SHAREHOLDER DESIGNATION AND STOCK TRANSFER AGREEMENT

 

                                                                  EXECUTION COPY
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              SHAREHOLDER DESIGNATION AND STOCK TRANSFER AGREEMENT

     This SHAREHOLDER DESIGNATION AND STOCK TRANSFER AGREEMENT (the
"Agreement"), dated as of December 11, 1996, by and among Physicians Quality
Care, Inc., a Delaware business corporation ("PQC"); Flagship Health, P.A. a
Maryland professional association ("Flagship"); and Laura M. Mumford, M.D. in an
individual capacity (the "Shareholder") (hereinafter, collectively, the
"Parties").

     WHEREAS, PQC provides management, administrative and other support services
to affiliated medical practices;

     WHEREAS, Flagship provides comprehensive medical professional services;

     WHEREAS, the Shareholder is the sole shareholder of all of the issued and
outstanding shares of Flagship (the "Shares"); and

     WHEREAS, the parties desire to restrict the transferability of the Shares
for the benefit of PQC and its relationship with Flagship;

     NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements contained herein, the Parties agree as follows:

Section 1. - Effective Date and Term
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     1.1  Effective Date: Term.  This Agreement shall be effective as of
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November 30, 1996, and shall continue until terminated in accordance with the
provisions of Section 1.2 below.

     1.2  Written Agreement Required.  This Agreement may be terminated only
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upon the written direction of PQC, or upon the execution of a succeeding version
of this Agreement with a Successor Shareholder, as defined in Section 10.

Section 2. - Acquisition of Shares
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     2.1  Execution of Agreements.  In consideration of the issuance by Flagship
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of all of the outstanding capital stock to the Shareholder the Shareholder is
simultaneously entering into this Agreement.

     2.2  Shareholder Designee's Record Title to Shares.  During the Period of
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Designation of the Shareholder (as defined in Section 9.1), the Shareholder
shall be the shareholder of record of the Shares and shall be entitled to
exercise the right to vote in person or by proxy in respect of any and all of
the Shares in accordance herewith.

Section 3. - Transfer of Shares
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     3.1  Attorney-in-Fact.  The Shareholder, on behalf of himself, his
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successors and assigns, hereby appoints the Attorney-in-Fact (defined in Section
12) as the Shareholder's and his successors and assign's attorney-in-fact with
full power and authority to execute all documents and do all things necessary to
effectuate the transfer to the Successor Shareholder, designated as provided in
Section 10 hereof, of record ownership of the Shares held in the name of the
Shareholder when the Shareholder's Period of Designation has expired.  Such
appointment shall be irrevocable.  In furtherance of such appointment, the
Shareholder has caused, or shall promptly cause upon commencement of the Period
of Designation, the Shares and all certificates representing the same and all
securities, if any, resulting from a merger or consolidation of Flagship or a
split-up or reclassification of the equity of Flagship to be delivered to the
Attorney-in-Fact, accompanied by an executed stock power, endorsed in blank.

     3.2  Resignation.  The Shareholder shall have the right to resign for any
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reason by giving ninety (90) days written notice to the Attorney-in-Fact, which
resignation shall become effective upon the expiration of the ninety (90) day
period following receipt of such notice by the Attorney-in-Fact.  In no event
shall the Shareholder have a right to resign prior to the end of the notice
period specified in the previous sentence.

     3.3  Automatic Transfer.  The Shares shall be deemed to have been
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transferred to the Successor Shareholder, designated as provided in Section 10,
without further action by the Shareholder, immediately upon the occurrence of
any of the following events (each a "Transfer Event"); provided, however, that
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until the Successor Shareholder shall have made the Shareholders designation
effective pursuant to Section 10, the Shareholder shall continue to hold the
Shares in trust for the benefit of the Successor Shareholder, subject to the
limitations imposed by Section 9.3:

          (a) the death of the Shareholder;

          (b) the incompetence or permanent disability of the Shareholder such
              that the Shareholder is unable to render any professional services
              on behalf of Flagship;

          (c) the Shareholder becoming disqualified under Maryland law to be a
              shareholder of Flagship;

          (d) the resignation of the Shareholder pursuant to Section 3.2;

          (e) any attempt by the Shareholder or by any person to transfer the
              Shares, whether voluntarily or involuntarily, by operation of law
              or otherwise, to any person who is not the Successor Shareholder
              designated by PQC pursuant to Section 10;

                                      -2-

          (f) the filing of any petition for or another documents causing or
              intended to cause a judicial, administrative, voluntary or
              involuntary dissolution of Flagship; or

          (g) the designation of a Successor Shareholder by PQC pursuant to
              Section 10, whether or not such designation has become effective
              under that provision.

     3.4  Effect of Transfer.  Upon the transfer of the Shares, the Shareholder
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shall immediately resign, or be deemed to have resigned, as a director of
Flagship, if the Shareholder holds such position, and from any and all corporate
offices if any, of Flagship at the time held by the Shareholder.
Notwithstanding anything to the contrary herein, upon the occurrence of a
Transfer Event, the Shares will be immediately transferred, or deemed to be
transferred, to the Successor Shareholder upon the effective date of such
Transfer Event.  The Successor Shareholder shall have from and after such
Transfer Event all ownership and voting rights as to the Shares in accordance
with this Agreement, irrespective of receipt of a certificate for such Shares,
receipt by the Shareholder of payment for the Shares, or any other act or
matter.  Upon the transfer of the Shares, the Shareholder shall be released in
writing from all obligations under this Agreement.

     3.5  Consideration for Transfer.  Shareholder acknowledges that PQC
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transferred to Flagship all consideration required to be paid with respect to
the issuance of Shares of Flagship to Shareholder and Shareholder has provided
no consideration to Flagship or PQC with respect to Shares issued or held by
him.  Accordingly, Shareholder agrees and hereby confirms that upon any event
requiring or effecting the transfer of Shares to a Successor Shareholder, such
transfer shall occur without any consideration being paid or payable to
Shareholder, notwithstanding any increase or decline in the value of the Shares
or in the value of Flagship's businesses or assets.

Section 4. - Voting of Shares
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     4.1  Election of Directors of Flagship.
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          4.1.1  Election.  The Shareholder agrees to consult with the Attorney-
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in-Fact in accordance with Section 12 of this Agreement with respect to the
election of directors of Flagship (as defined in the By-laws of Flagship), which
consultation shall include a written communication and a written response.

          4.1.2  Vacancies.  In the event of a vacancy for any reason in the 
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office of a director, the Shareholder shall consult with the Attorney-in-Fact
with respect to the election of a new director.

     4.2  Voting on All Other Matters.  The Shareholder agrees that on any other
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proposal to be voted upon by holders of the Shares that the Shareholder shall
vote the Shares, or sign consents taking action on such matter, only after
consultation with the Attorney-in-Fact in accordance with Section 12 of this
Agreement, except only to the extent the same requires the exercise of
professional medical judgment.  The Shareholder shall

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consult with the Attorney-in-Fact from time to time as necessary and appropriate
to obtain advice with respect to matters to be voted upon by holders of the
Shares.

Section 5. - Voting as a Director
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     5.1  Business Judgment.  In the event that the Shareholder shall serve as a
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director of Flagship, the Shareholder shall act in good faith, in a manner the
Shareholder reasonably believes to be in the best interests of Flagship, and
with such care as an ordinarily prudent person in a like position would use in
similar circumstances in voting and otherwise acting as a member of the Board of
Directors of Flagship.

     5.2  Obligation to Consult with the Attorney-in-Fact.  In voting with
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respect to matters, the approval of which by the Board of Directors of Flagship
requires the affirmative vote of the Shareholder, the Shareholder shall consult
in advance with the Attorney-in-Fact with respect to such matters before voting
on such matters.

Section 6. - Professional Medical Judgment
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     The other provisions of this Agreement notwithstanding, the Shareholder
shall be unfettered in the exercise of the Shareholder's professional medical
judgment in the Shareholder's capacity as a shareholder, a director or officer
of Flagship to the extent the matters under consideration require the exercise
of such judgment.

Section 7. - Notices.  Reports and Information
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     The Shareholder shall promptly deliver to the Attorney-in-Fact, on receipt,
copies of all written materials received by the Shareholder in such capacity
and, consistent with such Shareholders fiduciary obligations as a director of
Flagship, all written materials received by the Shareholder in the Shareholder's
capacity as a member of the Board of Directors of Flagship.

Section 8. - Distributions and Proceeds
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     The Shareholder shall promptly give prior notice to PQC of any event giving
rise to the receipt of any shares, securities, moneys or property representing a
dividend, distribution or return of capital with respect to the Shares.  The
Shareholder agrees that the Shareholder shall cause any dividend, distribution
or return of capital with respect to the Shares to be paid directly to PQC and
hereby directs Flagship to make any such payment to PQC.  The Shareholder
disclaims any beneficial interest in any such dividend, distribution or return
of capital.

Section 9. - Designation and Status of Shareholder
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     9.1  Period of Designation of Shareholder.  The Shareholder who executes
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this Agreement or an amendment hereto, accepting the Shareholders designation as
a "Shareholder" hereunder, shall serve as such for a period commencing on the
date hereof, with respect to the original Shareholder, and on the date of
acceptance, with respect to

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Successor Shareholders, and in each case continuing until the date such
Shareholder dies, resigns or ceases to serve as the Shareholder in accordance
with Section 3.3.  As to each Shareholder, such period is referred to herein as
a "Period of Designation."

     9.2  No Compensation.  The Shareholder shall not be entitled to receive
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compensation for the Shareholder services as Shareholder hereunder.

     9.3  Limitation on Authority.  Other than as provided herein, the
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Shareholder shall not sell, transfer, assign or otherwise dispose of, or pledge,
mortgage, hypothecate or otherwise encumber, or permit or suffer any
encumbrance, for all or any part of the Shares, except on the express written
direction or with the express written consent of the Attorney-in-Fact.  Upon the
occurrence of an event of automatic transfer pursuant to Section 3.3, the
Shareholder shall hold the Shares in trust for the benefit of the Successor
Shareholder until the designation of a Successor Shareholder becomes effective,
but shall have no authority to act on behalf of or bind Flagship.

Section 10. - Successor Shareholder
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     At any time PQC may at its sole discretion, and immediately upon the
occurrence of any Transfer Event PQC shall, designate a successor shareholder
(the "Successor Shareholder") to serve in accordance with this Agreement and
with applicable provisions of the Bylaws of Flagship and applicable law.  Such
Successor Shareholder shall be a physician licensed to practice medicine in the
State of Maryland and shall be a party to an employment agreement with PQC.  In
order to make such designation effective, the Successor Shareholder shall accept
such designation by executing a written amendment to this Agreement and
expressly, in writing, assume all of the Shareholder's obligations under this
Agreement.

Section 11. - Restrictions on Certificate
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     Shareholder acknowledges that the certificates representing the Shares to
Flagship, issued upon the organization of Flagship, contains the notice of the
restrictions on the transfer of such Shares imposed by this Agreement.  Such
notice shall be substantially in the form of Exhibit A attached hereto and
incorporated herein by reference.

Section 12. - Attorney-in-Fact
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     PQC is hereby designated as the Attorney-in-Fact for the purposes of this
Agreement. The Shareholder shall act upon the advice of PQC as the Attorney-in-
Fact in all matters arising with respect to this Agreement.  On notice to the
Shareholder and Flagship from PQC, the Shareholder shall change the designation
of the Attorney-in-Fact to another person or entity designated by PQC.

Section 13. - No Joint Venture
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     The relationship created by this Agreement is not intended to be, shall not
be deemed to be, and shall not be treated as a general partnership, limited
partnership, joint venture, corporation or joint stock company or association.

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Section 14. - Breach
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     Any (i) attempted sale, transfer, assignment, pledge or other encumbrance
or disposition of any of the Shares by the Shareholder or (ii) action by the
Shareholder in violation of any of the provisions of this Agreement shall be
considered a breach of this Agreement.

Section 15. - Miscellaneous Provisions
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     15.1  Service as Officer or Director.  Nothing herein shall preclude the
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Shareholder from serving as an officer or director of Flagship or from serving
as a member of any Flagship committee.

     15.2  Successors and Assigns.  This Agreement shall be binding upon the
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parties and their respective successors, assigns, heirs, transferees, executors
and administrators, and except as otherwise expressly provided in any particular
provision of this Agreement, any subsequent holder or holders of any of the
Shares.

     15.3  Notices.  Except as otherwise specified in this Agreement, any notice
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required to be given pursuant to this Agreement shall be given in writing.  Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed to the respective party at the address set forth on
the signature page hereof (or to such party at such other address as such party
shall have specified by notice actually received by the other party) and if
either (i) actually delivered in fully legible form to such address (evidenced
in the case of a telecopy by receipt of the correct answer back) or (ii) in the
case of a letter, five (5) days shall have elapsed after the same shall have
been deposited in the United States mails, with the first-class postage prepaid
and registered or certified.

     15.4  Waiver.  No waiver of any provision hereof shall be effective unless
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made in writing and signed by the waiving party.  The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.

     15.5  Separability.  If any provision of this Agreement is held for any
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reason to be unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall nevertheless remain in full force and effect.

     15.6  Headings.  The headings in this Agreement are intended solely for
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convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

     15.7  Governing Law.  This Agreement is made in, and shall be governed by
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and construed in accordance with, the laws of the State of Maryland.

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     15.8  Counterparts.  This Agreement may be executed in three (3) or more
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counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.

     15.9  Indemnification.
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               (a) PQC shall ensure that the directors and officers liability
insurance purchased by Flagship or PQC on behalf of Shareholder shall include
coverage for any claims against Shareholder or liabilities arising out of
Shareholder's performance of the Shareholder's obligations under this Agreement
or the Shareholder's involvement, in the Shareholder's capacity as a shareholder
of Flagship (but not in the Shareholder's capacity as a physician), in a
proceeding involving alleged medical malpractice by a physician employee of
Flagship, and PQC shall indemnify Shareholder for any costs and expenses arising
out of such a proceeding in the event such costs and expenses are not reimbursed
pursuant to such policy.

               (b) Notification and Defense of Claim.  Not later than thirty 
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(30) days after receipt by Shareholder of notice of the commencement of any
action, suit or proceeding, Shareholder will, if a claim in respect thereof is
to be made against PQC under this Agreement, notify PQC of the commencement
thereof but the omission so to notify PQC will not relieve PQC from any
liability which it may have to Shareholder otherwise than under this Agreement.
With respect to any such action, suit, or proceeding as to which Shareholder
notifies PQC of the commencement thereof:

                    (i)  PQC will be entitled to participate therein at its own
expense;

                    (ii) Except as otherwise provided below, to the extent that
it may wish, PQC jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Shareholder. After notice from PQC to Shareholder of its
election so as to assume the defense thereof, PQC will not be liable to
Shareholder under this Agreement for any legal or other expenses subsequently
incurred by Shareholder in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Shareholder
shall have the right to employ separate Shareholder's counsel in such action,
suit, or proceeding but the fees and expenses of such counsel incurred after
notice from PQC of its assumption of the defense thereof shall be at the expense
of Shareholder unless (A) the employment of counsel by Shareholder has been
authorized by PQC, (B) Shareholder or Shareholder's counsel, in a written
opinion to PQC, shall have reasonably concluded that there may be a conflict of
interest between PQC and Shareholder in the conduct of the defense of such
action or (C) PQC shall not in fact have reasonably promptly employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of Shareholder's separate counsel shall be at the expense of PQC. PQC shall not
be entitled to assume the defense of any action, suit, or proceeding brought by
or on behalf of PQC or as to which Shareholder shall have made the conclusion
provided for in (B) above; and

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                    (iii) PQC shall not be liable to indemnify Shareholder under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. PQC shall be permitted to settle any
action except that it shall not settle any action or claim in any manner which
would impose any penalty or limitation on Shareholder without Shareholder's
written consent. Neither PQC nor Shareholder will unreasonably withhold its
consent to any proposed settlement.

                    [Rest of page intentionally left blank]

                                      -8-

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.

                                            PHYSICIANS QUALITY CARE, INC.    
                                                                             
                                                                             
                                                                             
                                            By:    /s/ Jerilyn P. Asher      
                                               ----------------------------  
                                                Name:  Jerilyn P. Asher      
                                                Title:    President          
                                                                             
                                                                             
                                                                             
                                            FLAGSHIP HEALTH, P.A.            
                                                                             
                                                                             
                                                                             
                                            By:   /s/ Laura M. Mumford       
                                               ----------------------------- 
                                                Name:  Laura M. Mumford      
                                                Title:    President          
                                                                             
                                                                             
                                                                             
                                                  /s/ Laura M. Mumford       
                                               ----------------------------- 
                                                 Laura M. Mumford, M.D.      

                                      -9-

                                   EXHIBIT A

                             NOTICE OF RESTRICTIONS

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
IMPOSED BY THE MARYLAND PROFESSIONAL SERVICE CORPORATION ACT.  APPROPRIATE
REGULATING BOARD(S), THE CORPORATION'S ARTICLES OF INCORPORATION AND BYLAWS AND
THE TERMS OF A SHAREHOLDER DESIGNATION AND RESTRICTED STOCK TRANSFER AGREEMENT
BY AND AMONG THE SHAREHOLDER NAMED HEREIN, THE CORPORATION AND ANOTHER PARTY (A
COPY OF WHICH IS ON FILE WITH THE CORPORATION AND AVAILABLE WITHOUT CHARGE), AND
NO TRANSFER OF THE SHARES REPRESENTED HEREBY OR OF SHARES ISSUED IN EXCHANGE
THEREFOR SHALL BE VALID OR EFFECTIVE UNTIL THE TERMS AND CONDITIONS OF SUCH
STATUTES, BOARD REQUIREMENTS, ORGANIZATIONAL DOCUMENTS AND AGREEMENT SHALL HAVE
BEEN FULFILLED IN THE JUDGMENT OF THE CORPORATION.

THE TRANSFER OF STOCK OF A PROFESSIONAL CORPORATION IS RESTRICTED BY THE
MARYLAND PROFESSIONAL SERVICE CORPORATION ACT AND IS SUBJECT TO FURTHER
RESTRICTION IMPOSED FROM TIME TO TIME BY THE LICENSING UNIT. STOCK OF A
PROFESSIONAL CORPORATION IS ALSO SUBJECT TO A STATUTORY COMPULSORY REPURCHASE
OBLIGATION.

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Basic Info X:

Name: SHAREHOLDER DESIGNATION AND STOCK TRANSFER AGREEMENT
Type: Stock Transfer Agreement
Date: April 30, 1997
Company: PHYSICIANS QUALITY CARE INC
State: Delaware

Other info:

Date:

  • December 11 , 1996
  • November 30 , 1996

Organization:

  • Physicians Quality Care , Inc.
  • Acquisition of Shares
  • Record Title to Shares
  • Shareholder 's Period of Designation
  • Effect of Transfer
  • Shares of Flagship to Shareholder and Shareholder
  • 4.1 Election of Directors of Flagship
  • All Other Matters
  • Board of Directors of Flagship
  • Period of Designation of Shareholder
  • the State of Maryland
  • Defense of Claim

Location:

  • Delaware
  • State of Maryland
  • United States
  • P.A

Person:

  • Jerilyn P. Asher
  • Laura M. Mumford