<PAGE>
<PAGE> 1
-----------------------------------------------------------------------
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1995, or
[ ] 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 1-13340
------------------------------
MID ATLANTIC MEDICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
52-1481661
(IRS Employer Identification Number)
4 TAFT COURT, ROCKVILLE, MARYLAND
(Address of principal executive offices)
20850
(Zip code)
(301) 294-5140
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
The number of shares outstanding of each of the issuer's classes of
common stock was 45,827,512 shares of common stock, par value $.01,
outstanding as of March 31, 1995.
-----------------------------------------------------------------------
-----------------------------------------------------------------------<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Note 1)
(in thousands except share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Note)
March 31, 1995 December 31, 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,240 $ 17,054
Short-term investments 152,243 136,901
Accounts receivable, net of allowance of $3,614 and $3,591 55,242 37,031
Prepaid expenses, advances and other 6,820 5,743
Deferred income taxes 12,564 15,540
----------- -----------
Total current assets 232,109 212,269
Property and equipment, net of accumulated
depreciation of $10,803 and $10,622 33,808 33,668
Statutory deposits 9,870 9,877
Other assets 12,578 12,708
---------- -----------
Total assets $ 288,365 $ 268,522
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 720 $ 726
Short-term borrowings 794 1,048
Accounts payable 12,495 17,565
Income taxes payable 6,900 2,589
Medical claims payable 88,614 85,014
Deferred premium revenue 9,466 13,344
----------- -----------
Total current liabilities 118,989 120,286
Notes payable 5,186 5,331
Deferred income taxes 1,306 1,579
----------- -----------
Total liabilities 125,481 127,196
----------- -----------
Stockholders' equity (Notes 2 and 3)
Common stock, $.01 par, 100,000,000 shares authorized; 45,873,452 issued
and 45,827,512 outstanding at March 31, 1995; 45,663,527 issued and
45,617,587 outstanding at December 31, 1994 458 456
Additional paid-in capital 31,880 29,431
Treasury stock (33) (33)
Unrealized losses on investments, net of tax benefit of $59 and $1,490 (89) (2,278)
Retained earnings 130,668 113,750
----------- -----------
Total stockholders' equity 162,884 141,326
----------- -----------
Total liabilities and stockholders' equity $ 288,365 $ 268,522
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1994 has been extracted from the
audited financial statements at that date.
See accompanying notes to these financial statements.<PAGE>
<PAGE> 3
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
------------ ------------
<S> <C> <C>
Revenue
Premium $ 210,454 $ 176,308
Fee and other 3,843 2,211
Home health services 5,342
Investment 1,349 1,251
----------- -----------
Total revenue 220,988 179,770
----------- -----------
Expense
Medical 166,496 141,475
Home health patient services 4,217
Administrative (including interest expense of $317 and $194) 23,011 16,590
----------- -----------
Total expense 193,724 158,065
----------- -----------
Income before income taxes 27,264 21,705
Provision for income taxes (10,346) (8,248)
----------- -----------
Net income $ 16,918 $ 13,457
=========== ===========
Income per common and common equivalent share:
Net income $ .36 $ .29
=========== ===========
Weighted average common and common equivalent shares outstanding 47,600,662 47,055,298
=========== ===========
</TABLE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 4
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ending
March 31, 1995
------------
<S> <C> <C>
Cash flows used in operating activities:
Net income $ 16,918
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization $ 1,358
Provision for bad debts 23
Provision for deferred income taxes 1,271
Increase in accounts receivable (18,234)
Increase in prepaid expenses, advances, and other (1,077)
Decrease in accounts payable (5,070)
Increase in medical claims payable 3,600
Decrease in deferred premium revenue (3,878)
Increase in income taxes payable 4,311
-----------
Total adjustments (17,696)
-----------
Net cash used in operating activities (778)
Cash flows used in investing activities:
Purchases of short-term investments (81,754)
Sales of short-term investments 70,033
Purchases of property and equipment (1,254)
Purchases of statutory deposits (86)
Sales of statutory deposits 93
Purchases of other assets (242)
Proceeds from sale of other assets 128
-----------
Net cash used in investing activities (13,082)
Cash flows provided by financing activities:
Principal payments on notes payable (405)
Exercise of stock options 993
Stock option tax benefit 1,458
-----------
Net cash provided by financing activities 2,046
-----------
Net decrease in cash and cash equivalents (11,814)
Cash and cash equivalents at beginning of period 17,054
-----------
Cash and cash equivalents at end of period $ 5,240
===========
</TABLE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 5
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ending
March 31, 1994
------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,457
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 939
Provision for bad debts 143
Provision for deferred income taxes 4,341
Loss on sale and disposal of assets 302
Increase in accounts receivable (5,552)
Increase in prepaid expenses, advances, and other (1,430)
Increase in accounts payable 765
Increase in medical claims payable 4,440
Increase in deferred premium revenue 1,212
Decrease in income taxes payable (3,054)
-----------
Total adjustments 2,106
-----------
Net cash provided by operating activities 15,563
Cash flows used in investing activities:
Purchases of short-term investments (28,697)
Sales of short-term investments 14,908
Purchases of property and equipment (1,762)
Sales of statutory deposits 456
Purchases of other assets (99)
Proceeds from sale of other assets 137
-----------
Net cash used in investing activities (15,057)
Cash flows provided by financing activities:
Principal payments on notes payable (163)
Exercise of stock options 1,987
Stock option tax benefit 3,068
-----------
Net cash provided by financing activities 4,892
-----------
Net increase in cash and cash equivalents 5,398
Cash and cash equivalents at beginning of period 973
-----------
Cash and cash equivalents at end of period $ 6,371
===========
</TABLE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 6
MID ATLANTIC MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
Mid Atlantic Medical Services, Inc. (MAMSI) is a holding company whose
subsidiaries are active in managed health care and other health
insurance related activities. MAMSI delivers health care services
principally through health maintenance organizations (HMOs). The HMOs,
MD-Individual Practice Association, Inc. (M.D. IPA) and Optimum Choice,
Inc. (OCI), arrange for health care services to be provided to a
voluntarily enrolled population for a predetermined, prepaid fee,
regardless of the extent or nature of services provided to the
enrollees. The HMOs offer a full complement of health benefits,
including physician, hospital and prescription drug services.
Other MAMSI subsidiaries include Alliance PPO, Inc., a preferred
provider organization marketing non-risk products to self-insured
employers, indemnity carriers and other health care purchasing groups,
and Mid Atlantic Psychiatric Services, Inc., which provides specialized
non-risk mental health services. MAMSI Life and Health Insurance
Company develops and markets indemnity products to support MAMSI's
managed care products. HomeCall, Inc., FirstCall, Inc., and HomeCall
Infusion Services, Inc. provide in-home medical care including skilled
nursing, infusion and therapy to both MAMSI's HMO members and other
payors.
NOTE 1 - FINANCIAL STATEMENTS
The consolidated balance sheet of MAMSI and its subsidiaries (the
Company) as of March 31, 1995, the consolidated statements of operations
for the three months ended March 31, 1995 and 1994, and the consolidated
statements of cash flows for the three months ended March 31, 1995 and
1994 have been prepared by MAMSI without audit. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1994 audited consolidated
financial statements. The results of operations for the period ended
March 31 are not necessarily indicative of the operating results for the
full year.
Certain balances in the 1994 financial statements have been reclassified
to conform to the 1995 presentation.
NOTE 2 - STOCK OPTION PLANS
In 1995, the stockholders of MAMSI ratified the 1995 Non-Qualified Stock
Option Plan whereby options for the purchase of up to 3,000,000 shares
may be granted to officers and employees of the Company. Options under
this plan are exercisable at 100% of the fair market value per share on
the date the options are granted.<PAGE>
<PAGE> 7
NOTE 3 - COMMON STOCK
On April 17, 1995, the stockholders of MAMSI approved an increase in the
number of authorized shares of common stock from 60,000,000 to
100,000,000.<PAGE>
<PAGE> 8
MID ATLANTIC MEDICAL SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THE THREE MONTHS
ENDED MARCH 31, 1994
Consolidated net income of the Company was $16,918,000 and $13,457,000
for the first quarter of 1995 and 1994, respectively, which was an
increase of 26 percent. Earnings per share on net income increased 24
percent from $.29 in the first quarter of 1994 to $.36 in the first
quarter of 1995. The increase in earnings is primarily attributable to
an increase in membership and a 1 percent reduction in the medical loss
ratio.
Revenue for the three months ended March 31, 1995 increased
approximately $41.2 million or 23 percent over the three months ended
March 31, 1994. Premium revenue increased approximately $34.1 million
or 19 percent over the same period in 1994. A 20 percent increase in
average HMO enrollment (approximately 91,800 additional average HMO
members per month) resulted in an increase of approximately $35.4
million in premium revenue and a 1 percent decrease in average premiums
per HMO enrollee reduced premium revenue by approximately $1.3 million.
Premiums per enrollee have essentially remained flat due to management's
plan to increase market share. Fee and other revenue increased $1.6
million or 74 percent primarily due to increases in fee revenue from PPO
and ASO only products. Total PPO membership grew from 580,000 at March
31, 1994 to 771,000 at March 31, 1995, an increase of 33 percent.
Service revenue from the Company's new home health care subsidiaries
contributed $5.3 million in revenue in the first quarter of 1995.
The Company currently has the largest HMO and managed care enrollment in
its service area, and also the largest network of contract providers of
medical care. Because of the full range of managed care products,
service reputation, strong provider delivery system, trained sales
force, and competitive premiums, management believes that the Company
will continue to increase its market share during the remainder of 1995.
Medical expenses as a percentage of premium revenue (medical loss ratio)
decreased to 79.1 percent for the first three months of 1995 as compared
to 80.2 percent for the comparable period of 1994 and, on a per member
per month basis, medical expenses decreased 2 percent over the same
period. This decrease in the medical loss ratio reflects the efficacy
of managed care cost controls developed and expanded by the Company. As
a result of the continuing pressure brought by all managed care
companies on utilization of hospital and medical specialists, the
Company is benefiting from increased price competition resulting in
stable or, in some cases, lower provider fees for these services.
Although medical costs on a per member per month basis decreased in the
current period compared to the prior year, management does not believe
that this necessarily represents a sustainable trend. The medical cost
factor of total medical costs may increase in future periods due to
inflationary pressures and/or the Company may experience increased
utilization by its membership.<PAGE>
<PAGE> 9
Administrative expenses as a percentage of revenue (administrative
expense ratio) increased from 9.2 percent in the first quarter of 1994
to 10.4 percent in the first quarter of 1995. Administrative expenses
increased 39 percent, from $16.6 million to $23.0 million in the first
quarter of 1994 and 1995, respectively. The increase in the
administrative expense ratio is primarily attributable to expenses of
the Company's home health care subsidiaries which were not present in
1994, the Company's territorial expansion and the continued
implementation of its plan to significantly increase its employee sales
force. The Company plans to continue to reduce the percentage of new
sales made by insurance brokers by continuing to increase its internal
sales force.
The net margin rate increased from 7.5 percent in the first quarter of
1994 to 7.7 percent in the current quarter. This increase is due to
expenses rising at a lesser rate than revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is not capital intensive and the majority of the
Company's expenses are payments to health care providers, which
generally vary in direct proportion to the premium revenues received by
the Company. Although medical utilization rates vary by season, the
payments for such expenses lag behind cash inflow from premiums because
of the lag in provider billing procedures. In the past, the Company's
cash requirements have been met principally from operating cash flow and
it is anticipated that this source will continue to be sufficient in the
future.
Accounts receivable increased from $37.0 million at December 31, 1994 to
$55.2 million at March 31, 1995. This $18.2 million increase was
primarily due to the significant increase in membership during the first
quarter of 1995 combined with a lower than normal balance in receivables
at December 31, 1994 due to a higher volume of payments made by employer
groups during the last half of December, 1994. Accounts payable
decreased from $17.6 million at December 31, 1994 to $12.5 million at
March 31, 1995 primarily due to the payment in 1995 of compensation
related items and also the previously disclosed settlement relating to
the Company's contract with the United States Office of Personnel
Management (OPM) which was accrued in 1994.
At March 31, 1995, the Company had long-term debt of approximately $5.2
million principally related to its owned buildings. The Company has
access to total revolving credit facilities of $9.5 million, which is
used to provide short-term capital resources for routine cash flow
fluctuations. At March 31, 1995, approximately $800,000 was drawn
against the lines-of-credit.<PAGE>
<PAGE> 10
Following is a schedule of the short-term capital resources available to
the Company (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 5,240 $ 17,054
Short-term investments 152,243 136,901
Working capital advances to Maryland hospitals 4,053 3,982
----------- -----------
Total available liquid assets 161,536 157,937
Credit line availability 8,706 8,452
----------- -----------
Total short-term capital resources $ 170,242 $ 166,389
=========== ===========
</TABLE>
The Company believes that the cash flow generated from operations along
with its current liquidity and borrowing capabilities are adequate for
both current and planned expanded operations. Capital expenditures will
be made during 1995 to enhance the Company's computer systems and to
establish additional sales offices. The Company may also commit capital
for the purchase of an additional office building for operational
expansion in the future.<PAGE>
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings were commenced during the quarter ended
March 31, 1995 and no material developments occurred in any of the
previously disclosed proceedings during such quarter except as discussed
below.
The claim for lost investment income between OPM and M.D. IPA associated
with OPM's audit for the years 1988 through 1991 has been settled for an
amount that was not material to the Company's financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of MAMSI was held on April 17,
1995. The following matters were submitted to a vote of the
stockholders during the annual meeting:
(1) The following individuals were elected to the Board of Directors for
a three year term with the indicated votes:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Peter L. Flaherty, Jr., M.D. 35,814,107 804,474 None
Walter Girardin 35,826,371 792,210 None
Creighton R. Schneck 35,835,989 782,592 None
Alfred Talamantes 35,839,057 779,524 None
</TABLE>
The following individual was elected to the Board if Directors for a two
year term with the indicated votes:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
John H. Cook, III, M.D. 35,837,937 780,644 None
/TABLE
<PAGE>
PAGE> 12
Board members whose term of office continued after the meeting are as
follows:
John L. Child
Mark D. Groban, M.D.
Donald R. Hammett
George T. Jochum
William M. Mayer, M.D.
Stanley F. Smith, R.Ph.
James A. Wild
(2) The adoption of the 1995 Non-Qualified Stock Option Plan was
ratified by a count of 23,509,577 affirmative votes, 5,866,474 negative
votes and 209,978 abstentions.
(3) The adoption of the 1995 Bonus Plan was ratified by a count of
35,516,215 affirmative votes, 879,732 negative votes and 222,634
abstentions.
(4) An increase in the number of authorized shares of common stock of
the Company to 100,000,000 was ratified by a count of 35,591,412
affirmative votes, 848,309 negative votes and 178,860 abstentions.
There were 7,032,552 broker non-votes with respect to the adoption of
the 1995 Non-Qualified Stock Option Plan.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on page 14 of the Form 10-Q.
(b) There were no reports filed on Form 8-K during the quarter ended
March 31, 1995.<PAGE>
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
undersigned thereto duly authorized.
MID ATLANTIC MEDICAL SERVICES, INC.
--------------------------------------------
(Registrant)
Date: May 12, 1995 Robert E. Foss
--------------------------------------------
Robert E. Foss
Executive Vice President and
Chief Financial Officer<PAGE>
<PAGE> 14
6(a) List of Exhibits.
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
3.1 Composite Certificate of Incorporation
of MAMSI as of April 20, 1995. . . . . . . . . .
3.2 Copy of By-laws of MAMSI as of
February 1, 1990 . . . . . . . . . . . . . . . . (1)
10.73 1995 Management Bonus Program. . . . . . . . . . (1)
10.74 1995 Non-Qualified Stock Option Plan . . . . . . (1)
10.75 1995 Non-Qualified Stock Option Plan
Letter sent to Key Employees . . . . . . . . . . (1)
27 Financial Data Schedule. . . . . . . . . . . . .
------------
(1) Incorporated by reference to exhibits filed with the Company's
Annual Report filed under the Securities Exchange Act of 1934 on Form
10-K for the fiscal year ended December 31, 1994.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> $5,240
<SECURITIES> 152,243
<RECEIVABLES> 55,242
<ALLOWANCES> 3,614
<INVENTORY> 0
<CURRENT-ASSETS> 232,109
<PP&E> 33,808
<DEPRECIATION> 10,803
<TOTAL-ASSETS> $288,365
<CURRENT-LIABILITIES> $118,989
<BONDS> 5,186
<COMMON> 458
0
0
<OTHER-SE> 162,426
<TOTAL-LIABILITY-AND-EQUITY> $288,365
<SALES> $0
<TOTAL-REVENUES> 220,988
<CGS> 0
<TOTAL-COSTS> 193,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 317
<INCOME-PRETAX> 27,264
<INCOME-TAX> 10,346
<INCOME-CONTINUING> 16,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $16,918
<EPS-PRIMARY> $.36
<EPS-DILUTED> $.36
</TABLE>
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
MID ATLANTIC MEDICAL SERVICES, INC.
AS OF APRIL 20, 1995
THIS IS TO CERTIFY:
FIRST: The undersigned, whose name and mailing address
is Gregory T. Nojeim, Kirkpatrick and Lockhart, 1900 M Street,
N.W., Washington, D.C. 20036, being at least eighteen years of
age, does hereby act as incorporator for the purpose of forming a
corporation pursuant to the General Corporation Law of Delaware.
SECOND: The name of the corporation is Mid Atlantic
Medical Services, Inc.
THIRD: The nature of the business and purposes to be
conducted or promoted is to engage in any lawful act or activity
for which corporations may be organized under the General
Corporation Law, including, but not limited to, the ownership of
entities operating a Health Maintenance Organization and an
Individual Practice Association and other managed health care
products and programs.
DC-192632.1 <PAGE>
FOURTH: The name and address of the Registered Agent
and Registered office in Delaware is United States Corporation
Company, 229 South State Street, Dover, Delaware 19901 in the
county of Kent. Said Resident Agent is a resident of the State
of Delaware actually residing therein.
FIFTH: The address of the principal office of the
corporation in Delaware is 229 South State Street, Dover,
Delaware 19901 in the county of Kent.
SIXTH: The aggregate and total number of shares of
common stock of all classes that this Corporation is authorized
to issue is one hundred million (100,000,000). All of such
shares are common stock with a par value each of One Cent ($.01).
The Corporation is also authorized to issue one million
(1,000,000) shares of preferred stock, which shall not be
convertible into common stock, but will have such other rights,
voting powers, restrictions, and limitations as to dividends as
the Corporation's Board of Directors may later determine. Said
preferred shares shall have a par value of One Cent ($0.01) each.
SEVENTH: The number of directors comprising the full
Board of Directors of the corporation, except the first board,
shall be established in accordance with the By-Laws of the
corporation. The number of directors comprising the board may be
increased or decreased from time to time pursuant to the By-Laws
- 2 -<PAGE>
of the corporation except for the first board, but the number of
directors shall never be fewer than five (5).
The names of the twenty-three (23) directors who shall
comprise the first Board of Directors, to remain in office until
the first annual meeting or until their successors are duly
chosen and qualify, are:
1. Morris S. Albert, M.D. 13. Peter L. Flaherty, Jr., M.D.
2. Benjamin Avrunin, M.D. 14. John L. Ford, M.D.
3. J. Fred Baker, M.D. 15. I. Sidney Jaffee, M.D.
4. Jerome P. Baroch, Jr. 16. Thomas E. Kasper, M.D.
5. Horace W. Bernton, M.D. 17. T. Dale Lowe
6. Francis C. Bruno, M.D. 18. Gino A. Nalli
7. Don B. Cameron, M.D. 19. Lawrence F. Pignone
8. Fredric K. Cantor, M.D. 20. Kline Price, Jr., M.D.
9. Charles Clark, M.D. 21. James F. Rosborough, Jr., M.D.
10. Leroy E. Cohen, M.D. 22. G. Stuart Scott, M.D.
11. Stanley M. Dahlman 23. Ronald D. West
12. Wilfred R. Ehrmantraut, M.D.
EIGHTH: Directors may be removed, with or without
cause, by the holders of two-thirds of the shares then entitled
to vote at an election of the directors, or for cause by an
affirmative vote of the entire Board of Directors at any regular
or special meeting of the Board of Directors.
- 3 -<PAGE>
NINTH: The corporation shall indemnify its officers,
directors, employees and agents in the manner and to the extent
provided in the By-Laws of the corporation. No director of the
corporation shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
TENTH: The Board of Directors may make, alter, or
repeal the By-Laws of the corporation.
ELEVENTH: Until June 30, 1987, or such earlier date as
the Board of Directors of the corporation may specify, the
following provisions shall apply:
(a) No person shall directly or indirectly offer to acquire
or acquire the beneficial ownership of more than 16% of the
common stock of the corporation.
(b) In the event shares are acquired in violation of this
Article Eleventh, all shares beneficially owned by any
person in excess of 16% shall be considered "excess shares"
and (1) shall cease immediately to be entitled to voting
- 4 -<PAGE>
rights of any kind and shall not be considered as
outstanding shares for voting or quorum purposes and (2) all
dividends and other distributions payable with respect to
such excess shares shall not be paid or distributed to the
holder of record thereof or his agent and shall be
forfeited.
(c) In the event shares are acquired in violation of this
Article, the corporation may, but shall not be required to,
redeem such excess shares at the option of the Board of
Directors of the corporation in accordance with this
paragraph. In the event the Board of Directors determines
to redeem such excess shares, the corporation shall redeem
such shares at their book value, determined by the
accountants of the corporation based on the corporation's
most recently audited balance sheet. If the Board of
Directors determines to redeem such shares, it shall send
the record holder thereof a notice (to the address of such
holder set forth in the records of the corporation by post-
paid first class certified mail) to such effect and the
holder thereof shall be required to tender such excess
shares to the corporation, and the corporation shall be
required to redeem such excess shares, within 10 days after
the date of mailing of such notice. Excess shares may not
be redeemed by the corporation after the period specified in
the beginning of this Article.
- 5 -<PAGE>
(d) The term "person" includes an individual, a group
acting in concert, a corporation, a partnership, an
association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring,
holding or disposing of the common stock of the corporation.
(e) The term "offer" includes every offer to buy or
otherwise acquire, solicitation of an offer to sell, tender
offer for or request invitation for tenders of, the common
stock of the corporation or an interest in such common stock
for value.
(f) The term "acquire" includes every type of acquisition
whether affected by purchase exchange, operation of law or
otherwise.
(g) The term "acting in concert" means (i) knowing
participation in a joint activity or conscious parallel
action toward a common goal whether or not pursuant to an
express agreement or (ii) a combination or pooling of voting
or other interest in the common stock of the corporation for
a common purpose pursuant to any contract, understanding,
relationship agreement or other arrangement, whether written
or otherwise.
- 6 -<PAGE>
TWELFTH:
(a) Vote Required for Certain Business
Combinations. The affirmative vote of not less than 75 percent
of the outstanding shares of "Voting Stock" (as hereinafter
defined) held by stockholders other than an "Interested Person"
(as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" (as hereinafter
defined) of the corporation with any Interested Person; provided,
however, that the 75 percent voting requirement shall not be
applicable if:
(1) the "Disinterested Directors" (as
hereinafter defined) of the corporation have expressly approved
such Business Combination either in advance of or subsequent to
such Interested Person's having become an Interested Person; or
(2) the following requirements are
satisfied: (i) the cash or Fair Market Value (as hereinafter
defined) of the property, securities or "Other Consideration" (as
hereinafter defined) per share to be received by holders of the
Voting Stock of the corporation in the Business Combination is
not less than the "Fair Price" (as hereinafter defined) of such
share of Voting Stock of the corporation; and (ii) the Interested
Person shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any
loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by
- 7 -<PAGE>
the corporation, whether in anticipation of or in connection with
such Business Combination or otherwise; and (iii) a proxy or
information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 ("Exchange Act") and the General Rules and
Regulations thereunder shall be mailed to the stockholders of the
corporation at least 30 days prior to the consummation of a
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to the Exchange Act).
(b) Tender for Remaining Shares. Every
Interested Person, within 60 days of the date they became an
Interested Person, must offer to purchase all of the outstanding
shares of capital stock of the corporation at the Fair Price of
such stock unless a majority of the Disinterested Directors have
expressly approved in advance the transaction through which the
Interested Person became an Interested Person. The tender offer
must comply with the Exchange Act and applicable General Rules
and Regulations thereunder, notwithstanding that such Act or such
Rules and Regulations may not require such compliance. The
expenses of making the tender offer shall be borne in whole by
the Interested Person. Consideration due a shareholder who
tenders a share of the corporation's capital stock in response to
such tender offer shall be paid within 60 days of the date on
which such stock is tendered.
(c) Definitions. The following definitions shall
apply to certain words and terms used in this Article TWELFTH:
- 8 -<PAGE>
(1) Business Combination. The term
"Business Combination" means (i) any merger or consolidation of
the corporation or an "Affiliate" (as defined in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act as in
effect at the date of the adoption of this Article TWELFTH by the
stockholders of the corporation) of the corporation with or into
an Interested Person, (ii) any sale, lease, exchange, transfer or
other disposition, including without limitation, a mortgage or
any other security device, of all or any "Substantial Part" (as
hereinafter defined) of the assets either of the corporation
(including without limitation, any voting securities of an
Affiliate) or of an Affiliate of the corporation to an Interested
Person, (iii) any merger or consolidation of an Interested Person
with or into the corporation or an Affiliate of the corporation,
(iv) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or other security
device, of all or any Substantial Part of the assets of an
Interested Person to the corporation or an Affiliate of the
corporation, (v) the issuance or transfer by the corporation or
any Affiliate of the corporation of any securities of the
corporation or of an Affiliate of the corporation to an
Interested Person, (vi) any reclassification of securities,
recapitalization, merger or consolidation of the corporation with
any of its Affiliates, or other comparable transaction involving
the corporation that would have the effect of increasing the
voting power of any Interested Person with respect to Voting
- 9 -<PAGE>
Stock of the corporation, (vii) any plan or proposal for the
liquidation or dissolution of the corporation or of an Affiliate
of the corporation proposed by or on behalf of an Interested
Person, and (viii) any agreement, contract or other arrangement
providing for any of the transactions described in this
definition of Business Combination.
(2) Interested Person. The term "Interested
Person" means and includes any individual, corporation,
partnership or other person or entity which, together with its
Affiliates and "Associates" (as defined in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act as in effect
at the date of the adoption of this Article TWELFTH by the
stockholders of the corporation), is the "Beneficial Owner" (as
defined in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act as in effect at the date of the adoption of this
Article TWELFTH by the stockholders of the corporation) of in the
aggregate 25 percent or more of the outstanding shares of Voting
Stock of the corporation, and any Affiliate or Associate of any
such individual, corporation, partnership or other person or
entity. Notwithstanding paragraph three (3) of this section (c),
any share of Voting Stock of the corporation that any Interested
Person has the right to acquire at any time (notwithstanding that
Rule 13d-3 of the General Rules and Regulations under the
Exchange Act deems such shares to be beneficially owned only if
such right may be exercised within 60 days) pursuant to any
agreement, or upon exercise of conversion rights, warrants or
- 10 -<PAGE>
options, or otherwise, shall be deemed to be beneficially owned
by the Interested Person and to be outstanding for purposes of
this definition. An Interested Person shall be deemed to have
acquired a share of the Voting Stock of the corporation at the
time when such Interested Person became the Beneficial Owner
thereof.
(3) Voting Stock. The term "Voting Stock"
means all of the outstanding shares of common stock of the
corporation and any outstanding shares of preferred stock of the
corporation entitled to vote on each matter on which the holders
of record of common stock of the corporation shall be entitled to
vote, and each reference to a proportion of shares of Voting
Stock shall refer to such proportion of the votes entitled to be
cast by such shares voting together as a single class.
(4) Disinterested Director. The term
"Disinterested Director" means a director who is unaffiliated
with an Interested Person and who (i) was a member of the Board
of Directors of the corporation immediately prior to the time
that the Interested Person involved in a Business Combination
became an Interested Person, or (ii) was elected or appointed to
fill a vacancy after the date the Interested Person became an
Interested Person by a majority of the Disinterested Directors
then on the Board of Directors, or (iii) was recommended to
succeed a Disinterested Director by a majority of the
Disinterested Directors then on the Board of Directors.
- 11 -<PAGE>
(5) Fair Price. The term "Fair Price" means
with respect to each class and series of capital stock of the
corporation, the highest of (i) the amount determined by a
majority of the Continuing Directors to be the highest per share
price or price equivalent paid at any time by the Interested
Person for any share or shares of that class and series of
capital stock of the corporation, or (ii) the Fair Market Value
of the stock, or, (iii) if applicable, the highest preferential
amount per share to which holders of shares of such class or
series of capital stock are entitled in the event of any
liquidation, dissolution or winding up of the corporation. In
determining the Fair Price, all purchases by the Interested
Person shall be taken into account regardless of whether the
shares were purchased before or after the Interested Person
became an Interested Person. Also, the Fair Price includes any
brokerage commissions, transfer taxes and soliciting dealers'
fees paid by the Interested Person with respect to the shares of
capital stock of the corporation acquired by the Interested
Person. The Fair Price of capital stock of the corporation
purchased by an Interested Person also includes interest
compounded annually from the date an Interested Person became an
Interested Person through the date the Business Combination is
consummated at the publicly announced prime rate of interest of
Equitable Bank, N.A., Baltimore, Maryland less the aggregate
amount of any cash dividends paid and the Fair Market Value of
any dividends paid in other than cash on each share of capital
- 12 -<PAGE>
stock in the same time period, in an amount up to but not
exceeding the amount of interest so payable per share of capital
stock. The consideration to be received by holders of a
particular class and series of outstanding capital stock shall
be, at the option of each stockholder of the corporation, in cash
or in the form of consideration the Interested Person used to
acquire the largest number of shares of such class and series of
capital stock previously acquired by it. The price determined in
accordance with this paragraph shall be subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination of shares or similar event.
(6) Fair Market Value. The term "Fair
Market Value" means in the case of securities, the highest
closing sale price during the 30-day period immediately preceding
the date in question of a share of such security on the Composite
Tape for New York Stock Exchange Listed Securities, or, if such
security is not listed on such exchange, on the principal United
States securities exchange registered under the Securities
Exchange Act of 1934 on which such security is listed, or, if
such security is not listed on any such exchange, the highest
closing bid quotation with respect to such security during the
30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are
available, the value on the date in question of the security as
determined by the Board of Directors in good faith. The Fair
- 13 -<PAGE>
Market Value of property other than cash or stock shall be as
determined by the Board of Directors in good faith. In the case
of Business Combinations, the Fair Market Value, as determined
above, shall be determined with reference to higher of the fair
market value on the date the Interested Person became an
Interested Person or on the date of the first public announcement
of the Business Combination. In the case of Tenders for
Remaining Shares, the Fair Market Value, as determined above,
shall be determined with reference to the higher of the fair
market value on the date the Interested Person became an
Interested Person or on the last business day before the date
upon which the Interested Person makes the tender offer.
(7) Substantial Part. The term "Substantial
Part" means more than 20 percent of the Fair Market Value of the
total consolidated assets of the corporation and its Affiliates
taken as a whole as of the end of its most recent fiscal year
ended prior to the date the termination is being made.
(8) Other Consideration. The term "Other
Consideration" includes, without limitation, common stock or
other capital stock of the corporation retained by its existing
stockholders other than Interested Persons or other parties to
such Business Combination in the event of a Business Combination
in which the corporation is the surviving corporation.
(d) Fiduciary Obligations of Interested Persons.
Nothing contained in this Article TWELFTH shall be construed to
- 14 -<PAGE>
relieve any Interested Person from any fiduciary obligation
imposed by law.
(e) Determinations by the Disinterested
Directors. In making any determinations, the Disinterested
Directors may, at the expense of the corporation, engage such
persons, including investment banking firms and the independent
accountants who have reported on the most recent financial
statements of the corporation, and utilize employees and agents
of the corporation, who will, in the judgment of the
Disinterested Directors, be of assistance to the Disinterested
Directors. Any determinations made by the Disinterested
Directors, acting in good faith on the basis of such information
and assistance as was then reasonably available for such
purposes, shall be conclusive and binding upon the corporation
and its stockholders, including any Interested Person.
(f) Amendments to This Article. Notwithstanding
any other provision of this certificate of incorporation or the
By-Laws of the corporation and notwithstanding that absent this
provision, a lesser percentage may be sufficient under applicable
law, the affirmative vote of not less than 75 percent of the
Voting Stock held by stockholders other than an Interested Person
shall be required to amend, repeal or adopt any provisions
inconsistent with this Article TWELFTH.
I, the undersigned, being the incorporator before named for
the purpose of forming a corporation pursuant to the General
- 15 -<PAGE>
Corporation law of Delaware, do make this certificate, hereby
declaring and certifying that this is my act and deed and the
facts herein stated are true, and accordingly have hereto set my
hand this 3rd day of October 1986.
Greg Nojeim
_________________________
Incorporator
- 16 -<PAGE>
