UNITED STATES
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 NOVEMBER 30, 1999
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 0-19393
LIFEMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3338328
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(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 _______
There were 5,084,673 shares of common stock outstanding as of January 13, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets.......................................3
Consolidated Statements of Income.................................4
Consolidated Statements of Cash Flows.............................5
Notes to Unaudited Consolidated Financial Statements............6-9
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................10-13
Item 3.Quantitative and Qualitative Disclosures About Market Risk.......13
Part II OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K.................................14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1999 1999
-------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
------
Current Assets:
Cash and cash equivalents, including restricted
cash of $9,355,000 and $9,713,000, respectively $ 13,884,000 $ 13,792,000
Short-term investments - 501,000
Accounts and notes receivable and unbilled services, net 5,362,000 5,886,000
Deferred income taxes, net 1,103,000 1,213,000
Prepaid expenses and other current assets 1,214,000 882,000
------------ ------------
Total current assets 21,563,000 22,274,000
Related party notes receivable 387,000 568,000
Property and equipment, net 4,891,000 4,205,000
Performance bonds 6,601,000 4,203,000
Goodwill, net 2,279,000 2,462,000
Other assets 1,014,000 1,108,000
------------ ------------
Total assets $ 36,735,000 $ 34,820,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 468,000 $ 659,000
Accrued medical claims 9,250,000 8,662,000
Risk pool payable 840,000 691,000
Related party risk pool payable 161,000 152,000
Accrued compensation 2,273,000 2,464,000
Other accrued expenses 2,455,000 1,750,000
Current portion of related party interest payable 40,000 710,000
Current portion of long-term debt 84,000 23,000
------------ ------------
Total current liabilities 15,571,000 15,111,000
Long-term debt 717,000 211,000
Related party long-term debt 3,459,000 3,440,000
Deferred income taxes, net 242,000 155,000
------------ --------------
Total liabilities 19,989,000 18,917,000
------------ ------------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding 5,085,000 shares
and 4,808,000 shares, respectively 51,000 48,000
Capital in excess of par value 16,955,000 16,148,000
Stockholder notes receivable (696,000) -
Retained earnings (accumulated deficit) 436,000 (293,000)
------------ ------------
Total stockholders' equity 16,746,000 15,903,000
------------ ------------
$ 36,735,000 $ 34,820,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
NOVEMBER NOVEMBER NOVEMBER NOVEMBER
30, 30, 30, 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 24,574,000 $ 20,639,000 $ 48,183,000 $ 39,883,000
------------ ------------ ------------ ------------
Direct cost of operations 18,764,000 15,822,000 36,614,000 30,122,000
Marketing, sales and administrative 5,073,000 4,217,000 10,608,000 8,604,000
------------ ------------ ------------ ------------
Total costs and expenses 23,837,000 20,039,000 47,222,000 38,726,000
------------ ------------ ------------ ------------
Operating income 737,000 600,000 961,000 1,157,000
------------ ------------ ------------ ------------
Interest income 266,000 233,000 521,000 486,000
Interest expense (93,000) (90,000) (193,000) (180,000)
------------ ------------ ------------ ------------
Net interest income 173,000 143,000 328,000 306,000
------------ ------------ ------------ ------------
Income before income taxes 910,000 743,000 1,289,000 1,463,000
Provision for income taxes 395,000 251,000 560,000 549,000
------------ ------------ ------------ ------------
Net income $ 515,000 $ 492,000 $ 729,000 $ 914,000
============ ============ ============ ============
Net income per share--basic $ 0.11 $ 0.10 $ 0.15 $ 0.19
============ ============ ============ ============
Weighted average common
shares outstanding--basic 4,808,000 4,720,000 4,808,000 4,707,000
============ ============ ============ ============
Net income per share--assuming dilution $ 0.10 $ 0.09 $ 0.14 $ 0.17
============ ============ ============ ============
Weighted average common shares
outstanding--assuming dilution 5,683,000 5,780,000 5,700,000 5,891,000
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
4
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, NOVEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 729,000 $ 914,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt expense 8,000 -
Depreciation and amortization 1,075,000 1,135,000
Loss on sale of property and equipment 5,000 2,000
Deferred income taxes 197,000 49,000
Interest on long-term debt 125,000 114,000
Changes in assets and liabilities:
Accounts receivable and unbilled services 516,000 (1,401,000)
Prepaid expenses and other current assets (332,000) 6,000
Accounts payable (191,000) (64,000)
Accrued medical claims 588,000 538,000
Risk pool payable 149,000 (193,000)
Related party risk pool payable 9,000 (20,000)
Accrued compensation (191,000) 285,000
Accrued expenses 705,000 (428,000)
Other assets 94,000 (195,000)
------------- -------------
Net cash provided by operating activities 3,486,000 742,000
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,855,000) (625,000)
Proceeds from sale of property and equipment 285,000 56,000
Purchase of short-term investments - (1,645,000)
Proceeds from maturity/sale of short-term investments 501,000 -
Proceeds from related party notes receivable 181,000 117,000
Proceeds from maturity of assets securing performance
bond 1,233,000 1,241,000
Purchases of assets securing performance bond (3,631,000) -
------------- -------------
Net cash used in investing activities (3,286,000) (856,000)
------------- -------------
Cash flows from financing activities:
Proceeds from (payments on) long-term debt 562,000 (184,000)
Interest paid on long-term debt (784,000) -
Proceeds from common stock issuance 114,000 197,000
------------- -------------
Net cash provided (used) by financing activities (108,000) 13,000
------------- -------------
Net increase (decrease) in cash and cash equivalents 92,000 (101,000)
Cash and cash equivalents, beginning of period 13,792,000 12,764,000
------------- -------------
Cash and cash equivalents, end of period $ 13,884,000 $ 12,663,000
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
LIFEMARK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented. The results of operations for the period ended
November 30, 1999 are not necessarily indicative of the results to be expected
for the full year. The interim consolidated financial statements should be read
in conjunction with the Lifemark Corporation ("Lifemark" or "Company")
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended May 31, 1999.
NOTE 2 - NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. Net income per
share assuming dilution is computed by dividing net income by the weighted
average number of common shares outstanding during the period after giving
effect to dilutive stock options and warrants and adjusted for dilutive common
shares assumed to be issued on conversion of the Company's convertible loans.
The following is the computation of the reconciliation of the numerators and
denominators of net income per common share - basic and net income per common
share - assuming dilution in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
----------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 515,000 4,932,000 $ 492,000 4,720,000
Reduction in shares outstanding in
connection with stockholder notes
receivable (3,000) (124,000) - -
----------- --------- ----------- ------------
Adjusted income available to common
stockholders 512,000 4,808,000 $ 0.11 492,000 4,720,000 $ 0.10
Effect of dilutive securities:
Stock options and warrants - 18,000 - 203,000
Convertible notes 40,000 857,000 40,000 857,000
----------- ------------- ----------- ------------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed conversions $ 552,000 5,683,000 $ 0.10 $ 532,000 5,780,000 $ 0.09
=========== ============= ======== =========== ============ ========
6
<PAGE>
SIX MONTHS ENDED
-----------------------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
-------------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 729,000 4,870,000 $ 914,000 4,707,000
Reduction in shares outstanding in
connection with stockholder notes
receivable (3,000) (62,000) - -
----------- ------------- ----------- -------------
Adjusted income available to common
shareholders 726,000 4,808,000 $ 0.15 914,000 4,707,000 $ 0.19
Effect of dilutive securities:
Stock options and warrants - 35,000 - 327,000
Convertible notes 79,000 857,000 79,000 857,000
----------- ------------- ----------- -------------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed conversions $ 805,000 5,700,000 $ 0.14 $ 993,000 5,891,000 $ 0.17
=========== ============= ========== =========== ============= ========
</TABLE>
NOTE 3 - RESTRICTIONS ON FUND TRANSFERS
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with certain net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
the parent organization, Lifemark. Net assets of subsidiaries (after
inter-company eliminations) which, at November 30, 1999, may not be transferred
to Lifemark by subsidiaries in the form of loans, advances or cash dividends
without the consent of a third party are referred to as "Restricted Net Assets".
Total Restricted Net Assets of these operating subsidiaries were $10,208,000 at
November 30, 1999, with deposit and reserve requirements (performance bonds)
representing $6,601,000 of the Restricted Net Assets and net worth requirements,
in excess of deposit and reserve requirements, representing the remaining
$3,607,000.
NOTE 4 - BUSINESS SEGMENTS
The Company's business segments consist of management services, long-term care
health services and acute care health services. The management services segment
is engaged in the business of administering risk-based managed care plans and
programs in seven states. Long-term care health services is comprised of Ventana
Health Systems, Inc. ("Ventana"), which is a long-term care Medicaid health plan
operating in seven counties in Arizona, and Lifemark At Home, Inc., which
provides in-home personal, respite, companionship and homemaking services to
recipients in Arizona. Acute care health services consists of Arizona Health
Concepts, Inc. ("AHC"), an acute care Medicaid health plan currently operating
in two counties in Arizona.
7
<PAGE>
Information concerning operations by business segment follows:
<TABLE>
<CAPTION>
For the Three Months Ended November 30, 1999
-----------------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
-------- --------------- --------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 12,936,000 $ 8,547,000 $ 4,894,000 $ 26,377,000
Intersegment revenues (1,443,000) (360,000) - (1,803,000)
------------ -------------- ------------- -------------
Total consolidated revenues $ 11,493,000 $ 8,187,000 $ 4,894,000 $ 24,574,000
============ ============== ============= =============
Interest income $ 64,000 $ 134,000 $ 69,000 $ 267,000
Intersegment interest income - (1,000) - (1,000)
Interest expense (94,000) - - (94,000)
Intersegment interest expense 1,000 - - 1,000
------------ -------------- ------------- -------------
Net interest income (expense) $ (29,000) $ 133,000 $ 69,000 $ 173,000
============ ============== ============= =============
Depreciation and amortization $ 538,000 $ - $ - $ 538,000
============ ============== ============= =============
Segment income (loss) before taxes $ 1,036,000 $ 258,000 $ (384,000) $ 910,000
Income tax expense (benefit) 443,000 98,000 (146,000) 395,000
------------ -------------- ------------- -------------
Net income (loss) $ 593,000 $ 160,000 $ (238,000) $ 515,000
============ ============== ============= =============
Expenditures for capital assets $ 1,088,000 $ - $ - $ 1,088,000
============ ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended November 30, 1998
---------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
---------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 10,634,000 $ 7,435,000 $ 4,057,000 $ 22,126,000
Intersegment revenues (1,223,000) (264,000) - (1,487,000)
------------ -------------- ------------- -------------
Total consolidated revenues $ 9,411,000 $ 7,171,000 $ 4,057,000 $ 20,639,000
============ ============== ============= =============
Interest income $ 37,000 $ 118,000 $ 86,000 $ 241,000
Intersegment interest income - (8,000) - (8,000)
Interest expense (98,000) - - (98,000)
Intersegment interest expense 8,000 - - 8,000
------------ -------------- ------------- -------------
Net interest income(expense) $ (53,000) $ 110,000 $ 86,000 $ 143,000
============ ============== ============= =============
Depreciation and amortization $ 575,000 $ - $ - $ 575,000
============ ============== ============= =============
Segment income (loss) before taxes $ 507,000 $ 336,000 $ (100,000) $ 743,000
Income tax expense (benefit) 198,000 123,000 (70,000) 251,000
------------ -------------- ------------- -------------
Net income (loss) $ 309,000 $ 213,000 $ (30,000) $ 492,000
============ ============== ============= =============
Expenditures for capital assets $ 360,000 $ - $ - $ 360,000
============ ============== ============= =============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended November 30, 1999
--------------------------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
-------- --------------- --------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 25,447,000 $ 16,632,000 $ 9,658,000 $ 51,737,000
Intersegment revenues (2,842,000) (712,000) - (3,554,000)
------------ -------------- ------------- -------------
Total consolidated revenues $ 22,605,000 $ 15,920,000 $ 9,658,000 $ 48,183,000
============ ============== ============= =============
Interest income $ 128,000 $ 264,000 $ 133,000 $ 525,000
Intersegment interest income - (4,000) - (4,000)
Interest expense (197,000) - - (197,000)
Intersegment interest expense 4,000 - - 4,000
------------ -------------- ------------- -------------
Net interest income (expense) $ (65,000) $ 260,000 $ 133,000 $ 328,000
============ ============== ============= =============
Depreciation and amortization $ 1,074,000 $ - $ - $ 1,074,000
============ ============== ============= =============
Segment income (loss) before taxes $ 1,235,000 $ 620,000 $ (566,000) $ 1,289,000
Income tax expense (benefit) 539,000 236,000 (215,000) 560,000
------------ -------------- ------------- -------------
Net income $ 696,000 $ 384,000 $ (351,000) $ 729,000
============ ============== ============= =============
Expenditures for capital assets $ 1,855,000 $ - $ - $ 1,855,000
============ ============== ============= =============
Segment total assets $ 25,856,000 $ 13,447,000 $ 6,879,000 $ 46,182,000
Intersegment assets (8,487,000) (400,000) (560,000) (9,447,000)
------------ -------------- ------------- -------------
Total assets $ 17,369,000 $ 13,047,000 $ 6,319,000 $ 36,735,000
============ ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended November 30, 1998
---------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
--------- ---------------- ---------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 20,489,000 $ 14,315,000 $ 7,988,000 $ 42,792,000
Intersegment revenues (2,376,000) (533,000) - (2,909,000)
------------- -------------- ------------- -------------
Total consolidated revenues $ 18,113,000 $ 13,782,000 $ 7,988,000 $ 39,883,000
============= ============== ============= =============
Interest income $ 86,000 $ 239,000 $ 179,000 $ 504,000
Intersegment interest income - (18,000) - (18,000)
Interest expense (198,000) - - (198,000)
Intersegment interest expense 18,000 - - 18,000
------------- -------------- ------------- -------------
Net interest income (expense) $ (94,000) $ 221,000 $ 179,000 $ 306,000
============= ============== ============= =============
Depreciation and amortization $ 1,135,000 $ - $ - $ 1,135,000
============= ============== ============= =============
Segment income (loss) before taxes $ 606,000 $ 887,000 $ (30,000) $ 1,463,000
Income tax expense (benefit) 255,000 337,000 (43,000) 549,000
------------- -------------- ------------- -------------
Net income (loss) $ 351,000 $ 550,000 $ 13,000 $ 914,000
============= ============== ============= =============
Expenditures for capital assets $ 625,000 $ - $ - $ 625,000
============= ============== ============= =============
Segment total assets $ 22,761,000 $ 10,963,000 $ 7,500,000 $ 41,224,000
Intersegment assets (7,725,000) (511,000) (54,000) (8,290,000)
------------- -------------- ------------- -------------
Total assets $ 15,036,000 $ 10,452,000 $ 7,446,000 $ 32,934,000
============= ============== ============= =============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is involved in a variety of health care programs, many of which
serve indigent and Medicaid populations. Two subsidiaries of the Company,
Ventana Health Systems, Inc. ("Ventana") and Arizona Health Concepts, Inc.
("AHC"), derive substantially all of their revenues through contracts with the
Arizona Health Care Cost Containment System Administration ("AHCCCSA") to
provide specified long-term and acute care health services, respectively, to
qualified members. The contract periods expire September 30, 2001 and
September 30, 2002 for Ventana and AHC, respectively. Each contract provides
for fixed monthly premiums, based on negotiated per capita enrollee rates.
Ventana and AHC subcontract with nursing homes, hospitals, physicians, and
other medical providers within Arizona to care for members.
The Company also provides contract management services to county and state
governmental units and other health care organizations. The Company's contracts
typically have multi-year terms, with its existing contracts expiring at various
dates through the year 2002.
RESULTS OF OPERATIONS
Consolidated revenues for the three and six-month periods ended
November 30, 1999 increased 19% and 21%, respectively, over the comparable
periods of the previous fiscal year. For the three and six-month periods ended
November 30, 1999, direct costs of operations increased 19% and 22%,
respectively, over the same periods of the previous fiscal year. The increase
in both revenues and expenses is a result of growth in enrollment under certain
management contracts, coupled with an increase in membership, and capitation
rate received from AHCCCSA, for both Ventana and AHC.
MANAGEMENT SERVICES. For the three-month period ended November 30, 1999,
revenues generated from fees for management services increased 22% to
$11,493,000 from $9,411,000 for the equivalent period of the prior fiscal year.
For the six-month period ended November 30, 1999, revenues generated from fees
for management services increased 25% to $22,605,000 from $18,113,000 for the
corresponding period of the prior fiscal year. The increases are primarily due
to growth in enrollment in the Community Choice Michigan and Rio Grande HMO
plans, the acquisition of AdviNet, Inc. in March 1999 and the renegotiated
administrative service agreement with AlohaCare.
10
<PAGE>
Direct costs of operations for the three and six-month periods ended
November 30, 1999 included $6,870,000 and $13,678,000, respectively, related
to fees generated from management services of health plans and programs. The
direct cost of operations for management services as a percentage of related
revenues for the three and six-month periods ended November 30, 1999 decreased
3% and 1%, respectively, from the comparable periods of the previous year to 60%
and 61%, due in part to increased profitability from the Company's renegotiated
agreement with AlohaCare, which was effective August 1, 1999 and expires
July 31, 2000.
LONG-TERM CARE HEALTH SERVICES. Long-term care health and personal services,
which consist of operations of Ventana and Lifemark at Home, Inc., generated
revenues of $8,187,000 and $15,920,000 for the three and six-month periods ended
November 30, 1999, respectively, as compared to $7,171,000 and $13,782,000 for
the corresponding periods of the prior fiscal year. The revenues from long-term
care health services experienced 14% and 16% growth for the three and six-month
periods ended November 30, 1999, respectively, over the comparable periods of
the previous fiscal year. The increases are primarily due to the growth in
average monthly membership in Ventana of approximately 8% and 11% for the three
and six-month periods ended November 30, 1999, coupled with an increase of
approximately 4% in the capitation rate received from AHCCCSA by Ventana.
Direct costs of operations related to long-term care health services for the
three and six-month periods ended November 30, 1999 were $7,042,000 and
$13,581,000, respectively, versus $6,066,000 and $11,455,000 for the same
periods of last fiscal year. As a percentage of related revenues, direct cost of
operations related to long-term care health services increased to 86% and 85%
for the three and six-month periods ended November 30, 1999, respectively,
versus 85% and 83% for the same periods of the previous year. The increases are
primarily due to higher pharmacy costs for Ventana resulting from a terminated
capitation contract with a pharmaceutical company, an increase in hospital and
adult care home expenses resulting from the change in patient mix and an
increase of approximately 2% in contracted nursing home rates. The Company is
unable to determine if future patient mixes would significantly differ from the
current patient mix to yield lower or higher operating costs.
Ventana was awarded contracts covering two additional rural Arizona counties,
effective December 1, 1999. These additional counties will add approximately 550
members to Ventana's current enrollment and approximately $15,000,000 in
additional revenues.
ACUTE CARE HEALTH SERVICES. Acute care health services, which consists of the
operations of AHC, generated revenues of $4,894,000 and $9,658,000 for the three
and six-month periods ended November 30, 1999, respectively, representing a 21%
increase over the comparable periods of the prior fiscal year. The change was
caused by an increase in average monthly membership of 13% and 12% for the three
and six-month periods ended November 30, 1999, respectively, along with an
average increase of approximately 6% in the capitation rate received by AHC from
AHCCCSA.
Direct costs of operations related to acute care health services for the three
and six-month periods ended November 30, 1999 were $4,852,000 and $9,355,000,
respectively, versus $3,815,000 and $7,398,000 for the same periods of the
previous fiscal year. The reason for the increase is the growth in average
monthly membership for AHC from 8,400 to 9,400 for the six months ended November
30, 1998 and 1999, respectively. Direct costs of operations as a percentage of
related revenues increased to 99% and 97% for the three and six-month periods
ended November 30, 1999 versus 94% and 93% for the comparable periods of the
prior fiscal year. The principal reason for the rise is higher utilization
of AHC's services by its members coupled with an increase in rates paid to
providers. The Company is unable to determine if future utilization of
healthcare services would differ from the current utilization levels to yield
lower or higher operating costs.
MARKETING, SALES AND ADMINISTRATIVE. Marketing, sales and administrative
expenses as a percentage of consolidated revenue were 21% and 22%, respectively,
for the three and six-month periods ended November 30, 1999 versus 20% and 22%,
respectively, for the corresponding periods of the previous year. Marketing,
sales and administrative expenses for the three and six-month periods ended
November 30, 1999 include the obligation to make severance payments pursuant to
the terms of an employment agreement with Michael D. Hernandez, the Company's
former Chief Executive Officer. In addition, marketing, sales and administrative
expenses include consulting fees related to management reorganization and
process redesign intended to improve the Company's service delivery system. The
Company does not anticipate significant consulting fees related to this
initiative in the future.
INTEREST INCOME. Interest income for the three and six-month periods ended
November 30, 1999 was $266,000 and $521,000 versus $233,000 and $486,000 for the
same periods of the prior fiscal year. The additional income is due to growth of
interest bearing cash and cash equivalents.
11
<PAGE>
INTEREST EXPENSE. Interest expense was $93,000 and $193,000 for the three and
the six-month periods ended November 30, 1999, respectively, as compared to
$90,000 and $180,000 for the same periods of the last fiscal year. Interest
expense is primarily attributable to outstanding secured convertible term loans
in an aggregate principal amount of $3,300,000 issued by the Company in October
1996, along with an interim funding agreement obtained from a bank during the
fourth quarter of fiscal year 1999. The Company has borrowed $796,000 under this
funding agreement as of November 30, 1999.
INCOME TAXES. Income tax expense was $395,000 and $560,000 for the
three-month and six-month periods ended November 30, 1999, respectively. The
effective tax rate for both periods was 43%. These rates were higher than the
statutory rates for the respective periods primarily due to the amortization of
non-deductible goodwill expenses. During the three-month and six-month periods
ended November 30, 1998, the effective tax rates were 34% and 38%, respectively.
These rates were a result of the reduction in the deferred tax valuation
allowance based on the Company's assessment of the reliability of deferred tax
assets partially offset by amortization of non-deductible goodwill expense.
NET INCOME. Net income for the three and six-month periods ended
November 30, 1999 was $515,000 and $729,000 as compared to $492,000 and
$914,000 for the comparable periods of the previous fiscal year. The reason for
the decrease in profitability for the six-month period ended November 30, 1999
is primarily due to the increase in direct expenses as a percentage of related
revenue of the long-term care and acute care health service segments.
This decrease is partially offset by enhanced profitability in the management
services segment with the growth in enrollment in the Community Choice Michigan
and Rio Grande HMO plans and additional profitability resulting from the
renegotiated administrative service agreement with AlohaCare.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $13,884,000 at
November 30, 1999 from $13,792,000 at May 31, 1999. Operating activities
generated $3,486,000 for the six-month period ended November 30, 1999 versus
$742,000 during the same period of the previous fiscal year. The primary reasons
for the change in cash are earnings before non-cash charges, a refundable
deposit of $650,000 obtained from AlohaCare pursuant to the terms of the
renegotiated administrative services agreement, a decrease in accounts
receivable related to Ventana and AHC resulting from collection of
reinsurance receivables of approximately $1,263,000 and an increase in accrued
medical claims. The increase in accrued medical claims is primarily due to
annual increases in fee-for-service rates paid to providers along with an
increase in enrollment in both Ventana and AHC.
Investing activities used $3,286,000 for the six-month period ended
November 30, 1999 as compared to $856,000 during the corresponding period of the
prior fiscal year. Cash of $1,855,000 was used to purchase fixed assets during
the six-month period ended November 30, 1999. Additional cash of
$3,631,000 was used to increase the amount of performance bonds held by Ventana
partially offset by the maturity of a previously held performance bond in the
amount of $1,233,000. The increase in performance bonds was necessary to
satisfy requirements established by AHCCCSA. The required level of performance
bonds has increased due to the expansion of Ventana into two additional counties
in Arizona along with an increase in enrollment in existing counties. Other
sources of cash for the six-month period ended November 30, 1999 were the
maturity of a short-term investment held by Ventana of $501,000 and funds
received from the sale of fixed assets to AlohaCare for $285,000 pursuant to
the terms of the renegotiated administrative services agreement. During the
six-month period ended November 30, 1998, cash was used to purchase $625,000 of
fixed assets and $1,645,000 was used to purchase additional short-term
investments.
Financing activities used $108,000 and generated $13,000 for the six-month
periods ended November 30, 1999 and 1998, respectively. The primary use of cash
for the current period was an interest payment of $784,000 relating to
outstanding convertible debt offset by $567,000 received pursuant to an interim
funding agreement and $114,000 received for common stock pursuant to the
Company's employee stock purchase plan. Issuance of common stock provided
$197,000 for the six-month period ended November 30, 1998, partially offset by
principal payments on long-term debt.
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with net worth, reserve and deposit requirements. To
the extent the operating subsidiaries must comply with these regulations, they
may not have the financial flexibility to transfer funds to Lifemark. Net assets
of subsidiaries (after inter-company eliminations) which, at November 30, 1999,
may not be transferred to Lifemark by subsidiaries in the form of loans,
advances or cash dividends without the consent of a third party are referred to
as "Restricted Net Assets". Total Restricted Net Assets of these operating
subsidiaries was $10,208,000 at November 30, 1999, with deposit and reserve
requirements (performance bonds) representing $6,601,000 of the Restricted Net
Assets and net worth requirements, in excess of deposit and reserve
requirements, representing the remaining $3,607,000. There were no funds
provided by Ventana to Lifemark under loan agreements at November 30, 1999.
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The Company believes that its existing capital resources and cash flow generated
from future operations will enable it to maintain its current level of
operations and its planned operations, including capital expenditures, in fiscal
year 2000.
YEAR 2000 ISSUES
Many existing computer systems did not recognize or process dates after
December 31, 1999. Certain hardware and software, including that utilized by the
Company, had to be modified and/or reprogrammed to properly function in the year
2000 and beyond. The Company's year 2000 committee assessed all internal-use
hardware, software, non-information systems equipment, procedures and business
processes. An inventory of the Company's hardware and software was obtained.
There were several computer systems that did not properly recognize the year
2000. Therefore, the Company replaced several older critical systems and
modified remaining systems prior to December 31, 1999.
The Company has spent approximately $137,000 to date preparing and analyzing
year 2000 issues. The Company systems were unaffected by the change from the
year 1999 to the year 2000 with some minor exceptions which have been addressed.
The Company does not anticipate significant problems or material expenditures in
the future related to the year 2000 issue.
The Company realizes that there are outside influences relative to its year 2000
efforts, over which it has little or no control. The Company continues to
communicate with state agencies to assess their year 2000 issues. As of the
date of this report the Company has not been affected by any year 2000 problems
of other parties, but such problems could arise in the future. The Company will
attempt to minimize the impact of other parties' failure to resolve year 2000
problems.
FORWARD-LOOKING INFORMATION
This report contains both historical and forward-looking information.
Forward-looking statements include, but are not limited to, discussion of the
Company's strategic goals, new contracts, possible expansion of existing plans,
expected increase in certain expenses, and cash flow. These statements speak of
the Company's plans, goals or expectations and refer to estimates. The
forward-looking statements may be significantly impacted by risks and
uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). There can
be no assurance that anticipated future results will be achieved because actual
results may differ materially from those projected in the forward-looking
statements. Readers are cautioned that a number of factors, which are described
herein and in the Company's Form 10-K for the year ended May 31, 1999, could
adversely affect the Company's ability to obtain these results. These include
the effects of either federal or state health care reform or other legislation;
changes in reimbursement system trends, the ability of care providers (including
physician practice management groups) to comply with current contract terms; and
renewal of the Company's contracts with various state and other governmental
entities. Such factors also include the effects of other general business
conditions, including but not limited to, government regulation, competition and
general economic conditions. The cautionary statements made pursuant to the
Reform Act herein and elsewhere by the Company should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Reform Act. The Company cannot always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements. In addition, readers are urged to
consider statements that include the terms "believes", "belief", "expects",
"plans", "objectives", "anticipates", "intends" or the like to be uncertain and
forward-looking.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the ordinary
course of business on certain assets and liabilities including cash and cash
equivalents, short-term investments and long-term debt. The Company does not
expect changes in interest rates to have a significant effect on the Company's
operations, cash flow or financial position.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Conformed Bylaws
10.1 Administrative Services Agreement between AlohaCare, Inc.
and the registrant*
10.2 Pledge Agreement and Promissory Note between Rhonda Brede
and the registrant.
10.3 Pledge Agreement and Promissory Note between Michael
Kennedy and the registrant.
10.4 Pledge Agreement and Promissory Note between Rick Jelinek
and the registrant.
10.5 Pledge Agreement and Promissory Note between Dave Decker and
the registrant.
10.6 Employment and Severance Agreement between Rhonda Brede and
the registrant.
10.7 Employment Agreement between Rick Jelinek and the
registrant.
10.8 Employment Agreement between Dave Decker and the registrant.
10.9 Employment Agreement between Michael Kennedy and the
registrant.
10.10 Severance Agreement between Rick Jelinek and the registrant.
10.11 Severance Agreement between Dave Decker and the registrant.
10.12 Severance Agreement between Michael Kennedy and the
registrant.
27 Financial data schedule.
(b) Reports on Form 8-K
None
*Confidential Treatment Requested
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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 the
undersigned thereunto duly authorized.
LIFEMARK CORPORATION
By: /S/ RHONDA E. BREDE
----------------------------------------------
Rhonda E. Brede, President and Chief Executive
Officer (Principal Executive Officer)
By: /S/ MICHAEL J. KENNEDY
----------------------------------------------
Michael J. Kennedy, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Dated:January 13, 2000
15
EXHIBIT 3.1
LIFEMARK CORPORATION
CONFORMED BYLAWS
(as amended through July 21, 1999)
ARTICLE I
CORPORATE OFFICES
SECTION 1. DELAWARE REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be in the City of Dover,
County of Kent.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and outside the state of Delaware, as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. TIME AND PLACE. A meeting of stockholders for any purpose may
be held at such time and place, within or outside the state of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders, commencing
with the 1985, shall be held on the second Monday of September if not a legal
holiday, or if a legal holiday, then on the following business day, at 10 a.m.
local time, or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at which
the stockholders shall elect a board of directors and transact such other
business as may properly come before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by law or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the whole
board of directors, or at the request in writing of stockholders owning a
majority of the capital stock of the Corporation outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
SECTION 4. NOTICE. Written notice of a meeting, annual or special, stating
the place, date and hour of the meeting, and the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting, not less than ten nor more than sixty days, or if a vote of
stockholders on a merger or consolidation is one of the stated purposes of the
meeting, not less than twenty nor more than sixty days, before the date of the
meeting.
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SECTION 5. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare or cause to be prepared and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 6. QUORUM. The holders of a majority of the stock outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business, except as otherwise required by law or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at a
meeting of stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 7. REQUIRED VOTE. Each election of directors or others shall be
determined by a plurality vote, and, except as otherwise required by law or by
the certificate of incorporation, each other matter shall be determined by the
affirmative vote of a majority of the shares present in person or represented by
proxy.
SECTION 8. VOTING. Unless otherwise required by law or by the certificate
of incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
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SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action that may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing setting forth the
action so taken shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors that shall constitute
the whole board shall be six. Directors shall be elected at annual meetings of
stockholders, except as provided in section 2 of this article, and each director
shall hold office until a successor is elected and qualified or until that
director's earlier resignation or removal. Directors need not be stockholders.
SECTION 2. VACANCIES. Except as otherwise required by law or by the
certificate of incorporation, any vacancy on the board of directors, including a
newly-created directorship, may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Notwithstanding the foregoing, if any of the directors of the Corporation in
office (i) immediately following the distribution to stockholders of the
Corporation on a share-for-share basis of all of the outstanding shares of
Medicus Systems Software, Inc. (the "Distribution"), and (ii) prior to the
mergers of wholly-owned subsidiaries of the Corporation into Managed Care
Solutions, Inc., Ventana Health Systems, Inc. and Arizona Health Concepts, Inc.
(the "Mergers"), shall cease for any reason to serve as a director of the
Corporation at any time prior to the next annual meeting of stockholders of the
Corporation following the effective date of the Mergers, then the resulting
vacancy shall be filled by a majority of the directors referred to in this
sentence then serving as directors. If there are no directors in office, then an
election of directors may be held in the manner provided by law.
SECTION 3. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the board of directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
SECTION 4. PLACE OF MEETINGS. The board of directors of the Corporation
may hold meetings, both regular and special, either within or outside the
state of Delaware.
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SECTION 5. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately following and at
the same place as the annual meeting of stockholders. In the event such meeting
is not held at the time and place specified in the preceding sentence, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the board or as shall be
specified in written waivers signed by all of the directors. Other regular
meetings of the board may be held without notice at such time and at such place
as shall from time to time be determined by the board.
SECTION 6. SPECIAL MEETINGS. Special meetings of the board of directors
may be held by the president and shall be called by the president or secretary
on the written request of two directors, on two days' notice to each director,
either personally or by mail or by telegram.
SECTION 7. QUORUM. At any meeting of the board of directors a majority of
the whole board of directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
otherwise required by law or by the certificate of incorporation. If there is
not a quorum at a meeting of the board, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 8. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at a meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the board or committee.
SECTION 9. PARTICIPATION WITH COMMUNICATIONS EQUIPMENT. Unless otherwise
restricted by law or by the certificate of incorporation or these bylaws,
members of the board of directors, or of any committee designated by the board
of directors, may participate in a meeting of the board of directors, or of any
committee, by conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other.
SECTION 10. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
4
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Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all of the powers and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require the seal; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the bylaws of the Corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
SECTION 11. MINUTES OF MEETINGS. Each committee shall keep regular minutes
of its meetings and shall furnish them to the board of directors when required.
SECTION 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
certificate of incorporation, the board of directors shall have the authority to
fix the compensation of directors. The receipt of such compensation shall not
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings. The directors may
be reimbursed for any expenses of attending meetings of the board of directors
and of committees of the board.
ARTICLE IV
NOTICES
SECTION 1. METHOD OF GIVING NOTICE. Whenever, under any provision of the
statutes or of the certificate of incorporation or of these bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at that person's address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time the same is deposited in the
United States mail. Notice to directors may also be given by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given under
any provision of law or of the certificate of incorporation or of these bylaws,
a written waiver of such notice, signed by the person or persons entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice. Attendance of a person at a meeting shall constitute
a waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be elected by
the board of directors and shall be a chairman, a president, a vice-president, a
secretary and a treasurer. In addition, the board of directors may elect
additional vice-presidents, and one or more assistant secretaries, assistant
treasurers and other subordinate officers. Any number of offices may be held by
the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
SECTION 2. ANNUAL ELECTION. The board of directors at its first meeting
after each annual meeting of stockholders shall elect a president, one or more
vice-presidents, a secretary and a treasurer. If the election of officers shall
not be held at such meeting, such election shall be held as soon thereafter as
conveniently may be.
SECTION 3. ADDITIONAL OFFICERS. The board of directors may appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board.
SECTION 4. COMPENSATION OF OFFICERS. The compensation of all officers
and agents of the Corporation shall be fixed by or under the directio
of the board of directors.
SECTION 5. TERM OF OFFICE AND VACANCY. Each officer shall hold office
until a successor is chosen and qualifies or until the officer's earlier
resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time by the board of directors. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors.
SECTION 6. CHAIRMAN. The Chairman(a) shall be the chief executive officer
of the corporation, (b) shall preside at all meetings of the stockholders and
the board of directors, (c) shall have general and active management of the
business and affairs of the corporation, (d) shall see that all orders and
resolutions of the board of directors are carried into effect and (e) shall have
the power to execute bonds, mortgages and other contracts, agreements and
instruments, except where required or permitted by law to be otherwise signed
and executed or where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
corporation.
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SECTION 7. PRESIDENT. The President (a) shall be the chief operating
officer of the corporation, (b) shall report to the Chairman of the corporation,
(c) shall have general and active management of the business and affairs of the
Corporation, (d) shall see that all orders of the Chairman and resolutions of
the board of directors are carried into effect and (e) shall have the power to
execute bonds, mortgages and other contracts, agreements and instruments, except
where required or permitted by law to be otherwise signed and executed or where
the signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the Corporation. In the absence of
the Chairman, the President shall perform the duties of the Chairman and when so
acting shall have all the powers of and be subject to all the restrictions upon
the Chairman. The President shall perform such other duties and have such other
powers as the board of directors or the Chairman may from time to time
prescribe.
SECTION 8. VICE-PRESIDENTS. In the absence of the president or in the
event of the disability of the president, the vice-president (or if there be
more than one, the vice-presidents in the order designated, or in the absence of
any designation, then in the order of their most recent election) shall perform
the duties of the president and when so acting shall have all the powers of and
be subject to all the restrictions upon the president. The vice-president shall
perform such other duties and have such other powers as the board of directors
or the president may from time to time prescribe.
SECTION 9. GENERAL COUNSEL. The General Counsel shall serve the
Corporation in the capacity of general counsel and general legal adviser and
shall perform such other duties and have such other powers as the board of
directors or the chairman may from time to time prescribe.
SECTION 10. SECRETARY. The secretary shall (a) attend all meetings of the
board of directors and all meetings of the stockholders and record all of the
proceedings of the meetings of the board of directors and of the stockholders in
a book to be kept for that purpose and perform like duties for the standing
committees when required, (b) give, or cause to be given, notice of all special
meetings of the board of directors and all meetings of the stockholders and (c)
shall perform such other duties as may be prescribed by the board of directors
or the president, under whose supervision he shall be. The secretary shall have
custody of the corporate seal of the Corporation and the secretary, or an
assistant secretary, shall have authority to affix it to any instrument
requiring the seal, and when so affixed, the seal may be attested by the
signature of such officer. The board of directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by signature.
SECTION 11. ASSISTANT SECRETARIES. The assistant secretary (or if there be
more than one, the assistant secretaries in the order determined by the board of
directors, or if there be no such determination, then in the order of their most
recent election or appointment) shall, in the absence of the secretary or in the
event of the disability of the secretary, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors or the president may from time to time
prescribe.
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SECTION 12. TREASURER. The treasurer shall (a) have custody of the
corporate funds and securities, (b) keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation, (c) deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors, (d) disburse
the funds of the Corporation as may be ordered by the board of directors, taking
proper vouchers for such disbursements, (e) render to the president and the
board of directors, at its regular meetings, or when the board of directors so
requests, an account of all the transactions of the treasurer and of the
financial condition of the Corporation, (f) if requested by the board of
directors, give the Corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satisfactory to the
board of directors for the faithful performance of the duties of office and for
the restoration to the Corporation, in case of the death, resignation,
retirement or removal from office of the treasurer, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation, and (g) perform such other duties and
have such other powers as the board of directors or the president may from time
to time prescribe.
SECTION 13. ASSISTANT TREASURERS. The assistant treasurer (or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, or if there be no such determination, then in the order of
their most recent election or appointment) shall, in the absence of the
treasurer or in the event of the disability of the treasurer, perform the duties
and exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors or the president may from time
to time prescribe.
SECTION 14. VICE CHAIRMAN. The vice chairman, in the absence of the
chairman, shall preside at all meetings of stockholders and directors, and shall
have the general powers and duties of supervision of the management of the
business and affairs of the Corporation and its officers and agents.
ARTICLE VI
STOCK CERTIFICATES
SECTION 1. RIGHT OF HOLDER TO CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the chairman, the president or a vice-president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the Corporation, certifying the number of shares owned by the holder in the
Corporation.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on the
certificate may be facsimile. In the event any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, the certificate may be issued by
the Corporation with the same effect as if he were such officer at the date of
issue.
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SECTION 3. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issuance of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or the legal representation of the owner, to advertise the same in
such manner as it shall require or to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation in connection with the certificate alleged to have been lost, stolen
or destroyed, or both.
SECTION 4. REGISTRATION OF TRANSFERS. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, the Corporation or its transfer agent shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its stock records.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
SECTION 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered in its stock records as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise required
by law.
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ARTICLE VII
OTHER PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of capital
stock, subject to the provisions of the certificate of incorporation and
requirements of law.
SECTION 2. SIGNATURES ON CHECKS AND NOTES. All checks or demands for money
and notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall end on the last day of May.
SECTION 4. SEAL. The corporate seal shall be inscribed with the name of
the Corporation and the words "Corporate Seal" and "Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS. Each person
who is or was a director or officer of the Corporation or a subsidiary of the
Corporation and each person who serves or served at the request of the
Corporation as a director of officer (or equivalent) of another Corporation,
partnership, joint venture, trust or other enterprise (and the heirs, executors,
administrators and estates of any such persons), shall be indemnified by the
Corporation in accordance with, and to the fullest extent authorized by, the
provisions of the General Corporation Law of the State of Delaware as it may
from time to time be amended, except as to any action, suit or proceeding
brought by or on behalf of the director or officer of the Corporation without
prior approval of the board of directors. Each person who is or was an employee
or agent of this Corporation, and each person who serves or has served as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, may be similarly indemnified at the discretion of the board of
directors. The indemnification provided by this Section 5 shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of 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. The Corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation, as a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this bylaw or the Delaware General Corporation Law.
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ARTICLE VIII
AMENDMENTS
These bylaws may be altered, amended or repealed and new bylaws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new bylaws was contained in
the notice of such special meeting.
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Exhibit 10.1
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN ALOHACARE, INC. AND
LIFEMARK CORPORATION
This Agreement (the "Agreement") is entered into this 7th day of October,
1999 by AlohaCare, Inc. ("AlohaCare"), a Hawaii nonprofit corporation, and
Lifemark Corporation ("Lifemark"), a Delaware corporation.
RECITALS
A. Lifemark has provided administrative services to AlohaCare since 1994
pursuant to an Administrative Services Agreement dated January 1, 1994, as
amended (the "First ASA", for the purpose of AlohaCare operating as a health
care plan in the State of Hawaii's QUEST program; and,
B. The parties wish to enter into a new administrative services agreement.
Now therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
1.0 TERM AND TERMINATION.
1.1 This Agreement shall be effective as of August 1, 1999 and shall
terminate on July 31, 2000, unless earlier terminated pursuant to provisions set
forth below.
1.2 This Agreement may be terminated at any time upon the written mutual
consent of both parties.
1.3 Either party may terminate this Agreement for a material breach which
has not been cured within 30 days from the date on which one party receives
written notice of a material breach by the other party; provided however, if the
material breach involves failure to pay Administrative Fees when due, the Cure
Period shall be 10 days, except if AlohaCare withholds payment during the cure
period when Lifemark has failed in a material way to provide certain
administrative services, AlohaCare may withhold only a portion of the
Administrative Fee proportionate to the amount of services alleged not to have
been delivered. Upon completion of cure, AlohaCare shall pay the amount withheld
within 5 days.
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1.4 This Agreement shall be terminated in the event the existing contract
or any amendments between DHS and AlohaCare are terminated for any reason or
AlohaCare's participation in the Program is otherwise terminated, in which case
termination shall be effective as of the termination date of AlohaCare's
participation in the Program.
1.5 This Agreement shall be terminated immediately upon the filing of a
bankruptcy petition by either party or upon the failure of either party to
obtain any license, registration or approval required under state or federal law
that is material to the operation of AlohaCare.
1.6 Upon termination of this Agreement, Lifemark shall have the same duty
to cooperate as set forth in Section IV(C)(2) of the First ASA and to transition
those administrative services for which it has retained responsibility (as
further described in Section 6.0, below). Such duty to cooperate shall include,
but not be limited to, transferring all AlohaCare financial records related to
the administrative services provided pursuant to this Agreement and the First
ASA, transmitting all AlohaCare data in a readable format, and preparing and
transmitting of HEDIS and QUEST required reports due during the reporting
periods prior to the termination date and the quarterly QUEST reports related to
the June 30, 2000 period end, which are due August 15, 2000. All other reports
shall be the responsibility of AlohaCare. In addition to the foregoing,
following the termination date, Lifemark will provide up to 50 hours of
consulting on the following projects:
1.6.1 The RFA dispute with QUEST
1.6.2 The University Health Care Associates contract issues
1.6.3. The litigation involving Vision Service Plan
1.6.4 The dispute involving Dr. Yuen
1.6.5 The WCCHC claims reconciliation
1.6.6 The University OB/GYN claims reconciliation
2.0 SERVICES. Lifemark shall provide to AlohaCare all administrative services
described in the First ASA (a copy of which is attached hereto as Attachment A;
all terms used in this Agreement shall be defined as set forth in the First ASA
unless otherwise defined herein) (the "Full Services") as of August 1, 1999
until the earlier of (a) July 31, 2000 or (b) the Transfer Date (as defined in
Paragraph 4 hereof) in the same fashion and to the same extent as set forth in
the First ASA. The Full Services do not include consulting services in
connection with AlohaCare's self management, preparation of a response to a
Request For Proposal from the State of Hawaii, or any other matter not described
in the First ASA. The time period referenced in the preceding sentence shall be
known as the "Full Service Period." The period beginning the day after the
Transfer Date and ending July 31, 2000, shall be known as the "Partial Service
Period," during which Partial Services (as defined in Paragraph 6.0 hereof)
shall be provided by Lifemark to AlohaCare. In addition, if the Aged, Blind and
Disabled population is added to AlohaCare's membership pursuant to AlohaCare's
QUEST contract during the Full Service Period, then Lifemark will provide the
same administrative services for these new members as it does for AlohaCare's
existing members at the time that such new members are added.
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3.0 PAYMENT FOR FULL SERVICES. During the Full Service Period, AlohaCare shall
pay to Lifemark a fee for the Full Services (the "Full Service Fee") in an
amount equal to [x]* of the capitation paid to AlohaCare by the State of Hawaii
each month. AlohaCare agrees to pay to Lifemark [x]* of (i) payments, if any,
denominated as Risk Factor Adjustment ("RFA") payments; (ii) payment to
AlohaCare of amounts attributable to RFA withheld from monthly capitation during
the Full Service Period(but not during periods before or after the Full Service
Period); and (iii) payments to AlohaCare resulting from a recalculation of RFA
pertaining to the Full Service Period, within 5 days of receipt of such payments
from the State of Hawaii for months during the Full Service Period, regardless
of when such monies are finally paid. In the event that the State of Hawaii
requires AlohaCare to repay monies based upon (i) a reconciliation of
AlohaCare's enrollment during the term of this Agreement; or(ii) a recalculation
of the RFA pertaining to the Full Service Period (but not to periods before or
after the Full Service Period then Lifemark shall remit within 5 days receipt of
notice from AlohaCare(which shall include a full explanation of the basis of the
adjustment and the documentation from the State of Hawaii pertaining to the
adjustment) [x]* of such amount due the State of Hawaii regardless of when such
adverse adjustment is made. Upon request of Lifemark, AlohaCare shall respond to
Lifemark's request for an accounting of all capitation and RFA payments received
from the State of Hawaii or for other pertinent documents from the State of
Hawaii. Payment of the Full Service Fee shall be made before the 10th day of
each month during the Full Service Period.
4.0 PARTIAL PREPAYMENT OF THE FULL SERVICE FEE. Immediately upon execution of
the Agreement and as an absolute condition to Lifemark performing any obligation
hereunder, AlohaCare shall pay Lifemark [$x]* (the "Advanced Payment") by wire
transfer as a partial prepayment of the Full Service Fee. Lifemark shall repay
to AlohaCare the Advanced Payment, plus annual compounded interest of [x]*, less
[x]* which represents the parties' reasonable estimate of what Lifemark's share
of the RFA would be,
*CONFIDENTIAL TREATMENT REQUESTED
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in full within 5 days of the termination date of this Agreement except for sums,
if any, previously and properly deducted by Lifemark. Lifemark shall pay
AlohaCare the difference between the holdback amount and the actual payment of
its RFA share within 5 days of payment of its RFA share. If Lifemark's share of
the RFA exceeds the holdback amount, AlohaCare shall pay to Lifemark within 5
days of payment of the RFA the difference between the holdback amount and [x]*
of the RFA.
5.0 EVENTS OCCURRING ON THE TRANSFER DATE OR UPON TERMINATION.
5.1 DEFINITION OF "TRANSFER DATE". The "Transfer Date" is the termination
date or the day that AlohaCare takes all of the following actions: (i) hires the
Lifemark employees described in Paragraph 5.2 hereof; (ii) purchases the assets
described in Paragraph 5.3 hereof; and (iii) assumes the leases, contracts and
obligations described in Paragraph 5.4 hereof. The Transfer Date shall occur
only on the first day of the month except in the event that this Agreement is
terminated pursuant to Paragraph 1.0, above, in which event the Transfer Date
shall be the same day as the day on which the Agreement is terminated pursuant
to Paragraph 1.0, above. AlohaCare agrees to take the foregoing actions only on
a single day and shall not endeavor to accomplish less than all of such actions
on days other than a single Transfer Date.
5.2 TRANSFER OF EMPLOYEES. On the earlier of the Transfer Date or on the
date this Agreement is terminated pursuant to Paragraph 1.0 hereof, Lifemark
will terminate the employment of each of its employees in Hawaii (except on the
Transfer Date, Lifemark will not terminate its Technical Support Coordinator and
AlohaCare agrees to hire such employee on the termination date, subject to
satisfactory performance as determined by AlohaCare in its sole discretion) and
AlohaCare will hire such employees as it chooses as of such date; provided
however that AlohaCare will give Lifemark 15 business days notice of its intent
not to hire a current Lifemark employee. AlohaCare hereby indemnifies Lifemark
against all liability arising out of or related to claims made by an employee
arising after the Transfer Date or the termination date, as the case may be, in
connection with his or her employment by AlohaCare. Lifemark hereby indemnifies
AlohaCare against all liability arising out of or related to claims made by an
employee arising before the Transfer Date or the termination date, as the case
may be, in connection with his or her employment by Lifemark. AlohaCare and
Lifemark shall cooperate with each other with respect to the transfer of the
employees and neither shall take any action with respect to such transfer
without the other's prior consent.
*CONFIDENTIAL TREATMENT REQUESTED.
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5.3 PURCHASE OF LIFEMARK ASSETS. On the earlier of the Transfer Date or the date
this Agreement is terminated pursuant to Paragraph 1.0 hereof, AlohaCare shall,
at Net Book Value, purchase, except for the assets described below, every asset
used by Lifemark in AlohaCare's offices or operations as of such date, including
but not limited to all office equipment and supplies, computer hardware,
telephone systems, furniture, fixtures, leasehold improvements, and all prepaid
items listed in Attachment B, at the value set forth on Lifemark's most current
balance sheet as of November 1, 1999 (the contemplated Transfer Date) or such
other Transfer Date or the date this Agreement is terminated. AlohaCare
acknowledges that it is purchasing these assets "as is" and without warranty of
any kind from Lifemark as to the condition, life expectancy or utility of such
assets; provided however, that all computers are warranted to properly recognize
and process dates after December 31, 1999. Any computer sold to AlohaCare that
does not properly recognized and process dates after December 31, 1999 will be
deemed to have no net book value. AlohaCare may not purchase the Sun Sparc 1000
server and the accompanying tape drive, which Lifemark will remove from
AlohaCare's offices after July 31, 2000.
5.4 ASSUMPTION OF LIFEMARK LEASES, CONTRACTS AND HAWAII BASED OPERATIONAL
EXPENSES. On the earlier of the Transfer Date or the date this Agreement is
terminated pursuant to Paragraph 1.0 hereof, AlohaCare shall assume all real
property, personal property and equipment leases as set forth on Attachment C
hereto and hereby indemnifies Lifemark against all liability arising out of any
such agreements after the Transfer Date related to an event which occurs after
the Transfer Date.
6.0 POST-TRANSFER DATE SERVICES. During the period following the Transfer Date
until July 31, 2000 (the "Partial Service Period"), Lifemark shall provide
administrative services to AlohaCare (the "Partial Services") in the same
fashion pursuant to the First ASA including, but not limited to,:
6.1 PLAN FINANCE SERVICES. Plan Finance Services include third party
recovery services, reinsurance filings, monthly, quarterly and annual financial
reporting, regulatory reporting to Department of Health Services and the
Department of Insurance, risk pool reporting, claim lag reports, medical
payables functions, including capitation and claims payment (but not claims
processing), cash management and maintenance of bank and investment accounts.
Plan Finance Services during the Partial Service Period do not include
non-medical related accounts payable, payroll services, human resources services
and employee benefits services
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6.2 INFORMATION SYSTEM SERVICES. Lifemark shall provide information
systems services, including support and maintenance services, to AlohaCare
through the software system Managed Care One in the same fashion and to the same
extent as during the term of the First ASA. Lifemark agrees to make all
necessary alterations or upgrades to Managed Care One to allow AlohaCare (i) to
provide covered services to service (to the same extent and in the same fashion
as if such members were added during the term of the First ASA) aged, blind or
disabled members that are added to AlohaCare's membership during the term of
this Agreement and (ii) to comply with its QUEST contract; provided, however,
that, in the event that substantial changes are required to Managed Care One's
systems reporting capability, Lifemark shall discuss with QUEST officials
alternative means of providing the same information.
6.3 CREDENTIALING. Lifemark shall provide credentialing services to
AlohaCare in the same fashion and to the same extent as during the term of the
First ASA provided, however, that Lifemark shall assist AlohaCare in complying
with the corrective action plan set forth in the letter from QUEST officials
listing deficiencies in AlohaCare's credentialing procedures in place as of July
1, 1999.
6.4 SPECIAL PROJECTS. Lifemark shall continue to provide all
administrative services necessary in order to complete certains pecial projects,
which commenced prior to the expiration of the First ASA, prior to the
termination of this Agreement on July 31, 2000. Such special projects are listed
in Attachment D. Notwithstanding the foregoing, if such special project(s) can
not be completed prior to July 31, 2000, then Lifemark shall continue to provide
administrative services to complete projects pursuant to Section 1.6, above.
6.5 EXCLUSIONS FROM PARTIAL SERVICES. The following services, all of which
are included in Full Services, are excluded from Partial Services: claims
processing and auditing functions performed in Hawaii on the effective date of
this Agreement, complaint or grievance coordination, utilization review, quality
management, medical management, member services, provider services and
contracting (except the financial analysis necessary for such activities), human
resources, benefits administration, insurance administration services,
consulting services relating to the transition to self management, preparation
of a response to a Request for Proposal issued by the State of Hawaii, all
accounting functions, including administrative accounts payable and payroll
services. Administrative services not enumerated in this Section 6.5 shall be
provided by Lifemark if such services had previously been provided routinely
under the First ASA.
6. SOFTWARE LICENSES. After the Transfer Date until July 31, 2000,
Lifemark will allow AlohaCare to use the licenses presently in place in personal
computers that were in the AlohaCare office as of July 31, 1999. AlohaCare
agrees that after July 31, 2000 it will have purchased all necessary licenses
from all applicable software vendors and will not rely on Lifemark's licenses.
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7.0 PAYMENT FOR PARTIAL SERVICES. During each month of the Partial Service
Period, AlohaCare shall pay Lifemark an amount equal to the Full Service Fee
less the amount agreed to by the parties as further described in Attachment E.
The Partial Service Fee shall be paid before the 10th day of each month during
the Partial Service Period. AlohaCare agrees to pay to Lifemark [x]* of(i)
payments, if any, denominated as Risk Factor Adjustment ("RFA") payments; (ii)
payment to AlohaCare of amounts withheld from monthly capitation attributable to
RFA during the Partial Service Period (but not during periods before the Full
Service Period); and (iii) payments to AlohaCare resulting from a recalculation
of RFA pertaining to the Partial Service Period of all previously unpaid RFA,
within 5 days of receipt of such monies from the State of Hawaii for months
during the Partial Service Period, regardless of when payment is actually made.
In addition, during the Partial Service Period, Lifemark shall remit payment to
AlohaCare for monies owed to the State of Hawaii as described in Paragraph 3.0,
above.
8.0 FAILURE TO PAY FEES. If AlohaCare fails to pay any amount due hereunder
(except as permitted in Paragraph 1.3, hereof)within 10 days of notification of
such failure, Lifemark may terminate this Agreement, immediately cease providing
any services to AlohaCare and without further notice terminate all electronic
connection with AlohaCare.
9.0 CONSULTING SERVICES. AlohaCare shall pay Lifemark an hourly fee for
administrative, technological or consulting services beyond the scope of the
services provided pursuant to Paragraphs 1.6 and 2.0 above. The hourly
consulting fees for various Lifemark personnel are set forth on Attachment F
hereto. To obtain consulting services, AlohaCare must submit to an authorized
officer of Lifemark a written request describing the services requested.
Lifemark will bill AlohaCare on a monthly basis for tasks completed during that
month and AlohaCare agrees to pay such invoices within 30 days of receipt.
Lifemark will cease providing all consulting services immediately upon a
consulting invoice not being paid.
10.0 MUTUAL RELEASE.
10.1 ALOHACARE RELEASE OF LIFEMARK. AlohaCare releases Lifemark, and
its officers, directors, employees, agents and attorneys, and holds each of
them harmless from all liability whatsoever arising out of losses, claims,
litigation, amounts
*CONFIDENTIAL TREATMENT REQUESTED.
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paid in settlement, judgments or other liabilities, including expenses,
costs and attorneys' fees (regardless of whether they are incurred in
investigation, settlement or litigation), relating to (i) claims made by
the State of Hawaii requiring AlohaCare to return monies to the State or
pay fines or penalties for any reason, including an alleged miscalculation
of the RFA; or (ii) alleged overpayments to, or other losses incurred in
connection with the contract with, University Health Care Associates.
Notwithstanding the foregoing, during the term of this Agreement, Lifemark
shall assist AlohaCare in the ongoing negotiations with QUEST officials
regarding the calculation of RFA during the first two QUEST contract
periods as well as assist in any litigation pertaining to RFA without
additional compensation.
10.2 LIFEMARK RELEASE OF ALOHACARE. Lifemark releases AlohaCare and its
officers, directors, employees, agents and attorneys, and holds each of
them harmless from all liability whatsoever arising out of losses,
claims, litigation, amounts paid in settlement, judgments or other
liabilities, including expenses, costs and attorneys' fees (regardless of
whether they are incurred in investigation, settlement or litigation),
relating to any matter arising prior to July 31, 1999; provided however,
nothing in Lifemark's release of AlohaCare shall be construed to relieve
AlohaCare from the obligation to pay all amounts due under this Agreement.
11.0 PAYMENT FOR PREPARATION OF RFP RESPONSE. Immediately upon execution of this
Agreement, as an absolute condition to Lifemark performing any of its
obligations hereunder, AlohaCare shall pay to Lifemark [x]* by wire transfer as
payment in full for Lifemark's preparation, on AlohaCare's behalf, the response
to the State of Hawaii's Request For Proposal during 1998-9.
12.0 MISCELLANEOUS.
12.1 CONFIDENTIALITY. AlohaCare and Lifemark agree to incorporate herein
by reference the terms and conditions regarding confidentiality as set forth in
Section V(B) of the First ASA.
12.2 RELATIONSHIP OF THE PARTIES. In the performance of the work, duties
and obligations of the parties pursuant to this Agreement, the parties shall at
all times, be acting and performing as independent contractors. No relationship
of employer and employee, or partners or joint ventures is created by this
Agreement, and neither party may therefore make any claim against the other
party for social security benefits, workers' compensation benefits, unemployment
insurance benefits, vacation pay, sick leave or any other employee benefit of
any kind. In
*CONFIDENTIAL TREATMENT REQUESTED.
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addition, neither party shall have any power or authority to act for or on
behalf of, or to bind the other except as herein expressly granted, and no other
or greater power or authority shall be implied by the grant or denial of power
or authority specifically mentioned herein.
12.3 ASSIGNMENT/SUBCONTRACTING. Neither party shall have the right to
assign, delegate or subcontract any of its rights or obligations hereunder
without the prior written consent of the other party; provided however, that
AlohaCare shall have the right to delegate and/or to subcontract with respect to
those administrative service responsibilities which it assumes on the Transfer
Date.
12.4 NOTICES. Except as set forth herein, all notices required or
permitted to be given hereunder, shall be in writing and shall be sent by United
States mail, certified or registered, return receipt requested, postage prepaid,
to the parties hereto at their respective addresses set forth on the signature
page hereto, or such other address as may be fixed in accordance with the
provisions hereof. Except as set forth herein, if mailed in accordance with the
provisions of this paragraph, such notice shall be deemed to be received three
(3) business days after mailing.
12.5 HEADINGS. The headings of the various sections of this Agreement are
inserted merely for the purpose of convenience and do not expressly or by
implication limit, define or extend the specific terms of the section so
designated.
12.6 WAIVER OF BREACH. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, nor be construed to be
a waiver of any subsequent breach thereof.
12.7 APPLICABLE LAW. This Agreement shall be governed in all respects
by the laws of the State of Hawaii.
12.8 INVALID PROVISIONS. If, for any reason, any provision of this
Agreement is or shall be hereafter determined by law, act, decision, or
regulation of a duly constituted body or authority, to be in any respect
invalid, such determination shall not nullify any of the other terms and
provisions of this Agreement and, unless otherwise agreed to in writing by the
parties, then, in order to prevent the invalidity of such provision or
provisions of this Agreement, the said provision or provisions shall be deemed
automatically amended in such respect as may be necessary to conform this entire
Agreement with such applicable law, act, decision, rule or regulation.
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12.9 NO THIRD-PARTY BENEFICIARY. This Agreement is entered into by and
between AlohaCare and Lifemark and for their benefit. There is no intent by
either party to create or establish third-party beneficiary status or rights or
their equivalent in any Member, subcontractor, or other third party, and no such
third party shall have any right to enforce any right or enjoy any benefit
created or established under this Agreement. Notwithstanding the foregoing,
Lifemark assents to, and waives all claims, whether against AlohaCare or any
other party, arising from or related to: (i) the hiring of its Executive
Director, John McComas by AlohaCare; (ii) Mr. McComas' advice and assistance to
AlohaCare in negotiation of this Agreement; and, (iii) the release of Mr.
McComas from his fiduciary obligations to Lifemark, which impede his ability to
act on behalf of AlohaCare.
12.10 ARBITRATION. In the event that any dispute relating to this
Agreement including, but not limited to, any dispute arising from or related to
Lifemark's provision of administrative services arises between Lifemark and
AlohaCare, the dispute shall be resolved by binding arbitration in accordance
with the Rules of Commercial Arbitration of the American Arbitration
Association. In no event may the arbitration be initiated more than one year
after the date one party first gave written notice of the dispute to the other
party. The arbitration shall be held in Honolulu, Hawaii or in such other
location as the parties may mutually agree upon. The arbitrator shall have no
power to award punitive or exemplary damages or vary the terms of this Agreement
and shall be bound by controlling law.
12.11 REVIEW AND AUDIT. Lifemark will at all times make available for
review and audit by either AlohaCare or its designee its files, books,
procedures and records (including computer terminal access to same) pertaining
to AlohaCare or the services provided by Lifemark under this Agreement. In
addition, Lifemark shall make available for interview with the auditor those
personnel with material involvement or responsibility with respect to the
services provided by Lifemark under this Agreement.
12.12 ENTIRE AGREEMENT; AMENDMENT. This Agreement and all exhibits hereto
shall constitute the entire agreement relating to the subject matter hereof
between the parties hereto, and supersedes all other agreements, written or
oral, relating to the subject matter hereof except as to those referenced
herein. This Agreement may be amended by mutual agreement of the parties,
provided that such amendment is reduced to writing and signed by both parties.
12.13 EXHIBITS. Any exhibits attached to this Agreement are an integral
part of this Agreement and are incorporated herein by reference.
10
<PAGE>
12.14 REPRESENTATION ON BOARD OF DIRECTORS. On the effective date of this
Agreement, the current Director who is employed by Lifemark shall resign. At the
next regularly scheduled meeting of the Board of Directors, the Board shall take
all action necessary for the appointment of a Lifemark representative as an ex
officio (nonvoting) member of the Board of Directors. Lifemark shall choose the
individual to be appointed. Upon termination of this Agreement with or without
cause, such Lifemark Director shall resign within five (5) business days of the
giving or receipt of notice of such termination.
IN WITNESS WHEREOF, the undersigned parties, through their officers who have the
authority to execute this Agreement, have executed this Agreement intending to
be bound thereby.
AlohaCare, Inc.
1357 Kapiolani Boulevard
Suite 1250
Honolulu, Hawaii 96814
By: /s/ KAWAHINE KAMAKEA-OHELO
--------------------------
Its: President
--------------------------
Lifemark Corporation
7600 North Sixteenth Street
Suite 150
Phoenix, Arizona 85020
By: /s/ RHONDA BREDE
---------------------------
Its: President
---------------------------
11
Exhibit 10.2
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into this
14th day of October, 1999 by and between Rhonda Brede ("Pledgor") and Lifemark
Corporation, a Delaware corporation ("Secured Party").
1. PLEDGE. Pledgor hereby grants to Secured Party a security
interest in the following described corporate stock:
90,000 shares of common stock, $0.01 par value, of Lifemark
Corporation.
currently represented by Certificate No. 6433 together with stock powers
duly endorsed in blank (with signature guaranteed by a qualified member in a
Medallion Guarantee Program approved by the Securities Transfer Association,
Inc.) and herewith delivered to Secured Party, and all proceeds, products and
increases thereof and substitutions and replacements therefor (collectively
referred to herein as the "Pledged Shares"). Secured Party shall hold the
Pledged Shares as security for payment of the Note (as defined below) and shall
not encumber or dispose of the Pledged Shares except in accordance with Sections
6 or 8 of this Agreement.
2. SECURED INDEBTEDNESS. This Agreement shall secure all indebtedness now
or hereafter incurred by Pledgor under the provisions of that certain Promissory
Note (the "Note") of even date herewith made by Pledgor to Secured Party in the
original principal amount of two hundred sixty four thousand three hundred
thirty ($264,330), bearing interest at the rate per annum equal to 6.02%, with
accrued interest being due and payable on December 31, 1999 and each December 31
thereafter, and with all principal and accrued interest being due and payable on
October 14, 2008, and any and all other indebtedness of the Pledgor to the
Secured Party incurred in connection with the acquisition of common stock of the
Secured Party and the payment of any related withholding tax.
3. VOTING RIGHTS. During the term of this Agreement, and so long as
Pledgor is not in default in the performance of any of the terms of this
Agreement or in the payment of the principal or interest of the Note, Pledgor
shall have the right to vote the Pledged Shares on all corporate questions, and
Secured Party shall, upon request, execute due and timely proxies in favor of
Pledgor to this end.
4. REPRESENTATIONS. Pledgor represents and warrants that there are no
restrictions upon the transfer of any of the Pledged Shares, other than may
appear on the face of the Certificate referred to in Section 1, and other than
as may be imposed under Rule 144 under the Securities Act of 1933, and that the
Pledgor has the right to transfer such shares free and clear of all liens and
encumbrances, except the lien of this Agreement, and the Pledgor is delivering
herewith copies of Form 144 duly executed in blank.
1
<PAGE>
5. ADJUSTMENTS. In the event that, during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of Lifemark Corporation, all new, substituted and
additional shares, or other securities, issued by reason of any such change
shall be held by Secured Party under the terms of this Agreement in the same
manner as the shares originally pledged hereunder.
6. PAYMENT OF THE NOTE. Upon payment of all outstanding principal and
accrued interest of the Note, less amounts theretofore received and applied by
Secured Party in reduction thereof, Secured Party shall transfer to Pledgor all
the Pledged Shares and all rights received by Secured Party as a result of this
pledge.
7. EVENTS OF DEFAULT. Occurrence of any of the following events (each such
event referred to herein as an "Event of Default") shall, at the option of
Secured Party, constitute a default hereunder:
(a) Failure of Pledgor to pay when due any indebtedness secured by this
Agreement, either principal or interest, if such failure shall continue uncured
for a period of five days; provided, however, it shall not be an event of
default if Pledgor fails to pay, interest due on the Note if Secured Party fails
to pay Pledgor the bonus provided for in the second paragraph of the letter
agreement dated October 14, 1999 between Pledgor and Secured Party;
(b) Default by Pledgor under any agreements to which Pledgor and Secured
Party are, or may hereafter become, parties which secure indebtedness of Pledgor
to Secured Party; or
(c) Any other event of default under the Note; or
(d) Any breach by Pledgor of (i) any duty to, or (ii) any employment,
severance, non-disclosure or other material agreement between the Pledgor and,
the Secured Party.
8. DEFAULT. Upon the occurrence of an Event of Default, Secured Party
shall have the rights and remedies provided in the Uniform Commercial Code in
force in the State of Arizona at the date of this Agreement and in this
connection, Secured Party may, upon five days' written notice to Pledgor, sent
by registered mail, and without liability for any diminution in price which may
have occurred, sell all the Pledged Shares in such manner and for such price as
Secured Party may determine, so long as any such sale is conducted in a
commercially reasonable manner to obtain a fair and reasonable sale price for
the Pledged Shares. At any bona fide public sale Secured Party shall be free to
purchase all or any part of the Pledged Shares. Out of the proceeds of any sale
Secured Party may retain an amount equal to the principal and interest then due
on the Note, plus the amount of the reasonable expenses of the sale, and shall
pay any balance of such proceeds to Pledgor. In the event that the proceeds of
any sale are insufficient to cover the principal and interest of the Note plus
expenses of the sale, Pledgor shall remain liable to Secured Party for any
deficiency.
2
<PAGE>
9. NOTICES. Any notice, request, information or other document to be given
hereunder to either of the parties shall be in writing and delivered personally
or sent by Federal Express, Overnight Delivery, or United States General Post
Office Express Mail Next Day Service, to the addresses listed below:
PLEDGOR: SECURED PARTY:
Rhonda Brede Lifemark Corporation
19870 N. 68th Drive 7600 North 16th Street
Glendale, AZ 85305 Suite 150
Phoenix, Arizona 85020
IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.
PLEDGOR:
By: /s/ RHONDA BREDE
----------------------------
SECURED PARTY:
LIFEMARK CORPORATION
By: /s/ MICHAEL KENNEDY
----------------------------
3
<PAGE>
Exhibit 10.2
PROMISSORY NOTE
$264,330 October 14, 1999
-------
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of
Lifemark Corporation, a Delaware corporation (the "Company"), the principal sum
of $264,330 with interest (computed on the basis of the actual number of days
elapsed over a 365-day year) on the unpaid balance thereof at the rate of 6 and
02/100 percent (6.02%) per annum, from the date hereof until the principal
amount of this Note is paid in full, with accrued interest on all outstanding
principal due on December 31 of each year commencing with December 31, 1999, and
with all outstanding principal, plus all accrued but unpaid interest, being due
and payable on October 14, 2008.
Payments of principal and interest on this Note shall be payable at the
offices of the Company, 7600 North 16th Street, Phoenix, Arizona 85020, or such
other place as the holder of this Note may from time to time designate in
writing.
This Note has been issued in connection with the purchase of 90,000 shares
of common stock, $0.01 par value per share, of the Company (the "Shares"),
pursuant to the exercise of an option granted to the undersigned under a stock
option agreement dated October 14, 1999. The full amount of all previously
unpaid principal, together with all interest accrued thereon, shall become due
and payable: (i) 180 days following termination of employment of the undersigned
by the Company without cause or because of disability; (ii) 60 days after any
termination by the undersigned of the employment of the undersigned with the
Company (or; or (iii) immediately upon any such termination which is for just
cause (as defined below) or upon any breach by the undersigned of (i) any duty
to the Company, or (ii) any employment, severance, non-disclosure or other
material agreement between the undersigned and the Company) the Standard Key
Employee Non-Disclosure Agreement. For purposes of this Note, termination "for
just cause" shall mean termination on account of gross negligence, dishonesty,
or any willful material violation of any reasonable rule or regulation of the
Company of which the undersigned has been advised in writing.
The undersigned shall have the right to prepay this Note, in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or protest
of dishonor of this Note.
This Note is fully negotiable and transferable by the Company.
This Note is secured by the 90,000 Shares, which shall be held by the
Company under a pledge agreement of even date herewith executed by the
undersigned and such other security as may be pledged by the Payee and held by
the Company from time to time. This Note shall be governed by and construed in
accordance with the laws of the State of Arizona.
/s/ RHONDA BREDE
----------------------------
1
Exhibit 10.3
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into this
14th day of October, 1999 by and between Michael Kennedy ("Pledgor") and
Lifemark Corporation, a Delaware corporation ("Secured Party").
1. PLEDGE. Pledgor hereby grants to Secured Party a security
interest in the following described corporate stock:
60,000 shares of common stock, $0.01 par value, of Lifemark
Corporation.
currently represented by Certificate Nos. 6430 together with stock powers
duly endorsed in blank (with signature guaranteed by a qualified member in a
Medallion Guarantee Program approved by the Securities Transfer Association,
Inc.) and herewith delivered to Secured Party, and all proceeds, products and
increases thereof and substitutions and replacements therefor (collectively
referred to herein as the "Pledged Shares"). Secured Party shall hold the
Pledged Shares as security for payment of the Note (as defined below) and shall
not encumber or dispose of the Pledged Shares except in accordance with Sections
6 or 8 of this Agreement.
2. SECURED INDEBTEDNESS. This Agreement shall secure all indebtedness now
or hereafter incurred by Pledgor under the provisions of that certain Promissory
Note (the "Note") of even date herewith made by Pledgor to Secured Party in the
original principal amount of one hundred seventy six thousand two hundred twenty
($176,220), bearing interest at the rate per annum equal to 6.02%, with accrued
interest being due and payable on December 31, 1999 and each December 31
thereafter, and with all principal and accrued interest being due and payable on
October 14, 2008, and any and all other indebtedness of the Pledgor to the
Secured Party incurred in connection with the acquisition of common stock of the
Secured Party and the payment of any related withholding tax.
3. VOTING RIGHTS. During the term of this Agreement, and so long as
Pledgor is not in default in the performance of any of the terms of this
Agreement or in the payment of the principal or interest of the Note, Pledgor
shall have the right to vote the Pledged Shares on all corporate questions, and
Secured Party shall, upon request, execute due and timely proxies in favor of
Pledgor to this end.
4. REPRESENTATIONS. Pledgor represents and warrants that there are no
restrictions upon the transfer of any of the Pledged Shares, other than may
appear on the face of the Certificate referred to in Section 1, and other than
as may be imposed under Rule 144 under the Securities Act of 1933, and that the
Pledgor has the right to transfer such shares free and clear of all liens and
encumbrances, except the lien of this Agreement, and the Pledgor is delivering
herewith copies of Form 144 duly executed in blank.
1
<PAGE>
5. ADJUSTMENTS. In the event that, during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of Lifemark Corporation, all new, substituted and
additional shares, or other securities, issued by reason of any such change
shall be held by Secured Party under the terms of this Agreement in the same
manner as the shares originally pledged hereunder.
6. PAYMENT OF THE NOTE. Upon payment of all outstanding principal and
accrued interest of the Note, less amounts theretofore received and applied by
Secured Party in reduction thereof, Secured Party shall transfer to Pledgor all
the Pledged Shares and all rights received by Secured Party as a result of this
pledge.
7. EVENTS OF DEFAULT. Occurrence of any of the following events (each such
event referred to herein as an "Event of Default") shall, at the option of
Secured Party, constitute a default hereunder:
(a) Failure of Pledgor to pay when due any indebtedness secured by this
Agreement, either principal or interest, if such failure shall continue uncured
for a period of five days; provided, however, it shall not be an event of
default if Pledgor fails to pay, interest due on the Note if Secured Party fails
to pay Pledgor the bonus provided for in the second paragraph of the letter
agreement dated October 14, 1999 between Pledgor and Secured Party;
(b) Default by Pledgor under any agreements to which Pledgor and Secured
Party are, or may hereafter become, parties which secure indebtedness of Pledgor
to Secured Party; or
(c) Any other event of default under the Note; or
(d) Any breach by Pledgor of (i) any duty to, or (ii) any employment,
severance, non-disclosure or other material agreement between the Pledgor and,
the Secured Party.
8. DEFAULT. Upon the occurrence of an Event of Default, Secured Party
shall have the rights and remedies provided in the Uniform Commercial Code in
force in the State of Arizona at the date of this Agreement and in this
connection, Secured Party may, upon five days' written notice to Pledgor, sent
by registered mail, and without liability for any diminution in price which may
have occurred, sell all the Pledged Shares in such manner and for such price as
Secured Party may determine, so long as any such sale is conducted in a
commercially reasonable manner to obtain a fair and reasonable sale price for
the Pledged Shares. At any bona fide public sale Secured Party shall be free to
purchase all or any part of the Pledged Shares. Out of the proceeds of any sale
Secured Party may retain an amount equal to the principal and interest then due
on the Note, plus the amount of the reasonable expenses of the sale, and shall
pay any balance of such proceeds to Pledgor. In the event that the proceeds of
any sale are insufficient to cover the principal and interest of the Note plus
expenses of the sale, Pledgor shall remain liable to Secured Party for any
deficiency.
2
<PAGE>
9. NOTICES. Any notice, request, information or other document to be given
hereunder to either of the parties shall be in writing and delivered personally
or sent by Federal Express, Overnight Delivery, or United States General Post
Office Express Mail Next Day Service, to the addresses listed below:
PLEDGOR: SECURED PARTY:
Michael Kennedy Lifemark Corporation
5226 E. Anderson Dr. 7600 North 16th Street
Scottsdale, AZ 85254 Suite 150
Phoenix, Arizona 85020
IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.
PLEDGOR:
By: /s/ MICHAEL KENNEDY
---------------------------
SECURED PARTY:
LIFEMARK CORPORATION
By: /s/ RHONDA BREDE
---------------------------
3
<PAGE>
Exhibit 10.3
PROMISSORY NOTE
$176,220 October 14, 1999
-------
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of
Lifemark Corporation, a Delaware corporation (the "Company"), the principal sum
of $176,220 with interest (computed on the basis of the actual number of days
elapsed over a 365-day year) on the unpaid balance thereof at the rate of 6 and
02/100 percent (6.02%) per annum, from the date hereof until the principal
amount of this Note is paid in full, with accrued interest on all outstanding
principal due on December 31 of each year commencing with December 31, 1999, and
with all outstanding principal, plus all accrued but unpaid interest, being due
and payable on October 14, 2008.
Payments of principal and interest on this Note shall be payable at the
offices of the Company, 7600 North 16th Street, Phoenix, Arizona 85020, or such
other place as the holder of this Note may from time to time designate in
writing.
This Note has been issued in connection with the purchase of 60,000 shares
of common stock, $0.01 par value per share, of the Company (the "Shares"),
pursuant to the exercise of an option granted to the undersigned under a stock
option agreement dated October 14, 1999. The full amount of all previously
unpaid principal, together with all interest accrued thereon, shall become due
and payable: (i) 180 days following termination of employment of the undersigned
by the Company without cause or because of disability; (ii) 60 days after any
termination by the undersigned of the employment of the undersigned with the
Company (or; or (iii) immediately upon any such termination which is for just
cause (as defined below) or upon any breach by the undersigned of (i) any duty
to the Company, or (ii) any employment, severance, non-disclosure or other
material agreement between the undersigned and the Company) the Standard Key
Employee Non-Disclosure Agreement. For purposes of this Note, termination "for
just cause" shall mean termination on account of gross negligence, dishonesty,
or any willful material violation of any reasonable rule or regulation of the
Company of which the undersigned has been advised in writing.
The undersigned shall have the right to prepay this Note, in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or protest
of dishonor of this Note.
This Note is fully negotiable and transferable by the Company.
This Note is secured by the 60,000 Shares, which shall be held by the
Company under a pledge agreement of even date herewith executed by the
undersigned and such other security as may be pledged by the Payee and held by
the Company from time to time. This Note shall be governed by and construed in
accordance with the laws of the State of Arizona.
/s/ MICHAEL KENNEDY
------------------------------
1
Exhibit 10.4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into this
14th day of October, 1999 by and between Rick Jelinek ("Pledgor") and Lifemark
Corporation, a Delaware corporation ("Secured Party").
1. PLEDGE. Pledgor hereby grants to Secured Party a security
interest in the following described corporate stock:
60,000 shares of common stock, $0.01 par value, of Lifemark
Corporation.
currently represented by Certificate Nos. 6431 together with stock powers
duly endorsed in blank (with signature guaranteed by a qualified member in a
Medallion Guarantee Program approved by the Securities Transfer Association,
Inc.) and herewith delivered to Secured Party, and all proceeds, products and
increases thereof and substitutions and replacements therefor (collectively
referred to herein as the "Pledged Shares"). Secured Party shall hold the
Pledged Shares as security for payment of the Note (as defined below) and shall
not encumber or dispose of the Pledged Shares except in accordance with Sections
6 or 8 of this Agreement.
2. SECURED INDEBTEDNESS. This Agreement shall secure all indebtedness now
or hereafter incurred by Pledgor under the provisions of that certain Promissory
Note (the "Note") of even date herewith made by Pledgor to Secured Party in the
original principal amount of one hundred seventy six thousand two hundred twenty
($176,220), bearing interest at the rate per annum equal to 6.02%, with accrued
interest being due and payable on December 31, 1999 and each December 31
thereafter, and with all principal and accrued interest being due and payable on
October 14, 2008, and any and all other indebtedness of the Pledgor to the
Secured Party incurred in connection with the acquisition of common stock of the
Secured Party and the payment of any related withholding tax.
3. VOTING RIGHTS. During the term of this Agreement, and so long as
Pledgor is not in default in the performance of any of the terms of this
Agreement or in the payment of the principal or interest of the Note, Pledgor
shall have the right to vote the Pledged Shares on all corporate questions, and
Secured Party shall, upon request, execute due and timely proxies in favor of
Pledgor to this end.
4. REPRESENTATIONS. Pledgor represents and warrants that there are no
restrictions upon the transfer of any of the Pledged Shares, other than may
appear on the face of the Certificate referred to in Section 1, and other than
as may be imposed under Rule 144 under the Securities Act of 1933, and that the
Pledgor has the right to transfer such shares free and clear of all liens and
encumbrances, except the lien of this Agreement, and the Pledgor is delivering
herewith copies of Form 144 duly executed in blank.
1
<PAGE>
5. ADJUSTMENTS. In the event that, during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of Lifemark Corporation, all new, substituted and
additional shares, or other securities, issued by reason of any such change
shall be held by Secured Party under the terms of this Agreement in the same
manner as the shares originally pledged hereunder.
6. PAYMENT OF THE NOTE. Upon payment of all outstanding principal and
accrued interest of the Note, less amounts theretofore received and applied by
Secured Party in reduction thereof, Secured Party shall transfer to Pledgor all
the Pledged Shares and all rights received by Secured Party as a result of this
pledge.
7. EVENTS OF DEFAULT. Occurrence of any of the following events (each such
event referred to herein as an "Event of Default") shall, at the option of
Secured Party, constitute a default hereunder:
(a) Failure of Pledgor to pay when due any indebtedness secured by this
Agreement, either principal or interest, if such failure shall continue uncured
for a period of five days; provided, however, it shall not be an event of
default if Pledgor fails to pay, interest due on the Note if Secured Party fails
to pay Pledgor the bonus provided for in the second paragraph of the letter
agreement dated October 14, 1999 between Pledgor and Secured Party;
(b) Default by Pledgor under any agreements to which Pledgor and Secured
Party are, or may hereafter become, parties which secure indebtedness of Pledgor
to Secured Party; or
(c) Any other event of default under the Note; or
(d) Any breach by Pledgor of (i) any duty to, or (ii) any employment,
severance, non-disclosure or other material agreement between the Pledgor and,
the Secured Party.
8. DEFAULT. Upon the occurrence of an Event of Default, Secured Party
shall have the rights and remedies provided in the Uniform Commercial Code in
force in the State of Arizona at the date of this Agreement and in this
connection, Secured Party may, upon five days' written notice to Pledgor, sent
by registered mail, and without liability for any diminution in price which may
have occurred, sell all the Pledged Shares in such manner and for such price as
Secured Party may determine, so long as any such sale is conducted in a
commercially reasonable manner to obtain a fair and reasonable sale price for
the Pledged Shares. At any bona fide public sale Secured Party shall be free to
purchase all or any part of the Pledged Shares. Out of the proceeds of any sale
Secured Party may retain an amount equal to the principal and interest then due
on the Note, plus the amount of the reasonable expenses of the sale, and shall
pay any balance of such proceeds to Pledgor. In the event that the proceeds of
any sale are insufficient to cover the principal and interest of the Note plus
expenses of the sale, Pledgor shall remain liable to Secured Party for any
deficiency.
2
<PAGE>
9. NOTICES. Any notice, request, information or other document to be given
hereunder to either of the parties shall be in writing and delivered personally
or sent by Federal Express, Overnight Delivery, or United States General Post
Office Express Mail Next Day Service, to the addresses listed below:
PLEDGOR: SECURED PARTY:
Rick Jelinek Lifemark Corporation
8120 N. Dreamy Dr. 7600 North 16th Street
Phoenix, AZ 85020 Suite 150
Phoenix, Arizona 85020
IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.
PLEDGOR:
By: /s/ RICK JELINEK
-----------------------------
SECURED PARTY:
LIFEMARK CORPORATION
By: /s/ RHONDA BREDE
-----------------------------
3
<PAGE>
Exhibit 10.4
PROMISSORY NOTE
$176,220 October 14, 1999
-------
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of
Lifemark Corporation, a Delaware corporation (the "Company"), the principal sum
of $176,220 with interest (computed on the basis of the actual number of days
elapsed over a 365-day year) on the unpaid balance thereof at the rate of 6 and
02/100 percent (6.02%) per annum, from the date hereof until the principal
amount of this Note is paid in full, with accrued interest on all outstanding
principal due on December 31 of each year commencing with December 31, 1999, and
with all outstanding principal, plus all accrued but unpaid interest, being due
and payable on October 14, 2008.
Payments of principal and interest on this Note shall be payable at the
offices of the Company, 7600 North 16th Street, Phoenix, Arizona 85020, or such
other place as the holder of this Note may from time to time designate in
writing.
This Note has been issued in connection with the purchase of 60,000 shares
of common stock, $0.01 par value per share, of the Company (the "Shares"),
pursuant to the exercise of an option granted to the undersigned under a stock
option agreement dated October 14, 1999. The full amount of all previously
unpaid principal, together with all interest accrued thereon, shall become due
and payable: (i) 180 days following termination of employment of the undersigned
by the Company without cause or because of disability; (ii) 60 days after any
termination by the undersigned of the employment of the undersigned with the
Company (or; or (iii) immediately upon any such termination which is for just
cause (as defined below) or upon any breach by the undersigned of (i) any duty
to the Company, or (ii) any employment, severance, non-disclosure or other
material agreement between the undersigned and the Company) the Standard Key
Employee Non-Disclosure Agreement. For purposes of this Note, termination "for
just cause" shall mean termination on account of gross negligence, dishonesty,
or any willful material violation of any reasonable rule or regulation of the
Company of which the undersigned has been advised in writing.
The undersigned shall have the right to prepay this Note, in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or protest
of dishonor of this Note.
This Note is fully negotiable and transferable by the Company.
This Note is secured by the 60,000 Shares, which shall be held by the
Company under a pledge agreement of even date herewith executed by the
undersigned and such other security as may be pledged by the Payee and held by
the Company from time to time. This Note shall be governed by and construed in
accordance with the laws of the State of Arizona.
/s/ RICK JELINEK
--------------------------
1
Exhibit 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into this
14th day of October, 1999 by and between Dave Decker ("Pledgor") and Lifemark
Corporation, a Delaware corporation ("Secured Party").
1. PLEDGE. Pledgor hereby grants to Secured Party a security
interest in the following described corporate stock:
25,000 shares of common stock, $0.01 par value, of Lifemark
Corporation.
currently represented by Certificate Nos. 6432 together with stock powers
duly endorsed in blank (with signature guaranteed by a qualified member in a
Medallion Guarantee Program approved by the Securities Transfer Association,
Inc.) and herewith delivered to Secured Party, and all proceeds, products and
increases thereof and substitutions and replacements therefor (collectively
referred to herein as the "Pledged Shares"). Secured Party shall hold the
Pledged Shares as security for payment of the Note (as defined below) and shall
not encumber or dispose of the Pledged Shares except in accordance with Sections
6 or 8 of this Agreement.
2. SECURED INDEBTEDNESS. This Agreement shall secure all indebtedness now
or hereafter incurred by Pledgor under the provisions of that certain Promissory
Note (the "Note") of even date herewith made by Pledgor to Secured Party in the
original principal amount of seventy three thousand four hundred twenty five
($73,425), bearing interest at the rate per annum equal to 6.02%, with accrued
interest being due and payable on December 31, 1999 and each December 31
thereafter, and with all principal and accrued interest being due and payable on
October 14, 2008, and any and all other indebtedness of the Pledgor to the
Secured Party incurred in connection with the acquisition of common stock of the
Secured Party and the payment of any related withholding tax.
3. VOTING RIGHTS. During the term of this Agreement, and so long as
Pledgor is not in default in the performance of any of the terms of this
Agreement or in the payment of the principal or interest of the Note, Pledgor
shall have the right to vote the Pledged Shares on all corporate questions, and
Secured Party shall, upon request, execute due and timely proxies in favor of
Pledgor to this end.
4. REPRESENTATIONS. Pledgor represents and warrants that there are no
restrictions upon the transfer of any of the Pledged Shares, other than may
appear on the face of the Certificate referred to in Section 1, and other than
as may be imposed under Rule 144 under the Securities Act of 1933, and that the
Pledgor has the right to transfer such shares free and clear of all liens and
encumbrances, except the lien of this Agreement, and the Pledgor is delivering
herewith copies of Form 144 duly executed in blank.
1
<PAGE>
5. ADJUSTMENTS. In the event that, during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of Lifemark Corporation, all new, substituted and
additional shares, or other securities, issued by reason of any such change
shall be held by Secured Party under the terms of this Agreement in the same
manner as the shares originally pledged hereunder.
6. PAYMENT OF THE NOTE. Upon payment of all outstanding principal and
accrued interest of the Note, less amounts theretofore received and applied by
Secured Party in reduction thereof, Secured Party shall transfer to Pledgor all
the Pledged Shares and all rights received by Secured Party as a result of this
pledge.
7. EVENTS OF DEFAULT. Occurrence of any of the following events (each such
event referred to herein as an "Event of Default") shall, at the option of
Secured Party, constitute a default hereunder:
(a) Failure of Pledgor to pay when due any indebtedness secured by this
Agreement, either principal or interest, if such failure shall continue uncured
for a period of five days; provided, however, it shall not be an event of
default if Pledgor fails to pay, interest due on the Note if Secured Party fails
to pay Pledgor the bonus provided for in the second paragraph of the letter
agreement dated October 14, 1999 between Pledgor and Secured Party;
(b) Default by Pledgor under any agreements to which Pledgor and Secured
Party are, or may hereafter become, parties which secure indebtedness of Pledgor
to Secured Party; or
(c) Any other event of default under the Note; or
(d) Any breach by Pledgor of (i) any duty to, or (ii) any employment,
severance, non-disclosure or other material agreement between the Pledgor and,
the Secured Party.
8. DEFAULT. Upon the occurrence of an Event of Default, Secured Party
shall have the rights and remedies provided in the Uniform Commercial Code in
force in the State of Arizona at the date of this Agreement and in this
connection, Secured Party may, upon five days' written notice to Pledgor, sent
by registered mail, and without liability for any diminution in price which may
have occurred, sell all the Pledged Shares in such manner and for such price as
Secured Party may determine, so long as any such sale is conducted in a
commercially reasonable manner to obtain a fair and reasonable sale price for
the Pledged Shares. At any bona fide public sale Secured Party shall be free to
purchase all or any part of the Pledged Shares. Out of the proceeds of any sale
Secured Party may retain an amount equal to the principal and interest then due
on the Note, plus the amount of the reasonable expenses of the sale, and shall
pay any balance of such proceeds to Pledgor. In the event that the proceeds of
any sale are insufficient to cover the principal and interest of the Note plus
expenses of the sale, Pledgor shall remain liable to Secured Party for any
deficiency.
2
<PAGE>
9. NOTICES. Any notice, request, information or other document to be given
hereunder to either of the parties shall be in writing and delivered personally
or sent by Federal Express, Overnight Delivery, or United States General Post
Office Express Mail Next Day Service, to the addresses listed below:
PLEDGOR: SECURED PARTY:
Dave Decker Lifemark Corporation
10833 E. Raintree Dr. 7600 North 16th Street
Scottsdale, AZ 85259 Suite 150
Phoenix, Arizona 85020
IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.
PLEDGOR:
By: /s/ DAVE DECKER
----------------------------
SECURED PARTY:
LIFEMARK CORPORATION
By: /s/ RHONDA BREDE
----------------------------
3
<PAGE>
Exhibit 10.5
PROMISSORY NOTE
$73,425 October 14, 1999
------
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of
Lifemark Corporation, a Delaware corporation (the "Company"), the principal sum
of $73,425 with interest (computed on the basis of the actual number of days
elapsed over a 365-day year) on the unpaid balance thereof at the rate of 6 and
02/100 percent (6.02%) per annum, from the date hereof until the principal
amount of this Note is paid in full, with accrued interest on all outstanding
principal due on December 31 of each year commencing with December 31, 1999, and
with all outstanding principal, plus all accrued but unpaid interest, being due
and payable on October 14, 2008.
Payments of principal and interest on this Note shall be payable at the
offices of the Company, 7600 North 16th Street, Phoenix, Arizona 85020, or such
other place as the holder of this Note may from time to time designate in
writing.
This Note has been issued in connection with the purchase of 25,000 shares
of common stock, $0.01 par value per share, of the Company (the "Shares"),
pursuant to the exercise of an option granted to the undersigned under a stock
option agreement dated October 14, 1999. The full amount of all previously
unpaid principal, together with all interest accrued thereon, shall become due
and payable: (i) 180 days following termination of employment of the undersigned
by the Company without cause or because of disability; (ii) 60 days after any
termination by the undersigned of the employment of the undersigned with the
Company (or; or (iii) immediately upon any such termination which is for just
cause (as defined below) or upon any breach by the undersigned of (i) any duty
to the Company, or (ii) any employment, severance, non-disclosure or other
material agreement between the undersigned and the Company) the Standard Key
Employee Non-Disclosure Agreement. For purposes of this Note, termination "for
just cause" shall mean termination on account of gross negligence, dishonesty,
or any willful material violation of any reasonable rule or regulation of the
Company of which the undersigned has been advised in writing.
The undersigned shall have the right to prepay this Note, in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or protest
of dishonor of this Note.
This Note is fully negotiable and transferable by the Company.
This Note is secured by the 25,000 Shares, which shall be held by the
Company under a pledge agreement of even date herewith executed by the
undersigned and such other security as may be pledged by the Payee and held by
the Company from time to time. This Note shall be governed by and construed in
accordance with the laws of the State of Arizona.
/s/ DAVE DECKER
-------------------------
1
Exhibit 10.6
Mrs. Rhonda Brede
October 14, 1999
Page 1
October 14, 1999
Mrs. Rhonda Brede
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Dear Rhonda:
This letter confirms our agreement that Lifemark Corporation ("Lifemark") has
agreed to employ you and you have agreed to serve as President and Chief
Executive Officer of Lifemark effective immediately.
Your base salary will be $200,000 annually (or in future years, such increased
amount as we may agree) commencing today. You will also participate in
Lifemark's bonus plan with a targeted onus of 40% of your salary in accordance
with the Company's customary practices and formulae. You will also receive the
same benefit package as other Lifemark employees and additional benefits
described in this letter.
In addition to your regular bonus, you will be entitled to receive on January 1
of each year commencing on January 1, 2000, an additional bonus equal to the
amount of interest due on any Company Loans (as defined below) (provided,
however, that if you have prepaid interest in the prior calendar year and the
Company has not previously paid you an additional bonus in the amount of your
prepaid interest, the bonus shall include the amount of such prepaid interest).
For this purpose, "Company Loans" shall mean and include loans by the Company to
you to purchase stock of the Company from the Company.
Concurrently with the execution of this letter, Lifemark has granted you ten
year stock options to purchase 150,000 shares of Lifemark common stock. Lifemark
has also agreed to permit you to exercise your 150,000 options at the time of
their vesting accepting as payment your secured nine-year promissory note in the
full amount of your exercise price. 90,000 of the options granted to you vest
immediately and 60,000 granted under the newly approved Executive Stock Option
and Ownership Plan will vest immediately upon approval of the Plan by the
Company's stockholders. You have agreed to exercise the options immediately upon
vesting.
1
<PAGE>
The loans provided for in the preceding paragraph will become due and payable
(including accrued interest) 180 days following termination of employment except
that they will become immediately due and payable if you breach the Key Employee
Non-Disclosure Agreement or if you are terminated for just cause (as defined
below) at any time.
For purposes of this letter, termination by Lifemark "for just cause" shall mean
termination on account of gross negligence, dishonesty, or any willful material
violation of any reasonable rule or regulation of Lifemark of which you have
been advised in writing.
In the event of a Change in Control (as defined below) of Lifemark, Lifemark
agrees that if without your consent Lifemark materially changes your duties or
responsibilities or the location of your principal place of work and as a result
of such change or changes you voluntarily terminate your employment, then, in
either such event, (i) all of your outstanding unexercised options will vest and
become exercisable on the date of termination of your employment, and (ii) you
will be entitled to the same severance payments as those provided for below with
respect to termination without cause.
For purposes of this letter, "Change in Control" shall mean the occurrence of
any of the following events:
(i) The acquisition, by new stockholders (being any person or group of persons
other than the current directors of the Company, Dorsey Gardner, their
respective families, estates, trusts and other affiliates) acting in concert, of
a beneficial ownership interest in the Company, resulting in the total
beneficial ownership of such persons or group of persons equaling or exceeding
50% of the outstanding common stock and warrants of the Company; provided,
however, that no such person or group of persons shall be deemed to beneficially
own (i) any common stock or warrants acquired directly from the Company or (ii)
any common stock or warrants held by the Company or any of its subsidiaries or
any employee benefit plan (or any related trust) of the Company or its
subsidiaries. The Change in Control shall be deemed to occur on the date the
beneficial ownership of the acquiring person or group of persons first equals or
exceeds 50% of the outstanding common stock and warrants of the Company.
(ii) A merger, consolidation or other reorganization having substantially the
same effect, or the sale of all or substantially all the consolidated assets of
the Company in each case, with respect to which the persons or group of persons
who were the respective beneficial owners of the outstanding common stock
immediately prior to such event do not, following such event, beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
voting stock of the corporation resulting from such event or the corporation
purchasing or receiving assets pursuant to such event.
If more than one of the foregoing events shall occur, each such event shall
constitute a separate Change in Control.
2
<PAGE>
For purposes of this letter, a change in duty or responsibility shall be broadly
interpreted. Thus, by way of example, a change in your autonomy or role in
setting strategy and policies of the company would be deemed to constitute a
change in duty or responsibility even if you remained in title chief executive
officer of the Lifemark business. Similarly, if you were no longer chief
executive officer of a publicly traded company, your duties and responsibilities
would be deemed to have changed.
Lifemark further confirms that it will abide by both the letter and the spirit
of the adjustment provisions contained in its Stock Option Plans and the Stock
Option Certificates which you hold, pursuant to which Lifemark has agreed to
adjust the outstanding options appropriately in the event of a sale or merger of
the corporation.
In the event the Company terminates your employment other than for cause, you
will be entitled to severance pay equal to eighteen months of your base salary
($300,000 or an appropriately increased amount if your base salary has
increased). In addition, you will be entitled to a pro rated portion of your
targeted bonus regular bonus, and a pro rated portion of the additional bonus
provided for in the third paragraph of this letter, in each case pro rated on
the portion of the fiscal year prior to termination. The pro rated regular bonus
will be payable at the time other Executive bonuses are paid and will be based
on the entire year of Company performance. The pro rated additional bonus will
be paid within 30 days of termination. You will be entitled to payment in full
of any bonus for the last completed fiscal year prior to termination which has
not yet been paid as of the date of termination, with such bonus to be paid at
the time other Executive bonuses for such year are paid. You will also be
entitled to continuing family medical coverage for a period of twelve months.
As a condition to your employment, you reconfirm your execution of Lifemark's
Standard Key Employee Executive Nondisclosure Agreement.
Again, I would like to take this opportunity to say how excited I am about your
taking on these new responsibilities.
The substance of the terms of this letter was negotiated and agreed to in
Arizona and it is solely for the convenience of the parties that it is being
signed by facsimile outside of Arizona. Arizona law applicable to contracts made
and to be performed in Arizona shall therefore apply to and govern all aspects
of this Agreement.
3
<PAGE>
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RICHARD C. JELINEK
- ----------------------
Chairman
ACCEPTED AND AGREED:
/s/ RHONDA BREDE
- ----------------------------
4
Exhibit 10.7
Rick Jelinek
October 14, 1999
Page 1
October 14, 1999
Rick Jelinek
8120 N. Dreamy Dr.
Phoenix, AZ 85020
Dear Rick:
This letter confirms the agreement between us whereby Lifemark Corporation
("Lifemark") has agreed to employ you and you have agreed to serve as a Vice
President of Lifemark. In this capacity you will be a member of the Executive
Strategy Team and will serve in accordance with the bylaws of Lifemark.
We also agreed that, in addition to your regular bonus, you will be entitled to
receive on January 1 of each year during the term of your employment commencing
on January 1, 2000, an additional bonus equal to the amount of interest due on
any Company Loans (as defined below) (provided, however, that if you have
prepaid interest in the prior calendar year and the Company has not previously
paid you an additional bonus in the amount of your prepaid interest, the bonus
shall include the amount of such prepaid interest). For this purpose, "Company
Loans" shall mean and include loans by the Company to you to purchase stock of
the Company from the Company.
Concurrently with the execution of this letter, Lifemark has granted you ten
year stock options to purchase 100,000 shares of Lifemark common stock. Lifemark
has also agreed to permit you to exercise your 100,000 options at the time of
their vesting accepting as payment your secured nine-year promissory note in the
full amount of your exercise price. 60,000 of the options granted to you vest
immediately and 40,000 granted under the newly approved Executive Stock Option
and Ownership Plan will vest immediately upon approval of the Plan by the
Company's stockholders. You have agreed to exercise the options immediately upon
vesting.
The loans provided for in the preceding paragraph will become due and payable
(including accrued interest) 60: (i) 180 days following termination of
employment except that they will become immediately due and payable if you
breach your employment agreement by the Company without cause or because of
disability; (ii) 60 days following termination of employment by you; and (iii)
immediately if you breach the Standard Key Employee Non-Disclosure Agreement or
if you are terminated for just cause (as defined below) at any time.
Except as may be otherwise explicitly provided in another written agreement
between you and Lifemark, your employment shall be subject to termination by
either you or Lifemark at any time without notice, subject to the severance
rules of Lifemark as they exist at the time of termination.
1
<PAGE>
Notwithstanding the foregoing, in the event of a Change in Control (as defined
below) of Lifemark, Lifemark agrees that if within two years following the date
of the change in control either (a) your employment is terminated by Lifemark
without "just cause" (as defined below), or (b) without your consent Lifemark
materially changes your duties or responsibilities or the location of your
principal place of work and as a result of such change or changes you
voluntarily terminate your employment, then, in either such event, (i) all of
your outstanding options will vest and become exercisable on the date of
termination of your employment, and (ii) you will be subject to Change of
Control Severance as provided below.
For purposes of this letter, "Change in Control" shall mean the occurrence of
any of the following events:
(i) The acquisition, by new stockholders (being any person or group of persons
other than the current directors of the Company, Dorsey Gardner, their
respective families, estates, trusts and other affiliates) acting in concert, of
a beneficial ownership interest in the Company, resulting in the total
beneficial ownership of such persons or group of persons equaling or exceeding
50% of the outstanding common stock and warrants of the Company; provided,
however, that no such person or group of persons shall be deemed to beneficially
own (i) any common stock or warrants acquired directly from the Company or (ii)
any common stock or warrants held by the Company or any of its subsidiaries or
any employee benefit plan (or any related trust) of the Company or its
subsidiaries. The Change in Control shall be deemed to occur on the date the
beneficial ownership of the acquiring person or group of persons first equals or
exceeds 50% of the outstanding common stock and warrants of the Company.
(ii) A merger, consolidation or other reorganization having substantially the
same effect, or the sale of all or substantially all the consolidated assets of
the Company in each case, with respect to which the persons or group of persons
who were the respective beneficial owners of the outstanding common stock
immediately prior to such event do not, following such event, beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
voting stock of the corporation resulting from such event or the corporation
purchasing or receiving assets pursuant to such event.
If more than one of the foregoing events shall occur, each such event shall
constitute a separate Change in Control.
For purposes of this letter, Change of Control Severance shall be 12 months base
salary payable monthly subject to normal withholding plus a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of this letter, in each case pro
rated on the portion of the fiscal year prior to termination. The pro rated
regular bonus will be payable at the time other Executive bonuses are paid and
will be based on the entire year of Company performance. The pro rated
additional bonus will be paid within 30 days of termination. You will be
entitled to payment in full of any bonus for the last completed fiscal year
prior to termination which has not yet been paid as of the date of termination,
with such bonus to be paid at the time other Executive bonuses for such year are
paid.
Lifemark further confirms that it will abide by both the letter and the spirit
of the adjustment provisions contained in its Stock Option Plans and the Stock
Option Certificates which you hold, pursuant to which Lifemark has agreed to
adjust the outstanding options appropriately in the event of a sale or merger of
the corporation.
2
<PAGE>
For purposes of this letter, termination by Lifemark "for just cause" shall mean
a termination on account of gross negligence, dishonesty, or any willful
material breach of an agreement with Lifemark, or violation of any reasonable
rule or regulation of Lifemark of which you have been advised in writing.
As a condition to your continued employment and the vesting of options referred
to herein, you have executed Lifemark's Standard Key Employee Nondisclosure
Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- ------------------------------
President
ACCEPTED AND AGREED:
/s/ RICK JELINEK
- ---------------------------------
3
Exhibit 10.8
Dave Decker
October 14, 1999
Page 1
October 14, 1999
Dave Decker
10833 E. Raintree Drive
Scottsdale, AZ 85259
Dear Dave:
This letter confirms the agreement between us whereby Lifemark Corporation
("Lifemark") has agreed to employ you and you have agreed to serve as a Vice
President of Lifemark. In this capacity you will be a member of the Executive
Strategy Team and will serve in accordance with the bylaws of Lifemark.
We also agreed that, in addition to your regular bonus, you will be entitled to
receive on January 1 of each year during the term of your employment commencing
on January 1, 2000, an additional bonus equal to the amount of interest due on
any Company Loans (as defined below) (provided, however, that if you have
prepaid interest in the prior calendar year and the Company has not previously
paid you an additional bonus in the amount of your prepaid interest, the bonus
shall include the amount of such prepaid interest). For this purpose, "Company
Loans" shall mean and include loans by the Company to you to purchase stock of
the Company from the Company.
Concurrently with the execution of this letter, Lifemark has granted you ten
year stock options to purchase 50,000 shares of Lifemark common stock. Lifemark
has also agreed to permit you to exercise your 50,000 options at the time of
their vesting accepting as payment your secured nine-year promissory note in the
full amount of your exercise price. 25,000 of the options granted to you vest
immediately and 25,000 granted under the newly approved Executive Stock Option
and Ownership Plan will vest immediately upon approval of the Plan by the
Company's stockholders. You have agreed to exercise the options immediately upon
vesting.
The loans provided for in the preceding paragraph will become due and payable
(including accrued interest) 60: (i) 180 days following termination of
employment except that they will become immediately due and payable if you
breach your employment agreement by the Company without cause or because of
disability; (ii) 60 days following termination of employment by you; and (iii)
immediately if you breach the Standard Key Employee Non-Disclosure Agreement or
if you are terminated for just cause (as defined below) at any time.
Except as may be otherwise explicitly provided in another written agreement
between you and Lifemark, your employment shall be subject to termination by
either you or Lifemark at any time without notice, subject to the severance
rules of Lifemark as they exist at the time of termination.
1
<PAGE>
Notwithstanding the foregoing, in the event of a Change in Control (as defined
below) of Lifemark, Lifemark agrees that if within two years following the date
of the change in control either (a) your employment is terminated by Lifemark
without "just cause" (as defined below), or (b) without your consent Lifemark
materially changes your duties or responsibilities or the location of your
principal place of work and as a result of such change or changes you
voluntarily terminate your employment, then, in either such event, (i) all of
your outstanding options will vest and become exercisable on the date of
termination of your employment, and (ii) you will be subject to Change of
Control Severance as provided below.
For purposes of this letter, "Change in Control" shall mean the occurrence of
any of the following events:
(i) The acquisition, by new stockholders (being any person or group of persons
other than the current directors of the Company, Dorsey Gardner, their
respective families, estates, trusts and other affiliates) acting in concert, of
a beneficial ownership interest in the Company, resulting in the total
beneficial ownership of such persons or group of persons equaling or exceeding
50% of the outstanding common stock and warrants of the Company; provided,
however, that no such person or group of persons shall be deemed to beneficially
own (i) any common stock or warrants acquired directly from the Company or (ii)
any common stock or warrants held by the Company or any of its subsidiaries or
any employee benefit plan (or any related trust) of the Company or its
subsidiaries. The Change in Control shall be deemed to occur on the date the
beneficial ownership of the acquiring person or group of persons first equals or
exceeds 50% of the outstanding common stock and warrants of the Company.
(ii) A merger, consolidation or other reorganization having substantially the
same effect, or the sale of all or substantially all the consolidated assets of
the Company in each case, with respect to which the persons or group of persons
who were the respective beneficial owners of the outstanding common stock
immediately prior to such event do not, following such event, beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
voting stock of the corporation resulting from such event or the corporation
purchasing or receiving assets pursuant to such event.
If more than one of the foregoing events shall occur, each such event shall
constitute a separate Change in Control.
For purposes of this letter, Change of Control Severance shall be 6 months base
salary payable monthly subject to normal withholding plus a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of this letter, in each case pro
rated on the portion of the fiscal year prior to termination. The pro rated
regular bonus will be payable at the time other Executive bonuses are paid and
will be based on the entire year of Company performance. The pro rated
additional bonus will be paid within 30 days of termination. You will be
entitled to payment in full of any bonus for the last completed fiscal year
prior to termination which has not yet been paid as of the date of termination,
with such bonus to be paid at the time other Executive bonuses for such year are
paid.
Lifemark further confirms that it will abide by both the letter and the spirit
of the adjustment provisions contained in its Stock Option Plans and the Stock
Option Certificates which you hold, pursuant to which Lifemark has agreed to
adjust the outstanding options appropriately in the event of a sale or merger of
the corporation.
2
<PAGE>
For purposes of this letter, termination by Lifemark "for just cause" shall mean
a termination on account of gross negligence, dishonesty, or any willful
material breach of an agreement with Lifemark, or violation of any reasonable
rule or regulation of Lifemark of which you have been advised in writing.
As a condition to your continued employment and the vesting of options referred
to herein, you have executed Lifemark's Standard Key Employee Nondisclosure
Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- -------------------------------
President
ACCEPTED AND AGREED:
/s/ DAVE DECKER
- ---------------------------------
3
Exhibit 10.9
Michael Kennedy
October 14, 1999
Page 1
October 14, 1999
Michael Kennedy
5226 E. Anderson Dr.
Scottsdale, AZ 85254
Dear Michael:
This letter confirms the agreement between us whereby Lifemark Corporation
("Lifemark") has agreed to employ you and you have agreed to serve as a Vice
President of Lifemark. In this capacity you will be a member of the Executive
Strategy Team and will serve in accordance with the bylaws of Lifemark.
We also agreed that, in addition to your regular bonus, you will be entitled to
receive on January 1 of each year during the term of your employment commencing
on January 1, 2000, an additional bonus equal to the amount of interest due on
any Company Loans (as defined below) (provided, however, that if you have
prepaid interest in the prior calendar year and the Company has not previously
paid you an additional bonus in the amount of your prepaid interest, the bonus
shall include the amount of such prepaid interest). For this purpose, "Company
Loans" shall mean and include loans by the Company to you to purchase stock of
the Company from the Company.
Concurrently with the execution of this letter, Lifemark has granted you ten
year stock options to purchase 100,000 shares of Lifemark common stock. Lifemark
has also agreed to permit you to exercise your 100,000 options at the time of
their vesting accepting as payment your secured nine-year promissory note in the
full amount of your exercise price. 60,000 of the options granted to you vest
immediately and 40,000 granted under the newly approved Executive Stock Option
and Ownership Plan will vest immediately upon approval of the Plan by the
Company's stockholders. You have agreed to exercise the options immediately upon
vesting.
The loans provided for in the preceding paragraph will become due and payable
(including accrued interest) 60: (i) 180 days following termination of
employment except that they will become immediately due and payable if you
breach your employment agreement by the Company without cause or because of
disability; (ii) 60 days following termination of employment by you; and (iii)
immediately if you breach the Standard Key Employee Non-Disclosure Agreement or
if you are terminated for just cause (as defined below) at any time.
Except as may be otherwise explicitly provided in another written agreement
between you and Lifemark, your employment shall be subject to termination by
either you or Lifemark at any time without notice, subject to the severance
rules of Lifemark as they exist at the time of termination.
1
<PAGE>
Notwithstanding the foregoing, in the event of a Change in Control (as defined
below) of Lifemark, Lifemark agrees that if within two years following the date
of the change in control either (a) your employment is terminated by Lifemark
without "just cause" (as defined below), or (b) without your consent Lifemark
materially changes your duties or responsibilities or the location of your
principal place of work and as a result of such change or changes you
voluntarily terminate your employment, then, in either such event, (i) all of
your outstanding options will vest and become exercisable on the date of
termination of your employment, and (ii) you will be subject to Change of
Control Severance as provided below.
For purposes of this letter, "Change in Control" shall mean the occurrence of
any of the following events:
(i) The acquisition, by new stockholders (being any person or group of persons
other than the current directors of the Company, Dorsey Gardner, their
respective families, estates, trusts and other affiliates) acting in concert, of
a beneficial ownership interest in the Company, resulting in the total
beneficial ownership of such persons or group of persons equaling or exceeding
50% of the outstanding common stock and warrants of the Company; provided,
however, that no such person or group of persons shall be deemed to beneficially
own (i) any common stock or warrants acquired directly from the Company or (ii)
any common stock or warrants held by the Company or any of its subsidiaries or
any employee benefit plan (or any related trust) of the Company or its
subsidiaries. The Change in Control shall be deemed to occur on the date the
beneficial ownership of the acquiring person or group of persons first equals or
exceeds 50% of the outstanding common stock and warrants of the Company.
(ii) A merger, consolidation or other reorganization having substantially the
same effect, or the sale of all or substantially all the consolidated assets of
the Company in each case, with respect to which the persons or group of persons
who were the respective beneficial owners of the outstanding common stock
immediately prior to such event do not, following such event, beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
voting stock of the corporation resulting from such event or the corporation
purchasing or receiving assets pursuant to such event.
If more than one of the foregoing events shall occur, each such event shall
constitute a separate Change in Control.
For purposes of this letter, Change of Control Severance shall be 12 months base
salary payable monthly subject to normal withholding plus a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of this letter, in each case pro
rated on the portion of the fiscal year prior to termination. The pro rated
regular bonus will be payable at the time other Executive bonuses are paid and
will be based on the entire year of Company performance. The pro rated
additional bonus will be paid within 30 days of termination. You will be
entitled to payment in full of any bonus for the last completed fiscal year
prior to termination which has not yet been paid as of the date of termination,
with such bonus to be paid at the time other Executive bonuses for such year are
paid.
Lifemark further confirms that it will abide by both the letter and the spirit
of the adjustment provisions contained in its Stock Option Plans and the Stock
Option Certificates which you hold, pursuant to which Lifemark has agreed to
adjust the outstanding options appropriately in the event of a sale or merger of
the corporation.
2
<PAGE>
For purposes of this letter, termination by Lifemark "for just cause" shall mean
a termination on account of gross negligence, dishonesty, or any willful
material breach of an agreement with Lifemark, or violation of any reasonable
rule or regulation of Lifemark of which you have been advised in writing.
As a condition to your continued employment and the vesting of options referred
to herein, you have executed Lifemark's Standard Key Employee Nondisclosure
Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- ---------------------------------
President
ACCEPTED AND AGREED:
/s/ MICHAEL KENNEDY
- ---------------------------------
3
Exhibit 10.10
Rick Jelinek
October 14, 1999
Page 1
October 14, 1999
Rick Jelinek
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Dear Rick:
This letter serves as an addendum to our letter agreement that Lifemark
Corporation ("Lifemark") has agreed to employ you and you have agreed to serve
as Executive Vice President of Lifemark effective immediately.
In the event the Company terminates your employment other than for cause, as
defined in your employment letter of October 14, 1999, you will be entitled to
severance pay equal to the nine months of your base salary in effect at the time
of this termination. In the event the Company terminates your employment other
than for cause, as defined in your employment letter of October 14, 1999, you
will be entitled to severance pay equal to the nine months of your base salary
in effect at the time of this termination. In addition, a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of your employment letter dated
October 14,1999, in each case pro rated on the portion of the fiscal year prior
to termination. The pro rated regular bonus will be payable at the time other
Executive bonuses are paid and will be based on the entire year of Company
performance. The pro rated additional bonus will be paid within 30 days of
termination. You will be entitled to payment in full of any bonus for the last
completed fiscal year prior to termination which has not yet been paid as of the
date of termination, with such bonus to be paid at the time other Executive
bonuses for such year are paid. You will also be entitled to continuing family
medical coverage for the same period of time.
In addition, if you secure new employment within the time frame indicated below,
you will receive additional months of pay and pro-rated bonuses:
--------------------------------------------------------
NEW EMPLOYMENT SECURED ADDITIONAL SEVERANCE &
WITHIN: PRO-RATED BONUS:
--------------------------------------------------------
--------------------------------------------------------
7 months 3 months
--------------------------------------------------------
--------------------------------------------------------
8 months 2 months
--------------------------------------------------------
--------------------------------------------------------
9 months 1 month
--------------------------------------------------------
1
<PAGE>
The substance of the terms of this letter was negotiated and agreed to in
Arizona and it is solely for the convenience of the parties that it is being
signed by facsimile outside of Arizona. Arizona law applicable to contracts made
and to be performed in Arizona shall therefore apply to and govern all aspects
of this Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- -------------------------------------
President and Chief Executive Officer
ACCEPTED AND AGREED:
/s/ RICK JELINEK
- -------------------------------------
2
Exhibit 10.11
Dave Decker
October 14, 1999
Page 1
October 14, 1999
Dave Decker
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Dear Dave:
This letter serves as an addendum to our letter agreement that Lifemark
Corporation ("Lifemark") has agreed to employ you and you have agreed to serve
as Chief Information Officer of Lifemark effective immediately.
In the event the Company terminates your employment other than for cause, as
defined in your employment letter of October 14, 1999, you will be entitled to
severance pay equal to the nine months of your base salary in effect at the time
of this termination. In the event the Company terminates your employment other
than for cause, as defined in your employment letter of October 14, 1999, you
will be entitled to severance pay equal to the nine months of your base salary
in effect at the time of this termination. In addition, a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of your employment letter dated
October 14,1999, in each case pro rated on the portion of the fiscal year prior
to termination. The pro rated regular bonus will be payable at the time other
Executive bonuses are paid and will be based on the entire year of Company
performance. The pro rated additional bonus will be paid within 30 days of
termination. You will be entitled to payment in full of any bonus for the last
completed fiscal year prior to termination which has not yet been paid as of the
date of termination, with such bonus to be paid at the time other Executive
bonuses for such year are paid. You will also be entitled to continuing family
medical coverage for the same period of time.
In addition, if you secure new employment within the time frame indicated below,
you will receive additional months of pay and pro-rated bonuses:
--------------------------------------------------------
NEW EMPLOYMENT SECURED ADDITIONAL SEVERANCE &
WITHIN: PRO-RATED BONUS:
--------------------------------------------------------
--------------------------------------------------------
7 months 3 months
--------------------------------------------------------
--------------------------------------------------------
8 months 2 months
--------------------------------------------------------
--------------------------------------------------------
9 months 1 month
--------------------------------------------------------
1
<PAGE>
The substance of the terms of this letter was negotiated and agreed to in
Arizona and it is solely for the convenience of the parties that it is being
signed by facsimile outside of Arizona. Arizona law applicable to contracts made
and to be performed in Arizona shall therefore apply to and govern all aspects
of this Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- ----------------------------
President and Chief Executive Officer
ACCEPTED AND AGREED:
/s/ DAVE DECKER
- ----------------------------
2
Exhibit 10.12
Michael Kennedy
October 14, 1999
Page 1
October 14, 1999
Michael Kennedy
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Dear Mike:
This letter serves as an addendum to our letter agreement that Lifemark
Corporation ("Lifemark") has agreed to employ you and you have agreed to serve
as Chief Financial Officer of Lifemark effective immediately.
In the event the Company terminates your employment other than for cause, as
defined in your employment letter of October 14, 1999, you will be entitled to
severance pay equal to the nine months of your base salary in effect at the time
of this termination. In the event the Company terminates your employment other
than for cause, as defined in your employment letter of October 14, 1999, you
will be entitled to severance pay equal to the nine months of your base salary
in effect at the time of this termination. In addition, a pro rated portion of
your targeted bonus regular bonus, and a pro rated portion of the additional
bonus provided for in the second paragraph of your employment letter dated
October 14,1999, in each case pro rated on the portion of the fiscal year prior
to termination. The pro rated regular bonus will be payable at the time other
Executive bonuses are paid and will be based on the entire year of Company
performance. The pro rated additional bonus will be paid within 30 days of
termination. You will be entitled to payment in full of any bonus for the last
completed fiscal year prior to termination which has not yet been paid as of the
date of termination, with such bonus to be paid at the time other Executive
bonuses for such year are paid. You will also be entitled to continuing family
medical coverage for the same period of time.
In addition, if you secure new employment within the time frame indicated below,
you will receive additional months of pay and pro-rated bonuses:
--------------------------------------------------------
NEW EMPLOYMENT SECURED ADDITIONAL SEVERANCE &
WITHIN: PRO-RATED BONUS:
--------------------------------------------------------
--------------------------------------------------------
7 months 3 months
--------------------------------------------------------
--------------------------------------------------------
8 months 2 months
--------------------------------------------------------
--------------------------------------------------------
9 months 1 month
--------------------------------------------------------
1
<PAGE>
The substance of the terms of this letter was negotiated and agreed to in
Arizona and it is solely for the convenience of the parties that it is being
signed by facsimile outside of Arizona. Arizona law applicable to contracts made
and to be performed in Arizona shall therefore apply to and govern all aspects
of this Agreement.
Please confirm your agreement with and acceptance of the provisions of this
letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/ RHONDA BREDE
- ----------------------------
President and Chief Executive Officer
ACCEPTED AND AGREED:
/s/ MICHAEL KENNEDY
- ----------------------------
2
<PAGE>
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<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
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