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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
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(Name of Registrant as Specified In Its Charter)
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
651 EAST PARK DRIVE
HARRISBURG, PENNSYLVANIA 17111
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NOTICE OF SPECIAL MEETING OF CLASS A AND CLASS B SHAREHOLDERS
TO BE HELD NOVEMBER 14, 1998
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NOTICE IS HEREBY GIVEN that a Special Meeting of Class A and Class B
Shareholders of Pennsylvania Physician Healthcare Plan, Inc. (the "Company")
will be held at the offices of the Pennsylvania Medical Society, 777 East Park
Drive, Harrisburg, PA on Saturday, November 14, 1998, at 9:30 a.m. for the
following purposes:
1. For the holders of the Class A and Class B Shares to approve the
Plan of Recapitalization and the Amended and Restated Articles of
Incorporation of the Company which will (a) create a new class of
voting common stock; (b) change the voting rights of the Class A
Shares; (c) provide for the conversion of the Class A and Class B
Shares into shares of a new class of common stock; (d) restrict the
transferability of the shares of the new class of common stock into
which the Class A and Class B Shares are converted if the conversion
occurs prior to January 1, 2000; and (e) authorize the issuance of a
new class of preferred stock by the Company, the terms of which will
be determined at a later date by the Board of Directors;
2. For the holders of the Class A Shares (only) to approve amendments
to Section 3.5 and Section 10.1 of the Company's bylaws which will
change the percentage shareholder vote required to (a) authorize the
sale of the Company and (b) further amend Section 3.5 of the bylaws;
3. For the holders of the Class A Shares (only) to approve a stock
option plan for officers and full-time employees of the Company; and
4. To consider and transact such other business as may properly come
before the meeting.
Class A and Class B Shareholders of record on October 3, 1998, are
entitled to notice of and to vote at the Special Meeting; however, Class B
Shareholders will be entitled to vote only with respect to the approval of the
Company's Plan of Recapitalization and the Amended and Restated Articles of
Incorporation and not on any other matter to be voted on at the meeting.
THE BOARD OF DIRECTORS HOPES THAT YOU WILL FIND IT CONVENIENT TO ATTEND
THE SPECIAL MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. RETURNING YOUR PROXY DOES NOT DEPRIVE YOU OF
YOUR RIGHT TO ATTEND THE SPECIAL MEETING AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
Krista G. Maddigan, Secretary
October __, 1998
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PRELIMINARY COPY
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
651 EAST PARK DRIVE
HARRISBURG, PENNSYLVANIA 17111
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PROXY STATEMENT
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SPECIAL MEETING OF CLASS A AND CLASS B SHAREHOLDERS
TO BE HELD ON NOVEMBER 14, 1998
Approximate Date of Mailing:
October 19, 1998
This Proxy Statement is being mailed by the Board of Directors (the
"Board") of the Company to shareholders to solicit proxies for use at a special
meeting of shareholders (the "Meeting") to be held on Saturday, November 14,
1998, at 9:30 a.m. local time, at the offices of the Pennsylvania Medical
Society, 777 East Park Drive, Harrisburg, Pennsylvania and at such other times
and places to which the Meeting may be adjourned.
All Class A Shares represented by valid Proxies, unless the shareholder
otherwise specifies, will be voted (i) FOR approval of a Plan of
Recapitalization and Amended and Restated Articles of Incorporation for the
Company; (ii) FOR approval of amendments to Sections 3.5 and 10.1 of the
Company's Bylaws; (iii) FOR approval of a Stock Option Plan for the officers and
full-time employees of the Company; and (iv) at the discretion of the
Proxyholders with regard to any other matters which may properly come before the
Meeting and any adjournment thereof.
All Class B Shares represented by valid Proxies, unless the shareholder
otherwise specifies, will be voted (i) FOR approval of the Plan of
Recapitalization and Amended and Restated Articles of Incorporation; and (ii) at
the discretion of the Proxyholders with regard to any other matters that may
properly come before the Meeting and any adjournment thereof on which the
holders of Class B shares are entitled to vote. Unless the shareholder otherwise
specifies, the Proxyholders will vote both the Class A and Class B Shares in
accordance with the authority granted in the Proxy for all shareholders who hold
both Class A and Class B Shares.
Any shareholder executing a Proxy retains the right to revoke it at any
time before it is exercised at the Meeting. A Proxy may be revoked by delivery
of written notice to the Secretary of the Company, by execution of a later Proxy
or by voting shares in person at the Meeting. If not revoked, all shares
represented by properly executed Proxies will be voted as directed therein.
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Securities Entitled to Vote
Class A and Class B shareholders of record on October 3, 1998 are
entitled to notice of and to vote at the Meetings. However, Class B shareholders
will be entitled to vote only with respect to the adoption of the Company's Plan
of Recapitalization and the Amended and Restated Articles of Incorporation and
not on any other matter to be voted on at the Meeting. On the record date, there
were 4,087 shares of Class A voting common stock (the "Class A Shares")
outstanding and 1,074 shares of Class B non-voting common stock (the "Class B
Shares") outstanding. Only holders of record of Class A and Class B Shares who
are practicing physicians (medical doctors or doctors of osteopathy),
podiatrists and oral surgeons (or their Qualified Retirement Plans) may vote on
any of the matters presented at the Meeting as to which a holder of such share
may be entitled to vote (see Exhibit "A" for certain "Definitions"). Each holder
of Class A Shares is entitled to only one vote, regardless of the number of
Class A Shares held.
The holders of shares entitled to cast not less than one-third of the
votes must be present in person or represented by proxy at the Meeting in order
to constitute a quorum for the transaction of business. All shares present in
person or represented by proxy and entitled to vote are counted for quorum
purposes. With respect to the approval of the Plan of Recapitalization and the
Amended and Restated Articles of Incorporation, the quorum requirement is
one-third of the Class A Shares entitled to vote and one-third of the Class B
Shares. For all matters other than the amendment of the Company's bylaws,
approval of the matters to be voted upon requires the affirmative vote of a
majority of the votes of shares present in person or by proxy and entitled to
vote on such matter. Approval of the amendment of the Company's bylaws requires
the affirmative vote of ninety percent (90%) of the votes entitled to be cast by
all Class A shareholders. Class B shareholders are not entitled to vote on the
amendment of the bylaws. Abstentions will be counted solely for the purpose of
determining whether a quorum is present.
Approval of Plan of Recapitalization and Amended and Restated Articles of
Incorporation
THE BOARD RECOMMENDS THAT THE HOLDERS OF THE CLASS A SHARES AND THE
CLASS B SHARES VOTE TO APPROVE THE ADOPTION OF A TAX-FREE PLAN OF
RECAPITALIZATION AND THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S ARTICLES OF
INCORPORATION. The forms of the proposed Plan of Recapitalization (the "Plan")
and the Amended and Restated Articles of Incorporation (the "Restated Articles")
are attached to this Proxy Statement as Exhibits "B"and "C". In general, the
Plan and the Restated Articles will change the voting rights of the Class A
Shares, create new classes of both common and preferred stock, provide for the
conversion of the outstanding Class A and Class B Shares to shares of a new
class of voting common stock and simplify the shares of the Company by
eliminating the Class C and Class D common stock. These changes to the Articles
of Incorporation are described in more detail below.
1. Change in Voting Rights of Class A Shares. The rights of Class A
Shares will be modified to provide that, upon the issuance by the Company of any
shares of Common Stock, holders of Class A Shares will be entitled to cast 400
votes for each share of Class A common
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stock held on all matters presented to the shareholders for a vote. The holders
of Class A Shares currently have only one vote per person regardless of the
number of shares held. The purpose of this change is to simplify the voting
rights of the Class A Shares. The Plan does not provide for any change in the
voting rights of the Class B Shares, which are non-voting except where required
by law.
2. Conversion of Class A and Class B Shares. The Class A and Class B
Shares will be changed to permit the voluntary conversion of Class A Shares and
Class B Shares into shares of a new class of voting common stock to be called
the "Common Stock" on or after January 1, 1999 at the election of the holder and
to require conversion effective as of January 1, 2000. The conversion ratio will
be 400 shares of Common Stock for each Class A Share and 100 shares of Common
Stock for each Class B Share. The rights of holders of shares of Common Stock
are described below under the caption, "Common Stock". The Company believes the
conversion of shares will be a tax-free exchange under Section 368(a)(1)(E) of
the Internal Revenue Code of 1986, as amended, although it has not obtained a
ruling from the Internal Revenue Service to that effect. In such event, there
would be no taxable gain or loss to the holders of the Company's Class A and
Class B Shares as a result of the conversion of such shares into shares of the
Company's Common Stock.
The purposes for converting the Class A and Class B Shares to shares of
Common Stock are: to simplify the Company's share structure; to increase the
liquidity of the shares in the capital markets; to enhance the marketability of
the Company's shares and its ability to raise capital; to expand the pool of
potential investors who are eligible to purchase the Company's shares to include
other licensed or retired health professionals who are not physicians and their
practice groups and retirement plans; to increase the transferability of the
Company's shares to other health professionals; to allow the Company's employees
to acquire and retain shares of the Company; and to provide option shares to be
awarded to management and full-time employees of the Company and its
subsidiaries as a performance incentive.
Subject to adjustment of the conversion ratio, as set forth in
Subsection 3(d)(iii) of the Plan, holders of Class A Shares will have the
option, from and after January 1, 1999 and until and including December 31,
1999, to convert each Class A Share into 400 shares of Common Stock and holders
of Class B Shares will have the option, from and after January 1, 1999 and until
and including December 31, 1999, to convert each Class B Share into 100 shares
of Common Stock. Holders of Class A and Class B Shares who elect to convert
their shares must convert all of their Class A or Class B Shares to Common
Stock.
All Class A and Class B Shares which have not already been converted to
Common Stock by the holder during the optional period for conversion will
automatically convert to shares of Common Stock at 11:59 p.m.on December 31,
1999. All Class A and Class B Shares will also automatically convert to shares
of Common Stock on the day before the occurrence of any of the following events:
(a) a reclassification or change of the outstanding Common Stock (except a stock
split or a combination of shares); (b) a consolidation or merger of the Company
(except a merger in which the Company survives without a reclassification or
change of the Company's Common Stock except a split or combination of shares);
or (c) the sale or conveyance (except if the sale or conveyance is for cash
followed by the immediate distribution of such cash to the shareholders of the
Company) to another corporation of all or substantially all or substantially all
of the Company's property.
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After the conversion, the only outstanding shares of the Company's
stock will be the shares of the Company's Common Stock. There are no shares
outstanding of the Company's Class C or Class D common stock, and, upon the
effective date of the Restated Articles, the Company's Class C and Class D
common stock will be eliminated in their entirety. Shareholders who convert
their Class A or Class B Shares to shares of Common Stock prior to January 1,
2000 may not sell or transfer their shares of Common Stock until January 1, 2000
except in limited circumstances arising by operation of law, for example, the
shareholder's death, bankruptcy or insolvency.
3. New Common Stock. The Board proposes to authorize 20,000,000 shares
of an additional class of common stock with a par value of $.01 per share, which
will be called the " Common Stock". All shares of the Common Stock will have the
same voting, dividend and liquidation rights. Holders of Common Stock will have
no preemptive rights. Except as otherwise provided by law, the holders of Common
Stock and the holders of Class A Shares shall vote as a class. The holders of
Common Stock will have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors if they choose to do so. In such event, the holders
of the remaining shares voting at such election will not be able to elect any of
the directors. The Company intends to register the Common Stock under the
Securities Exchange Act of 1934, as amended.
Holders of shares of Common Stock will be entitled to one vote per
share but will only be entitled to vote their shares if the holder meets the
shareholder eligibility requirements (described below) under the Restated
Articles. Shares of Common Stock may not be transferred until January 1, 2000
except in limited circumstances arising by operation of law. After January 1,
2000, holders of Common Stock will be permitted to transfer their shares only to
persons who meet the shareholder eligibility requirements and to no other
persons except for gifts or in limited circumstances arising by operation of
law.
To meet the shareholder eligibility requirements under the Restated
Articles, a holder of shares of Common Stock must be one of the following: (1) a
"health professional" licensed in Pennsylvania or elsewhere; (2) a retired, but
formerly licensed, "health professional"; (3) a professional corporation (or
other legally constituted professional practice group) of "health
professionals"; (4) an individual retirement account or other retirement plan
established by a person eligible to be a shareholder or in which such person is
a participant; (5) an employee or former employee of the Company; or (6) a
person or entity registered as a broker or dealer under Section 15 of the
Securities Exchange Act of 1934, as amended, who or which is engaged in making a
market in the Common Stock. The term "health professional" means and includes
physicians, podiatrists, dentists, oral surgeons, optometrists, pharmacists,
chiropractors, nurses, nurse practitioners, physical or occupational therapists
and physicians' assistants, and other similar licensed professional persons. If
a transferee of shares of Common Stock does not fall within the definition of an
eligible shareholder under the Restated Articles, such person shall have no
right to vote the shares except as otherwise provided by law.
In contrast to the voting rights of holders of shares of Common Stock,
holders of Class A Shares currently have only one vote regardless of the number
of shares held and are entitled to vote only if the holder is a physician
(medical doctor or doctor of osteopathy) engaged in the practice of medicine,
podiatrist or oral surgeon
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or their Qualified Retirement Plans. Class B Shares are non-voting, except as
otherwise provided by law. Holders of Class A and Class B Shares may only
transfer their shares to persons eligible to hold Class A Shares.
During the year 1999, and assuming no event occurs which would have the
effect of changing the conversion ratio for the Class A or Class B Shares, the
Company will issue 1,634,800 shares of Common Stock to holders of Class A Shares
in exchange for the conversion of their Class A Shares and 107,400 shares of
Common Stock to holders of Class B Shares in exchange for the conversion of
their Class B Shares. The balance of 18,257,000 shares of Common Stock will be
available for future issuance by the Company. The Company expects to issue
options for the purchase of shares of Common Stock to officers of the Company
and full-time employees of the Company and its subsidiaries under the terms of a
stock option plan which is described below in this Proxy Statement under the
caption "Stock Option Plan" if the plan is approved by shareholders at the
Meeting.
4. New Preferred Stock. The Company proposes to authorize 2,000,000
shares of preferred stock with a par value of $.01 per share. The preferred
stock may be issued in one or more classes and in one or more series within a
class. The dividend, conversion, voting, redemption and liquidation rights and
all other rights, preferences, qualifications and restrictions pertaining to
each class or series of preferred stock will be determined by the Board of
Directors by resolution at the time of issuance of the shares of any class or
series. No sale or issuance of shares of preferred stock is contemplated by the
Board at this time.
The Board of Directors has the right to terminate the Plan at any time
prior to its effective date. Shareholders should read Exhibits "B" and "C"to
this Proxy Statement for the full text of the Plan and the Restated Articles.
Approval of Amendments to the Bylaws
THE BOARD RECOMMENDS THAT THE HOLDERS OF THE CLASS A SHARES VOTE TO
APPROVE THE ADOPTION OF AMENDMENTS TO SECTION 3.5 AND SECTION 10.1 OF THE
COMPANY'S BYLAWS. The holders of Class B Shares are not entitled to vote on
this matter. As proposed, Section 3.5 will be amended to require the affirmative
vote of 2/3 of the votes cast by all shareholders entitled to vote
in order to approve the acquisition of substantially the entire business of the
Company by another person through a merger, sale or other disposition by the
Company of all or substantially all of its assets. Section 3.5 currently
requires the affirmative vote of 90% of the votes cast by all shareholders
entitled to vote. Approval of the amendment to Section 3.5 of the Company's
Bylaws will remove the onerous 90% voting requirement to approve the sale or
transfer of the Company's business, but will require a supermajority vote of 2/3
of the Company's shareholders in those circumstances.
As proposed, Section 10.1 will be amended to require the affirmative
vote of 2/3 of the votes cast by all shareholders entitled to vote in order to
amend Section 3.5 of the Bylaws. Section 10.1 currently requires the affirmative
vote of 90% of the votes cast by all shareholders entitled to vote to amend
Section 3.5. Approval of the amendment to Section 10.1 will remove the
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onerous 90% voting requirement to amend Section 3.5 of the Bylaws, but will
require a supermajority vote of 2/3 of the Company's shareholders to amend this
section. Holders of Class A Shares should read Exhibit "D" to this Proxy
Statement for the full text of the amendments to Sections 3.5 and 10.1 of the
Company's Bylaws.
Approval of Stock Option Plan
THE BOARD RECOMMENDS THAT THE HOLDERS OF THE CLASS A SHARES VOTE TO
APPROVE THE ADOPTION OF A STOCK OPTION PLAN (THE "STOCK OPTION PLAN") IN THE
FORM ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT "E". The holders of Class B
Shares are not entitled to vote on this matter. Under the Stock Option Plan, the
Board may award a maximum of 200,000 stock options (the "Options") to the
Company's officers and full-time employees of the Company and its subsidiaries
under terms to be set by the Board at a future date. Each of the Options granted
will entitle the holder to purchase one share of the Company's Common Stock upon
payment of an exercise price to be determined at the time of the grant of the
options. No consideration will be paid by officers and employees in exchange for
receiving the Options. Options granted under the Stock Option Plan will expire
no later than ten years after the date of the grant. If any Option expires or
terminates under the Stock Option Plan without having been exercised, the Board
will have the authority to issue new Options covering those shares. A committee
of the Board will be appointed to administer the Stock Option Plan and recommend
the grant of Options. However, the Board must approve the issuance of Options
and the terms of each. The Company currently has three officers and the Company
and its subsidiaries have 48 full-time employees who will be eligible to
participate in the Stock Option Plan. The Board has not yet decided which
officers and employees will receive Options or how many Options each will
receive. The sale of shares of Common Stock which will be issued upon the
exercise of the Options will be exempt from registration under Section 5 of the
Securities Act of 1933, as amended (the "Securities Act") and will be restricted
as to transfer in the same manner as all other shares of the Company's Common
Stock. The Company has no current plans to register shares of Common Stock which
will be subject to Options under the Securities Act.
The Stock Option Plan provides for the grant of Options which are
intended by the Company to qualify for advantageous tax treatment as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Approval of the Stock Option Plan by the holders of the
Class A Shares is required in order to qualify the Options for special treatment
under the Code. There will be no federal income tax consequence to either the
Company or to the recipient of any Options as a result of the grant of incentive
stock Options by the Company or the exercise of those Options by the recipient.
The terms of the Stock Option Plan may be changed at any time by the
Board without shareholder approval except for a change in the number of shares
of Common Stock as to which Options may be granted under the Stock Option Plan
or any other changes requiring shareholder approval under Section 162(m) of the
Code. Shareholder approval requires the affirmative vote of a majority of the
votes present in person or by proxy at a meeting and entitled to vote. The Stock
Option Plan will terminate on December 14, 2008 unless it is terminated on an
earlier date by the Board or it is extended by the Board with the approval of
the Company's shareholders entitled to
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vote on such matter. The Stock Option Plan also permits the issuance of
non-qualified stock options or options which are a combination of incentive and
non-qualified options to officers and employees of the Company and its
subsidiaries.
Holders of Class A Shares should read Exhibit "E" to this Proxy
Statement for the full text of the Stock Option Plan.
Security Ownership of Management and Certain Security Holders
The following table lists certain information with respect to the Class
A Shares and Class B Shares beneficially owned as of October 3, 1998, by each of
the three highest paid persons who are current officers of the Company, as well
as the number of shares beneficially owned by all officers and directors as a
group on such date. This information has been furnished by such persons.
Officers Class A Shares Class B Shares
- - -------- -------------- --------------
Richard A. Felice, 0 0
President and Chief Executive Officer
651 East Park Drive
Harrisburg, PA 17111
T. Clark Phillip, 0 0
Treasurer and Chief Financial Officer
651 East Park Drive
Harrisburg, PA 17111
Krista G. Maddigan 0 0
Secretary
651 East Park Drive
Harrisburg, PA 17111
All directors and officers as a group 28(1) 21(2)
To the knowledge of management, no person beneficially owns more than
10% of any class of the Company's securities. The Company has not granted any
options, warrants or rights to purchase any of its securities; however, the
Company expects to adopt a stock option plan for its officers and full-time
employees of the Company and its subsidiaries. The terms of this plan are
described above under the caption, "Stock Option Plan." The directors of the
Company may be regarded as the "parents" of the Company, as that term is defined
under the Securities Act.
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(1) The percentage of Class A Shares beneficially owned by any director
or by all directors and officers as a group was less than 1%.
(2) The percentage of Class B Shares beneficially owned by any director
or by all directors and officers as a group was less than 2%.
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Executive Compensation
The following table shows the aggregate annual remuneration from the
Company and its subsidiaries of each of the three highest paid persons who were
officers or directors of the Company during 1997, and for all officers and
directors as a group. Each officer commenced employment in the Fall of 1996.
Name and Principal Aggregate
Position Remuneration
------------------ ------------
Richard A. Felice, President $251,079
T. Clark Phillip, Treasurer $122,292
Wendy C. Bass, Secretary(3) $ 66,144
All officers and directors as a group $439,515(4)
Mr. Felice is employed under an agreement dated as of September 3,
1996, as amended as of September 2, 1997 (the "Agreement"), at an annual salary
of $235,000. After the initial contract term of one year, the Agreement
automatically renews for additional periods of one year, unless terminated by
either party at least 60 days prior to the end of the then current term. The
Agreement provided for reimbursement of Mr. Felice's moving expenses when he
relocated to the Harrisburg, Pennsylvania area. It includes an annual bonus of
up to 20% of base compensation, based on mutually agreed upon performance
criteria. Mr. Felice is entitled to one year's compensation if the Company fails
to renew the Agreement during the first five years. In the event the Company is
restructured so that Mr. Felice is no longer Chief Executive Officer, or if he
declines to accept the position offered following such a restructuring or
reorganization, he has the right to terminate the Agreement and receive a
severance payment of $400,000. Under the Agreement he will not, for a period of
one year after termination, regardless of the cause of termination, engage in
any conduct which is competitive with the Company in any geographic area in
which the Company is then doing business, is licensed, or has a license
application pending.
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(3) Ms. Bass served as Secretary of the Company until August 7, 1998.
Krista G. Maddigan was elected as Secretary of the Company on October 3, 1998 at
an annual salary of $52,500.
(4) In addition, directors are reimbursed for reasonable travel
expenses to Board and committee meetings.
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Cost of Solicitation
The cost of solicitation of proxies from shareholders will be borne by
the Company. In addition to the use of mails, proxies may be solicited by
telephone by officers, directors and employees of the Company who will not be
specially compensated for such services. The Company expects to retain
ChaseMellon Shareholder Services or another proxy solicitation service to aid in
the solicitation of proxies. If retained, ChaseMellon (or other solicitor)
would solicit proxies by mail, telephone, telecopier and personal interview. For
those services, it would be paid fees not to exceed $12,500 and would be
reimbursed for its expenses.
Financial Statements and Other Information
The Company's annual financial statements for the fiscal years ended
December 31, 1996 and December 31, 1997, respectively, are incorporated by
reference in this Proxy Statement to the Company's Annual Report on Form 10-KSB
filed by the Company with the Securities and Exchange Commission for the fiscal
years ended December 31, 1996 and December 31, 1997. The Company's Consolidated
Balance Sheet and accompanying notes to consolidated financial statements for
the second quarter of 1998 are incorporated by reference to Item 1, Part I of
the Company's Quarterly Report on Form 10-QSB filed with the Securities and
Exchange Commission for the quarterly period ended June 30, 1998. The Company's
Consolidated Statements of Operations and Consolidated Statements of Cash Flows
and accompanying notes to consolidated financial statements for the second
quarter of 1998 and the second quarter of 1997 are incorporated by reference to
Item 1, Part I of the Company's Quarterly Report on Form 10-QSB filed for the
quarterly periods ended June 30, 1998 and June 30, 1997. Item 6 of Part I of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 is also incorporated by reference in this Proxy Statement.
The Company will provide, upon request to each shareholder by first
class mail without charge, a copy of the Company's financial statements and
other information described above which has been incorporated by reference in
this Proxy Statement. Shareholders should make their requests in writing or by
telephone to Krista G. Maddigan, Secretary, Pennsylvania Physician Healthcare
Plan, Inc., 651 East Park Drive, Harrisburg, Pennsylvania 17111, telephone (717)
561-7890.
Other Matters
The Board of Directors is not aware of any matters not set forth herein
which may come before the Meeting. If, however, any such matter properly comes
before the Meeting, the persons named in the Proxies will vote the shares
represented thereby in accordance with their judgment.
By Order of the Board of Directors
Krista G. Maddigan, Secretary
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EXHIBIT "A"
Definitions
As used in the Proxy Statement, the following terms shall have the
definitions indicated.
"Oral surgeon" shall mean a dentist who is Board certified or
eligible for Board certification by the American Board of Oral and Maxillofacial
Surgery.
"Qualified retirement plan" shall mean a retirement plan in
which a practicing physician (medical doctor or doctor of osteopathy),
podiatrist or oral surgeon either (a) "self directs" the investments in the
Plan; or (b) is a trustee of the Plan, and all other trustees are also
practicing physicians, podiatrists or oral surgeons, and the Plan holds Class A
shares equal to the number of trustees.
<PAGE>
EXHIBIT "B"
PLAN OF RECAPITALIZATION
This Plan of Recapitalization, dated October 3, 1998, is made and
adopted by Pennsylvania Physician Healthcare Plan, Inc., a Pennsylvania
corporation (the "Corporation").
RECITALS:
The authorized Capital Stock of Corporation presently consists of the
following four classes of stock:
1. Class A Common Stock - 40,000 shares;
2. Class B Common Stock - 100,000 shares;
3. Class C Common Stock - 100 shares; and
4. Class D Common Stock - 1,000,000 shares.
Corporation desires to change and simplify its capital structure by
creating a new class of common stock and a new class of preferred stock, by
eliminating the existing Class C Common Stock and Class D Common Stock and by
providing for the conversion into the new common stock, of all issued and
outstanding shares of the existing Common Stock, all pursuant to the applicable
provisions of the Pennsylvania Business Corporation Law of 1988 (the "BCL") and
under the tax free reorganization provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, Corporation does hereby adopt this Plan of
Recapitalization (the "Plan") in order to provide for and set forth the manner
and basis of reclassifying and converting the capital stock of the Corporation
as well as all other details and provisions with respect to the Plan.
1. Capital Structure. Upon the "Effective Date" (as hereinafter defined) of the
Recapitalization, the capital structure of the Corporation shall be changed by:
(a) retaining all Class A Common Stock and Class B Common
Stock outstanding, and providing for the conversion
thereof into newly created Common Stock;
(b) eliminating Class C Common Stock and Class D Common
Stock;
(c) creating a new class of Common Stock; and
(d) creating a new class of Preferred Stock.
<PAGE>
2. Reclassification. On the Effective Date, the reclassification of the Capital
Stock of Corporation and the restatement of the Corporation's Articles of
Incorporation shall be effected as follows:
(a) The issued and outstanding shares of Class A Common Stock
shall be and remain authorized, issued and outstanding shares of such stock,
which shall hereinafter be designated as "Existing Class A Common Stock"; having
all of the same rights and preferences as were applicable to such stock prior to
the Effective Date, together with and subject to the conversion provisions set
forth in Section 3. Upon the issuance by the Company of any shares of Common
Stock, each share of Existing Class A Common Stock shall entitle the holder
thereof to cast 400 votes, without restriction as to the number of such shares
held, on all matters presented to the shareholders for a vote.
(b) The issued and outstanding shares of Class B Common Stock
shall be and remain authorized, issued and outstanding shares of such stock,
which shall hereinafter be designated as "Existing Class B Common Stock"; having
all of the same rights and preferences as were applicable to such stock prior to
the Effective Date, together with and subject to the conversion provisions set
forth in Section 3.
(c) There shall be created a new class of common stock of
Corporation having the designation "Common Stock", (hereinafter sometimes
referred to as "New Common Stock") all of which shares shall be authorized but
unissued on the Effective Date.
(d) There shall be created a new class of preferred stock of
Corporation having the designation "Preferred Stock", with respect to which the
Board of Directors shall have the full authority permitted by the BCL to divide
and issue such stock in such numbers, series and classes as it determines and to
establish all rights and preferences with respect thereto.
(e) There shall be made such other changes to the
Corporation's Articles of Incorporation as are set forth in the Amended and
Restated Articles of Incorporation attached hereto as an Exhibit.
3. Conversion into New Common Stock. Shares of Existing Class A Common Stock and
Existing Class B Common Stock (together, the "Existing Common Stock") shall be
convertible into New Common Stock in accordance with and subject to the
following terms and conditions:
(a) At any time, and from time to time, during the "Conversion
Period" (hereinafter defined), a holder of shares of Existing Common Stock
shall be entitled, at the holder's option, to convert all, but not less than all
of such shares held by the holder into New Common Stock at the "Conversion Rate"
(as hereinafter defined). Upon conversion of shares of Existing Common Stock
into New Common Stock, no payment of or
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<PAGE>
adjustment for accrued and unpaid dividends, whether or not declared, shall be
made with respect to the shares so converted or the shares of New Common Stock
issuable upon such conversion.
(b) The right to convert Existing Common Stock into New Common
Stock shall be exercised by delivering to the Corporation during regular
business hours, at its principal office or at any other office or agency
maintained by the Corporation for that purpose, the certificate or certificates
for the Existing Common Stock to be converted, accompanied by written notice to
the Corporation at its said office or agency that the holder elects to convert
said Existing Common Stock in accordance with the provisions thereof and this
Section 3. Such notice shall also state the name or names (with addresses) in
which the certificate or certificates for New Common Stock which shall be
issuable on such conversion shall be issued ( if different from the certificate
for the Existing Common Stock so delivered).
Such conversion shall be deemed to have been effected on the
date (the "Conversion Date") on which the Corporation shall have received such
notice and such Existing Common Stock certificates, and conversion shall be at
the Conversion Rate in effect at such date. All shares of Existing Common Stock
which shall have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding, and all rights with respect to such shares
shall forthwith cease and terminate, except only the right of the holders
thereof to receive shares of New Common Stock in exchange therefor.
The person or persons in whose name or names any certificate
or certificates for shares of New Common Stock shall be issuable upon such
conversion shall be deemed to have become on said date the holder or holders of
record of the shares of New Common Stock represented thereby; provided, however,
that any such surrender on any date when the stock transfer books of the
Corporation shall be closed shall not be deemed to constitute the persons or
persons in whose name or names the certificates for such shares of New Common
Stock are to be issued as the record holder or holders thereof for any purpose
until the opening of business on the next succeeding day on which such stock
transfer books shall be open, but such conversion shall be at the Conversion
Rate in effect on the date of such surrender.
As soon as practicable after the receipt of such notice of
election to convert any Existing Common Stock certificates, the Corporation
shall issue and deliver at said office or agency to the person for whose account
such shares were so surrendered, or on such person's written order, a
certificate or certificates for the number of full shares of New Common Stock
issuable upon the conversion of such
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<PAGE>
shares and a check or cash in respect of any fraction of a share, as provided in
subsection (c) of this Section 3.
(c) The Corporation shall not be required to issue factional
shares of stock or scrip upon conversion of Existing Common Stock. If more that
one share of Existing Common Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares of New Common Stock issuable
upon conversion thereof shall be based upon the aggregate number of Existing
Common Stock shares so surrendered. If any fractional interest in a share of New
Common Stock would be deliverable upon the conversion of any Existing Common
Stock share, in lieu of issuing such fractional share the Corporation shall pay
to the holder in cash the value thereof determined on the basis of the then
"Current Market Price" (as hereinafter defined).
(d) The Conversion Rate at which shares of Existing Common
Stock shall be convertible into New Common Stock initially shall be: (x) in the
case of Existing Class A Common Stock, 400 shares of New Common Stock for each
Existing Class A Common Share; and (y) in the case of Existing Class B Common
Stock, 100 shares of New Common Stock for each Existing Class B Common Share,
subject in either case to adjustment as hereinafter provided:
(i) If, at any time after the Effective Date, the
shares of New Common Stock shall be subdivided into a greater or combined into a
lesser number of shares of New Common Stock, the Conversion Rate shall be
increased or decreased, as the case may be, to a rate which shall bear the same
relation to the Conversion Rate in effect immediately prior to such subdivision
or combination as the total number of shares of New Common Stock outstanding
immediately after such subdivision or combination shall bear to the total number
of shares of New Common Stock outstanding immediately prior to such subdivision
or combination.
(ii) If the Corporation, at any time after the
Effective Date, shall pay or make to the holders of its New Common Stock a
dividend or distribution in shares of New Common Stock, or in securities
convertible into shares of New Common Stock, the Conversion Rate shall be
increased, effective at the opening of business on the next full business day
following the record date for such dividend or distribution, to a rate which
shall bear the same relation to the Conversion Rate in effect immediately prior
to the record date for such dividend or distribution as the total number of
shares of New Common Stock outstanding immediately after such dividend or
distribution (including as outstanding the number of shares of New Common Stock
into which all of such convertible securities are at any time convertible) shall
bear to the total shares of New Common Stock outstanding immediately prior to
such issuance.
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<PAGE>
(iii) If the Corporation shall distribute to the
holders of its New Common Stock any evidences of its indebtedness, any security
(other than New Common Stock or a security convertible into, or exercisable for
the purchase of, New Common Stock), or any other assets (excluding dividends and
distributions in cash, other than in liquidation or partial liquidation, to the
extent permitted by law), the Conversion Rate shall be increased, effective at
the opening of business on the next full business day after the record date
fixed for the determination of the holders of New Common Stock entitled to such
distribution, to an amount determined by multiplying such Conversion Rate by a
fraction, the numerator of which shall be the Current Market Price of the New
Common Stock at such record date and the denominator of which shall be such
Current Market Price, less the fair market value (as determined in good faith by
the Board, whose determination shall be conclusive) of such evidences of
indebtedness, security, rights, warrants or other assets (excluding dividends
and distributions in cash as aforesaid) so distributed which is applicable to
one share of New Common Stock; provided that the issuance by the Corporation of
rights or warrants for the purchase of shares of the Common Stock at the
Current Market Price shall be deemed to have no value.
(iv) New Common Stock at any time held in the
treasury of the Corporation shall be deemed to be outstanding for the purposes
of this subsection (d).
(e) In case of any reclassification or change of the
outstanding New Common Stock of the Corporation (except a split or combination
of shares) or in the case of any consolidation or merger to which the
Corporation is a party (except a merger in which the Corporation is the
surviving corporation and which does not result in any reclassification of or
change in the outstanding New Common Stock, except a split or combination of
shares) or in the case of any sale or conveyance (except a sale or conveyance
for cash followed by the immediate distribution of such cash to the shareholders
of the Corporation) to another corporation of all or substantially all of the
property of the Corporation, then, and in such event, effective provision shall
be made by the Corporation so that the holders of all shares of Existing Common
Stock then outstanding shall be deemed to have converted all of such shares of
Existing Common Stock into New Common Stock on the terms set forth in
subsections (j) below effective as of the day immediately preceding the
effective date of such corporate action. Any provision that shall be made for
the purposes hereinbefore in this subsection (e) specified, and that shall be
approved in good faith by a resolution or resolutions of the Board, shall be
conclusive upon all holders of Existing Common Stock then outstanding.
(f) Whenever an adjustment of the Conversion Rate or the
number or type of securities issuable upon conversion of the Existing Common
Stock is made pursuant to subsection (d) of this Section 3, the Corporation
promptly shall (i) file at its principal office and at the office of any
transfer agent for the Existing Common Stock a statement signed by the Chairman
of the Board, the
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<PAGE>
President, any Executive Vice President or Vice President of the Corporation and
by its Treasurer or an Assistant Treasurer showing in detail the adjustment and
the facts requiring such adjustment, and shall make such statement available for
inspection by shareholders of the Corporation, and (ii) mail or cause to be
mailed (in the manner specified in the Bylaws) a notice stating the adjustment
and the adjusted Conversion Rate to each holder of record of Existing Common
Stock.
(g) If the Corporation shall propose to take any action
specified in paragraph (iii) of subsection (d) of this Section 3, it shall, at
least 10 days prior to the record date for determining holders of its New Common
Stock for purposes of such action, mail or cause to be mailed (in the matter
specified in the Bylaws) a notice to each holder of record of the Existing
Common Stock stating that such action is to be taken and specifying the record
date therefor and setting forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on such New Common
Stock. Similarly, if the Corporation shall propose to take any of the actions
specified in subsection (e) of this Section 3, it shall mail or cause to be
mailed such a notice to holders of Existing Common Stock at least 10 days prior
to the record date therefor or, if there is no record date, the date such action
is to become effective.
(h) In the event that regulatory approval or other action is
required by the Corporation under the securities laws or other laws of any
jurisdiction in order to issue New Common Stock or other securities in exchange
for shares of Existing Common Stock being converted pursuant to this Section 3,
the Corporation promptly shall take the necessary action to obtain such
approvals and otherwise to comply with such laws; provided, however, that,
notwithstanding any other provisions of this Section 3, the Corporation shall
not be required to issue New Common Stock or other securities upon such
conversion until the necessary regulatory approvals have been received and other
requirements of the laws complied with. Shares of New Common Stock issued on
conversion of Existing Common Stock shall be issued as fully paid shares and
shall be non-assessable by the Corporation. The Corporation shall at all times
reserve and keep available, for the purpose of effecting the conversion of
Existing Common Stock, such number of shares of its duly authorized New Common
Stock as shall be sufficient to effect the conversion of all outstanding shares
of Existing Common Stock.
(i) The issuance of shares of New Common Stock on conversion
of Existing Common Stock shall be made free of any tax in respect of such
issuance. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares in a name other than that of the holder of record on the books of the
Corporation of the Existing Common Stock converted, and the Corporation shall
not be required to issue or deliver any certificate for New Common Stock unless
and
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<PAGE>
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(j) Subject as provided in subsection (d) of this Section 3,
all shares of Existing Common Stock which remain outstanding at 11:59 p.m. on
December 31, 1999, or which become subject to the provisions of subsection (e)
above, shall be converted automatically, and without any action on the part of
the holders thereof, into New Common Stock as follows:
(i) Each share of Existing Class A Common Stock
shall be and become 400 shares of New Common
Stock; and
(ii) Each share of Existing Class B Common Stock
shall be and become 100 shares of New Common
Stock.
At such time as all shares of Existing Common Stock have been converted into New
Common Stock, the Existing Common Stock shall cease to be authorized capital
stock of the Corporation, and the Board of Directors of the Corporation is
hereby authorized to amend the Articles of Incorporation to reflect such change
in the Corporation's capital.
(k) For the purposes of this Section 3:
(i) "Conversion Rate" at any time shall mean the
number (to the nearest one-hundredth) of shares of New Common Stock of the
Corporation into which at such time Existing Common Stock shall be convertible
in accordance with the provisions of this Section 3.
(ii) "Conversion Period" shall mean the period
beginning on January 1, 1999 and ending on December 31, 1999.
(iii) "New Common Stock" shall mean only the class of
Common Stock, $0.01 par value, of the Corporation authorized on and as of the
Effective Date, and stock of any other class into which the New Common Stock
then authorized may thereafter have been changed. In case by reason of the
operation of subsection (e) of this Section 3 the Existing Common Stock shall be
convertible into any other shares of stock or other securities or property of
the Corporation or of any other corporation, any reference herein to the
conversion of Existing Common Stock pursuant to this Section 3 shall be deemed
to refer to and include the conversion of Existing Common Stock into such other
shares of stock or other securities or property.
(iv) "Current Market Price" shall mean the lesser of
(A) the offering price of the shares of Common Stock in any public offering of
its equity securities made by the Corporation in the preceding 12 months or (B)
$20 per share.
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<PAGE>
4. Eligible Shareholders. All previously existing ownership restrictions shall
continue to apply to Existing Common Stock. Only "Eligible Shareholders" shall
be eligible to acquire (except by gift or operation of law) or to vote any
shares of New Common Stock. Eligible Shareholders shall include only the
following persons and/or entities: (i) any health professional licensed in
Pennsylvania or elsewhere; (ii) any retired, but formerly licensed, health
professional; (iii) any professional corporation (or other legally constituted
professional practice group) of health professionals; (iv) any individual
retirement account or other retirement plan established by a person eligible to
be a shareholder or in which such person is a participant; (v) any employee or
former employee of the Corporation; and (vi) persons registered as a broker or
dealer under Section 15 of the Securities Exchange Act of 1934, as amended, who
or which are making a market in the stock of Corporation. As used herein the
term "health professional" shall include, without limitation: physicians,
podiatrists, dentists, oral surgeons, optometrists, pharmacists, chiropractors,
nurses, nurse practitioners, physical or occupational therapists and physicians'
assistants and other similar licensed professional persons.
5. Filings. Articles of Amendment setting forth the Resolutions of the Board of
Directors and the Shareholders of the Corporation and approving the Plan and the
Amended and Restated Articles of Incorporation, shall be executed on behalf of
Corporation, shall be filed with the Secretary of State of the Commonwealth of
Pennsylvania and shall be recorded as and where required by law.
6. Effective Date. The Plan shall be effective at the close of business on the
date on which confirmation of the filings referred to in Section 5 have been
received (the "Effective Date").
7. Termination. The Plan and the Recapitalization contemplated hereby may be
terminated and abandoned at any time prior to the Effective Date by action of
the Board of Directors of Corporation.
IN WITNESS WHEREOF, Corporation has caused this Plan of
Recapitalization to be executed in its corporate name by its President and
attested by its Secretary, all as of the day and year first above written.
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
By:_________________________________
Name:_____________________________
Title:____________________________
[CORPORATE SEAL] Attest:_____________________________
Name:_____________________________
Title:____________________________
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<PAGE>
EXHIBIT "C"
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
1. The name of the corporation is:
Pennsylvania Physician Healthcare Plan, Inc.
2. The address of this corporation's registered office in this Commonwealth is:
651 East Park Drive
Harrisburg, PA 17111
(Dauphin County)
3. The corporation is incorporated under the provisions of the Business
Corporation Law of 1988.
4. (A) The aggregate number of shares of stock which the Corporation shall have
the authority to issue is:
1. 20,000,000 shares of common stock $0.01 par value per
share, to be designated "Common Stock";
2. 2,000,000 shares of preferred stock $0.01 par value per
share, to be designated "Preferred Stock".
3. 5,200 shares of convertible common stock $0.01 par value
per share, divided into two classes as follows: 4,100
shares of Class A Common Stock, to be designated "Class A
Common Stock" and 1,100 shares of Class B Common Stock, to
be designated "Class B Common Stock".
4. All shares of Class A Common Stock and Class B Common
Stock (together, the "Existing Common Stock") as well as
the new Common Stock shall be identical and shall entitle
the holders thereof to the same rights and privileges,
including the right to share and share alike in all
distributions, except as otherwise provided herein.
<PAGE>
5. For all matters presented to the Shareholders of this
Corporation at a meeting or by consent in writing a holder
of record of Class A Common Stock who is a physician
(medical doctor or doctor of osteopathy) engaged in the
practice of medicine, podiatrist or oral surgeon may vote,
but each such holder may vote only one Class A share,
regardless of the number of Class A shares held;
otherwise, holders of Class A Common Stock shall have no
right to vote, except as otherwise provided by law. Upon
the issuance by the Corporation of any shares of Common
Stock, each share of Class A Common Stock shall entitle
the holder thereof to cast four hundred (400) votes,
without restriction as to the number of such shares held,
on all matters presented to the shareholders for a vote.
Each share of Common Stock shall entitle the holder
thereof to one (1) vote.
6. The holders of Class B Common Stock shall have no right to
vote, except as otherwise provided by law.
7. Shares of Common Stock may not be sold or otherwise
transferred by the holder thereof at any time prior to
January 1, 2000, except for transfers made by operation of
law.
8. Only "Eligible Shareholders" shall be eligible to acquire
(except by gift or operation of law) and to vote any
shares of Common Stock. Eligible Shareholders shall
include only the following persons and/or entities: (i)
any health professional licensed in Pennsylvania or
elsewhere; (ii) any retired, but formerly licensed, health
professional; (iii) any professional corporation (or other
legally constituted professional practice group) of health
professionals; (iv) any individual retirement account or
other retirement plan established by a person eligible to
be a shareholder or in which such person is a participant;
(v) any employee or former employee of the Corporation;
and (vi) persons registered as a broker or dealer under
Section 15 of the Securities Exchange Act of 1934, as
amended, who or which are making a market in the stock of
Corporation. As used herein the term "health professional"
shall include, without limitation: physicians,
podiatrists, dentists, oral surgeons, optometrists,
pharmacists, chiropractors, nurses, nurse practitioners,
physical or occupational therapists and physicians'
assistants and other similar licensed professional
persons.
9. Except for "Involuntary Transfers" (as defined below), (a)
shares of Existing Class B Common Stock may be sold or
transferred only to a holder of Existing Class A or
Existing Class B Common Stock, and (b) shares of
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<PAGE>
Existing Class A Common Stock may be sold or transferred
only to a medical doctor, doctor of osteopathy, podiatrist
or oral surgeon, (hereinafter a "physician") or a
"qualified retirement plan" for any of the foregoing. For
the purposes of the foregoing restrictions on ownership,
the following definitions shall apply: (i) the term
"Involuntary Transfers" shall mean gifts, transfers by
operation of law, and any other involuntary transfer or
involuntary disposition; (ii) the term "oral surgeon"
shall mean a dentist who is board certified or eligible
for board certification by the American Board of Oral and
Maxillofacial Surgery; and (iii) the term "qualified
retirement plan" shall mean the self-directed retirement
plan of a physician where such individual directs the
investments of the retirement plan or where all trustees
of the retirement plan are physicians and the plan holds a
number of shares of Existing Class A Common Stock equal to
the number of trustees.
(B) The conversion provisions applicable to the Existing Common
Stock are as follows:
(1) From and after the Effective Date and during the
"Conversion Period" (hereinafter defined), each share of
Existing Class A Common Stock and each share of Existing
Class B Common Stock (collectively, the "Existing Common
Stock") shall be convertible, at the option of the holder
thereof, into the number of shares of the new Common Stock
of Corporation determined on the basis of the conversion
ratio set forth in subsections 2(i) and 2(ii) below, for
each share of Existing Common Stock tendered for
conversion, subject to adjustment (and to mandatory,
automatic conversion) as set forth in the Plan of
Recapitalization adopted by the Corporation and dated
October 3, 1998, the terms of which are incorporated
herein by reference. The term "Conversion Period" shall
mean the period beginning on January 1, 1999 and ending on
December 31, 1999.
(2) All shares of Existing Common Stock which remain
outstanding at 11:59 p.m. on December 31, 1999, or which
become subject to the mandatory conversion provisions set
forth in the Plan of Recapitalization, shall be converted
automatically, and without any action on the part of the
holders thereof, into new Common Stock as follows:
(i) Each share of Existing Class A Common Stock
shall be and become 400 shares of new Common
Stock; and
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(ii) Each share of Existing Class B Common Stock
shall be and become 100 shares of new Common
Stock.
(3) At such time as all shares of Existing Common Stock have
been converted into new Common Stock, the Existing Common
Stock shall cease to be authorized capital stock of the
Corporation, and the Board of Directors of the Corporation
is hereby authorized to amend the Articles of
Incorporation to reflect such change in the Corporation's
capital.
(C) The issuance provisions applicable for the Preferred Stock are as
follows:
The shares of Preferred Stock may be divided into and issued
from time to time in one or more classes or in one or more
series within a class as may be designated by the Board of
Directors of the Corporation, each such class or series to be
distinctly titled and to consist of the number of shares
designated by the Board of Directors. All shares of any one
series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that
shares of any one series issued at different times may differ
as to the dates from which dividends thereon (if any) shall
accrue or be cumulative (or both). The designations, relative
rights, preferences and limitations of any class or series of
Preferred Stock may differ from those of any and all other
classes or series at any time outstanding. The Board of
Directors may change the designation or number of shares, or
the preferences, relative rights and limitations of the
shares, of any theretofore established series of Preferred
Stock, no shares of which have been issued. The Board of
Directors of the Corporation is hereby expressly vested with
authority to determine by resolution the preferences, relative
rights and limitations of the Preferred Stock and each class
or series thereof which may be designated by the Board of
Directors, including, but without limiting the generality of
the foregoing, the following:
(1) The voting rights and powers (if any) of the Preferred
Stock and each class or series thereof;
(2) The rates and times at which, and the terms and conditions
on which, dividends (if any) on Preferred Stock and each
class or series thereof, will be paid, and any dividend
preferences or rights of cumulation;
(3) The rights (if any) of holders of Preferred Stock, and
each class or series thereof, to convert the same into or
exchange the same for
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shares of other classes (or series) of capital stock of
the Corporation and the terms and conditions for each
conversion or exchange, including provisions for
adjustment for conversion or exchange prices or rates in
such events as the Board of Directors shall determine;
(4) The redemption rights (if any) of the Corporation and
times at which the terms and conditions on which Preferred
Stock and each class or series thereof may be redeemed;
and
(5) The rights and preferences (if any) of the holders of
Preferred Stock, and each class or series thereof, upon
the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation.
5. The purpose of the Corporation is as follows:
The Corporation shall have unlimited power to engage in and to
do any lawful act concerning any and all lawful business for
which corporations may be incorporated under the Business
Corporation Law of 1988, as amended, including but not limited
to the power to engage in the manufacture, fabrication,
assembly, merchandising and distribution of various items.
6. No shares of this Corporation shall have cumulative voting rights.
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EXHIBIT "D"
AMENDMENTS TO BYLAWS
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 two-thirds (2/3) of the votes cast by all shareholders
entitled to vote thereon.
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 two-thirds (2/3) of the votes cast by
all shareholders entitled to vote thereon.
<PAGE>
EXHIBIT "E"
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
STOCK OPTION PLAN
The purpose of this Stock Option Plan (the "Plan") is to
provide designated employees of Pennsylvania Physician Healthcare Plan, Inc.
(the "Company") and its subsidiaries (including, without limitation, those
listed in Appendix "A" hereto) with an opportunity to receive grants of stock
options, for the purpose of encouraging such employees to contribute materially
to the growth of the Company by aligning their economic interests with those of
the shareholders.
1. Administration.
a. The Plan shall be administered by those members of the Company's
Board of Directors who are "outside directors", as defined under section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code")and related
Treasury Regulations, or "non-employee directors", as defined under Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act") (collectively,
the "Board"), acting in the best interests of the Company, rather than as a
fiduciary.
b. Unless otherwise specifically provided herein, the Board shall have
sole and conclusive authority to determine (i) the employees to whom grants
shall be made, (ii) the type, size and terms of the grants and (iii) the terms
of any release, non-compete or other agreement to be used in connection with the
Plan. In addition, the Board shall have sole and conclusive authority to
interpret the Plan, make factual determinations, adopt, amend or rescind rules,
regulations, agreements and instruments relating to the Plan and take such other
action as it deems necessary or advisable.
2. Options.
This Plan provides for the grant of options that are intended to
qualify as "incentive stock options" under section 422 of the Code ("Incentive
Stock Options"), options that are not intended to so qualify ("Nonqualified
Stock Options") or any combination of the two (collectively, the "Options"). All
Options shall be subject to the terms and conditions set forth herein and to
such other terms and conditions as the Board deems appropriate and specifies in
writing to the individual in a grant instrument (the "Grant Instrument").
Options and Grant Instruments need not be uniform among grantees.
<PAGE>
3. Shares Subject to the Plan.
a. Authorized Shares. Subject to adjustment as specified below, the
maximum number of shares of common stock, $.01 par value, of the Company
("Company Stock") that may be issued or transferred under this Plan is 200,000.
The shares may be authorized and unissued or reacquired shares of Company Stock.
To the extent any Option terminates, expires or is canceled, forfeited,
exchanged or surrendered without having been exercised, the shares subject to
the Option shall again be available for purposes of the Plan.
b. Adjustments. In the event of a reorganization, recapitalization,
change of shares, stock split, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation or any other change in the
corporate structure or shares of capital stock of the Company, the Board shall
make such adjustment as it considers appropriate in the number and kinds of
shares of Company Stock available for, or subject to, Option(s) or in the price
therefor; provided, however, that no such adjustment shall give an individual
any additional benefits under an outstanding Option.
4. Eligibility for Participation.
Only officers and full-time employees of the Company and its
subsidiaries, as selected by the Board (the "Employees"), shall be eligible to
participate in the Plan.
5. Grant of Options.
Options may be granted under the Plan on or after the effective date
hereof. The Board shall select the Employees to receive grants of options (the
"Grantees") and determine the number of shares of Company Stock subject to each
grant. The Board may grant Incentive Stock Options, Nonqualified Stock Options
or any combination of the two.
6. Option Terms.
a. Exercise Price. The Exercise Price of each Option shall be
determined by the Board and may be equal to, greater than or less than the "Fair
Market Value" of a share of Company Stock on the date the Option is granted;
provided, however, that the Exercise Price of an Incentive Stock Option shall be
at least equal to the Fair Market Value of Company Stock on the date the Option
is granted (at least 110% of the Fair Market Value in the case of any Incentive
Stock Option granted to a Grantee who, at the time of the grant, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any subsidiary). For this purpose, "Fair
Market Value" shall be determined as follows:
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<PAGE>
i. If the principal trading market for the Company Stock is a
national securities exchange or the Nasdaq National Market, the last reported
sales price thereof on the relevant date on which at least 1,000 shares were
traded or, if there were no trades on that date (or trades aggregating less than
1,000 shares), the latest preceding date on which sales involving at least 1,000
shares were reported, or
ii. If the Company Stock is not principally traded on such an
exchange or market, the mean between the last reported "bid" and "asked" prices
of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or a
customary financial reporting service.
iii. If the Company Stock is not publicly-traded, Fair
Market Value shall be determined by the Board of Directors with the advice of
the Company's independent accountants or of an independent firm of investment
bankers selected by the Board of Directors, which firm shall have background or
experience in the valuation of businesses engaged in operation of health
maintenance organizations, preferred provider organizations and any other
principal activity of the Company.
b. Term. The Board shall determine the term of each Option. Such term
shall not exceed ten (10) years from the date of grant (five (5) years in the
case of any Stock Option granted to a Grantee who, at the time of grant, owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any subsidiary).
c. Exercisability. Options shall become exercisable in accordance with
the terms and conditions set forth herein and in the Grant Instrument. The Board
may accelerate the exercise date of any or all outstanding Options at any time
and for any reason.
d. Termination of Employment. Subject to the exceptions below or such
other exceptions as the Board deems appropriate and includes in the Grant
Instrument, an Option only may be exercised while the Grantee is employed by the
Company or its affiliates.
i. If the Grantee ceases to be employed by the Company or its
affiliates for any reason other than those specified in Subsection (ii) below,
any Option that is otherwise exercisable by the Grantee shall terminate if not
exercised within ninety (90) days after the cessation of the Grantee's
employment or by the expiration of the Option term, if earlier. All of the
Grantee's Options that are not so exercisable shall terminate as of the date the
Grantee's employment terminates.
ii. If the Grantee ceases to be employed by the Company or its
affiliates on account of death or a "disability" (or dies within 90 days after
termination of his employment), any Option that is otherwise exercisable by the
Grantee shall terminate unless exercised within one (1) year of the cessation of
the Grantee's employment or by the expiration of the Option term, if earlier.
(For this purpose, "disability" shall mean being disabled within the meaning of
Code section 22(e)(3).) Any of the Grantee's Options not otherwise exercisable
shall terminate as of the date the Grantee's employment terminates.
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<PAGE>
e. Exercise. A Grantee may exercise an Option that has become vested
and exercisable by giving the Board written notice of intent to exercise
specifying: the Option being exercised; the number of shares as to which the
Option is exercised; and the date to complete the exercise. Full payment of the
Exercise Price shall be made by the Grantee on or before the exercise date.
f. Limit. Each Incentive Stock Option shall provide that, if the
aggregate Fair Market Value of the stock on the date of the grant with respect
to which Incentive Stock Options are exercisable for the first time by a Grantee
during any calendar year exceeds $100,000, then such Option, as to the excess,
shall be treated as a Nonqualified Stock Option.
7. Withholding of Taxes.
All Options under the Plan shall be subject to applicable federal
(including FUTA), state and local tax withholding requirements. The Company may
require the Grantee to pay the amount of any such taxes that the Company is
required to withhold with respect to the Options; alternatively, the Company may
deduct the amount of any withholding taxes from other compensation payable to
the Grantee.
8. Nontransferability of Options.
An Option shall be exercisable only by the Grantee, and shall not be
transferable except by will or the laws of descent and distribution. When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee may exercise such rights upon satisfactory proof to
the Company of the right to receive the Option under the Grantee's will or the
applicable laws of descent and distribution. Any other attempt by the Grantee to
alienate, assign, pledge, hypothecate or otherwise dispose of any Option, or the
levy of any attachment, execution or similar process upon the rights conferred
thereunder, shall terminate such Option.
9. Transferability of Company Stock.
All Company Stock acquired by the Grantee under this Plan shall be
subject to such restrictions on transferability as may be set forth in the
Company's Articles of Incorporation and Bylaws.
10. Change of Control.
As used herein, a "Change of Control" shall be deemed to have occurred
if:
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<PAGE>
a. Any "person" within the meaning of sections 13(d) and 14(d) of the
Exchange Act (other than a person who is a shareholder of the Company as of the
effective date of the Plan), directly or indirectly becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), of Company securities
representing more than 50% of the voting power of the then outstanding
securities of the Company (other than as a result of the death of a
shareholder); or
b. There is (i) a merger or consolidation of the Company with another
corporation where the shareholders of the Company (immediately prior to the
merger or consolidation) will not beneficially own (immediately after the
merger or consolidation) shares entitling them to cast more than 50% of the
votes which the shareholders of the surviving corporation, would be entitled to
cast in the election of directors (without consideration of the rights of any
class of stock to elect directors by a separate class vote), (ii) a sale or
other disposition of all or substantially all of the assets of the Company or
(iii) a liquidation or dissolution of the Company.
11. Acceleration or Assumption Upon Change in Control.
a. If a Change of Control occurs, the Board may:
i. Accelerate by declaring all outstanding Options
exercisable; or
ii. Provide for assumption of all outstanding Options, or
replacement with comparable options, by the surviving corporation.
b. Notwithstanding the foregoing, (subject to Subsection c. below), in
the event of a Change of Control, the Board may take one or both of the
following actions: (i) require that the Grantee surrender the Grantee's then
exercisable Options in exchange for a payment by the Company, in cash or Company
Stock as determined by the Board, in an amount equal to the amount by which the
then Fair Market Value of the shares of Company Stock subject to the Grantee's
exercisable Options exceeds the Exercise Price of the Options, or (ii) after
giving the Grantee an opportunity to exercise the Grantee's then exercisable
Options, terminate any or all unexercised Options at such time as it deems
appropriate. Such surrender or termination shall take place as of the date of
the Change of Control or such other date as the Board may specify.
c. Notwithstanding anything in the Plan to the contrary, in the event
of a Change of Control, neither the Grantee nor the Board shall have the right
to take any actions described in the Plan (including, without limitation,
actions described in Subsection b. above) that would make the Change of Control
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<PAGE>
ineligible for desired tax treatment if, in the absence of such right, the
Change of Control would qualify for such treatment and the Company intends to
use such treatment with respect to the Change of Control.
12. Requirements for Issuance of Shares.
a. Board Requirements. The Board may condition any Option on the
Grantee's written consent to comply with such restrictions on the disposition of
Company Stock acquired under an Option as it deems necessary or advisable
(certificates representing such shares may be legended to reflect any such
restrictions.)
b. Legal Requirements. No Company Stock shall be issued or transferred
in connection with any Option unless and until the Grantee complies with all
legal requirements applicable to the issuance or transfer in a manner
satisfactory to the Board. Certificates representing shares of Company Stock
issued under the Plan shall be subject to such stop-transfer orders and other
restrictions as may be required by applicable law, regulation and
interpretation, including any requirement that a legend be placed thereon.
13. Amendment and Termination of the Plan.
a. Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required by section 162(m) of the Code.
b. Termination. The Plan shall terminate on December 14, 2008, unless
terminated earlier by the Board or extended by the Board with the approval of
the Company's shareholders.
c. Termination and Amendment of Outstanding Options. A termination or
amendment of the Plan that occurs after an Option is granted shall not
materially impair the Grantee's rights unless the Grantee consents or the Board
acts under Section 19.a. The termination of the Plan shall not impair the power
and authority of the Board with respect to an outstanding Option. Whether or not
the Plan has terminated, an outstanding Option may be terminated or amended
under Section 19.a. or may be amended by agreement of the Company and the
Grantee consistent with the Plan.
d. Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
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<PAGE>
14. Funding of the Plan.
The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of shares with respect to Options.
15. Rights of Participants.
Nothing in the Plan shall entitle any Employee to any claim or right to
be granted an Option. Neither the Plan nor any action taken hereunder shall be
construed as giving a Grantee any right to continuing employment with the
Company.
16. Fractional Shares.
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Option. The Board shall determine whether cash or
other awards or property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
17. Headings.
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
18. Effective Date.
This Plan shall be effective as of December 15, 1998.
19. Miscellaneous.
a. Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Options shall be subject to all applicable law and any required approval by a
governmental or regulatory agency. With respect to persons subject to section 16
of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan comply with all applicable provisions of Rule 16b-3
or its successors under the Exchange Act. The Board may revoke any Option if it
is contrary to law, or modify an Option to bring it into compliance with any
valid and mandatory government regulation. The Board may, in its sole
discretion, agree to limit its authority under this Section.
b. Governing Law. The validity, construction,
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<PAGE>
interpretation and effect of the Plan shall be exclusively governed by and
determined in accordance with the laws of the Commonwealth of Pennsylvania,
except to the extent preempted by federal law.
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<PAGE>
APPENDIX "A"
SUBSIDIARIES
Pennsylvania Physicians Care Service Corp.
Physicians Care HMO, Inc.
Physicians Care PPO, Inc.
9
<PAGE>
PRELIMINARY COPY
PROXY
PENNSYLVANIA PHYSICIAN HEALTHCARE PLAN, INC.
This Proxy is Being Solicited by the Board Of Directors
in connection with a Special Meeting of
Class A and Class B Shareholders to be held November 14, 1998
The undersigned hereby appoints Gary C. Brown and Edward W. Gerner, and
each of them, Proxies for the undersigned with power of substitution, to vote as
designated below all the shares of the undersigned at the Special Meeting of
Class A and Class B Shareholders of Pennsylvania Physician Healthcare Plan, Inc.
to be held at 777 East Park Drive, Harrisburg, Pennsylvania on November 14,
1998, at 9:30 a.m., or any adjournment thereof, all as more fully described in
the Notice of Special Meeting and Proxy Statement, receipt of which is hereby
acknowledged.
1. Approval of the Plan of Recapitalization and the Amended and
Restated Articles of Incorporation (Class A and Class B Shares
each vote separately as a class on this matter):
[ ] FOR APPROVAL OF [ ] WITHHOLD [ ] ABSTAIN
PLAN OF AUTHORITY TO
RECAPITALIZATION VOTE FOR
AND AMENDED AND APPROVAL OF PLAN
RESTATED ARTICLES OF RECAPITALI-
OF INCORPORATION ZATION AND
AMENDED AND
RESTATED
ARTICLES OF
INCORPORATION
2. Approval of Amendments to Sections 3.5 and 10.1 of the Bylaws
(only Class A Shares vote on this matter):
[ ] FOR ADOPTION OF [ ] WITHHOLD [ ] ABSTAIN
THE AMENDMENTS TO AUTHORITY TO
THE BYLAWS VOTE FOR
ADOPTION OF THE
AMENDMENTS TO
THE BYLAWS
<PAGE>
3. Approval of the Stock Option Plan (only Class A Shares vote
on this matter):
[ ] FOR ADOPTION OF [ ] WITHHOLD [ ] ABSTAIN
THE STOCK OPTION AUTHORITY TO
PLAN VOTE FOR
ADOPTION OF THE
STOCK OPTION
PLAN
4. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
The undersigned revokes all proxies heretofore given with respect to
said meeting and approves all that the Proxies or their substitutes shall do by
virtue hereof.
This Proxy, when properly executed, will be voted as directed herein,
but if no direction is given, this Proxy will be voted as to Class A Shares FOR
Approval of the Plan of Recapitalization and the Amended and Restated Articles
of Incorporation, FOR Adoption of the Amendment of the Bylaws and FOR Adoption
of the Stock Option Plan; and this Proxy will be voted as to Class B Shares FOR
Approval of the Plan of Recapitalization and the Amended and Restated Articles
of Incorporation.
The undersigned, intending that the Company will rely thereon,
certifies that the undersigned is a Pennsylvania practicing physician (medical
doctor or doctor of osteopathy), podiatrist or oral surgeon, or a Qualified
Retirement Plan, and is voting only one Class A Share and, if applicable, all
Class B Shares. Unless otherwise indicated by the undersigned, if the
undersigned is a holder of both Class A and Class B Shares, this Proxy shall
grant authority to vote the shares of both classes.
Dated:_________________, 1998
------------------------------------
Signature of Shareholder
------------------------------------
Signature of Shareholder
(Please sign exactly as your name
appears hereon. Executors,
administrators or trustees should so
indicate when signing. If Shares are
held by more than one person, all must
sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY
2
