<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1998, or
[ ] Transition report pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-13340
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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 54,024,362 shares of common stock, par value $.01, outstanding as of June
30, 1998.
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<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)
June 30, 1998 December 31, 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,814 $ 3,570
Short-term investments 173,602 152,080
Accounts receivable, net of allowance of $4,717 and $5,180 89,112 84,719
Prepaid expenses, advances and other 23,086 19,294
Deferred income taxes 1,102 303
----------- -----------
Total current assets 295,716 259,966
Property and equipment, net of accumulated
depreciation of $36,097 and $31,103 55,244 56,964
Statutory deposits 14,930 14,854
Other assets 9,586 10,427
Deferred income taxes 720 612
---------- -----------
Total assets $ 376,196 $ 342,823
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 60 $ 60
Short-term borrowings 2,493 2,249
Accounts payable 16,631 16,878
Medical claims payable 115,867 98,328
Deferred premium revenue 15,492 12,586
Deferred income taxes 3,318 1,800
----------- -----------
Total current liabilities 153,861 131,901
Notes payable 44 74
Deferred income taxes 2,716 2,541
----------- -----------
Total liabilities 156,621 134,516
----------- -----------
Stockholders' equity
Common stock, $.01 par, 100,000,000 shares authorized; 56,772,502 issued and
54,024,362 outstanding at June 30, 1998; 56,772,502 issued and
54,677,862 outstanding at December 31, 1997 567 567
Additional paid-in capital 160,798 162,892
Stock compensation trust (common stock held in trust) (91,533) (101,482)
Treasury stock, 2,748,140 shares at June 30, 1998; 2,094,640 shares at
December 31, 1997 (49,624) (41,211)
Accumulated other comprehensive income (Note 2) 2,497 946
Retained earnings 196,870 186,595
----------- -----------
Total stockholders' equity 219,575 208,307
----------- -----------
Total liabilities and stockholders' equity $ 376,196 $ 342,823
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1997 has been extracted from the
audited financial statements at that date.
See accompanying notes to these financial statements.
<PAGE> 3
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ending
June 30, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 278,029 $ 267,992
Fee and other 6,099 4,137
Life and short-term disability premium 1,695 1,274
Home health services 5,410 5,285
Investment 2,992 3,755
----------- -----------
Total revenue 294,225 282,443
----------- -----------
Expense
Medical 249,805 240,135
Life and short-term disability claims 819 517
Home health patient services 4,136 4,034
Administrative (including interest expense of $127 and $97) 33,736 33,328
----------- -----------
Total expense 288,496 278,014
----------- -----------
Income before income taxes 5,729 4,429
Provision for income taxes (2,144) (1,641)
----------- -----------
Net income $ 3,585 $ 2,788
=========== ===========
Basic earnings per common share (Note 3) $ .08 $ .06
=========== ===========
Diluted earnings per common share (Note 3) $ .08 $ .06
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 4
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 552,095 $ 539,238
Fee and other 11,194 8,658
Life and short-term disability premium 3,300 2,435
Home health services 10,435 10,351
Investment 6,703 4,926
----------- -----------
Total revenue 583,727 565,608
----------- -----------
Expense
Medical 490,847 484,779
Life and short-term disability claims 1,812 1,410
Home health patient services 8,321 7,721
Administrative (including interest expense of $265 and $205) 66,359 65,960
----------- -----------
Total expense 567,339 559,870
----------- -----------
Income before income taxes 16,388 5,738
Income tax expense (6,113) (2,144)
----------- -----------
Net income $ 10,275 $ 3,594
=========== ===========
Basic earnings per common share (Note 3): $ .22 $ .08
=========== ===========
Diluted earnings per common share (Note 3): $ .22 $ .08
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 5
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ending
June 30, 1998
-------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 10,275
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 5,783
Provision for bad debts (551)
Provision for deferred income taxes 558
Gain on sale and disposal of assets (689)
Increase in accounts receivable (3,842)
Increase in prepaid expenses, advances, and other (3,792)
Decrease in accounts payable (247)
Increase in medical claims payable 17,539
Increase in deferred premium revenue 2,906
-----------
Total adjustments 17,665
-----------
Net cash provided by operating activities 27,940
Cash flows used in investing activities:
Purchases of short-term investments (174,013)
Sales of short-term investments 155,057
Purchases of property and equipment (5,898)
Purchases of statutory deposits (100)
Reduction in other assets (714)
Proceeds from sale of assets 3,316
-----------
Net cash used in investing activities (22,352)
Cash flows used in financing activities:
Principal payments on notes payable (30)
Increase in short-term borrowings 244
Exercise of stock options 5,382
Stock option tax benefit 2,473
Purchase of Treasury Stock (8,413)
-----------
Net cash used in financing activities (344)
-----------
Net increase in cash and cash equivalents 5,244
Cash and cash equivalents at beginning of period 3,570
-----------
Cash and cash equivalents at end of period $ 8,814
===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 6
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ending
June 30, 1997
-------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 3,594
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 4,916
Provision for bad debts (24)
Provision for deferred income taxes 373
Loss on sale and disposal of assets 1
Decrease in accounts receivable 806
Decrease in prepaid expenses, advances, and other 5,392
Decrease in accounts payable (3,225)
Decrease in medical claims payable (5,894)
Increase in deferred premium revenue (397)
-----------
Total adjustments 1,948
------------
Net cash provided by operating activities 5,542
Cash flows used in investing activities:
Purchases of short-term investments (118,997)
Sales of short-term investments 118,275
Purchases of property and equipment (7,921)
Maturities of statutory deposits 11
Purchases of other assets (178)
Proceeds from sale of assets 37
-----------
Net cash used in investing activities (8,773)
Cash flows provided by financing activities:
Principal payments on notes payable (29)
Decrease in short-term borrowings (180)
Exercise of stock options 3,334
Stock option tax benefit 2,244
-----------
Net cash provided by financing activities 5,369
-----------
Net increase in cash and cash equivalents 2,138
Cash and cash equivalents at beginning of period 4,065
-----------
Cash and cash equivalents at end of period $ 6,203
===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE> 7
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 life and health
insurance related activities. MAMSI's principal markets currently include
Maryland, Virginia, the District of Columbia, Delaware, West Virginia, North
Carolina and Pennsylvania. MAMSI and its subsidiaries (collectively referred to
as the "Company") have developed a broad range of managed health care and
related ancillary products and deliver these services through health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), a life and
health insurance company, home health care and home infusion services companies,
a hospice company, a mail-order pharmacy, and part ownership in an outpatient
surgery center.
MAMSI delivers managed health care services principally through HMOs. The HMOs,
MD-Individual Practice Association, Inc. ("M.D. IPA"), Optimum Choice, Inc.
("OCI"), Optimum Choice of the Carolinas, Inc. ("OCCI") and Optimum Choice, Inc.
of Pennsylvania ("OCIPA") arrange for health care services to be provided to an
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., which provides a delivery
network of physicians (called a preferred provider organization or "PPO") to
employers and insurance companies in association with various health plans, and
Mid Atlantic Psychiatric Services, Inc., which provides psychiatric services to
third party payors or self-insured employer groups. MAMSI Life and Health
Insurance Company develops and markets indemnity health products in addition to
life and short-term disability insurance. HomeCall, Inc., FirstCall, Inc., and
HomeCall Pharmaceutical Services, Inc. provide in-home medical care (including
skilled nursing and infusion therapy) and mail-order pharmacy services to
MAMSI's HMO members and other payors. HomeCall Hospice Services, Inc. provides
services to terminally ill patients and their families.
NOTE 1 - FINANCIAL STATEMENTS
The consolidated balance sheet of the Company as of June 30, 1998, the
consolidated statements of operations for the three and six months ended June
30, 1998 and 1997, and the consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 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, 1997 audited consolidated financial statements. The results of
operations for the three and six month periods ended June 30 are not necessarily
indicative of the operating results for the full year.
Certain balances in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
NOTE 2 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or stockholders' equity. Statement 130 requires unrealized
gains and losses on the Company's available for sale securities, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the first six months of 1998 and 1997, total comprehensive income
amounted to $11,826,000 and $5,485,000, respectively.
<PAGE> 8
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except share amounts):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 10,275 $ 3,594 $ 3,585 $ 2,788
Denominator:
Denominator for basic earnings per share
- weighted average shares 46,987,462 45,992,163 47,202,991 46,213,562
Dilutive securities - employee stock options 124,973 725,505 43,088 724,388
Denominator for diluted earnings per share
- adjusted weighted average shares 47,112,435 46,717,668 47,246,079 46,937,950
</TABLE>
Options to purchase approximately 7.1 million shares of common stock at various
prices were outstanding at June 30, 1998 but were not included in the
computation of diluted earnings per share because the option proceeds were
greater than the average market price and, therefore, the effect would be
antidilutive.
On April 15, 1998, the Stock Option Committee of the Company's Board of
Directors authorized a voluntary exchange ("Exchange") of all existing stock
options with an exercise price of $16.00 or more per share. Each stock option
that was voluntarily tendered was replaced with a newly issued stock option
priced at $16.00 per share. As a condition of the Exchange, option holders
agreed to extend the vesting period for one year. In addition, the newly issued
stock options are exercisable for one additional year beyond the current
expiration date. Approximately 4.3 million options were exchanged for a like
number of newly issued options.
The Company maintains a stock compensation trust ("SCT") to fund its obligations
arising from its various stock compensation plans. Shares held by the SCT are
excluded from the denominator used in calculating basic and diluted earnings per
common share.
NOTE 4 - NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("Statement
131"). Statement 131 significantly changes the way companies report segment
information in financial statements. Because Statement 131 concerns itself only
with how supplemental financial statement information is disclosed in annual and
interim reports, the adoption will not have a material impact on the Company's
consolidated financial statements. Statement 131 is effective for annual
financial statements for fiscal years beginning after December 15, 1997.
NOTE 5 - CONTINGENCY
On May 28, 1998, the Company received a draft audit report relating to an audit
conducted by the Office of Inspector General pertaining to the Company's
participation in the Federal Employees' Health Benefits Program ("FEHBP") for
the years 1992 - 1997. The report's preliminary findings indicate that in the
years 1992 - 1994 the FEHBP was charged rates that exceeded the then market
price and that the FEHBP is due approximately $14,000,000, which includes
interest. The Company is currently evaluating the report's findings and will
have the opportunity to respond prior to the draft report becoming final. As the
Company has not completed its evaluation of the draft report, it is too early to
predict what amount, if any, may be due the FEHBP.
<PAGE> 9
MID ATLANTIC MEDICAL SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
All forward-looking information contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations is based on
management's current knowledge of factors affecting MAMSI's business. MAMSI's
actual results may differ materially if these assumptions prove invalid.
Significant risk factors, while not all-inclusive, are:
1. The possibility of increasing price competition in the Company's market
place.
2. The possibility that the Company is not able to increase its market share at
the anticipated premium rates.
3. The possibility of state or federal budget related mandates that reduce
premiums for Medicaid or Medicare recipients.
4. The potential for increased medical expenses due to: - Increased
utilization by the Company's membership. - Inflation in provider and
pharmaceutical costs. - Federal or state mandates that increase benefits
or limit the
Company's oversight ability.
5. The possibility that the Company is not able to expand its service territory
as planned due to regulatory delays and/or inability to contract with
appropriate providers.
6. The possibility that one of the Company's vendors will experience year 2000
problems that disrupt the Company's operating or administrative systems.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1997
Consolidated net income of the Company was $3,585,000 and $2,788,000 for the
second quarters of 1998 and 1997, respectively. Diluted earnings per share was
$.08 in the second quarter of 1998 as compared to $.06 in the second quarter of
1997. This increase in earnings is primarily attributable to an increase in fee
and other income. The Company has priced its health products competitively in
order to increase its membership base and thereby enhance its strategic position
in its market place. The Company currently has one of the largest HMO and
managed care enrollments and also the largest network of contract providers of
medical care in its service area (which includes the entire states of Maryland
and Delaware, the District of Columbia, most counties and cities in Virginia and
certain areas of West Virginia, North Carolina and Pennsylvania.)
Revenue for the three months ended June 30, 1998 increased approximately $11.8
million or 4.2 percent over the three months ended June 30, 1997. A 1.0 percent
decrease in net average HMO and indemnity enrollment resulted in a decrease of
approximately $2.3 million in health premium revenue while a 4.7 percent
increase in average monthly premium per enrollee, combined for all products,
resulted in a $12.3 million increase in health premium revenue. The reduction in
HMO and indemnity enrollment is principally due to the net effect of the
Company's withdrawal from the Maryland Medicaid Program on July 1, 1997 and the
Northern Virginia Medicaid Program on January 1, 1998, offset significantly by
increases in the Company's commercial members. Management believes that
commercial health premiums should continue to increase over the next twelve
months as the Company continues to increase its commercial membership and as new
and renewing groups are charged higher premium rates due to legislatively
mandated benefit enhancements and general price increases initiated by the
Company. This is a forward-looking statement. See "Forward Looking Information"
above for a description of the risk factors that may effect health premiums per
member.
<PAGE> 10
The Company has implemented increased premium rates across essentially all of
its commercial products, which began to take effect in 1996. As the Company's
contracts are generally for a one year period, increased pricing cannot be
initiated until a contract reaches its renewal date. Therefore, price increases
cannot be made across the Company's membership at the same time. Commercial
premium rate increases are expected to continue in 1998 at the same rate as
1997, in the range of 5% to 7%. Management believes that these rate increases
may have the effect of slowing the Company's future membership growth. In
addition, management reevaluated premium reimbursement rates with regard to its
Medicare and Medicaid programs. Specifically, effective January 1, 1998, the
Company withdrew from participation in certain areas of the Virginia Medicaid
program. The Company also modified certain benefits for enrollees in its
Medicare program and began to charge additional premiums in certain areas.
In the second quarter of 1998, the National Committee for Quality Assurance
conducted a review of OCI and MD-IPA. The Company is awaiting the results of
that review.
The Company's future membership growth depends on several factors such as
relative premium prices and product availability, future increases or decreases
in the Company's service area, increased competition in the Company's service
area and changes in state mandated enrollment in Medicaid HMO programs in which
the Company participates. Enrollment may also decrease if the Company determines
that premium reimbursement rates related to certain state Medicaid programs are
inadequate, which would cause the Company to voluntarily withdraw from
participation.
Service revenue from non-MAMSI affiliated entities earned by the Company's home
health care subsidiaries remained relatively stable and contributed
approximately $5.4 million in revenue in the second quarter of 1998 as compared
with $5.3 million in the second quarter of 1997. Revenue from life and
short-term disability products contributed $1.7 million in revenue in the second
quarter of 1998 as compared to $1.3 million for the same period in 1997.
Fee and other income increased from $4.1 million for the second quarter of 1997
to $6.1 million for the second quarter of 1998, principally due to increased
membership in the Company's PPO product and an approximate $795,000 gain on the
sale of one of the Company's buildings.
Medical expenses as a percentage of health premium revenue ("medical loss
ratio") increased to 89.8 percent for the second quarter of 1998 as compared to
89.6 percent for the comparable period of 1997. On a per member per month basis,
medical expenses increased 4.9 percent. The Company has continued its efforts to
implement product specific cost containment controls, expand activity in
specialized subrogation areas and claims review for dual health coverage and
adopt regionalized and product specific fee maximums for health services.
Additionally, the Company has greatly expanded its initial health assessments of
new Medicare members after they have enrolled and has also increased its case
management personnel. These initiatives should help to control the Company's
medical loss ratio. Management believes that the Company's 1998 second quarter
underwriting results reflect a return to a historical seasonal pattern that
reflects higher utilization of medical services by its members. The statements
in this paragraph and the preceding paragraphs regarding future utilization
rates, cost containment initiatives, total medical costs and future increases in
health premiums per member are forward-looking statements. See "Forward-Looking
Information" above for a description of risk factors that may affect medical
expenses per member and the medical loss ratio.
Administrative expenses as a percentage of revenue ("administrative expense
ratio") decreased to 11.5 percent for the second quarter of 1998 as compared to
11.8 percent for the same period in 1997. Management believes that the
administrative expense ratio will remain near the current level over the next
year. Management's expectation concerning the administrative expense ratio is a
forward-looking statement. The administrative expense ratio is affected by
changes in health premiums and other revenues, development of the Company's
expansion areas and increased administrative activity related to business
volume.
Investment income decreased $763,000 due to a decrease in realized gains on
sales of marketable equity securities of $1,222,000 offset by an increase in
interest income due to larger investable balances.
<PAGE> 11
The net margin rate increased from 1.0 percent in the second quarter of 1997 to
1.2 percent in the current quarter. This increase is primarily due to an
increase in fee and other income.
THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1997
The Company's consolidated net income for the six months ended June 30, 1998
increased to $10,275,000 from $3,594,000 for the six months ended June 30, 1997.
Earnings per share on net income increased from $.08 in the first six months of
1997 to $.22 for the same period in 1998. The increase in earnings is primarily
attributable to increased premiums per member and an increase in fee and other
income.
Revenue for the six months ended June 30, 1998 increased approximately $18.1
million or 3.2 percent over the six months ended June 30, 1997. A 3.6 percent
increase in average premiums per HMO and indemnity enrollee increased health
premium revenue by approximately $19.2 million and a 1.2 percent decrease in net
average HMO and indemnity enrollment resulted in a decrease of approximately
$6.3 million. Revenue from life and short-term disability products contributed
$3.3 million for the first six months of 1998 as compared to $2.4 million for
the same period in 1997.
The medical loss ratio decreased to 88.9 percent for six months ended June 30,
1998 as compared to 89.9 percent for the comparable period in 1997. The reasons
for this decrease are consistent with the items discussed in the quarterly
analysis as well as during the first quarter of 1997, the Company identified
certain claims which were overpaid. These overpayments were caused, in large
part, by a combination of factors including the ever increasing complexity of
the claims paying process as well as providers enhancing their ability to
maximize charges. In connection with these overpayments, in the first quarter of
1997 the Company recorded, as a reduction of medical expenses, approximately $5
million relating to claims paid in 1996. The Company believes that it has taken
the appropriate action and implemented the appropriate controls to insure that
future claims are paid at the appropriate amount.
The administrative expense ratio for the first six months of 1998 decreased to
11.4 percent as compared to 11.7 percent for the same period in 1997. The
reasons for this decrease are consistent with the items discussed in the
quarterly analysis.
The net margin rate increased from .6 percent for the first six months of 1997
to 1.8 percent for the first six months of 1998.
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 health 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,
coupled with the Company's operating line-of-credit, will continue to be
sufficient in the future.
The Company's cash and short-term investments increased from $155.7 million at
December 31, 1997 to $182.4 million at June 30, 1998, primarily due to net
income, proceeds from the exercise of stock options and an increase in medical
claims payable due to increased membership. Accounts receivable also increased
from $84.7 million at December 31, 1997 to $89.1 million at June 30, 1998,
principally due to increased membership.
Medical claims payable increased from $98.3 million at December 31, 1997 to
$115.9 million at June 30, 1998, primarily due to increased membership and
related claims accruals and an increase in medical expenses per member.
The Company currently has access to total revolving credit facilities of $24.0
million, which are used to provide short-term capital resources for routine cash
flow fluctuations. At June 30, 1998, approximately $2.5 million was drawn
against these credit facilities. In addition, in July, 1998 the Company entered
into a $12,000,000 letter of credit for the benefit of the North Carolina
Insurance Department in support of operations of MAMSI Life and Health Company.
<PAGE> 12
Following is a schedule of the short-term capital resources available to the
Company (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 8,814 $ 3,570
Short-term investments 173,602 152,080
Working capital advances to Maryland hospitals 11,887 9,186
----------- -----------
Total available liquid assets 194,303 164,836
Credit line availability 21,207 21,526
----------- -----------
Total short-term capital resources $ 215,510 $ 186,362
=========== ===========
</TABLE>
The Company believes that cash generated from operations along with its current
liquidity and borrowing capabilities are adequate for both current and planned
expanded operations. Certain capital expenditures will be made over the
remainder of 1998 to enhance the Company's computer systems and to make
necessary improvements to existing administrative offices. The Company closed on
the sale of an office building in April, 1998 at a price of approximately $3
million. In July, 1998, the Company sold another of its office buildings for
approximately $10 million. The Company's purchase of an approximately 208,000
square foot office building in Frederick, Maryland in 1997, and the resulting
consolidation of its service departments in this new facility, made the
previously owned buildings unnecessary for the Company's operations.
In 1997, the Company began the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue ("Y2K"). This issue affects computer systems that have time- sensitive
programs that may not properly recognize the year 2000. This could result in
major system failures or miscalculations. The Company is currently addressing
its internal year 2000 issue with modifications to existing programs. As a part
of the Company's initial assessment, 1,300 software programs were identified for
Y2K review. Of those 1,300, 182 programs were identified as needing
modification. To date, the Company has modified 121 programs with internal
resources diverted from other projects, none of which are critical to the
Company's daily operations. The Company has incurred approximately $127,000 to
date in external costs, mainly upgrading equipment. The Company anticipates
spending approximately $50,000 to bring the Y2K compliance program to
completion. In addition, the Company is in the process of surveying it's
significant outside vendors for Y2K compliance. Approximately 1/3 of the 632
vendors have indicated Y2K compliance. Based upon the work completed to date,
the Company does not anticipate any future material impact on its financial
statements. The total cost associated with the required modifications and
conversions has been estimated and is not expected to be material to the
Company's results of operations or financial position. The statements in this
paragraph regarding future effects of the year 2000 issue is a forward looking
statement. See "Forward-Looking Information" for a description of risk factors.
At its February 1998 meeting, the Board of Directors authorized a $20 million
stock repurchase program. The Company may purchase its stock on the open market,
through block trades, or in private transactions over the next 12 months. On
August 3, 1998, the Executive Committee of the Board of Directors increased the
authorization to purchase up to $40 million of common stock prior to February
25, 1999. The program may be discontinued at any time. As of June 30, 1998, the
Company has repurchased 653,500 shares of its common stock for a total cost of
approximately $8.4 million under the stock repurchase program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal course of
business, some of which seek substantial monetary damages. After review,
including consultation with legal counsel, management believes that any ultimate
liability that could arise from these other actions will not materially affect
the Company's consolidated financial position or results of operation.
During the quarter ended March 31, 1998, the Company became involved in a
dispute with the Maryland Insurance Administration ("MIA") concerning the
construction and application of Section 15-1008 of the Maryland Insurance
Article. The law limits the time within which a carrier may retroactively
collect money owed by providers to the carrier by using the device of offsetting
future payments to providers with the amount owed by the provider to the
carrier. The law does not affect the right of carriers to otherwise recover
monies owed. The Company construed the law to be applicable to claims paid on or
after October 1, 1997. The MIA construed the law to apply to retroactive
adjustments made on or after October 1, 1997 and the MIA has ordered the Company
to abide by its construction of the law. The Company has not yet decided whether
to appeal. Management believes that the ultimate outcome of this matter will not
have a material adverse effect on the Company's financial statements as the
MIA's current position effects the method of collection of the claims reversals,
rather than the Company's legal right to the refunds.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on page 15 of the Form 10-Q. (b) There were no reports
filed on Form 8-K during the quarter ended June 30, 1998.
<PAGE> 14
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: August 14, 1998 /s/ Robert E. Foss
----------------------------
Robert E. Foss
Executive Vice President
and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
<PAGE> 15
6(a) List of Exhibits.
EXHIBIT INDEX
Location of Exhibit
Exhibit In Sequential
Number Description of Document Numbering System
- ------- ----------------------- -------------------
3.3 Corrected Amended and Restated By-Laws of
MAMSI as of February 25, 1998 . . . . . . . . .
27 Financial Data Schedule for the Six
Months Ended June 30, 1998. . . . . . . . . . .
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
MID ATLANTIC MEDICAL SERVICES, INC.
AS OF FEBRUARY 25, 1998
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. - The principal office of the corporation
shall be at 4 Taft Court, Rockville, Maryland 20850. The principal address of
the corporation in Delaware is 229 South State Street, Dover, Delaware 19901.
SECTION 1.2 OTHER OFFICES. - The corporation may have such
other offices and places of business within or without the State
of Delaware as the Board of Directors shall determine.
STOCKHOLDERS
SECTION 2.1 PLACE OF MEETINGS. - Meetings of the stockholders may be
held at such place or places within or without the State of Delaware as shall be
fixed by the Board of Directors and stated in the notice of the meeting.
SECTION 2.2 ANNUAL MEETING. - An annual meeting of stockholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held within five months after the close of the
fiscal year of the corporation.
SECTION 2.3 SPECIAL MEETINGS. - Special meetings of the stockholders
for any purpose(s) may be called by the Board of Directors or by the President
stating the purpose(s) of the meeting. No matters, except those set forth in the
notice of special meeting, may be considered at the special meeting.
SECTION 2.4 NOTICE OF MEETINGS. - Notice stating the time and place,
and in the case of a special meeting the purpose(s) thereof and by whom called,
shall be delivered to each stockholder entitled to vote, not less than
twenty-five (25) nor more than sixty (60) days prior to the meeting. If mailed,
notice shall be directed to each such stockholder at his address as it appears
on the records of the stockholders of the corporation, unless he shall have
previously filed with the Secretary of the corporation a written request that
notices intended for him be mailed to some other address, in which case it shall
be mailed to the address designated in the request. Notice of any meeting need
not be given to any person who may
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become a stockholder of record after the mailing of such notice and prior to the
meeting, or to any stockholder who attends such meeting, in person or by proxy,
for purposes other than solely to object to the lack of proper notice, or to any
stockholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of stockholders
need not be given, unless otherwise required by statute.
SECTION 2.5 QUORUM AND ACTION. - (a) At any duly held meeting of
stockholders, the presence in person or by proxy of stockholders entitled to
cast a majority of the votes thereat shall constitute a quorum, except as
otherwise provided by law or the Certificate of Incorporation.
(b) A majority of the votes cast at a duly held meeting of stockholders
at which a quorum is present (stockholders represented by proxy shall be deemed
present), shall be sufficient to take or authorize action upon any matter which
may properly come before the meeting, unless a greater vote, or voting by
classes, is required by law or by the Certificate of Incorporation or by these
By-Laws on any question, and except that in elections of directors, those
receiving the greatest number of votes shall be deemed elected even though not
receiving a majority.
Notwithstanding the above, at all meetings of the stockholders, any
vacancy in the Board of Directors by reason of an increase in the number of
directors, the resignation of a director, or for any other cause other than the
removal of a director by the stockholders, may be filled only the affirmative
vote of three-quarters (3/4) of the votes cast at the meeting.
SECTION 2.6 VOTING. - At each meeting of the stockholders, every holder
of stock then entitled to vote may vote in person or by proxy and, except as may
be otherwise provided by the Certificate of Incorporation, shall have one vote
for each share of stock registered in his name. No proxy shall be valid after
eleven (11) months from the date of its execution, unless a longer period is
provided for in the proxy. Proxies shall be exhibited to the Secretary at the
meeting and filed with the records of the corporation.
SECTION 2.7 ADJOURNED MEETINGS. - Any duly called meeting of
stockholders may, by announcement thereat, be adjourned to a designated time
and place by the vote of the holders of a
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majority of the shares present and entitled to vote thereat, even though less
than a quorum is so present. If a meeting is adjourned to another time, not more
than thirty days thereafter, and/or to another place, and if an announcement of
the adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the Board of Directors,
after adjournment, fixes a new record date for the adjourned meeting.
SECTION 2.8 ACTION BY WRITTEN CONSENT IN LIEU OF MEETING OF
STOCKHOLDERS. - See Section 6.6 of the By-Laws.
SECTION 2.9 NEW BUSINESS AND NOMINATIONS. - (a) Only such business
shall be conducted as shall have been brought before the meeting (i) by or at
the direction of the Board of Directors, or (ii) by any stockholder of the
corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 2.9. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered or mailed to and received at
the principal executive offices of the corporation not less than thirty (30)
days prior to the date of the annual meeting; provided, however, that, in the
event that less than forty (40) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of the corporation's capital
stock that are beneficially owned by such stockholder, and (iv) any material
interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in accordance
with the provisions of this Section
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2.9(a). The officer of the corporation or other person presiding over the annual
meeting shall, if the facts so warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section 2.9(a) and, if he or she should so determine, he or
she shall so declare to the meeting and any such business so determined to be
not properly brought before the meeting shall not be transacted. This provision
shall not prevent the consideration and approval or disapproval at the annual
meeting of stockholders of reports of officers, directors, and committees, but,
in connection with such reports, no new business shall be acted upon at such
annual meeting unless stated and filed as herein provided.
(b) At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors, or (ii) by any
stockholder of the corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
2.9(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the corporation not
less than thirty (30) days prior to the date of the meeting; provided, however,
that, in the event that less than forty (40) days' notice or prior disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (i) as to each person whom
such stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities
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Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the corporation's books, of such stockholder, and (B)
the class and number of shares of the corporation's capital stock that are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the corporation the information
required to be set forth in a stockholder's notice of nomination that pertains
to the nominee.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the provisions of this Section
2.9(c). The officer of the corporation or other person presiding at the meeting
shall, if the facts so warrant, determine that a nomination was not made in
accordance with such provisions and, if he or she should so determine, he or she
shall so declare to the meeting and the defective nomination shall be
disregarded.
DIRECTORS
SECTION 3.1 NUMBER AND QUALIFICATION. (a) The first Board of Directors
shall be comprised of twenty-three (23) directors who shall serve a one-year
term and until their successors are elected and qualified at the first annual
meeting. Thereafter, the number of directors shall be set by the Board of
Directors; provided, however, that, except for the first Board, the Board of
Directors shall be comprised of no more than twelve (13) and no less than five
(5) directors, each of whom shall serve a three-year staggered term and until
his or her successor is elected and qualified.
Notwithstanding the above, if the Board of Directors elects a Chairman,
pursuant to Sections 4.1 and 4.3 of the By-Laws, and/or a President, pursuant to
Sections 4.1 and 4.4 of these ByLaws, said Chairman and/or President shall
automatically become a director of the corporation. The Chairman and/or
President shall remain a director only as long as he or she continues to be the
Chairman and/or President of the Corporation. As provided for in Section 4.1 of
the By-Laws, the Chairman and the President hold office at the pleasure of the
Board, and may be removed and/or replaced at any time, with or without cause.
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<PAGE>
(b) Upon the election qualification of the successor directors to the
first Board of Directors, the successor directors shall be elected by the
stockholders at the first stockholder meeting in members as equally as possible,
into three groups. Group A directors will have a term of office expiring after
one year and until the election and qualification of their successors chosen at
the next annual shareholders meeting ensuing; Group B directors shall have a
term of office expiring one year thereafter and until the election and
qualification of their successors; Group C directors shall have a term of office
expiring two years thereafter and until the election and qualification of their
successors.
(c) Each successor to a Group A, B, and C director shall hold office
until the third annual meeting of the stockholders next succeeding his election,
and until his successor is elected and qualified, or until his prior death,
resignation or removal; except however, if additional directorships are
established, the initial term for such directorships shall be for one or more
years not greater than three as determined by the Board of Directors in order to
ensure that approximately one-third (1/3) of all the directors are elected at
each annual meeting of the stockholders.
(d) Notwithstanding the above, an individual is not qualified to serve
as a director if the individual is concurrently also a director of M.D.
Individual Practice Association, Inc., and Physicians Health Plan of Maryland,
Inc.
SECTION 3.2 POWERS. - The management of all the business, property and
affairs of the corporation shall be vested in the Board of Directors. The Board
may exercise all of the powers of the corporation and do all lawful acts and
things (including the adoption of such rules and regulations for the conduct of
its meetings, the exercise of its powers, and the management of the corporation,
as it may deem proper), consistent with the Delaware General Corporation law,
the Articles of Incorporation, and these By-Laws, and not thereby conferred upon
or reserved to the stockholders.
SECTION 3.3 MEETINGS. - The annual meeting of the Board of Directors
may be held without notice within four (4) weeks after the annual meeting of
stockholders. Regular meetings and the time and place of regular meetings of the
Board may be established by the Board. If the Board of Directors fixes a regular
meeting at a time more than four (4) weeks after the
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annual meeting of the stockholders, or changes the time or place of any regular
meeting, notice of such meeting, in accordance with the By-Law requirements for
notice of special meetings, shall be given to each director who was not present
at the meeting at which such action was taken. Special meetings of the Board may
be called by the Chairman of the Board (if any) or the President, and shall be
called at the written request of three of more directors. Five (5) days notice
of special meetings shall be given by mail, or two (2) days notice if given
personally or by telegraph or cable, to each director. Notice of special
meetings need not state the purpose(s) thereof. A majority of the Directors
present at the time and place of any regular or special meeting, although less
than a quorum, may adjourn the same from time to time without notice, until a
quorum shall be present. Notice of any special meeting shall not be required to
be given to any director who shall attend a meeting without protesting prior
thereto or at its commencement the lack of notice to him, or who submits a
signed waiver of notice, whether before or after the meeting. Notice of any
adjourned meeting shall be required to be given. Meetings of the Board may be
held at any place within or outside of the State of Delaware.
A director may attend a meeting of the Board of Directors, or any
committee thereof, either in person or by means of a telephone or similar
communications medium which allows all persons participating in the meeting to
hear and be heard by all others participating, and participation pursuant to
this subsection shall constitute presence in person at the meeting.
SECTION 3.4 QUORUM AND ACTION. - A majority of the directors then
serving (but in no event less than one-third of the total number of directors
which the corporation would then have if there were no vacancies) shall
constitute a quorum for the transaction of business. At any duly held meeting at
which a quorum is present, the affirmative vote of a majority of the directors
present shall be the act of the Board of Directors on any question, except where
the act of a greater number is required by these By-Laws, by the Certificate of
Incorporation, or by statute.
SECTION 3.5 ACTION BY WRITTEN CONSENT IN LIEU OF MEETINGS
OF DIRECTORS. - See Section 6.6 of these By-Laws.
SECTION 3.6 VACANCIES; REMOVAL. - (a) Any vacancy
occurring in the Board of Directors by reason of an increase in
the number of directors comprising the Board or for any other
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reason shall be filled by action of a majority of the remaining directors, even
if less than a quorum, or by the sole remaining director. Vacancies shall be
filled for the unexpired portion of the term of the director whose vacancy is
being filled.
(b) Except where the Certificate of Incorporation provides otherwise,
contains provisions authorizing cumulative voting or the election of one or more
directors by class or their election by holders of bonds, or requires all action
by stockholders to be by a greater vote, any one or more of the directors may be
removed, (1) either for or without cause, at any time, by the holders of a
majority of the shares then entitled to vote at an election of directors (a) at
any regular meeting or (b) at any special meeting of the stockholders the notice
of which announces that a purpose of such meeting is to seek removal, or, (2)
for cause, by the affirmative vote of a majority of the entire Board of
Directors at any regular or special meeting of the Board. Three (3) unexcused
absences within one (1) calendar year from Board of Directors meetings and/or
committee meetings for committees on which such director sits shall constitute
cause for removal. The Chairman of the Board, if a Chairman be elected, shall
determine whether an absence is "excused" for purposes of this paragraph, but
this decision may be overruled by an affirmative vote of a majority of the
directors at any duly held meeting at which a quorum is present. If no Chairman
is then serving, the Board members at any duly held meeting at which a quorum is
present shall determine whether an absence is excused.
SECTION 3.7 COMMITTEES. - The Board of Directors, by resolution adopted
by a majority of the entire Board (the total number of directors which the
Corporation would have if there were no vacancies), may designate from its
members an Executive Committee, and such other committees as it shall choose to
create, consisting of one or more directors, with such powers and authority (to
the extent permitted by law) as may be provided in said resolution.
SECTION 3.8 REMUNERATION. - (a) Unless otherwise expressly provided by
resolution adopted by the Board of Directors, none of the directors shall, as
such, receive any stated remuneration for these services but the Board of
Directors may at any time and from time to time by resolution provide that a
specified sum shall be paid to a director of the Corporation, either as his/her
annual remuneration as such director or member of any committee of the Board of
Directors or as remuneration for such directors attendance at each meeting of
the Board of Directors or any such
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committee. The Board of Directors may also likewise provide that the Corporation
shall reimburse each director for any expenses paid by him/her on account of
such attendance at any meeting. Nothing in this section shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving remuneration thereof.
(b) Notwithstanding the above, if any director is also a director of
another corporation either directly or indirectly owned, controlled by and/or
under common control of the corporation, such director shall receive
remuneration as a director from only one corporation. The director shall be
remunerated by the corporation for which he or she would receive the greater
remuneration.
OFFICERS
SECTION 4.1 EXECUTIVE OFFICERS. - The executive officers of the
corporation shall be a President, a Treasurer and a Secretary, all of whom shall
be elected at its annual meeting by the Board, and shall hold office at the
pleasure of the Board. In addition, the Board may elect a Chairman of the Board
of Directors and one or more Vice-Presidents, Assistant Secretaries and/or
Assistant Treasurers. Any two or more offices may be held by one person. All
vacancies occurring among any of the officers shall be filled by the Board for
the unexpired portion of the officer's term and may be filled at a meeting of
the Board other than its annual meeting. Any officer may be removed and/or
replaced at any time, with or without cause, by the affirmative vote of a
majority (unless the Certificate of Incorporation requires a larger vote) of the
directors present at a regular meeting of directors or at a special meeting of
directors called for the purpose.
SECTION 4.2 OTHER OFFICERS. - The Board may appoint, remove and replace
such other officers, including assistant officers and agents, with such powers
and duties as it shall deem necessary. The Board may by resolution authorize the
President to appoint and remove officers which are not Executive Officers.
SECTION 4.3 THE CHAIRMAN OF THE BOARD. - The Chairman of
the Board of Directors, if one be elected, shall preside at all
meetings of the Board of Directors and of the stockholders if the
directors so resolve. The Vice Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of
the Board of Directors and of the stockholders in the absence of
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the Chairman. The Chairman and Vice Chairman shall have and perform such other
duties as from time to time may be assigned to them by the Board of Directors or
the Executive Committee, if any.
SECTION 4.4 THE PRESIDENT. - The President shall, in the absence or
non-election of a Chairman of the Board, preside at all meetings of the
stockholders and directors. When the Board is not in session, he shall have
general management and control of the business and affairs of the corporation.
SECTION 4.5 THE VICE-PRESIDENT. - The Vice-President, if any, or if
there be more than one, the senior Vice-President as determined by the Board of
Directors, shall in the absence or disability of the President, exercise the
powers and perform the duties of the President, and each Vice-President shall
exercise such other powers and perform such other duties as shall be prescribed
by the Board.
SECTION 4.6 THE TREASURER. - The Treasurer shall have custody of all
funds, securities and evidences of indebtedness of the corporation; he shall
receive and give receipts and acquittances for monies paid in on account of the
corporation, and shall pay out of the funds on hand all bills, payrolls, and
other just debts of the corporation, of whatever nature, upon maturity; he shall
enter regularly in books to be kept by him for that purpose, full and accurate
accounts of all monies received and paid out by him on account of the
corporation, and he shall perform all other duties incident to the office of
Treasurer and as may be prescribed by the Board.
SECTION 4.7 THE SECRETARY. - The Secretary shall keep the minutes of
all proceedings of the Board of Directors and of the stockholders; he shall
attend to the giving and serving of all notices to the stockholders and
directors or other notice required by law, or by these By-Laws; shall affix the
seal of the corporation to deeds, contracts and other instruments in writing
requiring a seal, when duly signed or when so ordered by the Board of Directors;
shall have charge of the certificate books and stock books and such other books
and papers as the Board may direct, and shall perform all other duties incident
to the office of the Secretary.
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SECTION 4.8 SALARIES. - The salaries of all officers shall be fixed by
the Board of Directors, and the Board has the authority by majority vote to
reimburse expenses and to establish reasonable compensation of all directors for
services to the corporation as directors, officers, or otherwise.
SECTION 4.9 SHARES OF OTHER CORPORATIONS. - Whenever the corporation is
the holder of shares of stock of any other corporation, any right or power of
the corporation as such stockholder (including the attendance, acting and voting
at stockholders' meetings and execution of waivers, consents, proxies or other
instruments) may be exercised on behalf of the corporation by the President or
such other person as the Board of Directors may authorize.
CAPITAL STOCK
SECTION 5.1 FORM AND EXECUTION OF CERTIFICATES. - The shares of the
corporation shall be represented by certificates which shall be in the form
required by the laws of Delaware and as shall be adopted by the Board of
Directors. They shall be numbered and registered in the order issued; shall be
signed by the Chairman, the Vice-Chairman, the President or a Vice- President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and shall be sealed with the corporate seal or a facsimile thereof.
When such a certificate is counter-signed by a transfer agent or registered by a
registrar, the signatures of any such officers may be facsimile.
SECTION 5.2 TRANSFER. - Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfer of
shares shall be made upon the books of the corporation by the registered holder
in person or by attorney, duly authorized, but only upon surrender of the
certificate or certificates for such shares properly assigned for transfer.
SECTION 5.3 LOST OR DESTROYED CERTIFICATES. - The holder of any
certificate representing shares of stock of the corporation may notify the
corporation of any loss, theft or destruction thereof, and the Board of
Directors may thereupon, in its discretion, cause a new certificate for the same
number of shares to be issued to such holder upon satisfactory proof of such
loss, theft or destruction, and the deposit of indemnity by way of bond or
otherwise, in such form and amount and with such surety or sureties as the Board
may require, to indemnify the corporation
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against loss or liability by reason of the issuance of such new
certificate.
SECTION 5.4 RECORD DATE. - (a) In order to make a determination of
stockholders for any proper purpose, the directors may close the stock transfer
books for a stated period not to exceed twenty (20) days; and if the purpose of
the closing is to determine stockholders entitled to notice of or to vote at a
meeting of the stockholders, the books shall be closed for at least ten (10)
days immediately preceding such meeting.
(b) In lieu of closing the books, the directors may fix in advance a
record date for determination of stockholders for any proper purpose, such date
shall not be more than sixty (60) days, and in case of a meeting of
stockholders, not less than twenty-five (25) days, prior to the date on which
the particular action, requiring such determination of stockholders, is to be
taken.
(c) In the absence of such closing or fixed record date, the date for
determination of stockholders entitled (1) to notice of or to vote at a meeting
of stockholders, or (2) to receive a dividend or any right shall be as provided
by Section 213 of the General Corporation Law or any successor provision.
MISCELLANEOUS
SECTION 6.1 DIVIDENDS. - The Board of Directors may declare dividends
from time to time on the outstanding shares of the corporation from the surplus
or net profits legally available therefor.
SECTION 6.2 SEAL. - The Board shall provide a suitable corporate seal
stating the corporate name, and state and year of incorporation, which shall be
in the charge of the Secretary and shall be used as authorized by these By-Laws.
SECTION 6.3 FISCAL YEAR. - The fiscal year of the
corporation shall close annually on December 31.
SECTION 6.4 CHECKS, NOTES, ETC. - (a) Checks, notes, drafts, bills of
exchange and orders for the payment of money shall be signed or endorsed in such
manner as shall be determined by the Board.
(b) The funds of the corporation shall be deposited in such bank or
trust company, and checks drawn against such funds shall
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be signed in such manner as may be determined from time to time
by the Board.
SECTION 6.5 NOTICE AND WAIVER OF NOTICE. - (a) Any notice of meetings
required to be given under these By-Laws to stockholders and/or directors may be
waived in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein.
(b) All notices required by these By-Laws shall be printed or written,
and shall be delivered either personally, by telegraph or cable, or by mail,
and, if mailed, shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, addressed to the stockholder or director at his
address as it appears on the records of the corporation.
SECTION 6.6 ACTION BY WRITTEN CONSENT IN LIEU OF MEETINGS. - Any action
required or permitted to be taken at a meeting of the stockholders or of the
Board of Directors or of any committee thereof may be taken without a meeting if
a consent in writing setting forth the action so taken shall be signed by all of
the stockholders entitled to notice of or to vote with respect to the subject
matter thereof, or by all of the members of the Board or of such committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote.
AMENDMENTS
SECTION 7.1 AMENDMENTS. - These By-Laws may be altered,
amended or repealed:
(a) at any duly held stockholders' meeting by vote of the owners of a
majority (unless the Certificate of Incorporation requires a larger vote) of the
outstanding stock having voting power, present in person or by proxy, provided
notice of the amendment is included in the notice or waiver of notice of such
meeting, and
(b) except as provided below, at any regular or special meeting of the
Board of Directors by a majority (unless the Certificate of Incorporation
requires a larger vote) of the entire Board, but any By-Laws so made by the
Board may be altered or repealed by the stockholders. The Board of Directors
shall have no power to change the quorum for meetings of stockholders or of the
Board of Directors, or to change any provisions of the By-Laws with respect to
the removal of directors or the filling
- 13 -
<PAGE>
of vacancies in the Board resulting from the removal by the stockholders. If any
By-Laws regulating an impending election of directors are adopted, amended or
repealed by the Board of Directors, there shall be set forth in the notice of
the next meeting of stockholders for the election of directors, the by-laws so
adopted, amended or repealed, together with a concise statement of the changes
made.
INDEMNITY
SECTION 8.1 INDEMNITY. - The corporation shall indemnify its officers,
directors, employees and agents to the full extent permitted by Section 145, or
any successor provision, of the General Corporation Law, and such rights of
indemnification shall be in addition to any rights to which any such director,
officer, employee or agent may otherwise be entitled under the Certificate of
Incorporation, any agreement or vote of the stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has agreed to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
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