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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number: 0-22421
MD HealthShares Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Louisiana 72-1301480
-------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
12021 Bricksome Avenue, Baton Rouge, LA 70816
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(Address of Principal Executive Offices)
(504) 293-3272
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's common equity, as
of the latest practicable date:
As of September 30, 1997, 1,074,200 shares of the Registrant's Class A Non-
Voting Common Stock and 1 share of the Registrant's Class B Common Stock were
outstanding.
Transitional Small Business Disclosure Format (Check one) Yes [X] No [_]
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MD HEALTHSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 - UNAUDITED
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<CAPTION>
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SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,730,166 $ 9,147,525
Investments 1,050,000 -
Interest receivable 62,931 57,473
Premiums receivable 2,163 -
Prepaid expenses 182,892 147,747
----------- -----------
Total current assets 7,028,152 9,352,745
RESTRICTED INVESTMENTS 1,100,000 1,071,777
EQUIPMENT, net of accumulated depreciation of $14,812
and $3,825, respectively 78,180 13,844
OTHER 9,878 5,225
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TOTAL $ 8,216,210 $10,443,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 46,725 $ 355,856
Claims payable 67,911 -
Deferred revenue 2,358 -
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Total current liabilities 116,994 355,856
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CONTINGENCIES (Note 3) - -
STOCKHOLDERS' EQUITY (Notes 2 and 4):
Junior preferred voting stock, $1.00 par value, liquidation
value $1,000, 7,500 shares authorized, 2,150 shares
issued and outstanding in 1997; none in 1996 2,150 -
Preferred stock, $1.00 par value, 2,000,000 shares authorized,
none issued and outstanding in 1997 and 1996 - -
Common stock:
Class A, no par value, 1,000,000 shares authorized, 2,142
shares issued and outstanding in 1996; none in 1997 - 11,826,306
Class B, no par value, 1 share authorized, issued and
outstanding in 1996; none in 1997 - 100
Class A non-voting, $0.10 par value, 8,000,000 shares
authorized, 1,074,200 shares issued and outstanding
in 1997; none in 1996 107,420 -
Class B, $0.10 par value, 1 share authorized and
outstanding in 1997; none in 1996 - -
Additional paid-in capital 11,719,104 -
Accumulated deficit (3,723,458) (1,738,671)
Treasury stock, at cost, 501 shares in 1997 (6,000) -
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Total stockholders' equity 8,099,216 10,087,735
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TOTAL $ 8,216,210 $10,443,591
=========== ===========
See notes to consolidated financial statements.
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MD HEALTHSHARES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 - UNAUDITED
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<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Investment income $ 326,318 $ 70,710 $ 73,082 $ 75,831
Premiums 118,981 - 81,900 -
----------- ---------- ---------- ---------
Total revenues 445,299 70,710 154,982 75,831
----------- ---------- ---------- ---------
EXPENSES:
Medical expenses 114,201 - 82,310 -
Selling, general and administrative 2,304,897 750,833 620,388 314,950
Interest expense - 10,461 - 3,539
Depreciation 10,987 2,460 4,433 2,460
----------- ---------- ---------- ---------
Total expenses 2,430,085 763,754 707,131 320,949
----------- ---------- ---------- ---------
NET LOSS $(1,984,786) $ (693,044) $ (552,149) $(245,118)
=========== ========== ========== =========
NET LOSS PER COMMON SHARE $ (1.85) $(1,250.98) $(.51) $(686.60)
=========== ========== ========== =========
AVERAGE OUTSTANDING COMMON SHARES 1,071,612 554 1,072,814 357
=========== ========== ========== =========
See notes to consolidated financial statements.
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MD HEALTHSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 - UNAUDITED
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<TABLE>
<CAPTION>
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,984,786) $ (693,044)
Adjustments to reconcile net loss to cash flows from
operating activities:
Loss on sales of available-for-sale securities - 9,665
Depreciation 10,987 2,460
Changes in operating assets and liabilities:
Interest receivable (5,458) (48,991)
Other receivable (2,163) -
Prepaid expenses (35,145) -
Accounts payable and accrued expenses (309,131) 62,945
Claims payable 67,911 -
Deferred revenue 2,358 -
Interest payable - 10,461
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Net cash used in operating activities (2,255,427) (656,504)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (2,150,000) (12,542,570)
Sales and maturities of available-for-sale securities 1,071,777 705,752
Other (54,386) -
Purchases of equipment (75,323) (16,581)
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Net cash used in investing activities (1,207,932) (11,853,399)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from issuance of common stock 52,000 11,882,435
Treasury stock redeemed (6,000) -
Developmental funds provided by the medical community - 585,250
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Net cash provided by financing activities 46,000 12,467,685
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NET DECREASE IN CASH (3,417,359) (42,218)
CASH AND CASH EQUIVELANTS, Beginning of period 9,147,525 48,874
----------- ------------
CASH AND CASH EQUIVALENTS, End of period $ 5,730,166 $ 6,656
=========== ============
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Unrealized gain on available-for-sale securities $ - $ (610)
=========== ============
See notes to consolidated financial statements.
</TABLE>
3
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MD HEALTHSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
________________________________________________________________________________
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 310(g) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating results for
the nine and three month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
RESERVES FOR INCURRED BUT UNREPORTED CLAIMS - The Company provides reserves
for estimated incurred but unreported physician, hospital, and pharmacy
services rendered to enrolled members during the period. These reserves
are presently based on the use of estimated medical cost ratios. Changes
in these estimates could be significant.
REVENUE RECOGNITION - Premium revenues are recognized in the period in
which the members are entitled to health care services. Premiums collected
in advance are deferred. Consistent with industry practice, third-party
selling expenses are reported as a reduction of premium revenue.
REINSURANCE - The Company is covered under a medical reinsurance agreement
that provides coverage for 80% of hospital services in excess of $50,000
per member, up to a yearly maximum of $1,000,000 per member. There were no
reinsurance recoveries in 1997 and 1996.
RISKS AND UNCERTAINTIES - The Company's business could be impacted by
continuing price pressure on new and renewal business, the Company's
ability to effectively control health care costs, additional competitors
entering the Company's markets, federal and state legislation in the area
of health care reform, and governmental licensing regulations of HMOs and
insurance companies. Changes in these areas could adversely impact the
Company's operations in the future.
FINANCIAL PRESENTATION - Certain reclassifications have been made to prior
period amounts to conform with current period presentation.
For a summary of other significant accounting policies, refer to Note 1 of
Notes to Consolidated Financial Statements included in the Company's
General Form of Registration of Securities of Small Business Issuers on
Form 10-SB/A for the year ended December 31, 1996.
4
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2. RECAPITALIZATION
On March 22, 1997, the Company's stockholders approved a plan of
recapitalization and amendments to the Company's articles of incorporation.
In connection therewith, 7,500 shares of Junior Preferred Voting Stock,
2,000,000 shares of Preferred Stock and 8,000,000 shares of Class A Non-
Voting Stock were authorized. Additionally, all of the Company's 2,142
outstanding shares of Class A Common Stock were cancelled, and each former
share of Class A Common Stock was converted into one share of Junior
Preferred Voting Stock and 500 shares of Class A Non-Voting Common Stock.
The average number of outstanding common shares has been restated to
reflect the recapitalization.
3. 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 increased to $1.5 million on July 1,
1997. The minimum state statutory net worth requirement will increase to
$2.0 million by July 1, 1998.
4. STOCKHOLDERS' EQUITY
During the third quarter, the Company sold eight units of capital stock
which were comprised of eight shares of Junior Preferred Voting Stock and
3,200 shares of Class A Non-Voting Common Stock. The average number of
outstanding common shares for the third quarter reflects these
transactions.
The Company purchased one unit of capital stock comprised of one share of
Junior Preferred Voting Stock and 500 shares of Class A Non-Voting Common
Stock. These shares are accounted for as treasury stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Prior to the commencement of operations during the first quarter of 1997, after
the issuance by the Louisiana Department of Insurance of a Certificate of
Authority to operate a health maintenance organization ("HMO"), the Company was
in the development stage and had no operating revenues.
The Company incurred during the third quarter of 1997 and has incurred since the
inception of operations in the first quarter of 1997 substantial losses from
operations due to the lack of premium income resulting from delays in marketing
its managed care health plans. Such delays have been caused by difficulties
the Company has encountered in securing provider contracts with hospitals and
other ancillary medical providers in certain marketing areas of Louisiana,
difficulties in hiring and retaining experienced full-time executive officers,
and the Company's late entry into the market for calendar year 1997 contracts.
The Company anticipates that such losses will continue and accelerate as the
number of enrollees in the Company's HMO subsidiary increases due to current
marketing efforts, particularly after the new enrollment year commences in 1998,
until and unless the Company attains a sufficient number of enrollees that
premium income will exceed operating expenses and claims payments. However,
there can be no assurance that the Company has sufficient capital to fund such
anticipated losses or that it will ever achieve sufficient numbers of enrollees
to support profitable operations. The Company does not anticipate that it will
require additional capital during the next twelve months.
As of November 1, 1997, there were 320 subscribers and 663 covered lives in
Patient's Choice, Inc.'s ("PCI") HMO. There are no enrollees under PCI's PPO
plans, or under PCI's other managed care plans.
Certain statements, other than statements of historical fact, contained in this
Quarterly Report on Form 10-QSB are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are generally accompanied by such terms and phrases as "anticipates,"
"estimates," "expects," "believes," "should," "projects" or "scheduled" or
similar statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. All
forward-looking statements in this Form 10-QSB are expressly qualified in their
entirety by the cautionary statements in this paragraph.
5
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PART II--OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
Exhibit 6(h): Letter employment contract dated August 12, 1997 by and
between MD HealthShares Corporation and Michael J. Provenza.
Exhibit 6(i): Letter employment contract dated October 23, 1997 by and
between MD HealthShares Corporation and John M. Bird.
Exhibit 27: Financial Data Schedule.
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant cause
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MD HEALTHSHARES CORPORATION
/s/ THOMAS P. McCABE, J.D.
Date: November 14, 1997 _________________________________________
Thomas P. McCabe, J.D.
Interim Chief Executive Officer
/s/ MICHAEL J. PROVENZA
Date: November 14, 1997 _________________________________________
Michael J. Provenza
Chief Financial Officer
6
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EXHIBIT LIST
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(a) The following exhibits are filed with this report:
Exhibit 6(h): Letter employment contract dated August 12, 1997 by and
between MD HealthShares Corporation and Michael J. Provenza.
Exhibit 6(i): Letter employment contract dated October 23, 1997 by and
between MD HealthShares Corporation and John M. Bird.
<PAGE>
EXHIBIT 6(h)
August 12, 1997
Mr. Michael J. Provenza
9872 Deep Woods Drive
Shreveport, LA 71118
Re: Offer of Employment
Dear Mr. Provenza:
This will confirm the terms upon which you are being offered full-time
employment as the Chief Financial Officer (CFO) of MD HealthShares Corporation
and its subsidiaries and affiliates, including Patient's Choice, Inc.
(collectively, the "Company") in accordance with the position description
attached hereto. As one of only a few employees of this newly organized
Company, some benefits being offered to you are necessarily subject to
establishing and/or securing the appropriate employee benefit plans, programs
and policies through which such policies are subject to a variety of federal and
state laws and regulations and those laws and regulations may require or warrant
changes in or elimination of some of the benefits outlined below. Consequently,
while the Company contemplates providing you with the benefits as outlined, this
offer of benefits is qualified and the benefits contingent upon a final decision
to establish or secure the necessary employee benefits plans, programs, and
policies and actual terms of such plans, programs and policies.
The position of CFO reports to the Chief Executive Officer of the company
and whose authority he is subject to and to whom he is accountable. Duties and
responsibilities of the position are outlined in the attached job description.
Your employment will be "at will" and nothing in this letter shall be
construed as creating an employment contract or agreement with Company for any
fixed term.
Subject to the foregoing, your employment by the Company will include the
following terms:
. Annual base salary of $80,000 payable biweekly while employed at the
Company.
. Eligibility for an annual bonus of up to 25% of your base salary. The
annual bonus will be based upon targets to be set by mutual agreement
between you and the Company shortly after commencement of your employment
and will be modified annually as the Company deems prudent.
. Restricted stock grants of the Company's Class A Non-Voting Common Stock
upon completion of 18, 36, 48, and 60 months of satisfactory employment, in
the amounts of 1,200, 2,500, 2,500, and 4,000 respectively. Actual
ownership in each restricted stock grant will vest at the rate of 1/3 per
year pursuant to the attached step schedule. You will, however, be entitled
to receive any dividends, income, or other ownership privileges from each
restricted stock grant at the time of the grant.
<PAGE>
For example, upon the completion of 18 months of satisfactory employment
service you will receive a grant of 1,200 shares. You will be given actual
ownership of 400 at that time and be entitled to dividends, income or other
ownership privileges in the remaining 800 shares. One year following the
date of the initial grant, you will be entitled to actual ownership of
another 400 shares with the actual ownership of the final 400 shares
provided two years following the date of the initial grant.
The terms and conditions of your rights to and in any such Common Stock
shall be set forth in a separate agreement or agreements which shall, among
other things, outline any restrictions on the shares of Common Stock.
. The Company will pay for family health benefits coverage through "Patients
Choice", the Company's HMO subsidiary, or alternative health benefits
coverage available to the Company's employees.
. The Company will pay for standard long-term disability insurance that will
provide for salary continuation in an amount equal to 50% of your annual
base salary at the time of disability. Eligibility for and duration of
long-term disability benefits will be subject to the policy terms in
force at the time of disability.
. The Company will pay for standard Group Term Life Insurance equal to your
annual base salary. Benefits will be subject to the policy terms in force
at the time of death.
. Participation in a defined contribution retirement plan based upon a
percent of your base salary. Participation and benefits will be subject to
the terms of the applicable plan documents in force at the time of
retirement. It is expressly understood that establishment of such a defined
contribution retirement plan shall be subject to and contingent upon an
analysis of the relevant tax, ERISA, and other legal and financial
considerations. The Company retains the right to amend, modify or terminate
any such plan hereafter established in accordance with the terms of the
plan document.
. You will be eligible for participation in the Company's retiree health
program. Eligibility for, participation in, and benefits available will be
subject to the terms of the applicable plan documents in force at the time
of retirement. It is expressly understood that establishment of such a
retiree health plan shall be subject to and contingent upon an analysis of
relevant tax, ERISA, and other legal and financial considerations. The
Company retains the right to amend, modify or terminate any such plan
hereafter established in accordance with the terms of the plan document.
. Reasonable travel expenses will be reimbursed for travel on Company-related
business upon submission of supporting documentation. This shall include
reasonable costs of trips to the Louisiana area for the purpose of
selecting a home. Prior approval may be required on certain amounts defined
by the Chief Executive Officer.
. Reasonable relocation expenses of normal household goods to be covered by
MD HealthShares. Should you not complete one year of employment for any
reason other than the Company's convenience, you will reimburse MD
HealthShares for all relocation expenses covered by the Company.
<PAGE>
. You will be entitled to three weeks paid vacation annually.
. It is expressly understood and agreed that you are an at-will employee and
that the Company has the right to terminate your employment at any time
with or without stated or actual reason. In the event of termination of
your employment relationship, you will be eligible for the following
benefits:
For Cause Termination. The Company may terminate your employment at any
time for cause and such termination will be effective immediately. For the
purposes of this paragraph "for cause" shall mean dishonest, fraudulent, or
illegal acts, activity harmful to the reputation of the Company, conduct
not in the best interest of the Company's good name, failure by employee to
willfully perform his obligations under the terms of this agreement, a
violation of any statutory or common law duty of the Company. If you are
terminated "for cause", you will be entitled to payment of any accrued
salary and benefits through the date of termination and an additional lump-
sum payment of one month's base salary. Any shares of Common Stock that
have vested must be sold back to the Company at the greater of book value
or market price, if a market has been established. All shares of Common
Stock in which you have not yet vested in an actual ownership interest will
revert to the Company. Purchase of shares shall occur within 90 days of the
date of termination.
Termination for the Company's Convenience. The Company may, for its own
convenience, terminate your employment at any time, without a "for cause"
showing, by giving at least 30 days prior written notice. If your
employment is terminated for the Company's Convenience, you will be
entitled to payment of any accrued salary and benefits through the date of
termination. In addition, you will be paid an additional six (6) months of
base salary (no benefits except those required by law) as severance. Any
shares of Common Stock that have vested must be sold back to the Company at
the greater of book value or market price, if a market has been
established. All shares of Common Stock in which you have not yet vested in
an actual ownership interest will revert to the Company. Purchase of shares
shall occur within 90 days of the date of termination.
Voluntary Termination. You may terminate your employment with the Company
at any time, for any reason, by giving the Company at least thirty (30)
days prior written notice. If you terminate your employment, you will be
entitled to payment of the accrued salary and benefits through the date of
termination. Your will be eligible for no additional severance payments.
Any shares of Common Stock that have vested must be sold back to the
Company at the greater of book value or market price, if a market has been
established. All shares of Common Stock in which you have not yet vested in
an actual ownership interest will revert to the Company. Purchase of shares
shall occur within 90 days of the date of termination.
You, stipulate and agree that you shall not, during or after termination of
your employment by the Company , disclose or communicate any information or
knowledge of a confidential nature relating to the Company or its shareholders,
directors, officers, employees, healthcare providers, members or enrollees, the
Company's trade or business secrets, or any information in respect of which the
Company owes an obligation of
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confidence to any third party (i.e. any person, firm or corporation not
affiliated with the Company) or in any manner use any such information or
knowledge other than for the benefit of the Company. All information, data,
computer software and all documents or records, in whatever form, relating to
the Company's business shall be regarded as confidential. Such information,
knowledge and materials shall be used only in the proper course of employment by
the Company and shall neither be removed from the premises nor disclosed or
communicated to persons not employed by the company without the written consent
of an officer of the Company. All documents, files, records, lists, notes,
memoranda, megnetic computer media and other records of information or work
carried out in the Company's employment belong solely to the Company and shall
be returned to the Company before or immediately upon termination of employment.
This agreement shall become and be effective on and as of the First day of
September, 1997, or such later date as you assume the actual performance of
duties for the Company under this agreement; provided, however, that this
agreement shall be legally binding on the parties hereto on the date on which it
has been signed by you and the Company.
Please acknowledge your understanding of and agreement to these terms and
conditions by signing the letter where indicated below. This offer will be
rescinded if MD HealthShares is not notified of your decision within seven (7)
days from the date of this letter. We look forward to your joining the MD
HealthShares team as we move forward.
Sincerely,
MD HEALTHSHARES CORPORATION
By: __________________________
James A. White, M.D.
Chairman, Board of Directors
Acceptance:
______________________________
Michael J. Provenza
Signature Date: ___________
<PAGE>
EXHIBIT 6(i)
Mr. John M. Bird
16025 Antietam Avenue
Baton Rouge, LA 70817
In Re: Offer of Employment
Dear Mr. Bird:
This letter will spell out the terms upon which you are being offered full-
time employment as the Vice President, Chief Marketing Officer of MD
HealthShares Corporation and its subsidiaries and affiliates, including
Patient's Choice, Inc. (collectively, the "Company") in accordance with the
position description attached hereto. As one of only a few employees of this
recently organized Company, some benefits being offered to you are necessarily
subject to establishing and/or securing the appropriate employee benefit plans,
programs and policies. Such policies are subject to a variety of federal and
state laws and regulations, and those laws and regulations may require or
warrant changes in or restructuring of some of the benefits outlined below.
Consequently, while the Company contemplates providing you with the benefits as
outlined, this offer of benefits is qualified and the benefits contingent upon a
final decision to establish or secure the necessary employee benefits plans,
programs, and policies and actual terms of such plans, programs and policies.
The position reports to the Chief Executive Officer of the company and
whose authority the position is subject to, and to whom the position is
accountable. Your employment will be "at will" and nothing in this letter shall
be construed as creating an employment contract or agreement with Company for
any fixed term.
Subject to the foregoing, your employment by the Company will include the
following terms:
. Annual base salary of $100,000 payable biweekly while employed at the
Company.
. Eligibility for an annual bonus of up to 25% of your base salary. The Bonus
will be guaranteed for the first year, and will be paid to you on a
quarterly basis. For subsequent years the annual bonus will be based upon
targets to be set by mutual agreement between you and the Company.
. Restricted stock grants of the Company's Non-Voting Common Stock upon
completion of 18, 36, 48, and 60 months of satisfactory employment, in the
amounts of 1,000, 2,000, 2,000, and 3,000 respectively. Actual ownership in
each restricted stock grant will vest at the rate of 1/3 per year pursuant
to the attached step schedule. You will, however, be entitled to receive
any dividends, income, or other ownership privileges from each restricted
stock grant at the time of the grant.
For example, upon the completion of 18 months of satisfactory employment
service you will receive a grant of 1,000 shares. You will be given actual
ownership of 333 at that time and be entitled to dividends, income or other
ownership privileges in the remaining
<PAGE>
667 shares. One year following the date of the initial grant, you will be
entitled to actual ownership of another 333 shares with the actual
ownership of the final 334 shares provided two years following the date of
the initial grant.
The terms and conditions of your rights to and in any such Common Stock
shall be set forth in a separate agreement or agreements which shall, among
other things, outline any restrictions on the shares of Common Stock.
. A flexible Perk Program allowing you to direct an amount equal to five (5)
percent of your annual base salary toward payment of an employee fringe
benefit(s) of your choice (e.g. a car allowance). It is expressly
understood that the establishment of the Flexible Perk Program shall be
subject to and contingent upon an analysis of the relevant tax, ERISA and
other legal and financial considerations.
. The Company will make a good faith effort to obtain a membership at the
COUNTRY CLUB OF LOUISIANA, under which you will be allowed privileges for
purposes of marketing the Company products and related activities.
. The Company will pay for family health benefits coverage through "Patients
Choice", the Company's HMO subsidiary, or alternative health benefits
coverage available to the Company's employees.
. The Company will pay for standard long-term disability insurance that will
provide for salary continuation in an amount equal to 50% of your annual
base salary at the time of disability. Eligibility for and duration of
long-term disability benefits will be subject to the policy terms in
force at the time of disability.
. The Company will pay for standard Group Term Life Insurance equal to (2)
times your annual base salary ($30,000 guaranteed and the balance subject
to underwriting). Benefits will be subject to the policy terms in force at
the time of death.
. Participation in a defined contribution retirement plan based upon a
percent of your base salary. Participation and benefits will be subject to
the terms of the applicable plan documents in force at the time of
retirement. It is expressly understood that establishment of such a defined
contribution retirement plan shall be subject to and contingent upon an
analysis of the relevant tax, ERISA, and other legal and financial
considerations. The Company retains the right to amend, modify or terminate
any such plan hereafter established in accordance with the terms of the
plan document.
. You will be eligible for participation in the Company's retiree health
program. Eligibility for, participation in, and benefits available will be
subject to the terms of the applicable plan documents in force at the time
of retirement. It is expressly understood that establishment of such a
retiree health plan shall be subject to and contingent upon an analysis of
relevant tax, ERISA, and other legal and financial considerations. The
Company retains the right to amend, modify or terminate any such plan
hereafter established in accordance with the terms of the plan document.
<PAGE>
. Reasonable travel expenses will be reimbursed for travel on Company-related
business upon submission of supporting documentation. Prior approval may be
required on certain types or amounts defined by the Chief Executive
Officer.
. You will be entitled to three weeks paid vacation annually.
. It is expressly understood and agreed that you are an at-will employee and
that the Company has the right to terminate your employment at any time
with or without stated or actual reason. In the event of termination of
your employment relationship, you will be eligible for the following
benefits:
For Cause Termination. The Company may terminate your employment at any
time for cause and such termination will be effective immediately. For the
purposes of this paragraph "for cause" shall mean dishonest, fraudulent, or
illegal acts, activity harmful to the reputation of the Company, conduct
not in the best interest of the Company's good name, failure by employee to
willfully perform his obligations under the terms of this agreement, a
violation of any statutory or common law duty of the Company. If you are
terminated "for cause", you will be entitled to payment of any accrued
salary and benefits through the date of termination and an additional lump-
sum payment of one month's base salary. Any shares of Common Stock that
have vested must be sold back to the Company at the greater of book value
or market price, if a market has been established. All shares of Common
Stock in which you have not yet vested in an actual ownership interest will
revert to the Company. Purchase of shares shall occur within 90 days of the
date of termination.
Termination for the Company's Convenience. The Company may, for its own
convenience, terminate your employment at any time, without a "for cause"
showing, by giving at least 30 days prior written notice. If your
employment is terminated for the Company's Convenience, you will be
entitled to payment of any accrued salary and benefits through the date of
termination. In addition, you will be paid an additional six (6) months of
base salary (no benefits except those required by law) as severance. Any
shares of Common Stock that have vested must be sold back to the Company at
the greater of book value or market price, if a market has been
established. All shares of Common Stock in which you have not yet vested in
an actual ownership interest will revert to the Company. Purchase of shares
shall occur within 90 days of the date of termination.
Voluntary Termination. You may terminate your employment with the Company
at any time, for any reason, by giving the Company at least thirty (30)
days prior written notice. If you terminate your employment, you will be
entitled to payment of the accrued salary and benefits through the date of
termination. You will be eligible for no additional severance payments. Any
shares of Common Stock that have vested must be sold back to the Company at
the greater of book value or market price, if a market has been
established. All shares of Common Stock in which you have not yet vested in
an actual ownership interest will revert to the Company. Purchase of shares
shall occur within 90 days of the date of termination.
You, stipulate and agree that you shall not, during or after termination of
your employment by the Company , disclose or communicate any information or
knowledge of a
<PAGE>
confidential nature relating to the Company or its shareholders, directors,
officers, employees, healthcare providers, members or enrollees, the Company's
trade or business secrets, or any information in respect of which the Company
owes an obligation of confidence to any third party (i.e. any person, firm or
corporation not affiliated with the Company) or in any manner use any such
information or knowledge other than for the benefit of the Company. All
information, data, computer software and all documents or records, in whatever
form, relating to the Company's business shall be regarded as confidential. Such
information, knowledge and materials shall be used only in the proper course of
employment by the Company and shall neither be removed from the premises nor
disclosed or communicated to persons not employed by the company without the
written consent of an officer of the Company. All documents, files, records,
lists, notes, memoranda, magnetic computer media and other records of
information or work carried out in the Company's employment belong solely to the
Company and shall be returned to the Company before or immediately upon
termination of employment.
This agreement shall become and be effective on and as of the First day of
November, 1997, or such later date as you assume the actual performance of
duties for the Company under this agreement; provided, however, that this
agreement shall be legally binding on the parties hereto on the date on which it
has been signed by you and the Company.
Please acknowledge your understanding of and agreement to these terms and
conditions by signing the letter where indicated below. This offer will be
rescinded if MD HealthShares is not notified of your decision within seven (7)
days from the date of this letter. We look forward to your joining the MD
HealthShares team as we move forward.
Sincerely,
MD HEALTHSHARES CORPORATION
By: ________________________
James A. White, M.D.
Chairman, Board of Directors
Acceptance:
____________________________
Signature Date: ___________
