provided to TPA by
Patient's Choice, its agents, representative, or any other legal entity.
3.05 ADMINISTRATIVE FEES AND OTHER COSTS
A. Patient's Choice shall pay TPA each month all fees described in (SS)
8.01-8.04 infra of this Agreement.
B. TPA and Patient's Choice have agreed not to adjust TPA administrative
fees for the first term of this Agreement.
C. Patient's Choice shall pay TPA monthly based upon Patient's Choice
records of current enrollment in the Plan as of the first (1st) day of
each month.
D. Patient's Choice shall pay TPA all monthly fees by the tenth (10th) day
of the month following the month to which they relate, as provided in
(S) 3.06 hereof.
E. Patient's Choice shall reimburse TPA for any set-up and start-up fees
and costs incurred and paid by TPA for software programming and
customization necessary to configure its systems to perform the
functions to be provided by TPA hereunder, up to a maximum of ONE
HUNDRED TWENTY FIVE THOUSAND DOLLARS AND NO/100 ($125,000.00). Prior to
or concurrently with execution of this Agreement, Patient's Choice
shall advance such amount to TPA, to be credited by TPA against such
expenses. TPA shall furnish Patient's Choice with a written itemization
of any costs so incurred by TPA and to the extent that such costs are
less than $125,000, TPA shall refund the difference to Patient's Choice
or credit the difference against other fees and costs due TPA from
Patient's Choice, as the parties may agree.
F. Patient's Choice shall be responsible for payment of costs for
identification cards and all Plan materials.
3.06 PAYMENT OF ADMINISTRATIVE FEES AND REIMBURSABLE COSTS
The administrative fees and reimbursable costs payable to TPA by Patient's
Choice for its service under this Agreement, as provided by (S) 3.05 and
8.01-8.04 hereof, shall be invoiced monthly by TPA by the tenth day of each
month with respect to Patient Choice's enrollment as of the first of such month,
and paid monthly by Patient's Choice by the tenth (10th) day of the month
following its receipt of such written invoice from TPA
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 12
- -------------------------------------------------------------------------------
itemizing the applicable administrative fees for the month and all costs
incurred by TPA which are reimbursable hereunder.
3.07 CLAIMS PAYMENT ACCOUNT
Patient's Choice shall establish and maintain a blank account in the name of
itself (hereinafter referred to as "Payment Account") during the term of this
Agreement. Patient's Choice shall fund the Payment Account from its general
assets only on an as needed basis to ensure that the Payment Account contains
sufficient funds to pay claims for benefits of Covered Persons under the Plan.
Funds in the Payment Account shall remain the property of Patient's Choice
except as required under applicable laws of the State of Louisiana.
3.08 PROVIDER CREDENTIALING
Patient's Choice, together with its contracted CVO, if any, shall be solely
responsible for credentialing and contracting providers for the Plan. Moreover,
Patient's Choice shall maintain and manage such credentialing.
3.09 NOTIFICATION OF SALE
Patient's Choice shall be solely responsible for notifying TPA of any and all
sales of the Plan(s).
3.10 LICENSURE
Patient's Choice shall be licensed and maintain a certificate of authority in
the State of Louisiana as an HMO, at its expense, throughout the term of this
Agreement.
3.11 COMPLIANCE WITH THE LAW
Patient's Choice shall comply with all legal requirements applicable to the Plan
and shall satisfy any and all reporting, notice, disclosure and filing
requirements imposed by all applicable laws and regulations.
ARTICLE IV
FUNDING
4.01 RECEIPT OF FUNDS
All funds received by TPA for or on behalf of Patient's Choice shall be
deposited by TPA in a Patient's Choice trust account, except for funds received
by TPA from Patient's
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 13
- -------------------------------------------------------------------------------
Choice designated as payment for administrative fees and costs payable to TPA
under this Agreement.
4.02 REMITTANCE OF FUNDS
On receipt of funds from Patient's Choice, TPA shall promptly deposit the funds
in the Payment Account.
4.03 PLAN RECOVERIES
TPA shall promptly deposit the net amount of all coordination of benefits
recoveries, duplicate payment recoveries, subrogation and similar recoveries
received by TPA for the benefit of Patient's Choice into the Payment Account.
4.04 PAYMENT ACCOUNT RECORDS
A. TPA shall keep records that reflect separately any and all deposits and
withdrawals from the Payment Account on behalf of Patient's Choice.
B. TPA shall maintain copies of these records at its corporate
headquarters.
C. TPA shall at the request and expense of Patient's Choice furnish copies
of the records relating to deposits and withdrawal on its behalf.
Originals will be furnished upon request of such at no additional
expense to Patient's Choice.
4.05 WITHDRAWALS FROM PAYMENT ACCOUNT
Patient's Choice authorizes TPA to make withdrawals from Payment Account for any
of the following purposes to the extent permissible under applicable law:
(1) Payment of benefits under the Plan;
(2) Transfer to and deposit in claims paying account(s) maintained by TPA
for payment of claims as provided under this Agreement. See Article
II, supra. Payments shall be on checks identifying Patient's Choice
and drawn on such claims paying account(s);
(3) Payment to Patient's Choice upon its request; and
(4) Deposit in an account controlled and maintained in the name of
Patient's Choice upon its request.
(5) Any and all checks, remittances or withdrawals over Twenty-Five
Thousand and No/100 Dollars ($25,000.00) shall require two (2)
signatures, one of which must be that of a Patient's Choice officer.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 14
- -------------------------------------------------------------------------------
ARTICLE V
LIMITS OF LIABILITY
5.01 FUNDING
TPA is not responsible or liable for the funding of claims for benefits under
the Plan or the payment of fees to third parties providing services or products
provided to Patient's Choice.
5.02 RELIANCE ON DATA
TPA is not responsible or liable for any acts or omissions made pursuant to any
direction, consent or other request reasonably believed by TPA to be genuine and
from an authorized representative or agent of Patient's Choice. Moreover, TPA is
not responsible or liable for any acts or omissions made in reliance on
erroneous data provided by Patient's Choice or any other person or the failure
of Patient's Choice to perform its obligations under this Agreement.
5.03 CLAIMS PROCESSING
TPA shall use its best efforts, consistent with industry standards, to correctly
process claims and pay in accordance with the Plan and information provided by
Patient's Choice. Patient's Choice acknowledges that, because of the great
volume of claims processed by TPA administrative errors may occur. Should
errors occur, TPA shall correct such, within industry standards.
5.04 INDEMNIFICATION/HOLD HARMLESS
A. TPA shall indemnify Patient's Choice and hold Patient's Choice harmless
against any and all claims, actions, assessments, charges and expenses,
including court costs and attorneys' fees, and against all liabilities,
loses, damages of any nature and settlements, judgements or awards,
whether compensatory, extracontractual or punitive, that Patient's
Choice shall sustain or be put to by reason of any act or omission of
TPA or its agents, employees, officers and directors or any breach by
TPA of the terms of this Agreement, except as such acts or omissions
are in response to written instructions by Patient's Choice, in which
case Patient's Choice shall indemnify TPA and hold it harmless.
B. Patient's Choice shall indemnify TPA and hold TPA harmless against any
and all claims, actions, assessments, charges and expenses, including
court costs and attorneys' fees, and against all liabilities, loses,
damages of any nature and settlements, judgments or awards, whether
compensatory, extracontractual or punitive, that TPA shall sustain or
be put to by reason of any
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 15
- -------------------------------------------------------------------------------
act or omission of Patient's Choice or its agents, employees, officers
and directors or any breach by Patient's Choice or the terms of this
Agreement, except as such acts or omissions are in response to written
instructions by TPA, in which case TPA shall indemnify Patient's Choice
and hold it harmless.
ARTICLE VI
TERM AND TERMINATION
6.01 TERM OF AGREEMENT
This Agreement shall begin on the Effective Date, as noted supra, shall remain
in effect for a period of twenty-four (24) months or two (2) years, provided,
however, that this Agreement will be automatically renewed thereafter for
successive one-year terms unless either party hereto gives written notice to the
other, 90 days prior to the conclusion of its initial term or 60 days prior to
the conclusion of any extended term, that the Agreement will be terminated at
the end of its initial term or any subsequent one-year term.
6.02 TERMINATION
A. Without Cause. This Agreement may be terminated at any time without
cause or prejudice upon one hundred twenty (120) days prior written
notice by either party.
B. For Cause. TPA or Patient's Choice may terminate this Agreement at any
time for cause. Cause for termination includes, but is not limited to,
the following:
1. Failure of Patient's Choice or TPA to maintain licenses or
certifications required to operate in conformity with this
Agreement, or to comply with applicable laws and regulations.
2. Material failure of TPA, when acting as Payor, to make required
compensation to Plan Members under the Plan.
3. Material breach of this Agreement by either party.
4. Insolvency of either party.
5. Commission or omission of any act or any conduct or allegation of
conduct for which either parties license or certification is
subject to revocation or suspension.
6. Failure of Patient's Choice or TPA to maintain required liability
coverage protection.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 16
- -------------------------------------------------------------------------------
7. Failure by Patient's Choice or TPA to comply with (S)2.08, Records
and Confidentiality.
Any occurrence under paragraph (1) above shall be grounds for
immediate termination. Termination for any other reason set forth
above shall be upon sixty (60) days prior written notice by the
terminating party unless said reason for termination is cured to
the satisfaction of the terminating party within said sixty (60)
day period.
6.03 OBLIGATIONS UPON TERMINATION
A. Termination of this Agreement by either party shall not terminate
Patient's Choice's obligation to pay or fund any amounts for which
Patient's Choice is or becomes liable pursuant to the provisions of the
Plan or this Agreement. If Patient's Choice terminates this Agreement
other than in accordance with (S)6.02 supra, Patient's Choice shall be
obligated to pay, as liquidated damages, the fees due TPA through and
including the subsequent year or the following anniversary date. Except
as provided in Subsections (B) and (C), infra, all obligations of TPA
for administration services under this Agreement shall end on the
effective date of termination of this Agreement.
B. In the event that this Agreement is terminated, TPA shall remain
obligated to process and pay claims which have been incurred by
Patient's Choice and which have been submitted to and received by TPA
on or before the effective date of termination or within 20 days
thereafter. Patient's Choice will compensate TPA on a pro rata basis
for its services during such runout period. The terms and conditions of
this Agreement shall govern any such processing except as otherwise
agreed.
C. Upon termination by either party, TPA shall, within thirty (30) days of
the termination of services under this Agreement, deliver to Patient's
Choice pending claims and eligibility database of the Plan.
Furthermore, TPA shall, upon the written request and at the expense of
Patient's Choice, provide other information regarding the Plan to the
extent reasonably available to TPA.
D. At Patient's Choice's request and expense, Plan records shall be
returned to Patient's Choice not more than 30 days following
termination of this Agreement. TPA may deliver the Plan records to the
successor administrator or, if there is no successor administrator, to
Patient's Choice and give any required written notice to appropriate
governmental authorities of the location of Plan records.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 17
- -------------------------------------------------------------------------------
ARTICLE VII
MISCELLANEOUS OBLIGATIONS
7.01 INDEPENDENT CONTRACTOR RELATIONSHIP
A. TPA is an independent contractor. Nothing contained in this Agreement
shall create, or shall be constituted to create, a relationship of
employer or employee between Patient's Choice and TPA, nor shall TPA's
employees be considered employees of Patient's Choice for any purpose.
B. Neither party may act on behalf of the other party, except as provided
in this Agreement, and neither party may bind or execute a release on
behalf of the other party, except as authorized in writing by the other
party.
C. All communications by TPA on behalf of Patient's Choice as authorized
by this Agreement, whether with Plan Members, Participating Providers
or other persons, firms or entities, shall be identified with and made
in the name of Patient's Choice or such other name in which Patient's
Choice elects to do business and so advises TPA.
7.02 FORM OF AGREEMENT
A. Headings are intended for purposes of description only and shall not be
used for purposes of interpretation of this Agreement.
B. Any reference to the singular shall include reference to the plural and
vise versa.
7.03 PROPRIETARY RIGHTS
A. All computer software, courseware, and manuals developed by TPA and its
computer vendor or its affiliate organizations shall be the property of
TPA or such organizations, which shall be the sole determiner of is use
and distribution, subject to the terms of this Agreement, including but
not limited to, those relating to confidentiality of data.
B. All data shall be the sole property of Patient's Choice. No use of
detail or aggregate data will be permitted unless specifically
authorized in writing by Patient's Choice.
7.04 ASSIGNMENT AND DELEGATION OF DUTIES
Neither Patient's Choice nor TPA may assign duties, rights, or interests under
this Agreement unless the other party shall so approve by written consent.
Consent shall not be unreasonably withheld.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 18
- -------------------------------------------------------------------------------
7.05 INTERPRETATION
The validity, enforceability and interpretation of this Agreement shall be
governed by any applicable federal law and by the applicable laws of the State
of Louisiana.
7.06 AMENDMENT
This Agreement may not be amended except by written instrument executed by TPA
and Patient's Choice.
7.07 ENTIRE CONTRACT
This Agreement constitutes the entire Agreement between the parties, relating to
the subject matter hereof, and supersedes all prior and contemporaneous
Agreements and understandings of the parties in connection therewith.
7.08 USE OF NAME
Patient's Choice agrees that TPA may include descriptive information relating to
Patient's Choice in literature distributed to existing or potential clients.
Such information shall include, but not be limited to, IPA's name, telephone
number, address, and specialty. In turn, Patient's Choice may use descriptive
information as it relates to TPA.
7.9 ENFORCEABILITY AND WAIVER
The invalidity and unenforceability of any term or provision of this Agreement
shall in no way affect the validity or enforceability of any other term or
provision. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
7.10 REGULATORY APPROVAL
In the event that Patient's Choice has not received a Certificate of Authority
to engage in business as a health maintenance organization in Louisiana prior to
the execution of this Agreement, this Agreement shall be deemed to be a binding
letter of intent. In such event, the letter shall become executed on the date
such regulatory approval is obtained. If Patient's Choice is unable to obtain
such licensure or approval after due diligence, Patient's Choice shall notify
TPA and both parties shall be released from any liability under this Agreement.
7.11 DISPUTE RESOLUTION
a. The parties shall first attempt to resolve any disputes that may rise
between the parties in the usual course of business.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 19
- -------------------------------------------------------------------------------
B. Should the dispute not be resolved through the aforementioned process,
the parties shall refer the dispute, controversy or question arising
under this Agreement to an arbitrator selected by the parties. The
proceeding shall be governed by the Rules of American Arbitration
Association then in effect, and shall be held in the jurisdiction of
Patient's Choice. If the parties are unable to agree upon such an
arbitrator within thirty (30) days after either party has given the
other party written notice of its desire to submit the dispute,
controversy or question for decision, then either party may apply to
the American Arbitration Association for the appointment of an
arbitrator or, if such Association is not then in existence or does not
desire to act in the matter, each party shall appoint an arbitrator of
its choice. The appointed arbitrators will select a third arbitrator
and the panel of three arbitrators will hear the parties and settle the
dispute, controversy or question. Each party shall assume its own
costs, but the compensation and expenses of the arbitrator(s) and any
administrative fees or costs associated with the arbitration proceeding
shall be borne equally by the parties. Arbitration shall be the
exclusive remedy for the settlement of disputes arising under this
Agreement. The decision of the arbitrator(s) shall be final, conclusive
and binding, and no action at law or in equity may be instituted by
either party other than to enforce the award of the arbitrator(s).
Judgment upon the award rendered by the arbitrator(s) may be entered in
any court of competent jurisdiction.
7.12 NOTICES
Any notice or other communication required by this Agreement shall be given in
writing and shall be deemed given on the date of actual delivery thereof by
personal delivery against written receipt therefor, by certified
return-receipt-requested mail, by facsimile, by commercial express delivery
service or by any other means generating written documentation of delivery and
receipt, addressed as follows:
If To: Patient's Choice, Inc. and/or MD HealthShares Corporation:
Suite 4400
201. St. Charles Avenue
New Orleans, Louisiana 70170
TPA:
Joe Lawrence, BSN, RN
President
Managed Care Consultants, Inc.
4160 South Pecos Road
Las Vegas, Nevada 89121
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 20
- -------------------------------------------------------------------------------
By notice given hereunder, either party may designate any different or
additional addresses at which subsequent notice shall be given.
7.13 FORCE MAJEURE
The failure of either party to perform its obligations under this Agreement due
to occurrences or contingencies beyond the reasonable control of such party,
such as fire, flood, acts of God, shall not constitute a default or breach of
this Agreement.
7.14 RESIDENT AGENT
Patient's Choice agrees to serve as the resident agent for service of process of
TPA in the State of Louisiana.
ARTICLE VIII
PRICING
8.01 In consideration for TPA providing all of the services specified in this
Agreement, Patient's Choice shall compensate TPA as follows:
SERVICES FEE
HMO: Administrative $7.60 PMPM
PPO: Reimbursement
1. Medical Management:
a. UM-telephone concurrent review $2.00
b. Case Management
2. Precertification:
Hospital admission and
outpatient surgeries $1.00PMPM
3. Repricing
a. Per claim $1.00
b. PEPM $2.00
8.02 Patient's Choice shall be solely Cost plus 15% for support
responsible for all Cost plus 15% for support and maintenance
telecommunications costs, including the cost
for and maintenance both hardware and software
of and 800 line, leasing telephone lines between
TPA and the six (6) Regional IPAs.
TPA Benefits Agreement--Louisiana
<PAGE>
MANAGED CARE THIRD PARTY
CONSULTANTS, INC. ADMINISTRATION AGREEMENT 20
- -------------------------------------------------------------------------------
8.03 Patient's Choice shall be solely responsible Actual cost
for paper costs and postage costs associated
with the transmittal of EOBs to appropriate IPAs.
8.04 Should Patient's Choice request TPA to produce To be determined
and distribute its Physician/Provider Directory,
additional fees shall be assessed to Patient's
Choice.
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Agreement as of the EFFECTIVE DATE.
EXECUTED DATE MANAGED CARE CONSULTANTS, INC.,
THIRD PARTY ADMINISTRATION
_____________________ By: /S/ Joe Lawrence
--------------------------
Joe Lawrence
President
Date: 1-13-97
--------------------------
PATIENT'S CHOICE, INC.
By: /S/ Wallace H. Dunlap, M.D.
--------------------------
Wallace H. Dunlap, M.D.
President
Date: 1-9-97
--------------------------
MD HEALTHSHARES CORPORATION
By: /S/ James A. White, III, M.D.
--------------------------
James A. White, III, M.D.
President
Date: 1-8-97
--------------------------
TPA Benefits Agreement--Louisiana
<PAGE>
EXHIBIT 6(c)
CONSULTING SERVICES
AGREEMENT
------
THIS CONSULTING SERVICES AGREEMENT is made and executed by and between MD
HealthShares Corporation ("HealthShares"), a Louisiana corporation having its
principal executive offices at Suite 800, 3501 North Causeway Boulevard,
Metairie, Louisiana; and Arthur Andersen LLP, ("Arthur Andersen") a professional
limited liability partnership having its offices at Suite 2200, 225 Peachtree
Street, N.E., Atlanta, Georgia 30303-1731.
Recitals
(a) MD HealthShares was organized and established to serve as a holding
company for the development of a physician-owned and directed health care
provider network and financing entities to operate throughout the state of
Louisiana with a full range of insurance and managed care products, initially
through a health maintenance organization (HMO).
(b) MD HealthShares requires and desires to contract for the provision of
expert consulting services to assist MD HealthShares in the design, development
and organization of and product design for an HMO to be established as a
wholly-owned subsidiary of MD HealthShares.
(c) In response to MD HealthShares's request for proposals from qualified
consultants, Arthur Andersen has represented that it possesses the requisite
expertise, experience and professional resources to provide the consulting
services required by MD HealthShares.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter expressed, MD HealthShares and Arthur Andersen hereby covenant,
stipulate and agree as follows:
(S)1 ENGAGEMENT OF, SERVICES TO BE PERFORMED BY ARTHUR ANDERSEN. MD
HealthShares hereby engages Arthur Andersen to perform, and Arthur Andersen
hereby agrees to perform, in cooperation with MD HealthShares, its directors,
attorneys and other consultants, and for and on behalf of MD HealthShares, those
professional consulting and advisory services described by Arthur Andersen in
its proposal to MD HealthShares dated October 13, 1995 (the "Proposal"), which
is incorporated herein by reference. Such services shall be undertaken,
performed and completed substantially within the time periods projected in the
Proposal by the employed and contracted professional personnel identified and
designated therein, except as modifications of such time periods and personnel
may be approved or requested by MD HealthShares.
(S)2 PROFESSIONAL FEES. MD HealthShares will compensate Arthur Andersen
for its professional services under this Agreement according to the level of
effort required of Arthur Andersen to complete the engagement and the time
which Arthur Andersen personnel necessarily or appropriately devote to
completion of its services, in accordance with the fees estimated for each of
the several components of such services as delineated at page 16 of the
Proposal; provided, however, that, without respect to the level of effort or
amount of time actually required for completion of any such component of
services, the total amount which MD HealthShares shall be obligated to pay
Arthur Andersen shall not exceed the maximum cost estimated for each such
component as set forth at page 16 of the Proposal.
(S)3 REIMBURSABLE EXPENSES. In addition to the professional fees provided
for in the preceding section, MD HealthShares will reimburse Arthur Andersen for
usual, customary and reasonable expenses, for travel, lodging, meals,
duplication and communication and other out-of-pocket costs, necessarily or
appropriately incurred by Arthur Andersen in its performance of services under
this Agreement.
(S)4 MINIMIZATION OF FEES AND EXPENSES. Arthur Andersen will use its best
efforts to keep its professional fees and expenses to the minimum necessary to
satisfactorily accomplish the completion of its consulting services to MD
HealthShares under this Agreement.
<PAGE>
MD HEALTHSHARES CORP/ CONSULTING SERVICES
ARTHUR ANDERSEN LLP AGREEMENT 2
- --------------------------------------------------------------------------------
(S)5 BILLING AND PAYMENT. Arthur Andersen shall render monthly written
invoices to MD HealthShares for its professional fees accrued and itemized
reimbursable expenses incurred during the preceding calendar month. Such fees
and expenses shall be payable by MD HealthShares to Arthur Andersen within 30
days of the date of issue of any such invoice. In addition to such monthly
invoices, Arthur Andersen shall, within 20 days of the conclusion of each
calendar quarter during the term of this Agreement, furnish MD HealthShares with
a detailed written statement reflecting all time devoted by Arthur Andersen to
its services hereunder during the preceding calendar quarter, describing the
services and activities of Arthur Andersen personnel by date performed, time
incurred, and responsible personnel.
(S)6 RETAINER PAYMENT. As a retainer for Arthur Andersen's services
hereunder, and as a credit against professional fees and expenses to be accrued
and incurred hereunder, concurrently with execution of this Agreement, MD
HealthShares will pay to Arthur Andersen the sum of Fifty Thousand and No/100
Dollars ($50,000.00). Such amount shall be retained by Arthur Andersen as a
credit against the professional fees and expenses due Arthur Andersen hereunder
and shall be credited against the final invoice rendered by Arthur Andersen upon
completion of its services under this Agreement, with any balance of such
retainer refunded by Arthur Andersen to MD HealthShares.
(S)7 TERMINATION. This agreement shall be deemed terminated on such date
as it has completed the services provided for in (S)1 of this Agreement. This
Agreement, however, and Arthur Andersen's services hereunder may be terminated
by MD HealthShares at any time prior to such term upon 15 days written notice by
MD HealthShares to Arthur Andersen of MD HealthShare's intent that this
Agreement be terminated. Upon termination of this Agreement, the parties shall
have no further rights or obligations under this Agreement, for the provision of
services, the payment of professional fees or expenses or otherwise, except as
have accrued as of or prior to the effective date of termination.
(S)8 CONFIDENTIALITY. It is recognized and understood by the parties to
this Agreement that each may have access to confidential or proprietary
information made available by the other. Both MD HealthShares and Arthur
Andersen covenant and agree that each shall protect such confidential
information in the same manner as it protects its own confidential information
of like kind.
(S)9 OWNERSHIP, USE OF DELIVERABLES. MD HealthShares shall own the
deliverables produced by Arthur Andersen, which shall not include any
proprietary products or methods Arthur Andersen may use in the course of the
project. Arthur Andersen may and shall retain copies of the same for its
quality assurance purposes. Subject to their obligations of confidentiality,
each of the parties hereto shall be free to use the concepts, techniques, and
know-how used and developed in the project. In any event, Arthur Andersen shall
continue to be free to perform similar services for its other clients using its
general knowledge, skills, and experience.
(S)10 LIMITATION OF LIABILITY. Neither Arthur Andersen nor MD HealthShares
shall be liable to the other party for more than the fees paid under this
Agreement or for any delays or failures to perform due to causes beyond their
control. Arthur Andersen will not be liable for any consequential, incidental,
or punitive loss or expense even if it has been advised of their possible
existence.
(S)11 LIMITATION OF RESPONSIBILITIES. The responsibilities of Arthur
Andersen are limited to identification, documentation, and appropriate
communication of recommendations to MD HealthShares, and accordingly, the
ultimate implementation of recommendations is the responsibility of MD
HealthShares.
(S)12 INDEMNIFICATION. MD HealthShares shall indemnify and hold harmless
Arthur Andersen and its personnel from any claims, liabilities, costs, and
expenses (including, without limitation, attorneys' fees and the time of Arthur
Andersen personnel involved) brought against, paid, or incurred by Arthur
Andersen at any time and in any way arising out of or relating to Arthur
Andersen's services under this Agreement.
<PAGE>
MD HEALTHSHARES CORP/ CONSULTING SERVICES
ARTHUR ANDERSEN LLP AGREEMENT 3
- --------------------------------------------------------------------------------
except to the extent finally determined to have resulted from the gross
negligence or willful misconduct of Arthur Andersen personnel. This provision
shall survive the termination of this Agreement for any reason.
(S)13 REFERENCES. Any specific reference made by Arthur Andersen to third
parties about this project shall be subject to the prior approval of MD
HealthShares.
(S)14 QUALITY ASSURANCE PARTNER. William W. Summerour will serve as Arthur
Andersen's quality assurance partner with respect to this engagement and will be
available to MD HealthShares at (504) 581-5454.
(S)16 WARRANTY REGARDING PERFORMANCE. Arthur Andersen warrants that its
services will be performed in a professional and workmanlike manner in
accordance with applicable professional standards and shall re-perform any work
not in compliance with this warranty brought to its attention within a
reasonable amount of the time after the work is performed. THE PRECEDING IS
ARTHUR ANDERSEN'S ONLY WARRANTY CONCERNING THE SERVICES AND DELIVERABLES AND IS
MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESSED OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTIBILITY OR OTHERWISE.
IN WITNESS WHEREOF, MD HealthShares and Arthur Andersen have caused this
Agreement to be subscribed and executed, in duplicate original, by their
undersigned officers, agents or representatives, duly authorized hereunto, on
the date hereinafter indicated.
MD HEALTHSHARES CORPORATION ARTHUR ANDERSEN LLP
BY: /s/ JAMES A. WHITE, III, M.D. BY: /s/ MARK D. OSHNOCK
------------------------------ -------------------------------
James A. White, III, M.D. Mark D. Oshnock
President Partner
DATE: 11-22-95 DATE: 11/30/95
---------------------------- -----------------------------
