<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-28390
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2795795
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
777 East Park Drive, Harrisburg, PA 17111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code:
(800) 671-7747
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 the filing
requirements for at least the past 90 days.
Yes No X ,
-------- --------
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
4,086 shares of Class A common stock, $.01 par value per share
1,074 shares of Class B common stock, $.01 par value per share
(as of July 31, 1996)
Transitional Small Business Disclosure Format:
Yes X No
------- --------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
(Unaudited) (Restated)
June 30, December 31,
Assets 1996 1995
-------------------- -------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 19,184,364 $ 18,142,948
Due From Related Entity 18,531 18,531
Accrued Interest Income 82,776 76,571
Prepaid Insurance - 30,147
Accrued Income Taxes Receivable 99,529 -
-------------------- -------------------
Total Current Assets 19,385,200 18,268,197
Deferred Offering Costs - 227,341
Deferred Income Tax Benefit 66,471 28,571
--------------------- --------------------
Total Assets 19,451,671 18,524,109
===================== ====================
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities:
Accounts Payable - Management Company 58,648 78,130
Accounts Payable - Other 215,142 56,272
Accrued Income Taxes Payable - 28,571
Other Taxes Payable 1,775 44,966
-------------------- -------------------
Total Current Liabilities 275,565 207,939
-------------------- -------------------
Stockholders' Equity
Class A Common Voting Stock ($.01 Par Value; 40,000 Shares
authorized; 4,086 and 3,613 shares issued in 1996 and 1995
respectively) 41 36
Class B Common Non-Voting Stock ($.01 Par Value; 100,000
shares authorized; 1,074 and 918 shares issued in 1996 and
1995 respectively) 11 9
Class C Common Voting Stock ($.01 Par Value; 100 Shares
authorized; 0 shares issued) - -
Class D Common Non-Voting Stock ($.01 Par Value; 1,000,000
shares authorized; 0 shares issued) - -
Additional Paid In Capital - Class A Common Stock 20,202,304 18,064,964
Additional Paid In Capital - Class B Common Stock 1,013,473 917,991
Deficit Accumulated During the Development Stages (2,039,723) (666,830)
-------------------- -------------------
Total Stockholders' Equity 19,176,106 18,316,170
-------------------- -------------------
Total Liabilities and Stockholders' Equity $ 19,451,671 $ 18,524,109
==================== ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
Three Months Ended Six Months Ended Cumulative From
February 15, 1995
(date of
inception)
June 30, June 30, Inception to
Revenues: 1996 1995 1996 1995 June 30, 1996
--------------- --------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Contribution from Non-Profit
Corporation $ - $ 15,881 $ - $ 15,881 $ 34,412
Interest Income 252,018 - 483,591 - 649,636
--------------- --------------- -------------- ------------- -------------------
Total Revenue 252,018 15,881 483,591 15,881 684,048
--------------- --------------- -------------- ------------- -------------------
Expenses:
Legal Fees & Related Expenses 133,425 18,340 192,194 75,590 306,932
Management Consulting 165,000 75,264 221,035 98,200 555,586
Other Consulting 667,580 38,775 1,131,582 38,775 1,209,025
Administrative Expenses 59,621 43,967 117,926 75,636 426,655
Accounting 24,970 10,000 25,715 10,000 36,135
Payroll & Related Expenses 9,133 - 15,032 - 46,600
Interest Expense - 4,501 - 4,501 49,838
Other Taxes 48,000 - 53,000 - 93,000
-------------- --------------- ------------- -------------- --------------------
Total Expenses 1,107,729 190,847 1,856,484 302,702 2,723,771
--------------- --------------- -------------- ------------- -------------------
Loss Before Income Taxes (855,711) (174,966) (1,372,893) (286,821) (2,039,723)
--------------- --------------- -------------- ------------- -------------------
Income Taxes:
Current Tax Expense 9,450 - 37,900 - 66,471
Deferred Tax Benefit (9,450) - (37,900) - (66,471)
Net Loss $ (855,711) $ (174,966) $(1,372,893) $ (286,821) $ (2,039,723)
=============== =============== ============== ============= ====================
Weighted Average Loss per Common Share
(Based on weighted average shares of
5,160 and 0 as of three months ended
June 30, 1996 and 1995 respectively,
5,007 and 0 as of six months ended
June 30, 1996 and 1995 respectively,
and cumulative weighted average shares
of 2,420) $ (165.84) - $ (274.19) - $ (842.86)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Changes In Stockholders' Equity
Six-Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During
Common Stock Additional Paid in Capital The Development
Class A Class B Class C Class D Class A Class B Class C Stage Total
--------- --------- --------- ----------- ------------ ----------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 15, $ - $ - $ - $ - $ - $ - $ - $ - $ -
1995 (date of inception)
Net loss - - - - - - - (286,821) (286,821)
Issuance in June 1995 - - 1 - - - 2,499 - 2,500
of 25 Shares of Class C
Common Stock
--------- --------- --------- ----------- ------------ ----------- ---------- ----------------- ----------
Balance, June 30, 1995 - - - - - 2,499 (286,821) (284,321)
========= ========= ========= =========== ============ =========== ========== ================= ==========
Redemption in December - - (1) - - - (2,499) - (2,500)
1995 of 25 shares of
Class C Common Stock
and Liquidation of
Subordinated Notes
Payable
Issuance in December 1 - - - 124,499 - - - 125,000
1995 of 25 Shares of
Class A Common Stock
Issuance in December 35 - - - 17,939,965 - - - 17,940,000
1995 of 3,588 Shares of
Class A Common Stock
Issuance in December - 9 917,991 918,000
1995 of 918 Shares of
Class B Common Stock
Net loss - - (380,009) (380,009)
--------- --------- --------- ----------- ------------ ----------- ---------- ----------------- ----------
Balance, December 31, 1995 36 9 18,064,964 917,991 (666,830) 18,316,170
========= ========= ========= =========== ============ =========== ========== ================ ==========
Issuance in 5 - - - 2,364,995 - - - 2,365,000
January-March 1996 of
473 Additional Shares
of Class A Common Stock
Issuance in - 2 - - - 155,998 - - 156,000
January-March 1996 of
156 Additional Shares
of Class B Common Stock
Charge-off of Deferred - - - - (227,655) (60,516) - - (288,171)
Offering Costs - March
1, 1996
Net loss - - - - - - - (1,372,893) (1,372,893)
--------- --------- --------- ----------- ------------ ----------- ---------- ---------------- ----------
Balance, June 30, 1996 $ 41 $ 11 $ - $ - $20,202,304 $1,013,473 $ - $ (2,039,723)$19,176,106
========= ========= ========= =========== ============ =========== ========== ================ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Cumulative From
June 30, Inception to
1996 1995 June 30, 1996
---------------- --------------- -----------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (855,711) $ (174,966) $ (2,039,723)
Adjustments to reconcile net loss to net cash (used)
in operating activities:
(Increase) in Due From Related Entity - - (18,531)
(Increase) in Accrued Interest Income (1,623) - (82,776)
(Increase) Decrease in Prepaid Insurance 15,100 (59,682) -
(Increase) in Income Taxes Receivable (99,529) - (99,529)
(Increase) in Deferred Income Tax Benefit (9,450) - (66,471)
Increase (Decrease) in Accounts Payable - Mgmt. Co. 3,648 (26,103) 58,648
Increase in Accounts Payable - Other (189,934) (16,953) 215,142
(Decrease) in Accrued Income Taxes Payable (57,021) 4,501 -
Increase (Decrease) in Other Taxes Payable (45,000) - 1,775
---------------- --------------- -----------------------
Net Cash (Used) In Operating Activities (1,239,520) (273,203) (2,031,465)
---------------- --------------- -----------------------
Cash Flows From Investing Activities: - -
---------------- --------------- -----------------------
Cash Flows From Financing Activities:
Receipt of Director Cash Advances - - 123,000
Return of Director Cash Advances - (123,000) (123,000)
Borrowings Under Line-of-Credit - 392,500 -
Proceeds from Issuance of Subordinated Notes Payable - 122,500 -
Proceeds from Issuance of Class C Common Stock - 2,500 -
Proceeds from Issuance of Class A Common Stock - - 20,202,345
Proceeds from Issuance of Class B Common Stock - - 1,013,484
Deferred Offering Costs - (87,163) -
---------------- --------------- -----------------------
Net Cash Flows Provided from Financing Activities - 307,337 21,215,829
---------------- --------------- -----------------------
Net Cash Increase (Decrease) in Cash and Cash Equivalents (1,239,520) 34,134 19,184,364
Cash and Cash Equivalents:
Beginning 20,423,884 119,729 -
---------------- --------------- -----------------------
Ending $ 19,184,364 $ 153,863 $ 19,184,364
================ =============== =======================
Supplemental Disclosures:
Interest Paid $ - $ _ $ 49,838
Income Taxes Paid $ 166,000 $ _ $ 166,000
Supplemental Schedule Of Non-Cash Investing And Financing
Activities:
25 Shares of Class C - Common Stock for a total of $2,500, together with
each of 25 Subordinated Notes Payable for a total of $122,500 were redeemed
in exchange for 25 shares of Class A - Common Stock in December, 1995
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
(A Development Stage Company)
Notes to Financial Statements
Note A - Development Stage Operations:
Pennsylvania Physician Healthcare Plan, Inc. (the
"Corporation") was formed as a Pennsylvania for-profit
corporation in February 1995, under the direction of private
practicing physicians to develop a statewide physician owned
and controlled managed care organization. The Corporation is
in its developmental stage, and its activities have consisted
primarily of raising capital through a public stock offering,
obtaining the necessary license to operate as a managed care
organization and developing a business plan.
The Corporation has adopted a fiscal year end of December 31.
Note B - Summary of Significant Accounting Policies:
Unaudited Financial Statements
The unaudited financial statements should be read in
conjunction with the audited financial statements as of
December 31, 1995 and reflect, in the opinion of management,
all adjustments necessary to fairly state the results of
operations for such periods.
The results of operations for the three and six-month periods
ended June 30, 1996 and 1995 are not necessarily indicative of
the results of operations expected for the full year.
The notes to the financial statements are condensed and may
not include all information that is required to be disclosed
by generally accepted accounting principles.
Deferred Offering Costs
Through December 31, 1995, the Corporation deferred certain
direct costs of $227,341 incurred in connection with its stock
offering. As of March 1, 1996, the Corporation had deferred an
additional $60,830 of similar costs. On March 1, 1996, upon
completion of the initial stock offering, the Corporation
accordingly charged $288,171 of deferred offering costs to
additional paid-in capital as a direct deduction of the
proceeds of such offerings.
<PAGE>
Notes To Financial Statements
Note B - Continued
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
Earning Per Common Share
Earnings per common share have been computed based upon the
weighted average number of common shares outstanding.
Cash and Cash Equivalents
Cash and cash equivalents consist of funds held at depository
institutions and a U.S. Treasury Securities Fund with
maturities of three months or less.
Note C - Restrictions on Cash:
Included in cash and cash equivalents are $19,184,364 of
proceeds of the Corporation's 1995-1996 public offering of
shares, which are to be used for various expenses of
establishing a managed care business, as specified in the
prospectus for the offering. Approximately $9,691,000 of these
proceeds may be used only after licensure of the managed care
business is attained; otherwise, such funds, less claims of
creditors, must be distributed to the shareholders, unless
holders of a majority of the voting shares elect otherwise.
Note D - Management Agreement:
The Corporation has retained Infinity Management Services,
Inc. ("Infinity"), a wholly owned subsidiary of the
Pennsylvania Medical Society Liability Insurance Company, to
manage the Corporation.
<PAGE>
Notes To Financial Statements
Note D - Continued
Infinity has incurred $337,400 and $129,081 of various costs
on behalf of the Corporation as of June 30, 1996 and 1995
respectively, as follows:
1996 1995
---- ----
Management Fees $321,035 $98,200
Reimbursable Business Expenses 16,365 30,881
------ -------
Total $337,400 $129,081
======= =======
Accounts payable to Infinity for management fees and
reimbursable business expenses totaled $58,648 as of June 30,
1996.
Note E - Income Taxes:
For federal and state income tax purposes, certain expenses
incurred by a corporation in its development stage are not
currently deductible as business expenses. Instead, these
expenses accumulate until the corporation is actively in
business, at which time the expenses are deductible over a
period of five years. For the period February 15, 1995 (Date
of Inception) to June 30, 1996, the Corporation incurred
expenses totaling $2,267,331 that will, for federal and state
income tax purposes, be deferred until future years. In order
to recognize the income tax benefit of deducting these
expenses in the future, the Corporation has recorded a
deferred income tax benefit totaling $920,536, which was
reduced by a valuation allowance of $854,065. Management
recorded the valuation allowance to reduce the deferred income
tax benefit to its estimated realizable value in light of
management's judgment about the Corporation's ability to
realize the deferred income tax benefit (See Note J).
The Corporation has, for the six month period ended June 30,
1996, earned interest totaling $483,591 that is currently
taxable for federal income tax purposes. This interest income,
less deductible expenses, yields a federal taxable income for
the period of $111,401. Income taxes currently receivable
total $99,529.
The Corporation incurred a net operating loss for state income
tax purposes of $372,190, which will be available to offset
taxable income through December 31, 1998.
<PAGE>
Notes To Financial Statements
Note F - Restatement:
The December 31, 1995 financial statements and notes thereto
have been restated to give effect to a change in management's
judgment as to the realizability of a deferred income tax
benefit arising from deferring recognition of certain expenses
incurred in the Corporation's development stage for income tax
purposes (See Note E). Management had previously believed that
it was more likely than not the Corporation would generate
sufficient taxable income in future years to utilize expenses
totaling $783,037 not currently deductible for income tax
purposes. Accordingly, a valuation allowance against the
deferred income tax benefit was not recorded.
Management believes that their original judgment as to
realizability did not appropriately reflect the then existing
facts and circumstances. Management therefore believes that
restating the financial statements for the period February 15,
1995 (Date of Inception) to December 31, 1995 is appropriate.
The effect of the restatement was to reduce the deferred
income tax benefit on the balance sheet by $293,338 and to
reduce the deferred income tax benefit provision on the
statement of operations by the same amount. The effect of the
restatement was to change the net loss for the period February
15, 1995 (Date of Inception) to December 31, 1995, from
($373,492) to ($666,830), and change the weighted average loss
per common share from ($384.25) to ($684.04).
<PAGE>
Item 2. Management's Discussion and Analysis on Plan of Operation.
There have been no material changes in Registrant's plan of
operations as set forth in form 10-SB, effective June 20, 1996
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(ii) Bylaws as amended July 13, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be filed on its behalf by the undersigned, thereunto duly
authorized:
Pennsylvania Physician Healthcare
Plan, Inc.
(Registrant)
Date: 8/14/96 By: /s/ Gary C. Brown
--------------------------- --------------------------------
Gary C. Brown M.D., President
Date: 8/14/96 By: /s/ Richard J. Minehart
--------------------------- --------------------------------
Richard J. Minehart, M.D., Treasurer
<PAGE>
Exhibit 3(ii)
BYLAWS
of
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
Adopted June 24, 1995,
as amended August 5, 1995 and July 13, 1996
ARTICLE I - OFFICES
1.1 Offices. The Corporation may have such offices as the
board of directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II - SEAL
2.1 Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Pennsylvania".
ARTICLE III - SHAREHOLDERS' MEETINGS
3.1 Location of Shareholders' Meetings. Meetings of
shareholders shall be held at the registered office of the Corporation or at
such other place as shall be determined by the board of directors.
3.2 Annual Meeting. The annual meeting of the voting
shareholders shall be held each year on such date and at such time between March
1 and June 30 as shall be determined by the board of directors for the purpose
of electing directors and for the transaction of such other business as may be
properly brought before the meeting. In each election of directors, the
candidates receiving the highest number of votes, up to the number of directors
to be elected in such election, shall be elected.
3.3 Quorum. The presence, in person or by proxy, of
shareholders entitled to cast at least one third of the votes which all
shareholders are entitled to cast on the particular matter shall constitute a
quorum for the purpose of considering such matter. The shareholders present at a
duly organized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
3.4 Action by Shareholders. Except as otherwise specified
herein or provided by law, whenever any action is to be taken by vote of the
shareholders, it shall be authorized upon
<PAGE>
receiving the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon.
3.5 Vote for Sale of Corporation. Any vote of shareholders
having the effect of the acquisition of substantially the entire business of the
Corporation by any person, whether a plan of merger, sale or other disposition
of all or substantially all the assets, or otherwise, shall require the
affirmative vote of ninety (90) percent of the votes cast by all shareholders
entitled to vote thereon.
3.6 Notice of Meetings. Written notice of every meeting of the
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at least ten days prior to the day named for a meeting called to
consider a fundamental change under Chapter 19 of the Business Corporation Law
of 1988, as amended, or at least five days prior to the day named for other
meetings, unless a greater period of notice is required in a particular case by
law.
3.7 Adjourned Meetings. When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the board
of directors fixes a new record date for the adjourned meeting.
3.8 Judges of Election. In advance of any meeting of
shareholders, the board of directors may appoint judges of
election, who need not be shareholders, to act at such meeting or
any adjournment thereof. If judges of election are not so
appointed, the presiding officer of any such meeting may, and on
the request of any shareholder shall, make such appointment at the
meeting. The number of judges shall be one or three. No person
who is a candidate for office shall act as a judge. The judge[s]
of election may rely upon a certification by the shareholder of
record, in a form determined by the Corporation, as to whether the
holder of Class A Common Stock meets the voting eligibility
requirements set forth in the Corporation's Articles of
Incorporation, as amended.
3.9 Special Meetings. Except as otherwise provided by law,
special meetings of shareholders may be called by and held at such places as
shall be fixed by the President or the board of directors. The Secretary of this
Corporation shall, within three business days after receipt of a written request
by persons who have duly called such meeting, fix the time of the meeting, which
shall be held not more than 60 days after receipt of the request, and the
Secretary or the President shall give notice thereof to the shareholders. If the
Secretary neglects or refuses, within such
-2-
<PAGE>
three business days to fix the time of the meeting, then the President or the
board of directors may do so.
3.10 Record Date. The books of the Corporation shall not be
closed against transfers of shares. The record date for determining shareholders
for any purpose where such date has not been fixed by the board of directors or
by law, shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
3.11 Voting Eligibility.
(A) For purposes of determining whether a holder of
Class A Common Stock meets the voting eligibility requirements set forth in the
Corporation's Articles of Incorporation, as amended, and for purposes of
determining the qualifications for director under Section 4.1 of these bylaws,
"Oral surgeons" shall mean dentists Board certified or eligible for Board
certification by the American Board of Oral and Maxillofacial Surgery.
(B) For purposes of determining whether a holder of
Class A Common Stock meets the voting eligibility requirements set forth in the
Corporation's Articles of Incorporation, as amended, where a holder of record of
Class A Common Stock is a retirement plan, the plan may vote one and only one
share if either:
(i) the retirement plan is a "self- directed
plan," and a practicing physician (medical
doctor or doctor of osteopathy), podiatrist
or oral surgeon is the beneficiary of the
plan and directs the investments in the plan;
or
(ii) all trustees of the plan are practicing
physicians, podiatrists or oral surgeons and
the plan holds Class A shares equal to the
number of trustees.
ARTICLE IV - DIRECTORS
4.1 Number of Directors; Election; Term. The business of this
Corporation shall be managed by a board of directors, consisting of not less
than 15 in number. All directors shall be natural persons of full age,
shareholders of the Corporation and actively practicing physicians (medical
doctors and doctors of osteopathy), podiatrists, or oral surgeons in the
Commonwealth of Pennsylvania. The initial board of directors elected by the
incorporator shall hold office until the first annual meeting of shareholders.
The directors elected at the first annual meeting of shareholders shall be
classified with respect to the time for which they shall severally hold office
by dividing them into three (3) classes, as nearly equal in number as possible.
The first three
-3-
<PAGE>
(3) classes elected pursuant to this section shall serve for terms of one (1),
two (2) and three (3) years, respectively, and until the director's successor
shall have been elected and qualified, or the director's earlier resignation or
removal. Thereafter, at each annual meeting of shareholders, the successors to
the class of directors whose term expires that year shall be elected to hold
office for terms of three (3) years, and until the director's successor shall
have been elected and qualified, or the director's earlier resignation or
removal. The number of directors to be elected by the shareholders in any year
shall be determined by the voting shareholders at the annual meeting, and in the
absence of such a determination, shall be the same number as in the preceding
year. Within the limits stated in this paragraph, the number of directors may be
increased at any time by the board of directors.
4.2 Quorum. Thirty-five percent (35%) of the directors in
office shall be necessary to constitute a quorum for the transaction of business
and the acts of a majority of the directors present at a meeting at which a
quorum is present shall be the acts of the board of directors.
4.3 Regular and Special Meetings-Timing, Location and Notice.
Regular and special meetings of the board of directors shall be held at such
times and places as shall be fixed by the board of directors. Special meetings
may be called by the president or chairman of the board of directors. Notice of
every special meeting of the board of directors shall be given to each director
by telephone or in writing at least 24 hours (in the case of notice by
telephone, telex, TWX or telecopy) or 48 hours (in the case of notice by
telegraph, courier service, or express mail) or five (5) days (in the case of
notice by first class mail) before the time at which the meeting is to be held.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board need be specified in the notice of the meeting.
4.4 Committees Generally. The board of directors may, by
resolution adopted by a majority of the directors in office, establish one or
more committees, in addition to those established under the Bylaws at Section
4.6 below, each committee to consist of one or more of the directors. A
committee, to the extent provided in the resolution of the board of directors
creating it, shall have and may exercise all of the powers and authority of the
board of directors except that a committee shall not have any power or authority
regarding: (i) the submission to shareholders of any action requiring the
approval of shareholders under the Pennsylvania Business Corporation Law of
1988, as amended, (ii) the creation or filling of vacancies in the board of
directors, (iii) the adoption, amendment or repeal of the bylaws, (iv) the
amendment, adoption or repeal of any resolution of the board that by its terms
is amendable or repealable only by the board, or (v) action on matters committed
by the bylaws or resolution of the board to another committee of the board. The
board may designate one or more directors as alternate members of any committee
who may
-4-
<PAGE>
replace any absent or disqualified member at any meeting of the committee or for
the purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member. Each committee of the board shall serve at the pleasure of the board.
4.5 Committee Procedures. The term "board of directors" or
"board," when used in any provision of these Bylaws relating to the organization
or procedures of or the manner of taking action by the board of directors, shall
be construed to include and refer to any executive or other committee of the
board. The board of directors shall appoint one member of each committee to
serve as chairman of that committee. Each chairman shall preside at all meetings
of his or her committee.
4.6 Specific Committees.
1. Executive Committee
Among other duties assigned to it by Board resolution, the
Executive Committee shall have and may exercise all the powers and authority of
the Board of Directors between meetings of the Board of Directors, except as
restricted by Section 4.4 of these bylaws, or as otherwise restricted by law.
2. Audit Committee
The Audit Committee, to the extent permitted by law or
regulation applicable to the Corporation, shall recommend the firm to be
employed as the Corporation's independent auditor, and review and approve the
discharge of any such firm. The Audit Committee shall also review and approve
the independent auditor's compensation, the terms of its engagement, and the
independence of such auditor. The Audit Committee shall, in consultation with
the independent auditor: Review the results of each external audit of the
Corporation, the report of the audit, any related management letter and
management's responses to recommendation made by the independent auditor in
connection with the audit, the Corporation's annual financial statements, any
certification, report, opinion, or review rendered by the independent auditor in
connection with those financial statements, and any significant disputes between
management and the independent auditor that arose in connection with the
preparation of those financial statements. In consultation with the independent
auditor, the Corporation's chief financial officer and the chief internal
auditor, if any, the Audit Committee shall consider the adequacy of the
Corporation's internal audit controls. The Audit Committee shall also consider,
when presented by the independent auditor, a principal senior executive, or
otherwise, material questions of choice with respect to the
-5-
<PAGE>
appropriate auditing and accounting principles and practices to be used in the
preparation of the Corporation's financial statements.
ARTICLE V - ACTION BY WRITTEN CONSENT AND USE
OF CONFERENCE TELEPHONE
5.1 Actions by Unanimous Written Consent. Any action required
or permitted to be taken at any meeting of the shareholders or the directors, or
of any committee of directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto in writing setting forth
the action so taken is signed by all the shareholders who would be entitled to
vote at a meeting for such purpose, or by all of the directors in office, or by
all of the members of such committee in office, as the case may be, and is filed
with the Secretary of the Corporation.
5.2 Participation in Meetings by Conference Telephone. One or
more persons may participate in a meeting of the shareholders, of the directors,
or of any committee of directors, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at the meeting.
5.3 Actions by Partial Written Consent of Shareholders. Any
action required or permitted to be taken at a meeting of the shareholders or of
a class of shareholders may be taken without a meeting upon the written consent
of shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting. The action shall
not become effective until after at least ten days' written notice of the action
has been given to each shareholder entitled to vote thereon who has not
consented thereto.
ARTICLE VI - OFFICERS
6.1 Officers; Term. The Corporation shall have a President,
Secretary, and Treasurer and such other officers and assistant officers as the
board of directors shall authorize from time to time who shall be elected or
appointed by the board of directors each to serve for such term as shall be
determined by the board of directors and until his or her successor is chosen
and shall have qualified or until his or her earlier resignation or removal. Any
of the foregoing offices may be held by the same person.
6.2 Authority and Duties of Officers. The officers shall have
such authority and perform such duties customarily associated with their
respective offices unless the board of directors shall determine otherwise.
Unless otherwise determined
-6-
<PAGE>
by a resolution of the board of directors, the Board shall also fix
the compensation of all officers of the Corporation.
6.3 Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors with or without
cause, without prejudice to the contract rights, if any, of the person so
removed.
ARTICLE VII - SHARE CERTIFICATES
7.1 Execution of Share Certificates. Every share certificate
shall be executed by facsimile or otherwise, by or on behalf of the Corporation,
by the President and countersigned by the Treasurer or an Assistant Treasurer or
by the Secretary or an Assistant Secretary. In the event any officer who has
signed, or whose facsimile signature has been placed upon any share certificate
shall have ceased to be such officer because of resignation, removal or
otherwise, before the certificate is issued, it may be issued by the Corporation
with the same effect as if the officer had not ceased to be such at the date of
issue.
7.2 Transfers of Shares. Transfers of shares shall be made on
the books of the Corporation upon surrender of the certificates therefor,
endorsed by the person named in the certificates. No transfer shall be made in a
manner inconsistent with the provisions of Article VIII of the Pennsylvania
Uniform Commercial Code and its amendments and supplements.
7.3 Lost Certificates. Any person claiming a share certificate
to be lost or destroyed shall be issued a new certificate after furnishing the
Corporation with a satisfactory affidavit that such certificate has been lost or
destroyed, and, if required by the board of directors, a bond of indemnity to
the Corporation with satisfactory surety to protect the Corporation or any
person injured by the issue of a new certificate from any liability or expense
by reason thereof.
ARTICLE VIII - INDEMNIFICATION AND LIMITATION
OF DIRECTOR LIABILITY
8.1 Indemnification. Any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (whether or
not the liability arises or arose from any threatened, pending or completed
action by or in the right of the Corporation) by reason of the fact that the
person at any time is or shall have been a director or officer of the
Corporation or any of its subsidiaries, or is or shall have been serving at the
written request of the Corporation as a director, officer, employee or agent of
another Corporation, for profit or not-for-profit, partnership, joint venture,
trust or other enterprise, and such person's heirs, executors and
-7-
<PAGE>
administrators, shall be indemnified by the Corporation, to the fullest extent
permitted by applicable law, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action or proceeding unless the act or
failure to act giving rise to the claim for indemnification is determined to
have constituted willful misconduct or recklessness. The determination that
indemnification shall be made because such standard of conduct has been met may
be made by a court, or in the absence of a court determination, shall be made by
the board by a majority vote of any directors who were not parties to the action
or proceeding, even though such directors are less than a quorum, or, if no
directors are disinterested, by independent legal counsel in a written opinion.
8.2 Advancing Expenses. Expenses (including attorneys' fees)
incurred in defending any action or proceeding referred to in Section 8.1 shall
be paid by the Corporation in advance of the final disposition of the action or
proceeding upon receipt of an undertaking by or on behalf of the person to be
indemnified to repay the amount if it is ultimately determined that he or she is
not entitled to be indemnified by the Corporation as authorized by these bylaws
or otherwise.
8.3 Contract Right. The right of a person covered by Section
8.1 hereof to be indemnified or to receive an advancement or reimbursement of
expenses pursuant to Section 8.2 hereof (1) may also be enforced as a contract
right pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
Corporation and such person, and (2) shall continue to exist, if this Article 8
is rescinded or restrictively modified, with respect to events, acts or
omissions occurring before such rescission or restrictive modification is
adopted.
8.4 Non-Exclusivity of Indemnification; Insurance. The
foregoing right of indemnification shall not be deemed exclusive of other rights
to which any director, officer, employee, agent or other person may be entitled
in any capacity as a matter of law or under any bylaw, agreement, vote of
directors, or otherwise. The Corporation may purchase and maintain insurance on
behalf of any person to the full extent permitted by Pennsylvania law as in
effect at the adoption of this bylaw or as amended from time to time. The
Corporation may create a fund of any nature which may, but need not be, under
the control of a trustee, or otherwise secure or insure in any manner its
indemnification under this bylaw.
8.5 Limitation of Director Liability. Each person who at any
time is or shall have been a director of this Corporation shall not be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, unless: (1) such person as director has breached or
failed to perform the duties of his office under 15 Pa.C.S. Subchapter 17B, and
(2) the breach or
-8-
<PAGE>
failure to perform constitutes self dealing, willful misconduct or recklessness.
The provisions of this bylaw shall not apply to: (1) responsibility or liability
of such person as director pursuant to any criminal statute; or (2) the
liability of a director for payment of taxes pursuant to local, state or federal
law. The provisions of this bylaw shall be construed to limit the liability of
such person as director in accordance with and to the full extent permitted by
Pennsylvania law as in effect at the time of the adoption of this bylaw or as
amended from time to time.
ARTICLE IX - NOTICE
9.1 Manner of Giving Notice. Except as otherwise specifically
provided in these bylaws, whenever the Corporation is required to give written
notice to any person under these bylaws or by statute, it may be given to such
person, either personally or by sending a copy thereof by first class or express
mail, postage prepaid, or by telegram (with messenger service specified), telex
or TWX (with answerback received), courier service, charges prepaid, or by
telecopier) to his address (or to his telex, TWX, telecopier or telephone
number) appearing on the books of the Corporation or, in the case of directors,
supplied by him to the Corporation for the purpose of notice. If the notice is
sent by mail, telegraph or by courier service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail,
with a courier service or with a telegraph office for delivery to such person
or, in the case of telex or TWX, when dispatched. Such notice shall specify the
place, day and hour of the meeting and, in the case of a special meeting of
shareholders, the general nature of the business to be transacted.
ARTICLE X - AMENDMENTS
10.1 Amendments to Bylaws. Except as otherwise provided in
this Section 10.1, the bylaws of the Corporation may be amended or repealed by a
majority vote of the members of the board of directors, unless otherwise
provided by law, subject always to the power of the shareholders entitled to
vote to change such action. Notwithstanding the foregoing or any of the other
provisions of these Bylaws, Section 3.5 of the Bylaws may not be amended or
repealed except by an affirmative vote of ninety (90%) percent of the votes cast
by all shareholders entitled to vote thereon.
ARTICLE XI - FISCAL YEAR
11.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the board of directors.
-9-
<PAGE>
ARTICLE XII - CORPORATE DIVISION
12.1 Plan of Division. Any plan of division shall require
approval of the shareholders, in the manner provided in Section 3.4 hereof,
notwithstanding any provision in the Pennsylvania Business Corporation Law of
1988, as amended, to the contrary.
ARTICLE XIII - SHARE TRANSFERS
13.1 Share Transfers.
(A) A shareholder of record of a Class A share may
not voluntarily transfer for value such Class A share except (i) to a transferee
who is a shareholder of record of a Class A share who is entitled to vote such
Class A share; or (ii) to a transferee who will be entitled to vote the
transferred Class A share.
(B) A shareholder of record of a Class B share may
not voluntarily transfer for value such Class B share except to a transferee who
is a shareholder of record of a Class A share who is entitled to vote such Class
A share.
(C) The Corporation may rely upon a certification of
the transferee, in a form determined by the Corporation, to establish the voting
eligibility of the transferee.
(D) For purposes of this Section, "voluntary transfer
for value" shall not include gifts, transfers by operation of law, or any other
involuntary transfer or involuntary disposition.
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SAID FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,184,364
<SECURITIES> 0
<RECEIVABLES> 200,836
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,385,200
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,451,671
<CURRENT-LIABILITIES> 275,565
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 19,176,054
<TOTAL-LIABILITY-AND-EQUITY> 19,451,671
<SALES> 0
<TOTAL-REVENUES> 252,018
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,107,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (855,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (855,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (855,711)
<EPS-PRIMARY> (165.84)
<EPS-DILUTED> 0
</TABLE>
