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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 1998.
[ ] 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
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MD HealthShares Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Louisiana 72-1301480
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization
3029 South Sherwood Forest Blvd., Baton Rouge, LA 70816
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(Address of Principal Executive Offices) (Zip Code)
(225) 293-3272
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Securities registered under Section 12(g) of the Exchange Act:
Junior Preferred Voting Stock, $1.00 Par Value, $1,000 Liquidation Preference
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(Title of class)
Class A Non-Voting Common Stock, $0.10 Par Value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $4,104,139
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
Not applicable. See Part II, Item 1.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
2,156 shares outstanding of Junior Preferred Voting Stock as of February 28,
1999; 1 share outstanding of Class B Common Stock as of February 28, 1999;
1,076,600 shares outstanding of Class A Non-Voting Common Stock as of February
28, 1999.
Transitional Small Business Disclosure Format (Check one): Yes X No
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PART I
ALTERNATIVE 2
ITEM 6. DESCRIPTION OF BUSINESS.
We are a physician-owned managed health care holding company. We
develop, market and operate an array of managed health care plans sold to
employers and individuals in Louisiana. The Company was incorporated in
Louisiana on July 18, 1995.
The Managed Care Industry
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The health care industry in the United States is undergoing a period
of rapid and unpredictable change. Due to a number of demographic,
technological, fiscal and other factors, health care costs in the United States
have been increasing at a rate exceeding the rate of inflation for a number of
years. These cost increases have lead to significant governmental, private
industry and consumer pressure for managed health care plans that achieve lower
costs and reduced premiums as compared to traditional self-funded and indemnity
health insurance plans.
Managed health care attempts to use market forces and active
management of the utilization of medical services to control costs. There are a
number of types of managed care plans in the United States, each of which has a
wide variety of possible organizational and operational structures. Some of the
primary types of managed care plans are outlined below.
Health Maintenance Organizations. Health Maintenance Organizations
(HMOs) are prepaid health plans that undertake to provide comprehensive medical
services to enrollees through networks of physicians and ancillary medical
service providers such as hospitals, ambulatory surgery facilities, laboratories
and radiology centers. Because medical services are provided on a prepaid
premium basis, the financial risk of medical costs is assumed by the HMO. In
most HMOs, network physicians assume a portion of the HMO's financial risk in
providing health care services to enrollees.
Preferred Provider Organizations. Preferred Provider Organizations
(PPOs) are networks of health care providers that agree to render medical
services on a discounted fee for service basis. PPOs may simply pass-through
payments for services from payors to providers, or they may assume financial
risk for the provision of medical services.
Point-of-Service Plans. Point-of-service plans are indemnity-like
supplements to managed health 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. Point of service options are often bundled with PPO plans.
Health Care Reform
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There 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
initiatives could have a significant and unpredictable impact on our operations
and prospects. 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 our operations or prospects.
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Regulation
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State Regulation. HMOs are regulated and supervised by the Louisiana
Department of Insurance. Our operating subsidiary, Patient's Choice, Inc.,
which holds a HMO license, and is required by Louisiana law to maintain a
$1,000,000 letter of credit or a deposit in Louisiana financial institutions as
security against insolvency. In addition, Patient's Choice is required to
maintain statutory capital and surplus of at least $2 million, and is required
to file periodic statutory and audited financial reports with the Louisiana
Department of Insurance. As a HMO holding company, the Company is required to
register with the Louisiana Department of Insurance and to file annual holding
company reports.
Louisiana law requires HMOs to provide coverage (subject to lifetime
maximum benefits) for "basic health care services" in their enrollee contracts.
Basic health care 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 health care 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 health care services, other health care services, including oral
surgery and podiatric and psychological care.
In general, rate structures of HMOs are not regulated in Louisiana.
However, HMOs, such as the Company's HMO, that provide coverage to certain
"small employers" (3 to 35 employees) must use a modified community rate
structure.
PPOs and other non-HMO managed health care plans are not currently
subject to regulation by the State of Louisiana.
Federal Regulation. Our managed health care plans are subject to the
"guaranteed issue" provisions of the Health Insurance Portability and
Accountability Act of 1996, which requires insurance and managed care companies,
such as the Company, 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 health care 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. We do not
intend at this time to secure Medicare or Medicaid risk contracts.
Antitrust Regulation. Our managed health 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 health care marketplace is
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 our managed health care plans, or that
we may have to change such optimal arrangements at some later date to satisfy
federal or state antitrust laws and regulations.
Competition
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The managed care business is highly competitive in Louisiana. As of
December, 1998, there were 20 licensed HMOs in Louisiana. It is estimated that
17 of these licensed HMOs are currently in operation. Market penetration of
managed health care plans is low in Louisiana as compared to the national
population, but it has been increasing.
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Many of the managed health care plans that we are in competition with,
such as Aetna US Healthcare Health Plans of Louisiana, Inc., CIGNA Health Care
of Louisiana, Inc., United Healthcare of Louisiana, Inc. and Ochsner Health
Plans, are owned by large companies whose financial resources far exceed those
that are available to the Company.
Goals and Strategy of the Company
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Our goals are to:
. develop the most accessible managed health care network of physicians in
the State of Louisiana
. market a wide array of competitively-priced managed health care plans
throughout Louisiana
. achieve cost-effective, profitable operations while focusing on the
preeminence of the physician-patient relationship and the delivery of
high quality services to enrollees and providers.
Our strategy for building our physician network began with our organization
as a 100% physician-owned and controlled company. Physicians who have a
financial investment in our company have an incentive to become providers for
our network. All of our shareholders are entitled to become network providers,
provided that they meet our credentialing requirements. In addition, we
contract with non-shareholder physician providers when necessary or appropriate
for the organization of our physician networks. As of March 1, 1999, we had
2,325 physician providers in our statewide network, of whom 1,950 are
shareholders of the Company.
Our strategy is to offer a wide variety of managed health care plans to
employers and individuals in Louisiana, including HMOs, PPOs, point-of-service
and self-funded plans, in various configurations of price, benefits, deductibles
and copayments. As of March 1, 1999, we had 9,516 enrollees in our HMO and
point-of-service managed health care plans. We plan to market our managed
health care plans throughout the State of Louisiana. Currently, we have divided
the state into six marketing areas, New Orleans, Baton Rouge, Lafayette/Lake
Charles, Alexandria, Monroe and Shreveport. We believe that these marketing
areas give us administrative, pricing and marketing flexibility as our provider
network and enrollee base expands.
We cannot actively market our full range of managed health care plans in
any area until we have built a sufficient area network of physicians and
hospitals and other ancillary medical services providers. Presently, we have
strong network resources in Baton Rouge, New Orleans, Alexandria and Shreveport,
and are actively marketing our managed health care plan products in these areas.
We anticipate that our network development in the Monroe and Lafayette/Lake
Charles marketing areas will be completed by the end of 1999.
Our network physicians are required to observe our medical utilization and
quality assurance guidelines, which are designed to assure cost-effective
delivery of quality medical services. These guidelines are based on nationally
accepted standards of care which have been extensively reviewed by our Specialty
Advisory Work Groups, which are composed of shareholder-physicians who are board
certified in their respective medical disciplines. Their recommendations are
reviewed and approved by the Board of Directors of the Company. All medical
management processes are overseen by shareholder-physicians on our Medical
Executive Committee, which includes representatives from multiple medical
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disciplines and all regions of Louisiana. All physician providers are required
to meet our credentialing requirements, which are modeled on those developed by
the National Counsel on Quality Assurance. Physician provider contracts with the
Company are subject to termination if providers fail to observe our quality
assurance and utilization management standards.
Currently, our network physician providers are compensated under fee for
service reimbursement schedules. We may in the future employ other compensation
structures, including capitation (prepayment for services rendered to distinct
enrollee populations). It is likely that we will align our utilization
management goals with provisions for risk-sharing incentives and disincentives
applicable to our physician providers, such as fee withholds, bonus pools and
changes in fee reimbursement schedules. We have under consideration proposals
that the Company's compensation and risk-sharing arrangements should be less
favorable to physician providers who are not shareholders of the Company by the
end of the year 2000.
We have adopted a direct access system for our HMO plans, which allows
direct utilization of network specialists by enrollees without prior referral by
"gatekeeper" physicians, which has been a traditional requirement of HMO-type
plans. We believe that our direct access plans will give us a competitive
advantage with employers who place significant value on employee freedom of
choice.
Marketing
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We market our managed health care plans directly, through our in-house
sales staff, and through independent insurance agents. Marketing is directed by
our Vice President of Marketing and Network Development. Senior management of
the Company are directly involved in large group sales.
Customers
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We market our managed health care plans to employer groups and to
individuals. Currently, two groups represent approximately 27% of our monthly
premiums. Loss of the business of any of these or other employer groups could
have a material adverse effect on the Company.
Potential Claims Liabilities and Insurance
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We maintain policies of reinsurance against extraordinary medical claims
that are consistent with industry standards. Although we believe our insurance
protection is adequate, there can be no assurance that we will be able to
maintain adequate reinsurance at rates that are commercially reasonable, nor can
there be any assurance that such coverage will be adequate to cover all claims
that might arise.
Information and Claims Systems
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In January, 1999, we terminated our relationship with our third-party
administrator and installed our own management information and claims processing
systems. We believe that this change will enable us to underwrite and price our
managed health care plans more effectively, and give us greater control over
medical costs and our claims and reimbursement response times. We currently
outsource our local area network maintenance and our software programming
requirements.
Litigation
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We are not a party to any material litigation.
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Employees
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As of March 26, 1999, we had 44 full time employees and 2 part-time
employees.
Plan of Operation
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Although the Company was incorporated in 1995, we did not commence
operations until February, 1997, the month after Patient's Choice was granted a
certificate of authority by the Louisiana Department of Insurance to operate a
HMO.
We had a loss from operations of $2,851,784 in 1997, as our premium
revenues of $313,519 were insufficient to pay our medical costs of $331,905 and
our operating expenses of $3,281,990. Although our premium receipts increased
significantly in 1998 to $3,805,223, they were offset by our medical costs of
$3,927,899, and we incurred an operating loss of $4,228,650. We realized
investment income of $448,592 and $298,916 in 1997 and 1998 from the investment
of our liquid assets, which reduced our operating losses.
A risk-bearing managed health care organization, such as the Company,
typically realizes an operating profit when premium receipts exceed the sum of
operating expenses and medical costs. Because we only began operations two years
ago, our premium receipts in 1997 and 1998 were substantially less than our
operating expenses and medical costs. Our operating losses were higher than
might have been expected during this period, however, due to our inability to
hire an experienced management team until our Chief Executive Officer and our
Chief Financial Officer took their positions in February and April, 1998. This
delay in assembling experienced management resulted in delays in forming our
provider networks and in marketing our managed health care plans. Also during
the period when we did not have an experienced executive team, the underwriting
standards and premium pricing models then employed by the Company resulted in
the acceptance of some business with high medical-loss ratios.
Between April 1, 1998, and March 1, 1999, after the installation of the
current management team, the number of enrollees in our risk-bearing managed
health care plans increased from 1,338 to 9,516. The Company's management team
has developed new underwriting standards and premium pricing models, and the
Company is reviewing the pricing of its renewal business. In December, 1998, in
conjunction with the termination by Advantage Health Plan, Inc. (AHP) of its
managed health care plans, Patient's Choice and AHP entered into an agreement
whereby Patient's Choice agreed to provide conversion coverage to certain AHP
enrollees on a guaranteed-issue basis, at the applicable premium rates of
Patient's Choice, and $1,750,000 was paid to Patient's Choice on behalf of AHP.
This amount was credited to the statutory surplus of Patient's Choice at
December 31, 1998. For a discussion of the accounting treatment of the AHP
payment under generally accepted accounting principles, see the disclosure in
footnote 6 to the audited consolidated financial statements of the Company
included in this report. As of February 1, 1999, approximately 3,200 former AHP
policy holders had become enrollees of the Company's managed care health plans.
Patient's Choice is required by the Louisiana Department of Insurance to
maintain regulatory capital of $3,000,000. A significant portion of the capital
of Patient's Choice is not available, therefore, to absorb losses from
operations under regulatory standards. The Company believes it has sufficient
capital to support the operating losses of Patient's Choice until it achieves
profitable operations. However, Patient's Choice may not be able to maintain
regulatory capital compliance during this period. The Company may need to raise
between $1,000,000 and $3,000,000 during the next twelve months in order to
maintain the required regulatory capital of Patient's Choice.
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ITEM 7. DESCRIPTION OF PROPERTY.
We lease approximately 11,880 square feet of office space in Baton Rouge,
Louisiana. The lease expires in 2004, with a five year renewal option. We
moved our operations to this office space in January, 1999. Our lease for our
former office space in Baton Rouge, Louisiana, which is unoccupied, expires in
June, 1999.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
Directors and Executive Officers and Significant Employees
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The following table sets forth certain information with respect to the
directors and executive officers of the Company:
Name Age Position
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Rene Abadie 51 Vice President of Provider Relations
Brian W. Amy, M.D. 46 Director
Lawrence L. Braud, M.D. 57 Director
Wallace H. Dunlap, M.D. 63 Director
Daniel G. Dupree, M.D. 50 Director
Michael S. Ellis, M.D. 57 Director
Melanie C. Firmin, M.D. 41 Director and Vice Chairman
F. Dennis Irwin, M.D. 55 Vice President of Medical Affairs
C. Clinton Lewis, M.D. 57 Director
Leo Lowentritt, Jr., M.D. 60 Director
T. Steven Martin 46 Vice President of Marketing and Network
Development
Patrick C. Powers 46 President and Chief Executive Officer
J. Mark Provenza, M.D. 38 Director
David R. Raines, Jr., M.D. 58 Director
William M. Roeling, M.D. 70 Director and Secretary
Jay M. Shames, M.D. 62 Director
Adam A. Short 42 Vice President of Finance, Chief Financial
Officer and Treasurer
F. Jeff White, M.D. 40 Director
James A. White III, M.D. 59 Director and Chairman
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Rene G. Abadie Mr. Abadie has served as director of the Company's provider
3029 S. Sherwood Forest Boulevard relations since 1996 and became a Vice President of the
Suite 200 Company in 1998. Between 1986 and 1996, Mr. Abadie was
Baton Rouge, Louisiana 70816 Director of Public Affairs for the Louisiana State Medical
Vice President of Provider Society.
Relations
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Brian W. Amy, M.D. Dr. Amy has practiced General Surgery in Abbeville, Louisiana
2526 North Drive for 12 years. A graduate of the LSU School of Medicine, Dr.
Abbeville, Louisiana 70511 Amy is a Diplomate of the American Board of Surgery and a
Director Fellow of the American College of Surgeons. Dr. Amy has
served as Clinical Assistant Professor of Surgery at the LSU
School of Medicine and is a member of the Board of Directors
of University Hospital, Lafayette, Louisiana. Dr. Amy has
been a director of the Company since 1997.
Lawrence L. Braud, M.D. Dr. Braud has practiced Otolaryngology--Head and Neck Surgery
7777 Hennessy Boulevard in Baton Rouge, Louisiana for over 22 years. A graduate of
Suite 400 the LSU School of Medicine, Dr. Braud is a Diplomate of the
Baton Rouge, Louisiana 70808 American Board of Otolaryngology--Head and Neck Surgery, and
Director a Fellow of the American College of Surgeons and the American
Academy of Otolaryngology. Dr. Braud is a former President
of the Louisiana State Medical Society (1996), which he
previously served as 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.
Wallace H. Dunlap, M.D. Dr. Dunlap has practiced Pediatric Medicine in Baton Rouge,
888 Tara Boulevard Louisiana for more than 30 years. A graduate of Kansas
Baton Rouge, Louisiana 70806 University Medical School, Dr. Dunlap is a Diplomate of the
Director American Board of Pediatrics and a Fellow of the American
Academy of Pediatrics. He is Secretary-Treasurer of the
Louisiana State Medical Society and has served as the
Chairman of the Louisiana State Medical Society Council on
Legislation and as President of the East Baton Rouge Medical
Parish Medical Society. Dr. Dunlap has been a director of
the Company since 1997.
Daniel G. Dupree, M.D. Dr. Dupree has practiced Dermatology in Lafayette, Louisiana
1101 S. College Road for over 19 years. A graduate of the LSU School of Medicine,
Suite 305 Dr. Dupree is a Diplomate of the American Board of
Lafayette, Louisiana 70503 Dermatology and a Fellow of the American Academy of
Director Dermatology. Dr. Dupree has served as President, Vice
President and Secretary-Treasurer of the Lafayette Parish
Medical Society, served as Vice-Chairman of LAMPAC (a
physician-sponsored political action committee) in 1994-95,
was a delegate to the 1995 Louisiana State Medical Society
meeting, and is an alternate delegate to Council on
Legislation of the Louisiana State Medical Society. Dr.
Dupree has been a director of the Company since 1996.
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Michael S. Ellis, M.D. Dr. Ellis has practiced Otolaryngology--Head and Neck Surgery
228 W. Genie in the New Orleans, Louisiana area for 24 years. A graduate
Chalmette, Louisiana 70043 of the LSU School of Medicine, Dr. Ellis is a Diplomate of
Director the American Board of Otolaryngology--Head and Neck Surgery
and the American Board of Cosmetic Surgery and is a Fellow of
the American College of Surgeons and the American Academy of
Facial Plastic and Reconstructive Surgery. Dr. Ellis has
served as President of the Louisiana State Medical Society,
President of the St. Bernard Medical Society, Alternate
Delegate to the American Medical Association, and President
of the Louisiana Academy of Otolaryngology--Head and Neck
Surgery. 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. Dr. Ellis has been a director of
the Company since 1996.
Melanie C. Firmin, M.D. Dr. Firmin has practiced Anesthesiology in Alexandria,
720 Madison Louisiana for 14 years. A graduate of the LSU Medical
Alexandria, Louisiana 71301 Center--Shreveport, Dr. Firmin is a Diplomate of the American
Director and Vice Chairman Board of Anesthesiology and a Fellow of the American Society
of Anesthesiology. She has served as President of the
Rapides Parish Medical Society, is Medical Director and a
member of the Board of Directors of the Central Louisiana
Ambulatory Surgery Center, has served as a director of the
Rapides Regional Women's Hospital and is a member of the
Board of Directors of Rapides Bank & Trust, Alexandria,
Louisiana. Dr. Firmin has been a director of the Company
since 1995.
F. Dennis Irwin, M.D. Dr. Irwin has been the Company's Vice President of Medical
3029 S. Sherwood Forest Boulevard Affairs since July 1997. Dr. Irwin practiced Internal
Suite 200 Medicine for 17 years and is a Diplomate of the American
Baton Rouge, Louisiana 70816 Board of Internal Medicine and is a Fellow of the American
Vice President of Medical College of Physicians and the American College of Physician
Affairs Executives. A graduate of Case Western Reserve University
Medical School, Dr. Irwin served as an Assistant Clinical
Professor at the Department of Medicine of the University of
Hawaii from 1979 to 1982. Dr. Irwin was Vice President and
Chief Medical Officer for HealthCentral HMO in Harrisburg,
Pennsylvania from 1996 to 1997 and was Medical Director for
FHP HMO in Guam from 1991 to 1996.
C. Clinton Lewis, M.D. Dr. Lewis has practiced Radiology for 30 years, and for the
2315 East Main Street last 18 of those years in New Iberia, Louisiana. A graduate
New Iberia, Louisiana 70560 of the LSU School of Medicine, Dr. Lewis is a Diplomate of
Director the American Board of Radiology, a Fellow of the American
College of Radiology, and a member of the Radiology Society
of North America. Dr. Lewis is President-Elect of the
Louisiana State Medical Society, served as 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 Louisiana State Medical Society
from 1990 to 1995. Dr. Lewis has been a director of the
Company since 1996.
Leo Lowentritt, Jr., M.D. Dr. Lowentritt has practiced Urology in Alexandria, Louisiana
3311 Prescott Road for 28 years. A graduate of Tulane University School of
#100 Medicine, Dr. Lowentritt is a Diplomate of the American Board
Alexandria, Louisiana 71301 of Urology and a Fellow of the American College of Surgeons.
Dr. Lowentritt is
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Director President of the Louisiana State Medical Society and Assistant
Clinical Professor of the Department of Urology of the Tulane
University School of Medicine. Dr. Lowentritt has been a
director of the Company since 1998.
T. Steven Martin Mr. Martin has been the Company's Vice President of Marketing
3029 S. Sherwood Forest Boulevard and Network Development since October, 1998. From 1996 to
Suite 200 1998 Mr. Martin was Vice President of Network Partnership for
Baton Rouge, Louisiana 70816 the Ochsner Health Plan, Metairie, Louisiana. Previously,
Vice President of Marketing Mr. Martin had been Vice President of Sales and Network
and Network Development Development of the Ochsner/Sisters of Charity Health Plan in
Alexandria, Louisiana, and Senior Vice President of the
Central Louisiana Health Alliance, a physician-hospital
organization in Alexandria.
Patrick C. Powers Mr. Powers has been the Company's Chief Executive Officer
3029 S. Sherwood Forest Boulevard since February, 1998. From 1995 to 1998, he served as
Suite 200 President-Central Region of Managed Comp. Inc., a workers'
Baton Rouge, Louisiana 70816 compensation and insurance services company, where he was
President and responsible for the company's operations in states west of
Chief Executive Officer the Mississippi River. Mr. Powers also worked as President
and Chief Executive Officer of another managed care company,
Gulf South Health Plans, Inc., from 1986-1994, where he was
responsible for the overall performance of the company.
J. Mark Provenza, M.D. Dr. Provenza has practiced Gastroenterology in Shreveport,
3217 Mabel Street Louisiana since 1990. A graduate of LSU School of
Shreveport, Louisiana 71103 Medicine-Shreveport, Dr. Provenza is a Diplomate of the
Director American Board of Internal Medicine and the American Board of
Gastroenterology. Dr. Provenza has been a director of the
Company since 1998.
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David R. Raines, Jr., M.D. Dr. Raines has practiced Gastroenterology in Monroe,
611 Grammont Street Louisiana for 20 years. He has served as President of the
Monroe, Louisiana 71201 Gastroenterology Clinic, Inc. since 1983 and President of the
Director Endoscopy Center of Monroe, Inc. since 1989. Dr. Raines is a
Fellow of the American Society of Gastrointestinal Endoscopy,
the American College of Gastroenterologists and the American
Society of Internal Medicine. Dr. Raines has been a director
of the Company since 1996.
William R. Roeling, M.D. Dr. Roeling has practiced Obstetrics and Gynecology in New
4228 Houma Boulevard Orleans, Louisiana for 35 years. A graduate of LSU School of
Metairie, Louisiana 70006-2906 Medicine, Dr. Roeling has served as Chairman of the
Director and Secretary Obstetrics/Gynecology Departments at Mercy Hospital and
Lakeside Hospital, as a clinical instructor at Tulane
University Medical School, and as President and member of the
Board of Trustees of Lakeside Hospital. Dr. Roeling also has
served as President of the Jefferson Parish Medical Society,
as a member of the Executive Committee of the JPMS from 1991
through 1996, and has been a member of the Louisiana State
Medical Society House of Delegates for over 25 years. Dr.
Roeling has been a director of the Company since 1995.
Jay M. Shames, M.D. Dr. Shames has practiced Internal Medicine and Pulmonology
3525 Prytania Street, Suite 526 in New Orleans, Louisiana since 1968. A 1961 graduate of
New Orleans, Louisiana 70115 Tulane University School of Medicine, Dr. Shames is a
Director Diplomate of the American Board of Internal Medicine and the
American Board of Pulmonary Diseases, a Fellow of the
American College of Physicians and the American College of
Chest Physicians, and a member of the American Society of
Internal Medicine and the American Thoracic Society. Dr.
Shames has served as President of the Louisiana State Medical
Society and the Louisiana Society of Internal Medicine. He
is also 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. Dr. Shames
has been a director of the Company since 1995.
Adam A. Short Mr. Short has served as Chief Financial Officer of the
12021 Bricksome Avenue Company since April, 1998. Mr. Short was Chief Financial
Baton Rouge, Louisiana 70816 Officer of Healthcare Partners HMO between 1996 and 1998,
Vice President of Finance, where he was responsible for operationalizing a start-up HMO
Chief Financial Officer and and integrating operations with an established TPA, along
Treasurer with financial and accounting operations of the HMO. From
1995 to 1996, Mr. Short was Chief Financial Officer for
Heritage Southwest Medical Group, P.A. in Irving, Texas and
was employed by Gulf South Health Plans, Inc. of Baton Rouge
from 1986-1995 as Vice President of Finance and Finance
Manager (1986-1990).
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
F. Jeff White III, M.D. Dr. White has practiced Cardiology in Shreveport, Louisiana
2551 Greenwood Road since 1988. A 1982 graduate of the LSU School of
Suite 310 Medicine--Shreveport, Dr. White is a Diplomate of the
Shreveport, Louisiana 71103 American Board of Internal Medicine and the American Board of
Director Cardiovascular Diseases, and is a Fellow of the American
College of Cardiology and the American College of Chest
Physicians. Dr. White has served as President of the
Shreveport Medical Society and has been a member of the Board
of Directors of the Shreveport Medical Society since 1992.
Dr. White has also served as a member of the Governmental
Affairs Committee of the American College of Cardiology and
as a delegate to the American Medical Association Young
Physicians' Section. Dr. White is Vice-Chief of Medicine at
the Willis Knighton Medical Center. Dr. White has been a
director of the Company since 1995.
James A. White III, M.D. Dr. White has practiced Otolaryngology--Head and Neck Surgery
2920 Jackson Street in Alexandria, Louisiana for over 25 years. A graduate of
Alexandria, Louisiana 71301 Tulane University School of Medicine, Dr. White is a
Director and Chairman Diplomate of the American Board of Otolaryngology--Head and
Neck Surgery and is a Fellow of the American College of
Surgeons, the American Academy of Otolaryngology, and the
American Academy of Otolaryngologic Allergy. He has served
as President of the Louisiana Academy of Otolaryngology--Head
and Neck Surgery since 1996. Dr. White also serves as a
clinical instructor of Otolaryngology at Tulane University
School of Medicine. Dr. White has been President of the
Louisiana State Medical Society and of the Rapides Parish
Medical Society. Dr. White has been a director of the
Company since 1995.
</TABLE>
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS.
Compensation of Directors
- - -------------------------
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.
13
<PAGE>
Executive Compensation
- - ----------------------
The following table sets forth the aggregate annual remuneration during the
1998 fiscal year of the three highest paid persons who are officers of the
Company.
<TABLE>
<CAPTION>
Capacities in White
Remuneration Aggregate
Name of Individual Was Received Remuneration
- - ------------------------------ --------------------------------------- ------------------------
<S> <C> <C>
Patrick C. Powers Chief Executive Officer $273,953
F. Dennis Irwin, M.D. Vice President of Medical Affairs $209,811
Vice President of Finance and
Adam A. Short Chief Financial Officer $135,613
</TABLE>
Employment Agreements
- - ---------------------
The Company has employment agreements with Mr. Powers, Dr. Irwin and Mr.
Short, which provide for annual base salaries of $200,000, $180,000 and
$140,000, respectively, and annual bonuses based on targets established annually
by the Company. Recently, the Board of Directors of the Company, on the
recommendation of the Compensation Committee, approved increases in the base
salaries of Mr. Powers, Dr. Irwin and Mr. Short, to $265,000, $189,000, and
$154,000, respectively. The Company has agreed to pay premiums for health,
disability and life insurance for the benefit of each of the executive officers.
Under the employment agreements, the executives will receive restricted stock
grants of the Company's common stock upon satisfactory completion of certain
employment periods, as set forth in the table below:
<TABLE>
<CAPTION>
Restricted Common Stock Grants (number of shares)
-----------------------------------------------------------------------------
18 36 48 60
Months Months Months Months
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Patrick C. Powers 2,500 5,000 5,000 8,000
F. Dennis Irwin, M.D. 1,800 3,500 3,500 5,000
Adam A. Short 1,250 2,500 2,500 4,000
</TABLE>
The restricted stock grants will vest over a three-year period, with one-third
of the shares vesting per year. However, the executives are entitled to receive
all dividends and other ownership privileges with respect to the restricted
common stock from the date of grant. In the event the Company is sold, merged
with or becomes part of another company, all the outstanding restricted stock
grants to Messrs. Powers and Short will immediately vest.
The employment agreements may be terminated by the Company and by any of the
executives at any time after notice. If there is a change in control of the
Board of Directors of the Company from physicians to another company, Mr. Powers
may resign his position and receive a payment equal to six months base salary as
a severance payment; if there is such a change in the control of the Board of
Directors or Mr. Powers is replaced as Chief Executive Officer, Mr. Short may
resign his position and receive a payment equal to six months base salary as a
severance payment. Each of Mr. Powers and Mr. Short is entitled to receive a
severance payment equal to six months base salary in the event his employment is
terminated by the Company without "cause," as defined in the employment
agreements,
14
<PAGE>
during the first two years of employment; nine months base salary during the
third year of employment; and twelve months base salary during the fourth and
subsequent years of employment. Dr. Irwin is entitled to receive a severance
payment equal to six months base salary in the event of termination without
cause. Upon any termination of employment, each of the executives will be
required to sell to the Company all shares of restricted stock which have become
vested at the greater of book and market value, and all unvested restricted
stock grants will be cancelled.
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.
Each director of the Company owns one share of voting preferred stock and 500
shares of common stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS' COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company has paid no dividends and does not anticipate the payment of
dividends in the foreseeable future. There is no market for the Company's Junior
Preferred Voting Stock or Class A Non-Voting Common Stock. There were 2,156
registered holders of the Company's capital stock at February 28, 1999.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no changes in or disagreements with the Company's accountants
since the inception of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted for shareholder vote in the fourth quarter of
1998.
ITEM 5. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Neither Rene Abadie, Vice President of Provider Relations, nor T. Steven
Martin, Vice President of Marketing and Network Development, filed on a timely
basis a Form 3 with the Commission after becoming officers of the Company.
ITEM 6. REPORTS OF FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
15
<PAGE>
PART F/S.
The Company's financial statements follow:
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 as of December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1998. 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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
March 1, 1999
DELOITTE & TOUCHE, LLP
17
<PAGE>
<TABLE>
<CAPTION>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- - --------------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,112,479 $ 1,408,901
Marketable securities (Note 2) 2,808,827 4,840,825
Premiums receivable 196,851 24,554
Advances to providers 35,000 -
Interest receivable 54,524 55,095
Prepaid expenses 78,613 95,518
----------- -----------
Total current assets 5,286,294 6,424,893
----------- -----------
RESTRICTED DEPOSITS (Note 7) 1,000,000 1,000,000
EQUIPMENT, net of accumulated depreciation of $65,326
in 1998 and $30,429 in 1997 141,908 75,971
OTHER 36,070 35,378
----------- -----------
TOTAL $ 6,464,272 $ 7,536,242
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred income (Note 6) $ 1,750,000 $ -
Accounts payable and accrued expenses 424,636 122,268
Claims payable and reserves for incurred but unreported claims
(Note 10) 1,038,344 145,131
Deferred premium revenue 81,562 2,385
----------- -----------
Total current liabilities 3,294,542 269,784
----------- -----------
CONTINGENCIES (Note 7) - -
STOCKHOLDERS' EQUITY (Notes 3 and 8):
Junior preferred voting stock, $1.00 par value, liquidation
value $1,000, 7,500 shares authorized, 2,156 and 2,152
shares issued and outstanding in 1998 and 1997, respectively 2,156 2,152
Preferred stock, $1.00 par value, 2,000,000 shares
authorized, none issued and outstanding in 1998 and 1997 - -
Common Stock:
Class A non-voting, $0.10 par value, 8,000,000 shares
authorized, 1,076,600 and 1,075,000 shares issued
and outstanding in 1998 and 1997, respectively 107,660 107,500
Class B, $0.10 par value, 1 share authorized and outstanding
in 1998 and 1997 - -
Additional paid-in capital 11,757,859 11,732,023
Accumulated deficit (8,819,105) (4,590,455)
Treasury stock, at cost, 511 and 503 shares in 1998
and 1997, respectively (16,000) (8,000)
Accumulated other comprehensive income 137,160 23,238
----------- -----------
Total stockholders' equity 3,169,730 7,266,458
----------- -----------
TOTAL $ 6,464,272 $ 7,536,242
=========== ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
REVENUE:
<S> <C> <C> <C>
Premium revenue $ 3,805,223 $ 313,519 $ -
Investment income 298,916 448,592 222,666
----------- ----------- -----------
Total revenue 4,104,139 762,111 222,666
----------- ----------- -----------
EXPENSES:
Medical service expenses 3,927,899 331,905 -
Selling, general and administrative 4,346,971 3,255,385 1,570,448
Depreciation 57,919 26,605 3,825
Interest expense - - 10,862
----------- ----------- -----------
Total expenses 8,332,789 3,613,895 1,585,135
----------- ----------- -----------
NET LOSS (4,228,650) (2,851,784) (1,362,469)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gains (losses) arising during
the year 87,134 23,238 (15,938)
Reclassification adjustment for losses included
in net loss 26,788 - 15,328
----------- ----------- -----------
Total other comprehensive income (loss) 113,922 23,238 (610)
----------- ----------- -----------
TOTAL COMPREHENSIVE LOSS $(4,114,728) $(2,828,546) $(1,363,079)
=========== =========== ===========
NET LOSS PER COMMON SHARE - BASIC $(3.93) $(2.66) $(3.05)
=========== =========== ===========
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 1,076,433 1,072,267 446,308
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
-------------------------------------------------------------------
Junior Preferred Class A Class B Class A
Voting Stock No Par Value No Par Value Non-voting
---------------- ---------------------- ---------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDER'S DEFICIT, January 1, 1996 - $ - 1 $ 100 - $ - - $ -
ISSUANCE OF COMMON STOCK - - 2,142 11,826,306 1 100 - -
REDEMPTION OF COMMON STOCK - - (1) (100) - - - -
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - - - -
NET LOSS - - - - - - - -
------ ------ ------ ------------ ------ ------ --------- --------
STOCKHOLDERS' EQUITY, December 31, 1996 - - 2,142 11,826,306 1 100 - -
RECAPITALIZATION (Note 3) 2,142 2,142 (2,142) (11,826,306) (1) (100) 1,071,000 107,100
ISSUANCE OF COMMON STOCK (Note 3) 10 10 - - - - 4,000 400
PURCHASE OF TREASURY STOCK (Note 3) - - - - - - - -
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - - - -
NET LOSS - - - - - - - -
------ ------ ------ ------------ ------ ------ --------- --------
STOCKHOLDERS' EQUITY, December 31, 1997 2,152 2,152 - - - - 1,075,000 107,500
ISSUANCE OF COMMON STOCK (Note 3) 4 4 - - - - 1,600 160
PURCHASE OF TREASURY STOCK (Note 3) - - - - - - - -
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - - - -
NET LOSS - - - - - - - -
------ ------ ------ ------------ ------ ------ --------- --------
STOCKHOLDERS' EQUITY, December 31, 1998 2,156 $2,156 - $ - - $ - 1,076,600 $107,660
====== ====== ====== ============ ====== ====== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Common Stock
----------------
Class B Accumulated
$0.10 Par Value Additional Other
---------------- Paid-in Accumulated TREASURY Comprehensive
Shares Amount Capital Deficit STOCK Income Total
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDER'S DEFICIT, January 1, 1996 - $ - $ - $ (376,202) $ - $ 610 $ (375,492)
ISSUANCE OF COMMON STOCK - - - - - - 11,826,406
REDEMPTION OF COMMON STOCK - - - - - - (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 - - - (1,738,671) - - 10,087,735
RECAPITALIZATION (Note 3) - - 11,717,164 - - - -
ISSUANCE OF COMMON STOCK (Note 3) 1 - 14,859 - - - 15,269
PURCHASE OF TREASURY STOCK (Note 3) - - - - (8,000) - (8,000)
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - 23,238 23,238
NET LOSS - - - (2,851,784) - - (2,851,784)
------ ------ ----------- ----------- -------- -------- -----------
STOCKHOLDERS' EQUITY, December 31, 1997 1 - 11,732,023 (4,590,455) (8,000) 23,238 7,266,458
ISSUANCE OF COMMON STOCK (Note 3) - - 25,836 - - - 26,000
PURCHASE OF TREASURY STOCK (Note 3) - - - - (8,000) - (8,000)
CHANGE IN UNREALIZED GAIN ON
AVAILABLE-FOR-SALE SECURITIES - - - - - 113,922 113,922
NET LOSS - - - (4,228,650) - - (4,228,650)
------ ------ ----------- ----------- -------- -------- -----------
STOCKHOLDERS' EQUITY, December 31, 1998 1 $ - $11,757,859 $(8,819,105) $(16,000) $137,160 $ 3,169,730
====== ====== =========== ========== ======== ======== ===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - --------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(4,228,650) $(2,851,784) $(1,362,469)
Adjustments to reconcile net loss to cash flows from
operating activities:
Loss on sales of available-for-sale securities 26,788 - 15,328
Depreciation 57,919 26,605 3,825
Changes in operating assets and liabilities:
Premiums receivable (172,297) (24,554) -
Advances to providers (35,000) - -
Interest receivable 571 2,378 (54,984)
Prepaid expenses 16,905 52,229 (97,747)
Other (692) (30,153) (5,225)
Deferred income 1,750,000 - -
Accounts payable and accrued expenses 302,368 (233,588) 314,918
Interest payable - - (4,500)
Claims payable and reserves for incurred but
unreported claims 893,213 145,131 -
Deferred premium revenue 79,177 2,385 -
----------- ----------- -----------
Net cash used in operating activities (1,309,698) (2,911,351) (1,190,854)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (8,782,118) (5,017,311) (355,663)
Sales of available-for-sale securities 10,901,250 199,724 540,480
Sales of restricted investments - 71,777 -
Purchases of restricted investments - - (1,071,777)
Purchases of equipment (123,856) (88,732) (17,669)
----------- ----------- -----------
Net cash provided by (used in) investing activities 1,995,276 (4,834,542) (904,629)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 26,000 15,269 11,826,406
Redemption of common stock - - (100)
Purchase of treasury stock (8,000) (8,000) -
Developmental funds provided by the medical community - - 585,250
Developmental funds returned to the medical community - - (1,041,960)
Repayment of LSMS note payable - - (175,462)
----------- ----------- -----------
Net cash provided by financing activities 18,000 7,269 11,194,134
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 703,578 (7,738,624) 9,098,651
CASH AND CASH EQUIVALENTS, Beginning of year 1,408,901 9,147,525 48,874
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 2,112,479 $ 1,408,901 $ 9,147,525
=========== =========== ===========
NON-CASH INVESTING AND FINANCING TRANSACTION:
Change in unrealized gain on available-for-sale
securities $ 113,922 $ 23,238 $ (610)
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
21
<PAGE>
MD HEALTHSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 preferred provider
organization ("PPO"). The Company is engaged primarily in one segment, which
is the provision of medical services to managed care enrollees. The
accompanying consolidated financial statements include the accounts of the
MDH and PCI ("the Company"). Material intercompany balances and transactions
are eliminated in consolidation.
COMPREHENSIVE INCOME (Loss) - The Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130)
effective January 1, 1998 and has provided the required information for all
periods presented. SFAS NO. 130 establishes standards for reporting and
display of comprehensive income (loss) and its major components.
Comprehensive income (loss) includes net loss and other comprehensive income
(loss) which in the case of the Company, includes only unrealized gains and
losses on securities available for sale.
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, the most significant of which relate to incurred
but unreported claims for medical services.
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 accumulated other
comprehensive income within stockholders' equity. All marketable securities
are available for current operations and, therefore, have been classified as
current assets.
RESTRICTED INVESTMENTS - Restricted investments at December 31, 1998 and
1997, which are comprised of certificates of deposit, are recorded at cost
which approximates fair value.
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, which lives range from 3 to 10
years.
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
determined by the use of completion factors applied to historical lag
patterns and cost trends. Medical cost adjustments to current period
estimates will be reflected in the operations of future periods and changes
in these estimates could be significant.
22
<PAGE>
REVENUE RECOGNITION - Premium revenues are recognized in the period in which
members are entitled to health care services. Premiums collected in advance
are deferred.
MEDICAL SERVICE EXPENSES - The Company has contractual agreements with
independent physicians, hospitals, pharmacies, and others to provide
comprehensive health care services to enrollees and their eligible
dependents. Contracts with participating physicians provide for
reimbursement for health care services at less than 100% of their established
fees.
REINSURANCE - The Company is covered under a medical reinsurance agreement
that generally provides coverage for 80 percent of eligible hospital services
in excess of $50,000 per member per year. Reinsurance premiums are reported
as health care costs, and reinsurance recoveries are reported as a
reduction of related health care costs. Reinsurance premiums were
approximately $38,000, $3,000, and $0 in 1998, 1997, and 1996, respectively.
No such recoveries were recorded during 1998, 1997 or 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.
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 1995 financial statements as developmental
funds provided by the medical community. MDH ceased solicitation of such
developmental funds on February 14, 1996. In December 1996, MDH repaid all
of its developmental funds ($1,041,960) that were provided by the medical
community.
NET LOSS PER COMMON SHARE - BASIC - Basic earnings per share ("EPS") excludes
dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB Opinion No. 15.
EMPLOYEE BENEFIT PLAN - All employees meeting eligibility requirements may
participate in the Company's defined contribution plan (the "Plan"). The
Plan is qualified under Internal Revenue Code Section 401(k). Matching
contributions to the Plan are discretionary and determined by the Board of
Directors. For the year ended December 31, 1998, the Company contributed
$27,665 to the Plan through matching contributions. The Company pays
substantially all expenses associated with the Plan.
INCOME TAXES - There are temporary differences in reporting certain expenses
for financial statement and federal income tax purposes. The Company has net
operating loss carryforwards at December 31, 1998 of approximately $7.7
million, which may be used to offset taxable income in future years. Such
carryforwards expire in varying amounts from 2010 to 2018.
23
<PAGE>
Reclassifications - Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to the 1998 presentation.
2. MARKETABLE SECURITIES
Marketable securities at December 31, 1998 and 1997 include the following:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
FAIR UNREALIZED UNREALIZED
VALUE GAIN LOSS COST
<S> <C> <C> <C> <C>
Marketable equity securities $ 820,423 $163,575 $62,073 $ 718,921
U.S. government and agency
securities 351,154 1,132 167 350,189
Corporate notes 1,637,250 36,661 1,968 1,602,557
---------- -------- ------- ----------
$2,808,827 $201,368 $64,208 $2,671,667
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
FAIR UNREALIZED UNREALIZED
VALUE GAIN LOSS COST
<S> <C> <C> <C> <C>
Marketable equity securities $ 769,137 $47,442 $24,204 $ 745,899
U.S. government and agency
securities 2,549,046 - - 2,549,046
Corporate notes 1,522,642 - - 1,522,642
---------- -------------- -------------- ----------
$4,840,825 $47,442 $24,204 $4,817,587
========== ============== ============== ==========
</TABLE>
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification. The debt securities
above have contractual maturities ranging from one to ten years.
3. 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 is being used to operate on a state-wide basis an independent
practice association model HMO, and to organize and administer on a state-
wide basis a PPO.
24
<PAGE>
Until March 22, 1997, the initially authorized common stock of MDH consisted
of Class A and Class B common stock. No person could own of record or
beneficially more than one share of Class A stock. The Class A and Class B
common stock could not be sold, assigned, transferred or otherwise disposed
of by any person unless, in the case of the Class A common stock, MDH failed
to exercise its right of first refusal. The right of first refusal specified
that MDH could 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,
could, at MDH's option and discretion, be redeemed for $100 upon written
request of the Class B common stockholder, which was the LSMS. Additionally,
the Class A and Class B common stockholders elected twelve and three,
respectively, of the fifteen Directors of MDH.
On March 22, 1997, MDH's stockholders approved a plan of recapitalization and
amendments to MDH'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 MDH's 2,142 outstanding shares of Class A Common Stock
were canceled, 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 Junior Preferred Voting Stock is the principal voting security of MDH.
The other voting security of MDH, one share of Class B Common Stock, is held
by the LSMS. The Class B Common stockholder elects three of the fifteen
directors of MDH and votes along with the other voting stockholders on all
matters voted upon by the stockholders. The Junior Preferred Voting
stockholders elect twelve of the fifteen directors of MDH.
No dividends may be paid on the Junior Preferred Voting Stock. Additionally,
MDH's bylaws prohibit the donation of Junior Preferred Voting Stock and
permit the resale or other transfer of Junior Preferred Voting Stock only to
persons who are licensed Louisiana physicians and LSMS members, and who do
not already own a share of Junior Preferred Voting Stock, unless MDH
exercises its right of first refusal. The right of first refusal specifies
that MDH may purchase, at its option, the Junior Preferred Voting Stock from
any person for the liquidation value of $1,000.
The Class A Non-voting Common Stock may receive dividends when and if
declared by MDH. MDH's bylaws permit the resale of or other transfer of
Class A Non-voting Common Stock only to persons who are licensed Louisiana
physicians and LSMS members. Resale or other transfer of the shares of Class
A Non-voting Common Stock is prohibited until each holder's shares are
released from the resale prohibition as follows:
NUMBER OF
SHARES
RELEASED
March 22, 1998 100
March 22, 1999 200
March 22, 2000 200
---
500
===
25
<PAGE>
Furthermore, ownership by any person of more than two percent of the
outstanding shares of Class A Non-voting Common Stock is prohibited; however,
MDH may issue up to six percent of the outstanding Class A Non-voting Common
Stock to executive officers of the Company pursuant to its stock-based
compensation plan (see Note 8).
During 1998 and 1997, the Company sold four and ten units of capital stock
which were comprised of four and ten shares, respectively, of Junior
Preferred Voting Stock and 1,600 and 4,000 shares, respectively, of Class A
Non-voting Common Stock. The average number of outstanding common shares for
1998 and 1997 reflects these transactions.
During 1998 and 1997, the Company also purchased eight and three units of
capital stock comprised of eight and three shares, respectively, of Junior
Preferred Voting Stock and 500 shares of Class A Non-voting Common Stock in
1997. These shares are accounted for as treasury stock.
4. RELATED PARTY TRANSACTIONS
Certain members of the LSMS's board of directors are members of the board of
directors of MDH. 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 percent
per annum and was payable in equal annual installments (including interest)
of $98,394 on September 5, 1996 and 1997. On October 9, 1996, MDH repaid the
outstanding principal and accrued interest of $15,345 related to this note
payable.
5. 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 - Restricted investments, which are comprised of
certificates of deposit, are recorded at cost which approximates fair value.
26
<PAGE>
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents $2,112,479 $2,112,479 $1,408,901 $1,408,901
Marketable securities 2,808,827 2,808,827 4,840,825 4,840,825
Restricted investments 1,000,000 1,000,000 1,000,000 1,000,000
</TABLE>
6. DEFERRED INCOME
On December 21, 1998, PCI entered into a contract with Advantage Health Plan
("AHP"), a Louisiana-based HMO in the process of a business wind down,
whereby PCI would offer its HMO products to approximately 11,000 existing AHP
commercial members effective February 1, 1999. PCI received $1.75 million
for guaranteeing coverage of these members. PCI assumed no responsibility
for medical services rendered to AHP-covered members prior to February 1,
1999. Additionally, none of the existing AHP contracts were acquired by PCI;
rather, PCI entered into new contracts that were priced according to its own
rate structure, subject to certain maximums and restrictions that were
established by the Department of Insurance ("DOI") for the state of
Louisiana.
At December 31, 1998, the Company has reflected the $1.75 million received in
connection with this contract as deferred income as the Company had not yet
offered medical coverage to existing AHP members. This deferred income will
be recognized as revenue over the term, typically one year or less, of the
contracts accepted by former AHP members. As a result, this deferred income
will be substantially recognized as revenue during 1999.
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - The company has entered into employment agreements
with five officers with salaries aggregating $822,500 annually. These
agreements provide for guaranteed bonuses ranging from 10-15% of these
officers' base salaries and also provide for severance payments of three to
twelve months base salary in the event of a change in control of the Board of
Directors of the Company.
RESTRICTED DEPOSITS - As an ongoing requirement of the state of Louisiana,
PCI has deposited with the Commissioner of Insurance a safekeeping receipt of
$1,000,000, consisting of certificates of deposit in ten separate banking
corporations doing banking business with the state of Louisiana.
27
<PAGE>
OPERATING LEASE - Beginning July 1, 1997, the Company entered into an
operating lease for the building housing its corporate headquarters. In
January 1999, the Company relocated its corporate headquarters and entered
into an additional operating lease. The Company incurred rental expenses of
$66,537, $57,371 and $5,000 during 1998, 1997 and 1996, respectively. Net
rental commitments over the next five years are as follows:
1999 $152,460
2000 163,350
2001 163,350
2002 163,350
2003 163,350
Thereafter 27,225
--------
$833,085
========
LITIGATION - In the ordinary course of operations, the Company is subject to
various litigation matters relating to health benefits provided to its
subscribers. Although the outcome of these matters cannot be determined, it
is management's opinion that disposition of these proceedings will not have a
material adverse effect on the Company's consolidated financial statements.
Pursuant to the contract referred to in Note 6, PCI has agreed to indemnify
AHP for any possible monetary damages incurred by certain third parties as a
result of the execution of the contract. Management is presently unable to
determine the magnitude of any possible losses that may be incurred as a
result of this indemnification but does not believe that this indemnification
will have an adverse effect on the Company's consolidated financial
statements.
REGULATORY REQUIREMENTS - The state of Louisiana has implemented financial
regulations for HMO's requiring, among other things, minimum net worth
requirements. For each HMO which, by July 1, 1995, had not filed its
application for a certificate of authority with the Commissioner of Insurance
as required by law, the minimum net worth requirement is $2.0 million. PCI
was in compliance with the state statutory net worth requirement at December
31, 1998.
During 1998 and since the inception of operations in the first quarter of
1997, the Company has incurred substantial losses from operations due to the
lack of premium revenue resulting from delays in marketing its managed care
products. Based on current operations and projections, the Company could
fall out of compliance with the minimum capitalization requirements of the
DOI during the fourth quarter of 1999, and would be required prior to such
time to raise additional capital as a condition to remain in compliance.
However, PCI has recently introduced several new products to the marketplace
and has been named as an approved HMO for several large group accounts which
are currently undergoing enrollment. Revenue from these enrollment
activities may reduce the Company's current operating losses sufficiently to
permit it to remain in regulatory compliance through the remainder of 1999.
The Company is exploring on a preliminary basis several alternatives to
substantially increase premium revenue or capitalization, including the
acquisition of existing base of members and/or the sale of additional
capital stock. However, there can be no assurance that the Company will
achieve income in the near term from new enrollees from group or individual
products, or from the acquisition of existing base of members, sufficient
to remain in regulatory compliance during all of 1999, or that, if necessary,
the Company will succeed in increasing its capitalization through the sale of
additional capital stock. PCI's failure to maintain compliance with
regulatory capital requirements could result in one or more actions by the
DOI with respect to PCI that could be materially adverse to shareholders,
including the loss of part or all of their investments in the Company.
28
<PAGE>
8. STOCK-BASED COMPENSATION PLAN
The Company has a stock-based compensation plan through which several of the
Company's officers are entitled to receive restricted stock grants contingent
upon their satisfaction of specific tenure requirements. Restricted stock
grants, which are vested one-third each year after the award date, are
scheduled to be awarded as follows:
NUMBER OF
SHARES
1999 7,350
2000 5,625
2001 15,350
2002 15,350
2003 16,500
------
60,175
======
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company recognizes
compensation cost equal to the fair value of the restricted stock when
awarded. The Company did not recognize any material compensation cost related
to the issuance of stock grants in 1998 and 1997.
9. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of risk consist primarily of investments in marketable securities and
commercial premiums receivable. As of December 31, 1998, the Company had no
significant concentrations of credit risk due to the limited amounts which
are invested in any one issuer and the large number of employer groups
comprising the Company's customer base.
10. CLAIMS PAYABLE AND RESERVES FOR INCURRED BUT UNREPORTED CLAIMS
The following is a summary of claims payable and reserves for incurred but
unreported claims:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, January 1 $ 145,131 $ -
Incurred related to:
Current year 3,886,996 331,905
Prior years 40,903 -
---------- --------
Total incurred 3,927,899 331,905
Paid related to:
Current year 2,941,146 186,774
Prior years 93,540 -
---------- --------
Total paid 3,034,686 186,774
---------- --------
Balance, December 31 $1,038,344 $145,131
========== ========
</TABLE>
29
<PAGE>
11. INCOME TAXES
Significant components of the Company's deferred tax assets at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 2,691,000 $ 1,120,000
Organizational expenses 273,000 364,000
----------- -----------
Deferred tax asset 2,964,000 1,484,000
Valuation allowance (2,964,000) (1,484,000)
----------- -----------
Deferred tax asset reported $ - $ -
=========== ===========
</TABLE>
A valuation allowance for the entire deferred tax asset has been recorded as
its realization is not considered more likely than not.
30
<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 (incorporated by reference
from the Form 10-SB of the Company filed with the Commission
on June 30, 1997)
2(b) Amended and Restated Bylaws of MD HealthShares Corporation
dated June 7, 1997 (incorporated by reference from the Form
10-SB of the Company filed with the Commission on June 30,
1997)
6(a) Consulting Services Agreement by and among MD HealthShares
Corporation, Patient's Choice, Inc. and Thomas P. McCabe
dated February 7, 1997 (incorporated by reference from the
Form 10-SB of the Company filed with the Commission on June
30, 1997)
6(b) Letter Employment Agreement between MD HealthShares
Corporation and Frank D. Irwin, M.D. dated May 21, 1997
(incorporated by reference from the Form 10-KSB of the
Company filed with the Commission on June 30, 1997)
6(c) Letter employment contract dated August 12, 1997 by and
between MD HealthShares Corporation and Michael J. Provenza
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on November 14, 1997)
6(d) Letter employment contract dated October 23, 1997 by and
between MD HealthShares Corporation and John M. Bird
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on November 14, 1997)
6(e) Letter employment contract dated February 23, 1998 by and
between MD HealthShares Corporation and Patrick C. Powers
(incorporated by reference from the Form 10-KSB of the
Company filed with the Commission on March 31, 1998)
6(f) Contract of Lease effective July 1, 1997 by and between PMD
Investments and MD HealthShares Corporation (incorporated by
reference from the Form 10-KSB of the Company filed with the
Commission on March 31, 1998)
6(g) Letter employment contract dated March 13, 1998 by and
between MD HealthShares Corporation and Adam Short
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on August 17, 1998)
31
<PAGE>
6(h) Letter employment contract dated September 2, 1998 by and
between MD HealthShares Corporation and T. Steven Martin
6(i) Office Lease Agreement dated November 30, 1998 by and
between Louisiana Investment Corporation and Patient's
Choice, Inc.
6(j) Conversion Coverage Agreement dated December 18, 1998 by and
between Advantage Health Plan, Inc. and Patient's Choice,
Inc.
27 Financial Data Schedule
ITEM 2. DESCRIPTION OF EXHIBITS.
The Company's Exhibits are included elsewhere in this Form 10-KSB.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MD HEALTHSHARES CORPORATION
/s/ Patrick C. Powers
---------------------------------
By: Patrick C. Powers
Chief Executive Officer
Date: March 31, 1999
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Patrick C. Powers
------------------------------
Patrick C. Powers
Chief Executive Officer
Date: March 31, 1999
32
<PAGE>
/s/ Adam A. Short
-------------------------------------
Adam A. Short
Chief Financial Officer and Principal
Accounting Officer
Date: March 31, 1999
-------------------------------------
Brian W. Amy, M.D.
Director
Date: March 31, 1999
/s/ LAWRENCE BRAND
-------------------------------------
Lawrence Braud, M.D.
Director
Date: March 31, 1999
/s/ WALLACE H. DUNLAP
-------------------------------------
Wallace H. Dunlap, M.D.
Director
Date: March 31, 1999
/s/ DANIEL G. DUPREE
-------------------------------------
Daniel G. Dupree, M.D.
Director
Date: March 31, 1998
-------------------------------------
Michael S. Ellis, M.D.
Director
Date: March 31, 1999
-------------------------------------
Melanie C. Firmin, M.D.
Director
Date: March 31, 1999
-------------------------------------
C. Clinton Lewis, M.D.
Director
Date: March 31, 1999
33
<PAGE>
/s/ LEO LOWENTRITT, JR.
-------------------------------------
Leo Lowentritt, Jr., M.D.
Director
Date: March 31, 1999
/s/ J. MARK PROVENZA
-------------------------------------
J. Mark Provenza, M.D.
Director
Date: March 31, 1999
/s/ DAVID R. RAINES, JR.
-------------------------------------
David R. Raines, Jr., M.D.
Director
Date: March 31, 1998
-------------------------------------
William M. Roeling, M.D.
Director
Date: March 31, 1999
/s/ JAY M. SHAMES
-------------------------------------
Jay M. Shames, M.D.
Director
Date: March 31, 1999
-------------------------------------
F. Jeff White III, M.D.
Director
Date: March 31, 1999
/s/ JAMES A. WHITE III
-------------------------------------
James A. White III, M.D.
Chairman of the Board and Director
Date: March 31, 1999
34
<PAGE>
INDEX TO EXHIBITS.
Exhibit Number Description
- - -------------- -----------
2(a) Restated Articles of Incorporation of MD HealthShares
Corporation dated March 22, 1997 (incorporated by reference
from the Form 10-SB of the Company filed with the Commission
on June 30, 1997)
2(b) Amended and Restated Bylaws of MD HealthShares Corporation
dated June 7, 1997 (incorporated by reference from the Form
10-SB of the Company filed with the Commission on June 30,
1997)
6(a) Consulting Services Agreement by and among MD HealthShares
Corporation, Patient's Choice, Inc. and Thomas P. McCabe
dated February 7, 1997 (incorporated by reference from the
Form 10-SB of the Company filed with the Commission on June
30, 1997)
6(b) Letter Employment Agreement between MD HealthShares
Corporation and Frank D. Irwin, M.D. dated May 21, 1997
(incorporated by reference from the Form 10-KSB of the
Company filed with the Commission on June 30, 1997)
6(c) Letter employment contract dated August 12, 1997 by and
between MD HealthShares Corporation and Michael J. Provenza
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on November 14, 1997)
6(d) Letter employment contract dated October 23, 1997 by and
between MD HealthShares Corporation and John M. Bird
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on November 14, 1997)
6(e) Letter employment contract dated February 23, 1998 by and
between MD HealthShares Corporation and Patrick C. Powers
(incorporated by reference from the Form 10-KSB of the
Company filed with the Commission on March 31, 1998)
6(f) Contract of Lease effective July 1, 1997 by and between PMD
Investments and MD HealthShares Corporation (incorporated by
reference from the Form 10-KSB of the Company filed with the
Commission on March 31, 1998)
6(g) Letter employment contract dated March 13, 1998 by and
between MD HealthShares Corporation and Adam Short
(incorporated by reference from the Form 10-QSB of the
Company filed with the Commission on August 17, 1998)
35
<PAGE>
6(h) Letter employment contract dated September 2, 1998 by and
between MD HealthShares Corporation and T. Steven Martin
6(i) Office Lease Agreement dated November 30, 1998 by and
between Louisiana Investment Corporation and Patient's
Choice, Inc.
6(j) Conversion Coverage Agreement dated December 18, 1998 by and
between Advantage Health Plan, Inc. and Patient's Choice,
Inc.
27 Financial Data Schedule
36
<PAGE>
[MD HealthShares logo appears here]
Exhibit 6(h)
September 2, 1998
Mr. T. Steven Martin
4916 Wilson Drive
Metaire, LA 70003
Re: Offer of Employment
Dear Steve:
This letter outlines the terms upon which you are being offered full-time
employment as the Vice President of Marketing of MD HealthShares Corporation and
affiliates, including Patient's Choice, Inc. (collectively, the "Company") in
accordance with the position description attached hereto. Some benefits being
offered to you are subject to establishing and/or securing the appropriate
benefit plans, programs and policies. Such plans 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 stated benefits
plans, programs, and policies and the actual terms of such plans, programs and
policies.
The duties and responsibilities of the position of Vice President of Marketing
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 $120,000, payable bi-weekly while employed at the
Company.
. Eligibility for an annual bonus based upon targets to be set by mutual
agreement between you and the Chief Executive Officer shortly after
commencement of your employment and will be modified annually as the Chief
Executive Officer deems prudent. The bonus for 1998 and 1999 will be
guaranteed at 20% of base salary earned for each respective year.
. 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 625, 1,250, 1,250, 2,000 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 625 shares. You
will be given actual ownership of 209 at that time and be entitled to
dividends, income or other ownership privileges in the remaining 416 shares.
One year following the date of the initial grant, you will be entitled to
actual ownership of another 209 shares with the actual ownership of the final
207 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. Should the
company sell, merge, or otherwise become part of another organization, your
vesting in the stock grants shall accelerate and become wholly vested at that
time. Should there be a change of control from the elected Board of Directors
of the present physician shareholders of the Company to another organization
or a change in the CEO position, you shall have the option of continuing
employment or resigning with six (6) months base salary (no benefits other
than as required by state or federal law).
Page 1 or 3
- - --------------------------------------------------------------------------------
MD HealthShares Corporation
12021 Bricksome Avenue, Baton Rouge, LA 70816 (504) 293-3272 Fax (504) 291-0775
<PAGE>
. 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 reimburse you the premium for a term life insurance policy in
an amount equal to three (3) times your annual base salary. Such policy may be
issued by a life insurance company of your choice, provided it has a "Best"
rating of "A" or better. At the future date, this benefit will be provided
through a Group Term Life Insurance program. At that time, the Company will
cease reimbursing you the premium previously referred to.
. 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.
. Reasonable travel expenses will be reimbursed for travel on Company-related
business upon submission of supporting documentation. Prior approval may be
required on certain excess amounts as may be defined by the Chief Executive
Officer.
. Car allowance of $500.00 per month.
. Reasonable relocation expenses including moving normal household goods, new
home closing costs, and reasonable cost of selling your existing home (all
grossed up to minimize your tax consequences) will be reimbursed or paid for
by the Company directly, to a maximum of $20,000. From the date of receipt of
the relocation allowance, should you not complete one full year of employment
for any reason other than at the Company's convenience, the relocation
expenses will be recouped to the extent possible from your final compensation.
. You will be entitled to four weeks paid vacation annually.
. Employment bonus of $3,500.00
. It is extremely understood and agreed that you are at-will employee and that
the Company has the right to terminate your employment at any time with or
without stated or actual reason. In the event of termination of your
employment relationship, you will be eligible for the following benefits:
For Cause Termination. The Company may terminate your employment at any time
for cause and such termination will be effective immediately. For the purposes
of this paragraph "for cause" shall mean dishonest, fraudulent, or illegal
acts; activity harmful to the reputation of the Company; conduct not in the
best interest of the Company's good name; failure by employee to wilfully
perform his obligations under the terms of this agreement; and/or, a violation
of any statutory or common law duty of the Company. If you are terminate "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 occur within ninety (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 thirty (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
Page 2 of 3
<PAGE>
addition, you will be paid an additional six (6) months of base salary (no
benefits except those required by law) as severance. The payment of severance
shall be a lump sum due within five (5) days of the date of termination. 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 ninety (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 bested in an actual ownership interest
will revert to the Company. Purchase of shares shall occur within ninety (90)
days of the date of termination.
You agree to execute a separate Confidentiality Agreement that says you shall
not, during or after termination of your employment by the Company, disclose or
communicate any information or knowledge of a confidential nature relating to
the Company or its shareholders, directors, officers, employees, healthcare
providers, members or enrolees, the Company's trade or business secrets, or any
information in respect of which the Company owes an obligation of confidence to
any third party (i.e., any person, firm or corporation not affiliated with the
Company) or in any manner use any such information 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.
This agreement shall become and be effective on and as of the anticipated
start date, or such later date when you assume the actual performance of duties
for the Company under this agreement; provided, however, that this agreement
shall be legally binding on the parties hereto on the date on which it has been
signed by you and the Company.
Please acknowledge your understanding of and agreement to these terms and
conditions by signing the letter where indicated below. We look forward to your
joining the MD HealthShares team as we quickly move forward to becoming the
premier HMO in Louisiana.
Sincerely,
MD HEALTHSHARES CORPORATION
By: /s/ Patrick C. Powers
-------------------------
Patrick C. Powers
President & CEO
Signature Date: 10/5/98
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Acceptance:
/s/ T. Steven Martin
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T. Steven Martin
Signature Date: 10-6-98
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Page 3 of 3
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Exhibit 6(i)
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into effective November 30, 1998, between:
Louisiana Investment Corporation, a Louisiana Company domiciled in Baton
Rouge, Louisiana, whose address for purposes hereof is 11100 Mead Road, Suite
110, Baton Rouge, Louisiana 70816 (hereinafter called "Landlord"), and
Patient's Choice, Inc., a Louisiana Corporation whose address for purposes
hereof is 3029 South Sherwood Forest Boulevard, Suite 200, Baton Rouge,
Louisiana 70816 (hereinafter called "Tenant"):
who agree as follows:
1. LEASED PREMISES. Subject to, and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of the duties,
covenants and obligations of the other hereunder, Landlord does hereby lease,
demise and let to Tenant, and Tenant does hereby lease from Landlord the office
space identified as Suite 200 on the Floor Plan attached hereto as Exhibit "A"
(the "Premises") located on the second floor of the office building known as the
ANMC Plaza, located at 3029 S. Sherwood Forest Boulevard, Baton Rouge, LA 70816,
East Baton Rouge Parish, Louisiana (the "Building"), together with the
appurtenances, including, without limitation, the right to use in common with
others, the lobbies, elevators and other public portions of the Building. For
all purposes under this Lease, the Premises, including Tenant's pro rata share
of public portions of the Building, shall be deemed to contain 11,880 square
feet of rentable area ("Premises Rentable Area"). The Premises Rentable Area
shall not be subject to adjustment during the term of this Lease, except by
amendment to this Lease.
2. TERM. Subject to, and upon the terms and conditions as expressly set forth
herein, or in any exhibit attached hereto, this Lease is for an initial term
beginning on January 1, 1999 and ending on February 28, 2004 ("the Primary
Term"). Provided however, that from January 1, 1999 through February 28, 1999,
Tenant shall only occupy approximately 60% of the Premises Rentable Area (7,128
square feet as highlighted in blue on attached Exhibit "A"). Beginning on March
1, 1999, and ending on the February 28, 2004 Tenant will take possession of the
remaining 40% of the Premises Rentable Area (4,752 square feet as highlighted in
yellow on attached Exhibit "A"). Tenant taking possession of the Premises will
constitute an acknowledgment by Tenant that the Premises are ready for
occupancy. The Primary Term of this Lease, as it may be renewed or extended, is
sometimes referred to herein as the "Term" of this Lease.
3. USE. The Premises are to be used and occupied by Tenant solely for the
purposes of general offices and clerical. Tenant agrees not to occupy or use, or
permit any portion of the Premises to be occupied or used for any business or
purpose which is unlawful, disreputable or deemed to be extra-hazardous, or
permit anything to be done which would in any way increase the rate of fire
insurance coverage on said Building and/or its contents.
4. RENEWAL RIGHT. Tenant shall have the right to renew this Lease for a
period of five (5) years, provided that no default has occurred under this
Lease. To effect such renewal right, Tenant shall provide Landlord, at least 6
months prior to expiration of the Primary Term, written notice of Tenant's
intent to renew.
5. BASE RENT--PRIMARY TERM. Tenant agrees to pay to Landlord as Base Rent for
the Primary Term, without deduction or set-off, $8,167.50 for January 1, 1999
and $8,167.50 for February 1, 1999. Tenant further agrees to pay to Landlord as
Base Rent for the Primary Term, without deduction or set-off beginning March 1,
1999 the annual sum of $163,350.00 ($13.75 per square foot of Premises Rentable
Area) payable in advance on the first day of each month in monthly installments
of $13,612.50. Tenant hereby agrees to pay such rent to Landlord at Landlord's
address, monthly in advance without demand. If the Term of this Lease as
heretofore established commences on other than the first day of the month or
terminates on other than the last day of the month, then the installment of Base
Rent for such month or months shall be prorated and the installment or
installments so prorated shall be paid in advance.
6. BASE RENT--RENEWAL TERM. If Tenant exercises the option to renew granted
in this Lease, Base Rent during the renewal Term shall be the greater of: (i) an
annual sum of $163,350.00 or $13.75 per square foot payable in advance
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on the first day of each month in monthly installments of $13,612.50 of Premises
Rentable Area, or (ii) the percentage increase between the Consumer Price Index
of March 1, 1999 and the Consumer Price Index for February 28, 2004. The term
"Consumer Price Index" shall mean the "Consumer Price Index" published by the
Bureau of Labor Statistics of the U.S. Department of Labor, All Items, the
South, for urban wage earners and clerical worker, or a successor or substitute
index appropriately adjusted.
7. SECURITY DEPOSIT. Tenant has deposited with Landlord, a security deposit
in the amount of $13,612.50 which is hereby pledged and in which a security
interest is hereby granted to secure the faithful performance of all obligations
of Tenant under this Lease. Said deposit shall be non-interest bearing and shall
not be considered rent under this Lease. Said deposit shall not be released
until this Lease, and any renewals or extensions, has terminated and it has been
determined by Landlord that tenant has complied with all of Tenant's obligations
under this Lease. If Tenant fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provisions of this Lease, Landlord may
use, apply or retain all or any portion of said deposit for the payment of any
rent or other charge in default or for the payment of any rent or other sum, to
which Landlord may become obligated by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer thereby.
8. LATE CHARGES. Tenant shall be allowed a 5 day grace period each month, but
if any monthly installment is not paid by the 5th day of each month, Tenant
shall be liable for a late charge equal to 5% of such monthly installment. All
past due installments of rent shall bear interest at the maximum allowable rate
from date due until paid.
9. ADJUSTMENT OF RENT. Landlord's total cost of operating the Building (the
"Total Cost of Operation") is assigned a value of $5.00 per square foot of
Premises Rentable Area per annum based on the total of 35,694 square feet of
rentable area contained in the Building (the "Building Rentable Area"). Tenant
agrees that the rent due under this Lease shall be subject to increase annually
on a pro rata basis in the event that Landlord's total cost of operation is
determined to be, or is reasonably projected to be, greater than $5.00 per
square foot of Premises Rentable Area per calendar year; or is greater than an
amount proportionate to $5.00 per square foot of Premises Rentable Area for any
partial calendar year. Tenant's pro rata portion of any such increases shall be
calculated by multiplying said increase by a fraction, the numerator of which
shall be the square feet of Premises Rentable Area, and the denominator of which
shall be the Building Rentable Area. Neither the Premises Rentable Area nor the
Building Rentable Area stated in this Lease shall be subject to adjustment
during the Term of this Lease, except by amendment to this Lease. This increase
in rent is herein referred to as "Tenant's Proportionate Share of Landlord's
Total Additional Cost of Operation."
Subsequent to the initial calendar year, or initial partial calendar year, on
or about March 15th of each year during the Term of this Lease, Landlord shall
furnish to Tenant a reasonable projection of Landlord's Total Cost of Operation
for the current calendar year. If the costs are projected to be greater than
$5.00 per square foot of Premises Rentable Area per annum, Tenant shall pay as
additional rent each month, commencing the month following the receipt of such
projection, one twelfth (1/12) of Tenant's Proportionate Share of Landlord's
Total Additional Cost of Operation (defined as Landlord's projected costs in
excess of $5.00), plus the retroactive amount due from the first (1st) day of
the current year through the month preceding the month the proportionate share
is due.
On or about March 15th of each year during the Term of this Lease, Landlord
shall also furnish Tenant an itemized statement in reasonable detail of
Landlord's actual Total Cost of Operation for the preceding calendar year.
Landlord's Actual Total Cost of Operation for such calendar year shall be
adjusted to reflect what said costs would have been if Building had been 100%
occupied. Tenant shall be credited with prior projected costs received by
Landlord. If credits to Tenant exceed Tenant's Proportionate Share of
Landlord's Total Additional Cost of Operation, Tenant shall receive from
Landlord a check in the amount of overpayment. In the event that actual costs
exceed any prior payment by Tenant of projected costs, Tenant shall, within
fifteen (15) days after receipt of said statement, pay to Landlord the amount of
underpayment.
10. OPERATING EXPENSES DEFINED. The phrase "Total Cost of Operation," as used
herein, shall mean all expenses, costs, and disbursements of every kind and
nature which Landlord, or its agents, shall pay or become obligated to pay in
connection with the operation, service, maintenance, ownership and/or repair of
the Building, to include garage, exterior parking area and landscaping,
determined in accordance with generally accepted accounting principles,
including by way of example, but not by way of limitation, the following:
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(a) wages and salaries of all employees engaged in the operation and
maintenance of the Building; employer's Social Security taxes,
unemployment taxes or insurance, and other taxes which may be levied
on such wages and salaries; the cost of disability and hospital
insurance and pension or retirement benefits for such employees and
other benefits relating to the cost of all labor;
(b) cost of all supplies, materials and tools used in the operation,
maintenance and security of the Building;
(c) cost of all utilities for the Building, garage, exterior parking
area, and landscaping including water, power, heat, light, air
conditioning and ventilation;
(d) cost of all management fees, and maintenance and service agreements,
including but not limited to, equipment, security, window cleaning
and elevator maintenance;
(e) cost of insurance applicable to Building, the tract of land on which
the Building is situated, and Landlord's personal property used in
connection therewith;
(f) cost of repairs, replacements and general maintenance, exclusive of
expenses for alterations attributable solely to specific tenants of
the Building, but including a reasonable amortization charge on
account of any capital expenditure incurred to effect a reduction in
the other Operating Expenses of the Building;
(g) all taxes and assessments and governmental charges, whether federal,
state, parish or municipal, and any other taxes and assessments
attributable to the Building, the tract of land on which the
Building is situated, or the operation of the Building, excluding,
however, federal, state and parish taxes on income;
(h) cost of all janitorial and other services;
(i) costs of any and all licenses, permits and inspection fees or
assessments;
(j) in the event that during the Term hereof a tax is placed on or
assessed against rents or receipts per se from the Premises, the
Base Rent shall be increased immediately by the amount of such tax.
11. SERVICES TO BE FURNISHED BY LANDLORD. Landlord covenants and agrees
with Tenant:
(a) To furnish the electricity, gas and water utilized in operating any
and all facilities serving the Premises, except as otherwise
provided herein; routine maintenance; painting; electric-lighting
service for all public areas and special service areas of the
Building in the manner and to the extent considered to be standard
for similar commercial office space.
(b) To furnish Tenant, while occupying the Premises:
(i) Water at those points of supply provided for general use of
tenants in the Building; Central Heat and Air Conditioning in
season, and at such times Landlord normally furnishes these
services to other Tenants in the Building (see Exhibit "B"),
and at such temperatures and in such amounts as are considered
to be standard for similar commercial office space and subject
to Government regulations, laws, edicts, etc. Landlord will
furnish janitorial service as set forth in Exhibit "C".
(ii) Proper electrical facilities and electricity for normal
lighting and typewriter, voice writers, recording equipment,
calculating machines and other machines of similar low
electrical consumption; provided, however, that Tenant shall
bear the utility costs occasioned by lighting in excess of
standard use amounts of other similar office buildings, and
electrodata processing machines, computers, duplicating
equipment, and similar machines of high electrical consumption,
including air conditioning and wiring costs attributable
thereto.
Office Lease Agreement: Page 3 of 11 Pages REVISED 9/30/98
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(c) To furnish Tenant, free of charge, with two (2) keys for each corridor
door entering the Premises, and additional keys will be furnished at a
reasonable charge by Landlord on an order signed by Tenant or Tenant's
authorized representative. All such keys shall remain the property of
Landlord. No additional locks shall be allowed on any door of the
Premises and Tenant shall not make, nor permit to be made, any duplicate
keys, except those furnished by Landlord. Upon termination of this
Lease, Tenant shall surrender to Landlord all keys of the Premises, and
give to Landlord the explanation of the combinations of all locks for
safes, safe cabinets, and vault doors, if any, in the Premises.
(d) Landlord shall use its best efforts to maintain customary Building
security and to control access to the Building, but Landlord shall not
be liable to Tenant for losses due to theft or burglary, or for damages
done by unauthorized persons on the Premises unless due to Landlord's
willful act. Tenant shall be allowed to install a security system in the
Premises at Tenant's expense, subject to Landlord's prior written
consent.
(e) Landlord will provide operator-less automatic passenger elevator service
in common with Landlord and other tenants daily during standard Building
operating hours.
Landlord does not warrant that any defined service will be free from
interruptions resulting from repairs, renewals, improvements, changes of
service, alterations, strikes, lockouts, labor controversies, accidents,
inability to obtain fuel, steam, water or supplies or other causes beyond the
reasonable control of Landlord. Should any of the equipment or machinery break
down, or for any reason cease to function properly, Landlord shall use
reasonable diligence to repair same promptly, but Tenant shall have no claim for
rebate of rent or damages on account of any interruptions in service occasioned
thereby or resulting therefrom. Failure by Landlord to any extent to furnish
these defined services, or any cessation thereof, shall not render Landlord
liable in any expect for damages to either person or property, nor work
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Notwithstanding the foregoing, should utility service to the
Premises be interrupted for more than five (5) consecutive business days (the
"Service Interruption Period"), for any reason within Landlord's control,
Tenant's Rent shall be abated for any period beyond the Service Interruption
Period until all utility services to the Premises are completely restored.
Should utility services to the Premises be interrupted for more than fifteen
(15) consecutive business days, for any reason within Landlord's control, then
this Lease will become terminable by Tenant for fifteen (15) days thereafter
effective immediately upon Tenant's written notice to Landlord of its election
to terminate. Tenant shall, within thirty (30) days from the termination of the
Lease, pay remaining Rent due under the Lease, if any, through the end of the
Service Interruption Period.
12. PEACEFUL ENJOYMENT. Tenant shall, and may peacefully have, hold, and enjoy
the Premises, subject to the other terms hereof, provided that Tenant pays the
rent herein and has complied with all of Tenant's covenants and agreements
herein contained.
13. TENANT COVENANTS. Tenant covenants and agrees with Landlord:
(a) Payments by Tenant - To pay all rent and sums provided to be paid to
Landlord hereunder at the times and in a manner herein provided, time
being of the essence.
(b) Repairs by Landlord - Unless otherwise expressly stipulated herein,
Landlord shall not be required to make any improvements or repairs of
any kind or character on the Premises during the Term of this Lease,
except such repairs to the roof, exterior Building walls and slabs, and
common areas of the Building, including lighting, electrical, heating,
air conditioning, ventilation, elevator, and plumbing equipment as may
be necessary to keep them in serviceable condition, commensurate with
similar commercial office space. Landlord's obligation for maintenance
of items other than Building standard items and maintenance of items
will be performed by Landlord only upon Tenant's request and at Tenant's
expense.
(c) Repairs by Tenant - To pay to Landlord as additional rent thereunder,
the cost of repairing or replacing any damage or injury done to the
Building, or the Premises, or any part thereof, or equipment contained
therein, caused by Tenant or Tenant's agents, employees, invitees or
visitors, or relating in any way to the presence on the Premises of any
machinery, equipment, or other property which is in the care, custody or
control of any of
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the aforesaid parties, whether or not said damage or injury is the
result of any vice or defect in said machinery, equipment or
property; failure to pay any such costs within thirty (30) days of
being billed therefor shall be an event of default for nonpayment of
rent hereunder, for which Landlord may have all the remedies
provided herein and by law.
(d) Waste and Damage; Surrender of the Premises - Not to commit or
allow any waste or damage to be committed on any portion of the
Premises, and at the termination of this Lease, by lapse of time or
otherwise, to deliver up said Premises to Landlord in as good
condition as at date of possession by Tenant, ordinary wear and tear
excepted, and upon such termination of this Lease, Landlord shall
have the right to re-enter and resume possession of the Premises.
(e) Assignment of Sublease - Not to assign this Lease or sublet the
Premises or any part thereof without the written consent of
Landlord, which shall not be unreasonably withheld (based on
financial, business, use and other reasonable considerations). In no
event shall any such Assignment or Sublease ever release Tenant from
any obligation hereunder. In the event Tenant should desire to so
assign or sublet, Tenant shall give Landlord written notice of same
and all details of such proposal, at least thirty (30) days in
advance of the date of which Tenant desires to make such Assignment
or Sublease; Landlord shall then have a period of fifteen (15) days
following receipt of such notice within which to notify Tenant of
Landlord's approval or disapproval of such proposal. In the event
Landlord does not respond to Tenant's notice within such fifteen
(15) day period, Landlord will be deemed to have approved same. In
the event of such Sublease or Assignment, SubTenant's or Assignee's
business shall be in accordance with the use set forth in this
Lease, and shall assume all of the obligations of this Lease. A
duplicate original of said Sublease or Assignment (and any
amendments thereto) shall be delivered to Landlord within five (5)
days of its execution. In the event of any such Sublease or
Assignment, any increase in the base rent paid by SubTenant or
Assignee in excess of the Base Rent paid by Tenant to Landlord under
this Lease shall be payable to Landlord as additional rent due by
Tenant to Landlord under this Lease. Additionally, Landlord may, at
the option of Landlord, collect rent directly from the SubTenant or
Assignee and apply the net amount collected to the Base Rent and
additional rent for which Tenant is obligated to Landlord under this
Lease, but no such collection shall be deemed a waiver of this
covenant or the acceptance of the SubTenant or Assignee, nor shall
it release Tenant from the further observance and performance of the
restriction on assignment and subletting herein contained.
(f) Alterations, Additions and Improvements - Not to permit the Premises
to be used for any purpose other than that stated in the "USE"
paragraph of this Lease, or make or allow to be made any
alterations, physical additions or improvements in or to the
Premises without first obtaining the written consent of Landlord.
Any and all such alterations, physical additions or improvements,
when made in the Premises by Tenant, shall at once become the
property of Landlord and shall be surrendered to Landlord upon the
termination of this Lease by lapse of time or otherwise; provided,
however, this clause shall not apply to movable equipment or
furniture owned or leased by Tenant. Tenant agrees specifically that
no food, soft drink, or other type of vending machine will be
installed within the Premises without prior written consent of
Landlord.
(g) Entry for Repairs and Inspection - To permit Landlord or its agents
or representatives to enter into and upon any part of the Premises
at all reasonable hours to inspect same, clean, or make repairs,
alterations or additions hereto and to show Premises to prospective
new tenants or to prospective purchasers, as Landlord may deem
necessary or desirable, and Tenant shall not be entitled to any
abatement or reduction of rent by reason thereof.
(h) Nuisance - To conduct its business and control its agents,
employees, invitees and visitors in such manner as not to create
any nuisance, or interfere with, annoy or disturb any other Tenant
or Landlord in this operation or Building. Tenant shall not obstruct
or use the sidewalks, entries, passages, vestibules, halls,
elevators, or stairways of the Building for any other purpose than
ingress and egress to and from the Premises, or throw or sweep or
put anything out of the windows or doors, or in the passages or
corridors of the Building. If any such breach of this provision is
called to Tenant's notice in writing, Tenant shall correct same at
once or this Lease may be terminated by Landlord, at Landlord's
option.
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14. CONDEMNATION. Landlord and Tenant mutually covenant and agree that if the
whole or any part of the Premises shall be taken by Federal, State, Parish,
City, or other authority for public use, or under any statute or by right of
eminent domain or expropriation, Tenant shall not be entitled to any part of any
award that may be made for such taking, nor for any damages, except that portion
of any award of damages paid, which is directly attributable to leasehold
improvements installed and paid for by Tenant. In the event of a partial taking,
rent shall be reduced as of the date of such taking by a percentage equal to the
percentage obtained by reletting the space taken to the total space leased
hereby, and if such taking renders the remainder of the Premises untenantable
for Tenant's purposes, Tenant shall have the option, to be exercised by notice
in writing to Landlord within sixty (60) days after said taking, of terminating
this Lease. Such termination shall take place not later than thirty (30) days
after receipt of such notice by Landlord. Landlord shall notify Tenant in
writing within ten (10) days of the receipt of official notice of commencement
of condemnation proceedings.
15. LANDLORD NOT LIABLE. Except as expressly set forth in this Lease, Landlord
shall not be liable or responsible to Tenant, its employees, invitees,
licensees, permittees or other for any loss of any kind, damage or inconvenience
to any property or person occasioned by theft, fire, act of God, public enemy,
fuel, insurrection, vandalism, sabotage, war, court order, requisition, or order
of Government body or authority; or for any loss, damage or inconvenience which
may arise through repair or alteration of any part of the Building, failure to
make any such repairs, or malfunction or failure of any equipment or Building
component.
16. LIEN FOR RENT. In consideration of the mutual benefits arising under this
Lease, Tenant hereby grants to Landlord a lien on all property of Tenant now or
hereafter placed in or upon the Premises, and such lien of Landlord shall be for
payment of all rent and other sums agreed to be paid by Tenant herein. Said lien
shall be in addition to and cumulative of the lessor's privilege provided by
law.
17. ABANDONMENT. In the event the Premises are abandoned by Tenant, Landlord
shall have the right, but not the obligation, to relet same for the remainder of
the Term provided for herein; and if the rent received through such reletting
does not at least equal the Base Rent plus the additional rent payable
hereunder, Tenant shall pay and satisfy any deficiency between the total amount
of the rent so provided for and that received through reletting, and, in
addition thereto, shall pay all reasonable expenses incurred in connection with
any such reletting, including, but not limited to, the reasonable cost of
advertising, commissions to brokers, leasing agents and others, the reasonable
cost of renovating, altering and decorating for any new occupant. Nothing herein
shall be construed as in any way denying Landlord their right, in the event of
abandonment of said Premises or other breach of this Lease by Tenant, to treat
the same as an entire breach, and at Landlord's option immediately sue for the
entire breach of this Lease and any and all damages which Landlord suffers
thereby.
18. PROPERTY ABANDONED. All property remaining in the Premises upon termination
shall be considered to have been abandoned by Tenant and Landlord may dispose of
it in any manner Landlord wishes. Tenant will reimburse Landlord for all costs
incurred for disposal together with all costs for repairs required because of
removal of all or any such abandoned property.
19. HOLDING OVER. In the event of holding over by Tenant after expiration or
termination of this Lease without the written consent of Landlord, Tenant shall
pay as liquidated damages an amount equal to 2 times the Base Rent plus any
adjustments provided for herein, for the entire holdover period. No holding over
by Tenant after the Term of this Lease shall operate to extend this Lease; in
the event of any holding over, without the written consent of Landlord, Tenant
shall indemnify Landlord against all claims for damages by any other Tenant to
whom Landlord may have leased all or any part of the Premises covered by this
Lease. Any holding over with the consent of Landlord in writing shall thereafter
reconduct this Lease from month-to-month.
20. FIRE ON PREMISES. In the event of a fire on the Premises, Tenant shall
immediately give notice thereof to Landlord. If the Premises, through no fault
or neglect of Tenant, its agents, employees, invitees or visitors, shall be
partially destroyed by fire or other casualty so as to render the Premises
untenantable, the rent herein shall abate thereafter until such time as the
Premises are made tenantable by Landlord; provided however, if more than fifty
(50%) percent of the Premises are damaged as described above, either party may
elect to terminate the Lease within 30 days thereafter upon written notice to
the other party. In the event of the total destruction of the Premises without
fault or neglect of Tenant, its agents,
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employees, invitees or visitors, or if from such cause the same shall be so
damaged that Landlord shall decide not to rebuild, then all rent, rent
adjustments or any other sums owed up to the time of such destruction or
termination shall be paid by Tenant and thenceforth this Lease shall cease and
come to an end, without any residual obligation on the part of either Landlord
or Tenant. Landlord shall act in good faith to make a speedy determination as to
whether or not to rebuild.
21. ATTORNEY'S FEES. In the event either party defaults in the performance of
any of the terms, covenants, agreements or conditions contained in this Lease,
and the other party places the enforcement of this Lease, or any part thereof,
or the collection of any rent due or to become due hereunder, or recovery of the
possession of the Premises in the hand of an attorney, or files suit upon the
same, the losing party agrees to pay reasonable attorney's fees incurred by the
prevailing party.
22. ALTERATION OF LEASE. This Lease may not be altered, changed or amended,
except by an instrument in writing signed by both parties hereto.
23. ASSIGNMENT BY LANDLORD. Landlord shall have the right to transfer and
assign, in whole or in part, all of Landlord's rights and obligations hereunder,
as well as the Building and the property on which the Building is situated. In
the event of a sale of the Building the seller shall be released from all
liabilities and obligations to Tenant under this Lease. Nothing contained in
this paragraph shall limit or prevent any assignment of this Lease or the
revenue derived therefrom to any lender.
24. DEFAULT BY TENANT. Default on the part of Tenant in paying rent or any
installment thereof, as provided herein, or default in compliance with any
obligation agreed or assumed herein shall authorize Landlord, at its option, at
any time after such default has continued for a period of ten (10) days and
without prior notice, to: (a) accelerate the rent for the whole of the unexpired
Term of this Lease, which rent shall become immediately due and exigible; or (b)
immediately cancel this lease; or (c) proceed for past due installments only,
reserving its right to later proceed for the remaining installments; or (d)
re-enter the Premises and let them for such price and on such terms as may be
immediately obtainable and apply the net amount realized to the payment of the
rent.
If Landlord has elected to accelerate the rent for the unexpired Term of this
Lease, then, at Landlord's option, Landlord shall have the further option to
re-enter the premises and to attempt to lease them for such rent and on such
terms as Landlord may be able to obtain, in reduction of the amount due
Landlord, or, if Landlord is unable to lease them, to let them on a
month-to-month basis, and credit the net amount realized on the payment of rent
due for the full expired Term of this Lease, reserving the right to sue
thereafter for any balance remaining due after credit for the rent actually
received or estimated to be received. Any balance thus due shall be
considered rent due under this Lease and shall be secured by the lessor's
privilege and right of detention. Exercise of this right of re-entry and
privilege to re-let shall not in any way prejudice Landlord's right to hold
Tenant liable for any amount due under this Lease in excess of the amount for
which the property is re-let. In addition, if Tenant fails or refuses to permit
Landlord to re-enter the premises, Landlord shall have the right to eject Tenant
in accordance with the provisions of Louisiana Code of Civil Procedure, Articles
4701-4735, without forfeiting any of Landlord's right under this paragraph or
under the other terms of this Lease, and Landlord may at the same time or
subsequently sue for any money due or to enforce any other rights which Landlord
may have.
In the event of any default, Tenant shall remain responsible for all damages or
losses suffered by Landlord. Tenant waives any requirement of
"putting-in-default" for any such breach, except as expressly required by this
Lease.
25. NON-WAIVER. Failure of Landlord to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Landlord shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or in equity. No custom or practice followed in
connection with this Lease shall constitute a waiver of Tenant's obligation of
Tenant under this Lease. Time is of the essence with respect to the performance
of every obligation of Tenant under this Lease in which time of performance is a
factor.
26. INDEMNITY. Tenant shall indemnify and hold Landlord, its agents, servants
and employees harmless from and against any and all claims, damages, losses,
expenses and any other costs (including but not limited to attorney's fees)
Office Lease Agreement: Page 7 of 11 Pages Revised 9/30/98
<PAGE>
resulting from or arising out of any and all injuries to or death of any person
or damage to any property or other loss caused in while or in part by any act,
omission, negligence or neglect of Tenant or Tenant's officers, directors,
agents, employees, invitees or visitors, or any parties contracting with Tenant
relating to the Premises, or relating in any way to the presence on the Premises
of any machinery, equipment, or other property which is in the aforesaid
Premises, whether or not said damage or injury is the result of any vice or
defect in said machinery, equipment or property.
Tenant, at its sole expense, is required to carry and maintain, at all times
during physical occupancy and the Term of this Lease, general public liability
insurance against claims for bodily injury and death occurring in, on, or about
the Premises or the Building with limitations of not less than $1,000,000.00 for
any one person injured in any one accident, and not less than $1,000,000.00 for
property damage per accident covering any accidents for which Tenant is legally
liable with a responsible insurance company, qualified to do business in the
State of Louisiana; copy of certificates of insurance, naming Landlord as an
additional insured, to be furnished to Landlord prior to physical occupancy.
27. SUBORDINATION. This Lease is subject and subordinate to any mortgages or
other encumbrance which now or hereafter encumber or affect the Building and/or
the land on which the Building is situated, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination need be required by a
mortgagee or Landlord. In confirmation of such subordination, however, Tenant
shall, at Landlord's request, promptly execute any appropriate certificate or
instrument that Landlord may request. In the event of the enforcement by the
holder of any such instrument of the remedies provided for by law or by such
mortgage or other encumbrance, Tenant will, upon request of any other person or
party succeeding to the interest of Landlord as a result of such enforcement,
automatically become the Tenant of such successor in interest without change in
the terms or other provisions of this Lease. Upon request by such successor in
interest, Tenant shall execute and deliver an instrument or instruments
confirming the attornment herein provided for.
28. ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to time,
upon not less than five (5) days' prior written notice by Landlord to execute,
acknowledge and deliver to Landlord or to such person(s) as may be designated by
Landlord, a statement in writing (i) certifying that Tenant is in possession of
the Premises, has unconditionally accepted the same and is currently paying
rents reserved hereunder, (ii) certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that this Lease is
in full force and effect as modified and stating the modifications), (iii)
stating the dates to which the rent and other changes hereunder have been paid
by Tenant and (iv) stating whether or not to the best knowledge of Tenant,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which notices to Landlord should be sent. Any such statement delivered pursuant
hereto may be relied upon by any owner, prospective owner, prospective
purchaser, mortgagee or prospective mortgagee of the Building(s) or of
Landlord's interest therein, or any prospective assignee of any such mortgagee.
29. RECORDATION. This Lease shall not be placed of record. However, at the
request of either party, the other shall enter into a "Notice of Lease" for
purposes of recordation, which notice shall fairly reflect the nature and term
of this Lease and the property affected, but without designating the rent
payments.
30. BANKRUPTCY BY TENANT. If voluntary bankruptcy proceedings are instituted by
Tenant, or if Tenant is adjudged a bankrupt, or if Tenant makes an assignment
for the benefit of its creditors, or if a writ of execution is issued against
it, or if the interest of Tenant hereunder passes by operation of law to any
person other than Tenant or if any other voluntary or involuntary proceedings
are instituted by or against Tenant under any bankruptcy or similar laws, unless
the occurrence of any such involuntary receivership or proceeding is cured by
the same being dismissed or stayed within sixty (60) days thereafter, or the
failure of Tenant to discharge any judgment against Tenant within sixty (60)
days after such judgment becomes definitive, this Lease may, at the option of
Landlord, be terminated by notice mailed by registered or certified mail and
addressed to Tenant.
31. HAZARD INSURANCE. Landlord shall not be obligated to insure any furniture,
equipment, machinery goods, supplies or other property which Tenant may bring or
obtain upon the Premises, or any additional improvements which Tenant may
construct thereon. If the annual premiums charged Landlord exceed the standard
premium rates because of the nature of Tenant's operation results in additional
exposure, then Tenant shall, upon receipt of appropriate premium invoices,
Office Lease Agreement: Page 8 of 11 Pages Revised 9/30/98
<PAGE>
reimburse Landlord for such increases in such premiums as additional rent
hereunder. Likewise, if any improvements are made by Tenant in the Premises in
excess of the Building standard improvements provided for herein and such
improvements result in (a) an increase in the ad valorem taxes assessed against
the Building by any taxing authority, or (b) an increase in the premiums on the
insurance carried by Landlord on the Building, Tenant will pay any such increase
in taxes or premiums to Landlord as additional rent within thirty (30) days
after receipt of Landlord's invoice therefor. Tenant shall further be
responsible for securing its own contents insurance coverage and Landlord shall
have no liability whatsoever for any damage to Tenant's contents.
32. WAIVER OF LIABILITY. Anything in this Lease to the contrary notwithstanding,
to the extent that a Waiver of Subrogation Clause is obtainable under their
respective insurance policies, Landlord and Tenant hereby waive any and all
rights to recovery, claims, actions or causes of action, against each other,
their respective agents, officers, or employees, for any loss or damage that may
occur to the Premises, or which the Premises are a part, or any improvements
thereto, or any other cause which could be insured against under extended
coverage insurance policies, regardless of cause or origin.
33. NAME OF BUILDING. Landlord shall have the right to name and from time to
time change the name of the Building.
34. LIGHT, AIR AND VIEW. Neither diminution or shutting off of light and/or air
and/or view nor any other effect on the Premises by any structure erected or
condition now or hereafter existing on land adjacent to the Building shall
affect this Lease, abate rent, or otherwise impose any liability on Landlord.
35. COMPLIANCE WITH LAWS. Tenant shall, at Tenant's expense, comply with all
laws, rules, regulations, requirements and recommendations of all parish,
municipal, state, federal and other applicable governmental authorities now or
hereafter in force, including, without limitation, the Americans with
Disabilities Act of 1990 ("ADA"), as they relate to the Premises and the conduct
of Tenant's business therein. Tenant further acknowledges that such barrier
removal may require Tenant to make permanent replacements and capital
improvements to the Premises that (i) have expected useful lives extending
beyond the Term of this Lease, and (j) would otherwise be the responsibility of
Landlord. To the extent required by the ADA, Tenant shall also place appropriate
signage (with respect to the Premises) on the interior of the Premises, and with
Landlord's prior written consent, on the exterior of the Premises. All
alterations and improvements made by Tenant pursuant to this paragraph shall be
subject to the requirements of "Alterations, Additions and Improvements"
paragraph of this Lease regarding Landlord's right to approve Tenant's
alterations, additions and improvements, but Landlord agrees to reasonably
consent to any changes required by governmental authorities for ADA compliance.
Tenant agrees to indemnify Landlord for all damages, losses, fines and expenses,
including reasonable attorneys' fees, incurred by Landlord as a result of
Tenant's failure to comply with any provision of this paragraph.
36. ENVIRONMENTAL COMPLIANCE. Tenant shall not cause or permit the presence, use
disposal, storage, or release of any hazardous or environmentally unsafe
substances on or in the Leased Premises. Tenant shall not do, or allow anyone
else to do, anything affecting the Leased Premises in violation of any state or
federal Environmental laws and regulations. Tenant warrants that the Leased
Premises shall remain environmentally safe and free from contamination of
hazardous substances during and subsequent to the term of this Lease, arising
from or in any way related to Tenant's operation and use of the Leased Premises.
Tenant agree to indemnify and hold Landlord harmless against all claims and
liabilities arising from Tenant's breach of this covenant, including attorney's
fees and other legal costs that may be incurred by Landlord.
37. RULES AND REGULATIONS. Tenant will comply with the rules of the Building
adopted and altered by Landlord from time to time for the safety, care and
cleanliness of the Premises and Building and for preservation of good order
therein, copies of which will be sent by Landlord to Tenant in writing, but such
rules will not contradict or adversely modify any terms of this Lease. The Rules
and Regulations to apply when Tenant occupies the Premises are annexed as
Exhibit "B."
38. SIGNAGE. Tenant, at its sole cost and expense, shall be allowed to display a
sign for Tenant's business on the outside of the Building, subject to the prior
written approval of Landlord an Landlord's architect of the size, design and
location of said sign. Tenant shall not be permitted to place any other signs on
the Building or the Premises without Landlord's prior written approval. Upon
termination of this Lease, Tenant shall remove any sign, advertisement or notice
painted on or affixed to the building or the Premises and restore the place it
occupied to the condition in which it existed as of the date of this Lease. Upon
Tenant's failure to do so, Landlord may do so at Tenant's expense.
Office Lease Agreement: Page 9 of 11 Pages Revised 9/30/98
<PAGE>
39. LIMIT ON LIABILITY OF LANDLORD. Under no circumstances whatsoever shall
Landlord ever be liable hereunder for consequential or special damages; and all
liability of Landlord to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the proceeds of sale on execution of the interest
of Landlord in the Building; it being stipulated and agreed that Landlord shall
not be personally liable for any deficiency. This clause shall not be deemed to
limit or deny any remedies which Tenant may have, in the event of default by
Landlord hereunder, which do not involve the personal liability of Landlord.
40. MISCELLANEOUS PROVISIONS.
(k) The covenant to pay any additional rent shall survive the termination of
this Lease.
(l) This Lease shall be binding upon and inure to the benefit of the
successors, heirs, and assigns of Landlord, and shall be binding upon
and inure to the benefit of Tenant, its heirs, legal representatives and
successors, and, to the extent assignment may be approved by Landlord
hereunder, Tenant's assigns.
(m) All rights and remedies of Landlord under this Lease shall be cumulative
and none shall exclude any other rights or remedies allowed by law; and
this Lease is declared to be a Louisiana contract, and all of the terms
thereof shall be construed according to the laws of the State of
Louisiana.
(n) Landlord shall have the option, at any time during the Term of this
Lease, and any extension thereof, to relocate Tenant's Premises at
Landlord's expense, to a location of similar size and improvement
quality and at the same rent rate in the Building. In such case Landlord
shall bear Tenant's reasonable moving costs.
(o) In the event that there be more than one person named as Tenant herein,
each Tenant binds himself, jointly, severally and in solido, with all
the others for the payment of the rent, and the performance of all of
the covenants, agreements, stipulations and conditions herein contained,
in accordance with the terms hereof.
(p) Each notice required or permitted to be given hereunder by one party or
the other shall be in writing with a statement therein to the effect
that notice is given pursuant to this Lease and the same shall be given
and deemed to have been delivered, served and given if placed in the
United States mail, postage prepaid, by registered or certified mail,
return receipt requested, addressed to the party at the address provided
herein.
(q) The fact that this Lease may have been prepared by either Landlord or
Tenant, or by the attorneys for either party, shall not justify the
resolving of whatever, if any, doubt there may be against said party.
(r) Any provision of this Lease prohibited by the laws of any Parish, City,
State, Federal or other jurisdiction shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions of
this Lease.
(s) Paragraph headings in this Lease are for convenience only, and are not
to be construed as a part of this Lease or in any way defining, limiting
or simplifying the provisions thereof.
(t) Landlord shall re-carpet and paint existing walls of the Premises and
the lobby area. Carpet and paint selection to be chosen by Tenant with
Landlord's approval of selection.
Office Lease Agreement: Page 10 of 11 Pages Revised 9/30/98
<PAGE>
THUS DONE AND PASSED, by Landlord, in multiple rights, on this 30 day
of November, 1998, in the presence of the competent witnesses, after due reading
of the whole.
WITNESSES: LANDLORD:
LOUISIANA INVESTMENT CORPORATION
/s/ Carol A. Guilloy
- - ------------------------------- By: /s/ Ralph Paul Voorhies, Jr.
-----------------------------------
Ralph Paul Voorhies, Jr., President
/s/ Casey Helms
- - -------------------------------
THUS DONE AND PASSED, by Tenant, in multiple originals, on this 30 day
of November, 1998, in the presence of the undersigned competent witnesses, after
due reading of the whole.
WITNESSES: TENANT:
PATIENT'S CHOICE
/s/ Sheila C. Blount
- - ------------------------------- By: /s/ Patrick C. Powers
-----------------------------------
Patrick C. Powers, Chief Executive
Officer
/s/ Pattie Jackson
- - -------------------------------
Office Lease Agreement: Page 11 of 11 Pages Revised 9/30/98
<PAGE>
Exhibit 6(j)
CONVERSION COVERAGE AGREEMENT
This Conversion Coverage Agreement is made and entered into this the 18th
day of December, 1998, by and among Advantage Health Plan, Inc. ("AHP") and
Patient's Choice, Inc. ("PCI").
Recitals
WHEREAS, AHP has determined it is in AHP's best interests to wind-down
AHP's operations and have commenced such wind-down in accordance with a plan
(the "Wind-Down Plan") approved by the Louisiana Department of Insurance ("DOI")
and
WHEREAS, in accordance with the Wind-Down Plan, on or before December 1,
1998, AHP notified the individuals, small groups and large groups receiving
health benefits coverage under AHP health maintenance organization programs
(such individuals, small groups and large groups of which PCI has been
specifically notified, excluding individuals or groups covered through the State
Employees Group Benefits Program, Medicare beneficiaries and AHP's preferred
provider organization programs, being referred to as the "Conversion Business"),
that their AHP coverage would terminate effective May 31, 1999, and that AHP
will not be responsible for any claims for health benefits incurred after that
date; and
WHEREAS, the obligation to provide health benefits coverage to the
Conversion Business through May 31, 1999, may result in financial losses for
AHP; and
WHEREAS, DOI has represented that it will permit AHP to amend the Wind-Down
Plan to provide, in lieu of terminating coverage of the Conversion Business, to
arrange for the conversion of the Conversion Business to new coverage by another
licensed health benefits carrier ("Conversion Coverage"), and thereby limit
AHP's potential financial loss attributable to the Conversion Business, prior to
May 31, 1999; and
WHEREAS, PCI, a Louisiana corporation licensed as a health maintenance
organization, has agreed to provide Conversion Coverage to the Conversion
Business in accordance with the terms and conditions of this Agreement (the
"Transaction").
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, AHP and PCI agree as follows:
1. Conversion Coverage. Subject to the terms and conditions of this
Agreement, PCI will provide Conversion Coverage on a guaranteed basis, without
medical underwriting, at applicable PCI premium rates to each individual, small
group and large group policyholder comprising the Conversion Business. The
effective date of the Conversion Coverage will be February 1, 1999 (the
"Effective Date").
2. DOI Approval. Immediately following its execution, AHP and PCI shall
jointly submit this Agreement to the DOI for approval. Upon receipt of written
DOI approval ("DOI
<PAGE>
Approval"). AHP and PCI shall immediately begin the process necessary for PCI to
provide Conversion Coverage to the Conversion Business commencing on the
Effective Date, and AHP's coverage of the Conversion Business to terminate
effective January 31, 1999 (the "Termination Date"), including, without
limitation, specific identification of all individuals, small groups and large
groups comprising the Conversion Business.
3. AHP Payment. Not later than one (1) business day following receipt of
DOI Approval, including approval of the payment, AHP shall pay PCI, in cash, the
sum of One Million Seven Hundred and Fifty Thousand Dollars ($1,750,000) (the
date on which sum is paid hereinafter referred to as the "Closing Date").
4. Notice of Transaction. As soon after the Closing Date as possible, AHP
and PCI will distribute a joint press release, hold a joint press conference
and send out a joint notice to all AHP subscribers, employer groups, agents and
brokers associated with the Conversion Business announcing the Transaction. PCI
will draft such announcements and notices, subject to AHP and, if required,
DOI approval. AHP will provide the mailing list, mailing labels and AHP
letterhead and shall bear any costs for attorneys, consultants or other advisors
AHP may engage to review such notices and announcements. PCI shall bear other
direct costs of the mailing, including postage and other administrative
expenses. Such announcements and notices shall provide, in substance, as
follows:
(a) All then-current AHP policyholders under the Conversion Business will
be notified that in lieu of termination of their health benefits
coverage, they will be provided Conversion Coverage at the applicable
PCI premium rates as of the Effective Date. Such AHP policyholders will
be notified of the applicable PCI premium rates not later than January
1, 1999, and may elect not to accept Conversion Coverage by providing
PCI written notice of such election by January 22, 1999.
(b) AHP's responsibility for any claims arising under the Conversion
Business will terminate on the Termination Date. AHP will not be
responsible for any claims incurred under the Conversion Business after
the Termination Date, but shall remain liable for any claims incurred
on or before that date. Subject to the provisions of Section 13, AHP
and PCI acknowledge and agree that neither party shall be responsible
for any benefit claims incurred after the Termination Date by any AHP
member who elects, directly or indirectly through an AHP group
policyholder, not to accept Conversion Coverage.
5. Premium Rate Adjustment. AHP acknowledges that adjustment of the premium
rates currently being paid by the Conversion Business is a critical component of
the Transaction. Following execution of this Agreement, AHP shall cooperate
fully in making all data and other information relevant to the Conversion
Business (the "Data") in their possession or to which it has reasonable access
available to PCI. PCI shall notify each individual, small group and large group
comprising the Conversion Business of the premium rate at which they will
provided Conversion Coverage by mailing notice of such rates, at PCI's expense,
not later than January 1, 1999. Notwithstanding anything herein to the contrary,
PCI shall have sole discretion over, and shall be solely responsible for, the
premium rates for the Conversion Coverage provided by PCI.
6. Representations. AHP represent and warrants that (i) it has all
requisite corporate authority to enter into the Transaction and that the party
executing this Agreement is duly
2
<PAGE>
authorized to enter into the Agreement and carry out the Transaction, (ii) this
Agreement constitutes a valid and binding obligation of AHP, and (iii) all Data
disclosed or to be disclosed to PCI in connection with the Transaction has been
and will be disclosed in good faith and fairly reflects AHP's understanding of
the status of the Conversion Business. AHP makes no other representation or
warranty as to the accuracy or quality of the Data or otherwise with respect to
the Conversion Business except as expressly provided herein, including, but not
limited to, any representation or warranty that any individual, small group or
large group included in the Conversion Business will accept Conversion Coverage.
7. Provider Network. PCI will allow AHP to access PCI's existing provider
network at applicable PCI reimbursement rates, subject to any restrictions on
such access as contained in existing PCI provider contracts.
8. Public Disclosure. On and after the Closing Date, AHP will not release
any information regarding or relating to the Transaction to the public,
including agents and brokers, unless approved in advance, in writing, by PCI.
9. Confidentiality. The Confidentiality Agreement entered into between AHP
and PCI effective November 10, 1998, shall remain in effect and enforceable in
accordance with its terms, except to the extent necessary for the parties to
effect the Transaction. After the Closing Date, all information deemed
confidential or proprietary by PCI with respect to the Conversion Business shall
be kept confidential and neither AHP nor any of its agents, employees or
representatives, shall disclose any such information except as may be agreed to
in writing by PCI or except as requested by a regulatory agency or otherwise
required by law.
10. Employees. As soon after the Closing Date as practicable, AHP will
conduct a meeting for all AHP employees and advise them of the Transaction. PCI
will not offer employment to any AHP employee without prior notice to and
consent of AHP. At the employee meeting AHP will advise its employees of PCI's
notice obligation and AHP's reasons for requesting prior notice.
11. Fees and Expenses. Each party will bear its own costs and expenses for
attorneys and other consultants retained in connection with the Transaction.
Neither AHP, PCI nor any shareholder of AHP shall have any liability for the
payment of any broker's or finder's fee as a result of the Transaction or
otherwise.
12. Transition. The Parties acknowledge and agree that AHP's financial
obligations under the Conversion Business will terminate as of the Termination
Date and AHP will not be obligated for claims for health services rendered after
the Termination Date, and PCI's financial obligations with respect to those
individuals, small groups and large groups included in the Conversion Business
will commence on the Effective Date. AHP and PCI agree that the scheduling of
all covered health care services will be handled in the ordinary course and AHP
will not deny coverage or delay the ability of AHP members to access covered
health care services beyond the Termination Date unless justified in accordance
with AHP's utilization management standards in effect on the date of this
Agreement. On and after the Effective Date, AHP will provide PCI with full
access to AHP's claims payment information to enable PCI to evaluate claims for
reimbursement for services provided on a global fee or other prepaid basis. AHP
and PCI will at all times conduct their business in accordance with industry
standards with respect to the transition of the Conversion Business from AHP
coverage to Conversion Coverage.
3
<PAGE>
13. Indemnification. PCI agrees to indemnify and hold AHP harmless from and
against any claim, demand, action, cause of action, cost, expense, debt,
obligation, loss, damage or other liability, of any kind or nature whatsoever,
(including, without limitation, reasonable attorneys' fees), known or unknown,
now existing or arising in the future, arising out of or in connection with: (i)
the amount of notice given by PCI to AHP policyholders under the Conversion
Business of the applicable PCI premium rate for Conversion Coverage; (ii) any
change in benefits experienced by AHP policyholders who elect Conversion
Coverage; (iii) the difference between the premium rates to which policyholders
under the Conversion Business will be subject on the Effective Date for
Conversion Coverage, and the AHP premium rate which would or may have been in
effect for such policyholders during the period from the Effective Date through
May 31, 1999; and (iv) any claims made by or on behalf of an AHP policyholder
arising out of or as a result of AHP entering into this Agreement. AHP and PCI
will use their best efforts to assure that all claims subject to the provisions
of this Section 13 be first addressed by DOI, provided DOI action shall not be a
precondition to enforcement of these indemnity provisions.
14. Notices. All notices and other communications required under this
Agreement shall be in writing and shall be mailed by first class registered or
certified mail, postage prepaid, addressed as follows:
(a) If to PCI: Patrick C. Powers
President and Chief Executive Officer
Patient's Choice, Inc.
12021 Bricksome Avenue
Baton Rouge, LA 70816
(b) If to AHP: Advantage Health Plan, Inc.
c/o Ms Shannon Gaffney
829 St. Charles Avenue
New Orleans, Louisiana 70130
1.5 Miscellaneous. The heading sand captions in this Agreement are for
convenience of reference only and shall in no way restrict or modify any of the
terms hereof. This Agreement may be executed in any number of counterparts, each
of which shall constitute an original, but all of which together shall
constitute one and the same instrument. This Agreement is to be delivered and
performed in the State of Louisiana and shall be construed in accordance with
and governed by the laws of the State of Louisiana. This Agreement constitutes
the entire agreement between the parties. Each party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by any other party, or anyone acting on behalf of any other party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement, expressly or by incorporation. Except as otherwise provided in this
Agreement, no amendment to this Agreement shall be valid unless it is in writing
and signed by an authorized officer of each party. Each of the parties hereto
hereby agrees to execute and deliver such further instruments and do such
further acts and things as may be necessary or desirable to carry out the
purposes of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Conversion Coverage
Agreement to be executed in their names and on their behalf by their duly
authorized representatives.
PATIENT'S CHOICE, INC.
Date: 12-17-98 By: /s/ Patrick C. Powers
- - ---------------- ------------------------------------
Patrick C. Powers
President and Chief Executive Officer
ADVANTAGE HEALTH PLAN, INC.
Date: 12-18-98 By: /s/ Shannon Gaffney
------------------------------------
Shannon Gaffney
Authorized Representative
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1998 B/S E I/S AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 2,112,479 1,408,901
<SECURITIES> 2,808,827 4,840,825
<RECEIVABLES> 196,851 24,554
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,286,294 6,424,893
<PP&E> 207,234 106,400
<DEPRECIATION> 65,326 30,429
<TOTAL-ASSETS> 6,464,272 7,536,242
<CURRENT-LIABILITIES> 3,294,542 269,784
<BONDS> 0 0
0 0
2,156 2,152
<COMMON> 107,660 107,500
<OTHER-SE> 3,059,914 7,156,806
<TOTAL-LIABILITY-AND-EQUITY> 6,464,272 7,536,242
<SALES> 3,805,223 313,519
<TOTAL-REVENUES> 4,104,139 762,111
<CGS> 3,927,899 331,905
<TOTAL-COSTS> 8,332,789 3,613,895
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (4,114,728) (2,828,546)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,114,728) (2,828,546)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,114,728) (2,858,546)
<EPS-PRIMARY> (3.93) (2.66)
<EPS-DILUTED> 0 0
</TABLE>
