<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-21440
___________
PHYSICIAN CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
DELAWARE 48-1006287
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5835 BLUE LAGOON DRIVE
MIAMI, FL 33126
(Principal Executive Offices, Including Zip Code)
Registrant's telephone number including area code: (305) 267-6633
___________
Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past ninety days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Not Applicable X
----
APPLICABLE ONLY TO CORPORATE ISSUERS:
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AT MARCH 31, 1996
Common Stock 38,704,885
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
PAGE
----
PART I. Financial Information
Item 1. Financial Statements 1-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,671 $ 164,706
Short term investments 178,847 131,185
Accounts receivable, net of allowance of approximately
$7,048 and $7,670 at March 31, 1996 and
December 31, 1995, respectively:
Trade (health premiums and administrative service fees) 91,754 61,271
Other 17,003 11,478
Prepaid expenses, inventories and other current assets 9,771 8,449
Income taxes receivable 19,802 20,580
Deferred income tax benefit 10,293 11,301
------------ ------------
Total current assets 372,141 408,970
------------ ------------
Property and equipment, net of accumulated depreciation
of $25,135 and $22,652 at March 31, 1996 and
December 31, 1995, respectively 59,067 59,564
Long term investments 218,535 145,865
Deferred income tax benefit long-term 5,871 -
Statutory deposits and other assets 71,449 43,141
Intangible assets:
Goodwill, net of accumulated amortization of $16,821
and $14,742 at March 31, 1996 and December 31,
1995, respectively 164,892 164,871
Other intangible assets net of accumulated amortization of
$15,435 and $14,014 at March 31, 1996 and
December 31, 1995, respectively 25,578 27,251
------------ ------------
Total intangible assets 190,470 192,122
------------ ------------
$ 917,533 $ 849,662
------------ ------------
------------ ------------
</TABLE>
1
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other
current liabilities $ 62,166 $ 55,592
Health claims payable 185,548 171,241
Current portion of other claims payable, primarily
workers' compensation 32,911 23,629
Unearned premiums and service fees 42,747 54,398
Current portion of long-term debt and obligations
under capital leases 43,047 26,943
------------ ------------
Total current liabilities 366,419 331,803
Long-term debt and obligations under capital leases,
less current portion 139,364 157,096
Long-term portion of other claims payable, primarily
workers' compensation 198,717 138,894
Deferred income taxes - 2,068
Deferred income and other long-term liabilities 10,139 9,632
------------ ------------
Total liabilities 714,639 639,493
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value, authorized 200,000,000
shares; issued and outstanding 38,704,885 and 38,608,913
at March 31, 1996 and December 31, 1995,
respectively 387 386
Additional paid-in capital 137,412 137,826
Common stock held in treasury - at cost; 585,325 and
681,292 shares at March 31, 1996 and December 31,
1995, respectively (11,174) (12,565)
Retained earnings 79,124 84,058
Unrealized (loss)/gain on investments (2,855) 464
------------ ------------
Total stockholders' equity 202,894 210,169
Commitment and contingencies
------------ ------------
$ 917,533 $ 849,662
------------ ------------
------------ ------------
</TABLE>
2
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Health premiums $ 318,209 $ 241,895
Workers compensation administrative service fees
and other revenues 19,334 24,553
Workers compensation premiums 35,684 5,297
Investment income 5,696 3,723
------------ ------------
Total revenues 378,923 275,468
Operating expenses:
Medical costs 277,965 190,962
Administrative, marketing and other expenses 70,771 63,213
Workers compensation claims 28,560 3,606
Depreciation and amortization 6,234 4,907
------------ ------------
Total operating expenses 383,530 262,688
Operating (loss) income (4,607) 12,780
Interest expense (4,027) (1,748)
Other income (expense) 10 (33)
------------ ------------
(Loss) earnings before income taxes (8,624) 10,999
Income tax benefit (expense) 3,690 (4,595)
------------ ------------
Net (loss) earnings $ (4,934) $ 6,404
------------ ------------
------------ ------------
Net (loss) earnings per common and common
equivalent share $ (0.13) $ 0.16
------------ ------------
------------ ------------
Net (loss) earnings per common and common
equivalent share assuming full dilution $ (0.13) $ 0.16
------------ ------------
------------ ------------
Number of common shares used in computation of
primary and fully diluted earnings per share 39,421,000 40,274,000
------------ ------------
------------ ------------
</TABLE>
3
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ (4,934) $ 6,404
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization 6,234 4,907
Amortization of premium/accretion of discount 640 -
Changes in working capital:
Accounts receivable (36,009) (11,262)
Income taxes receivable 998 2,148
Accounts payable, accrued expenses and
other current liabilities 8,160 (20,613)
Claims payable 83,412 16,487
Unearned premiums (11,650) 7,751
Deferred income taxes (4,831) 2,421
Other changes in other assets and liabilities (4,203) 2,945
------------ ------------
Total adjustments 42,751 4,784
------------ ------------
Net cash provided by operating activities 37,817 11,188
------------ ------------
Cash flows from investing activities:
Purchase of investments (180,624) -
Proceeds from sale of investments 54,360 13,211
Purchase of property and equipment (2,636) (6,018)
Proceeds from sale of property and equipment 115 -
Statutory deposits and other assets (28,192) (505)
Acquisitions, net of cash acquired - (11,590)
------------ ------------
Net cash used in investing activities (156,977) (4,902)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings - 10,000
Principal payments on debt and capital leases (917) (1,084)
Principal payments on covenants not-to-compete (716) (701)
Proceeds from issuance of common stock 758 819
------------ ------------
Net cash (used in) provided by financing activities (875) 9,034
------------ ------------
Net (decrease) increase in cash (120,035) 15,320
Cash and cash equivalents at beginning of period 164,706 123,135
------------ ------------
Cash and cash equivalents at end of period $ 44,671 $ 138,455
------------ ------------
------------ ------------
</TABLE>
4
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE A:
ORGANIZATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for annual financial
statements. In management's opinion, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included.
The balance sheet as of December 31, 1995 was derived from the registrant's
audited financial statements.
The results for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE B:
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Under SFAS 109, the deferred income tax expense or benefit generally
arises from changes in differences between financial reporting and tax bases of
all assets and liabilities, and previously recorded deferred tax assets and
liabilities are adjusted upon any changes in enacted tax rates.
NOTE C:
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings (loss) per share were based on the weighted average number of
common and common equivalent shares outstanding during the periods presented.
Equivalent shares consist of those shares issuable upon the assumed exercise of
stock options calculated under the treasury stock method, based on average stock
market prices in the periods.
Fully diluted earnings (loss) per share were computed using the weighted
average number of common and common equivalent shares outstanding in the
periods, assuming exercise of stock options calculated under the treasury
stock method, based on the higher of average stock prices in the periods
or the stock market price at the end of the periods.
5
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR QUARTER ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE D:
WORKERS COMPENSATION INSURANCE
In January 1996, the Company, through its workers compensation companies, began
providing primary workers compensation insurance coverage to employer groups in
Florida. In conjunction with providing this new product, the Company has
entered into quota share arrangements with five reinsurers whereby 50% of the
premiums and 50% of the claims costs are retained by the Company and the
remaining 50% are ceded to the reinsurers.
NOTE E:
PENDING DISPOSITIONS
In May 1996, the Company signed definitive agreements to sell: i) its HMO
subsidiaries, PCA Health Plans of Georgia, Inc. (PCA/Georgia) and PCA Health
Plans of Alabama, Inc. (PCA/Alabama) for a price of $25 million in cash and
notes, and ii) its medical centers subsidiary, Physicians First, Inc. (PFI), for
$23 million in cash, stocks and notes. The sale of the HMOs are expected to
close in July 1996 and the sale of PFI is expected to close in June 1996. Both
sales are pending regulatory approval. Net cash proceeds from these sales are
expected to be used to reduce the Company's debt.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Physician Corporation of America ("the Company") is a managed health care
company that provides comprehensive health care services through its health
maintenance organizations ("HMOs") and workers compensation administrative
management services and provides primary workers compensation and reinsurance
insurance coverage through its workers compensation third party administration
and indemnity companies ("Workers Compensation Companies"). The Company
conducts all of its business in the Southeastern United States and Puerto Rico.
In the first quarter 1996, the Company continued to increase health premium
revenues and membership in its health plans. Effective January 1, 1996, the
Company began writing primary workers compensation insurance coverage. The
following sets forth certain financial and operating information pertaining to
the Company's results for the quarter ended March 31, 1996 compared to 1995:
<TABLE>
<CAPTION>
Three Months Ended,
----------------------------
March 31, March 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Health Premiums:
Commercial $142,556 $117,479
Medicaid 91,325 82,561
Medicare 76,187 36,222
Indemnity 8,141 5,633
------------ ------------
Total health premiums $318,209 $241,895
------------ ------------
------------ ------------
Workers compensation premiums $35,684 $5,297
------------ ------------
------------ ------------
Workers compensation administrative
service fees and other revenues $19,334 $24,553
------------ ------------
------------ ------------
Operating Statistics and Data:
Medical loss ratio (1) 87.4% 78.9%
Health administrative, marketing
and other expenses ratio (2) 16.4% 18.7%
Workers compensation loss ratio (3) 80.0% 68.1%
Period ending membership:
HMO:
Commercial 450,000 371,000
Medicaid 376,000 214,000
Medicare 58,000 29,000
------------ ------------
Total HMO 884,000 614,000
Health Indemnity and PPO 34,000 32,000
------------ ------------
Total HMO and Insured Health Membership 918,000 646,000
------------ ------------
------------ ------------
</TABLE>
(1) Medical costs as a percentage of health premiums.
(2) Health administrative, marketing and other expenses, including allocations
of corporate overhead as a percentage of health premiums.
(3) Workers compensation claims costs as a percentage of workers compensation
premiums.
7
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
The Company incured a $4.9 million net loss for the three months ended March 31,
1996 as compared to net income of $6.4 million in 1995. The decrease was
primarily due to a $11.0 million decline in profitability of the Company's HMO
operations in 1996.
Health premium revenues for the three months ended March 31, 1996 as compared to
1995 increased by $76.3 million or 32% Of the increase, $107.1 million was due
to a 44% increase in the average number of members during the period offset by a
$30.8 million decrease due to an 11% decrease in the weighted average health
premium rate per member. This premium rate decrease was attributable to the
fact in the quarter ended March 31, 1996, the Company provided health care to
approximately 192,000 Medicaid members (relating to the Reform Program which
began in December 1995 in Puerto Rico) at an average rate of approximately $50
per member per month. Total membership at March 31, 1996 increased by
approximately 272,000 members from membership at March 31, 1995 (79,000 increase
in Commercial, 162,000 increase in Medicaid, 29,000 increase in Medicare and
2,000 in indemnity and PPO members).
Workers compensation administrative service fees and other revenues for the
three month period ended March 31, 1996 decreased by $5.2 million to $19.3
million from $24.5 million for the three month period ended March 31, 1995.
This service fee revenue is generated primarily by the Company's workers
compensation administration and indemnity operations servicing self insured
funds. In 1996, the Company through its workers compensation indemnity
subsidiary began offering primary workers compensation coverage to these
employer groups. Therefore, the workers compensation service fees earned
from these employers in the past have been replaced in 1996 by primary
workers' compensation premiums.
Workers compensation premiums for the three months ended March 31, 1996 as
compared to 1995 increased by $30.4 million or 574% to $35.7 million. This
increase is attributable to the introduction of primary workers compensation
insurance coverage commencing in January 1996.
Medical costs for the three months ended March 31, 1996 as compared to 1995
increased by $87.0 million or 46%. Of the increase, $84.6 million was due to a
44% increase in the average number of members during the period and $2.4 million
was due to a less than 1% increase in the weighted average medical cost per
member. This 1% increase in the weighted average medical cost per member was
due primarily to an increase in Commercial, Medicare and indemnity members
(which have a higher per member medical cost) offset by an increase in net
Medicaid members (which in Puerto Rico have lower per member medical costs) for
the three months ended March 31, 1996 versus 1995. As a result of these
factors, the Company's medical loss ratio increased to 87.4% from 78.9% in 1995.
Administrative, marketing and other expenses for the three months ended March
31, 1996 as compared to 1995 increased by $7.6 million or 12%. This increase
was due to $2.9 million in costs incurred in 1996 by subsidiaries acquired by
the Company subsequent to March 31, 1995. The remaining $4.7 million increase
is commensurate with the growth and delivery of the workers compensation and
non-health products. The Company's health administrative ratio improved from
18.7% of premiums in 1995 to 16.4% in 1996.
Workers compensation claims costs for the three months ended March 31, 1996 as
compared to 1995 increased by $25 million or 694% to $28.6 million. This
increase is entirely attributable to the claims associated with the introduction
of primary workers compensation coverage commencing in January 1996.
8
<PAGE>
Depreciation and amortization for the three months ended March 31, 1996 as
compared to 1995 increased by $1.3 million or 27% which is attributable
primarily to capital expenditures made subsequent to March 31, 1995.
Income tax expense for the three months ended March 31, 1996 as compared to 1995
decreased by $8.3 million resulting in a $3.7 million income tax benefit in
1996. This decrease primarily resulted from decreased earnings before income
taxes of $19.6 million. The approximate 43% effective income tax rate in 1996 is
higher than the 38% statutory rate for such period, primarily due to the
nondeductibility of goodwill amortization for income tax purposes arising from
the acquisition of HMOs and workers compensation companies offset by tax exempt
investment income.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $5.7 million. Cash and
cash equivalents were $44.7 million at March 31, 1996, a decrease of $120.0
million from $164.7 million at December 31, 1995 and short term investments were
$178.8 million at March 31, 1996, an increase of $47.6 million from a $131.2
million balance at December 31, 1995. The decrease in cash and cash equivalents
is primarily the result of cash generated from operations offset by cash used in
investing and financing activities. The Company's cash and cash equivalents do
not include statutory cash deposits segregated as required by various regulatory
authorities.
Net cash provided by operating activities for the three months ended March 31,
1996 was $37.8 million compared to cash of $11.2 million provided by operating
activities for the three months ended March 31, 1995. The cash provided by
operating activities for 1996 was principally the result of the following
factors: (i) net loss of $4.9 million, (ii) increase in claims payable in the
amount of $83.4 million, (iii) increase in income taxes receivable in the amount
of $1.0 million, (iv) decrease in deferred premiums in the amount of $11.7
million, (v) $36.0 million decrease in accounts receivable, and (vi) an increase
in accounts payable, accrued expenses and other current liabilities of $8.2
million.
In 1996, net cash used in investment activities increased to $157.0 million,
from $4.9 million in 1995. The net cash used in investing activities was
primarily the result of the $2.6 million purchase of property and equipment, the
net purchase of investments of $126.3 million. The Company believes it will be
able to finance all capital expenditures for the foreseeable future from cash
generated from operations and amounts available from cash. The Company has
utilized capital leases to finance certain equipment additions in the past and
expects to continue to do so in the future.
In 1996, net cash used in financing activities for the three months ended March
31, 1996 decreased to $0.9 million compared to $9.0 million cash provided in the
three months ended March 31, 1995. The cash used in financing activities was
primarily the result of $1.6 million of long-term debt principal and covenant
payments.
The Company believes that cash on hand and cash flow generated from operations
will be sufficient to fund future capital expenditures, introduction of new
products and services and meet debt service requirements for the foreseeable
future. The proceeds from the pending sales of PCA/Georgia, PCA/Alabama, and PFI
will be used to pay down our $160 million bank debt facility, which is provided
by six banks, including Citibank, NA as agent. Beginning on December 31, 1996,
the Company is required to commence quarterly principal repayments of $16.75
million until the loan is fully repaid. While such loan repayments are
anticipated to be made from operating cash flow, the Company is evaluating other
options, including other assets sales and refinancing alternatives with respect
to this debt.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits furnished as part of the Report:
(1) Financial Statements, See PART I, Item 1
(2) 10.1 Amendment to Credit Agreement dated April 5, 1996
(3) 27 Financial Data Statement
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIAN CORPORATION OF AMERICA
(Registrant)
By: /s/ E. Stanley Kardatzke, M.D.
----------------------------------------------
E. Stanley Kardatzke, M.D.,
Chairman of the Board and CEO (Principal Executive Officer)
By: /s/ Clifford W. Donnelly
----------------------------------------------
Clifford W. Donnelly
Senior Vice President of Finance and Chief Financial Officer
By: /s/ Jay M. Grobowsky
----------------------------------------------
Jay M. Grobowsky
Date: May 15, 1996 Vice President of Finance
------------
11
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
EXHIBIT INDEX
10.1 Amendment to Credit Agreement dated April 5, 1996
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT dated as of April 5, 1996 (this
"Amendment") among Physician Corporation of America (the "Borrower"), the banks
listed on the signature pages hereof (the "Lenders"), Citibank, N.A., as issuing
bank (the "Issuing Bank"), and Citibank, N.A., as agent for the Lenders and
Issuing Bank (the "Agent").
PRELIMINARY STATEMENTS:
1. The Borrower, the Lenders, the Issuing Bank and the Agent are
parties to that certain Revolving Credit Agreement dated as of October 27, 1994,
as amended by an Amendment to Credit Agreement and Consent to Acquisition dated
as of September 22, 1995 and by a Second Amendment to Credit Agreement dated as
of March 29, 1996 (such Revolving Credit Agreement, as so amended and as further
amended, supplemented or otherwise modified and in effect from time to time
being the "Credit Agreement"). Capitalized terms defined in the Credit
Agreement and not otherwise defined herein are used herein as therein defined;
and capitalized terms defined in Section 2 hereof are used elsewhere herein as
so defined (without regard to the conditions to effectiveness in Section 5
hereof).
2. The Borrower has requested that the Issuing Bank and the Majority
Lenders grant an extension of the deadline for delivery of the opinion provided
for in Section 8(b)(ii) of the Second Amendment and agree to certain amendments
of the Credit Agreement as set forth below. The Issuing Bank and Majority
Lenders are willing to grant such extension and agree to such amendments, in
each case on the terms and subject to the conditions hereof.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the parties hereto agree as follows:
SECTION 1. AGREEMENTS. Notwithstanding anything to the contrary
contained in the Second Amendment, the Borrower shall not be required to comply
with Section 8(b)(ii) of the Second Amendment, PROVIDED, HOWEVER, that, not
later than April 9, 1996, the Borrower shall cause to be delivered to the Agent,
Issuing Bank and Lenders, an opinions of Fulbright & Jaworski LLP, special
outside regulatory matters, in form and substance satisfactory to the Agent.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. (a) The definition of
"Loan Documents" set forth in Section 1.01 of the Credit Agreement is hereby
amended in its entirety so as to read in full as follows:
<PAGE>
2
"'LOAN DOCUMENTS' means this Agreement, the Notes, the Fee
Letter, the Second Amendment, the Third Amendment, the Borrower
Pledge Agreement and each of the Guaranties, Security Agreements
and other documents (other than the Intercompany Subordination
Agreement) delivered by the Borrower or any of its Subsidiaries
pursuant to Section 6 of the Second Amendment, in each case as
amended, supplemented or otherwise modified from time to time."
(b) Section 1.01 of the Credit Agreement is hereby amended by the
addition of the following definitions thereto:
"THIRD AMENDMENT" means the Third Amendment to Credit Agreement dated
as of April 5, 1996 among the Borrower, the Lenders parties thereto, the
Issuing Bank and the Agent.
(c) Clause (vi) of Section 6.02(c) of the Credit Agreement is hereby
amended in its entirety so as to read in full as follows:
"(vi) Debt owed by any Subsidiary of the Borrower that is not a
Collateral Party to any other Subsidiary of the Borrower that is not a
Collateral Party,"
(d) Section 6.02(I) of the Credit Agreement is hereby amended in its
entirety so as to read in full as follows:
"(i) INVESTMENTS IN OTHER PERSONS. Make, or permit any of its
Subsidiaries to make, any loan or advance or gift to, or investment in, any
other Person, or purchase or otherwise acquire, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of capital stock,
obligations or other securities, or make any capital contribution to, or
otherwise invest in, any other Person, EXCEPT for (i)(A) Cash Equivalents
and (B) investments by the Borrower or any of its Subsidiaries in
compliance with the Investment Policy and Guidelines applicable to the
Borrower and its Subsidiaries, as approved by the Borrower's Board of
Directors and in effect from time to time (exclusive, however, of any
investment otherwise permitted thereunder that is comprised of a loan or
advance of a type referred to in clause (ii) or (iii) of this Section
6.02(i) or is otherwise a loan or advance to or an investment in the
Borrower or any of its Subsidiaries), (ii)(A) loans or advances by any
Subsidiary of the Borrower that is not a Collateral Party to any other
Subsidiary of the Borrower that is not a Collateral Party and (B) capital
contributions by the Borrower to any HMO Subsidiary or Insurance Subsidiary
whose stock and debt are pledged as Collateral under the Borrower Pledge
Agreement (whether as of or after the Second Amendment Effective Date)
solely to the extent, however, that such capital contributions are
necessary to enable such HMO Subsidiary or Insurance Subsidiary, as the
case may be, to maintain, but not exceed, a level of 105% of the amount of
HMO Regulatory Tangible Net Equity or Insurance Regulatory Tangible Net
Equity required under the HMO Regulations or Insurance Regulations, as the
case may be, applicable to
<PAGE>
3
such HMO Subsidiary or Insurance Subsidiary and (iii) loans to employees in
connection with housing relocations; PROVIDED, that, the aggregate
outstanding principal amount thereof does not at any time exceed $250,000
loaned to any one individual or $2,000,000 in the aggregate."
(e) Section 7.01(s) of the Credit Agreement is hereby amended in its
entirety so as to read in full as follows:
(s) the Borrower shall fail to comply with (i) any obligation in
Section 8(b) of the Second Amendment (after giving effect to Section 1 of
the Third Amendment) or (ii) any obligation in Section 1 of the Third
Amendment; or"
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants as follows:
(a) All representations and warranties of the Borrower contained in
the Credit Agreement, both before and after giving effect to Section 2
hereof, are true in all material respects as of the date hereof (except for
any such representation or warranty (or portion thereof) that is qualified
by reference to a specific materiality standard, in which case such
representation or warranty is true in all respects as of the date hereof).
(b) Without limiting the representations and warranties made in
subsection (a) above or in the Credit Agreement, no authorization, consent,
approval or other action by, and no notice to or filing with, any HMO
Regulator or Insurance Regulator is required for, and no HMO Event,
Insurance Event or violation of the HMO Regulations or Insurance
Regulations would result from, the due execution, delivery or performance
by the Borrower or any Loan Party of this Amendment.
SECTION 4. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS. (a) On and
after the date hereof, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein", or words of like import referring
to the Credit Agreement, and each reference to Credit Agreement in the other
Loan Documents, shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended under Section 2 hereof or modified
by the agreements under Section 1 hereof, each of the Credit Agreement and each
other Loan Document shall remain in full force and effect and is hereby ratified
and confirmed PROVIDED, HOWEVER, that after the effectiveness of this Amendment
the Borrower shall not be required to maintain in effect the Intercompany
Subordination Agreement, and the parties hereto acknowledge that the
Intercompany Subordination Agreement is being terminated.
(c) The Borrower acknowledges and agrees that, except to the extent
specifically amended under Section 2 hereof or modified by the agreements under
Section 1
<PAGE>
4
hereof, it is obligated to comply with each and every term, covenant, agreement
and condition applicable to it under the Credit Agreement or the other Loan
Documents. The execution, delivery and effectiveness of this Amendment shall
not otherwise operate as a waiver of any right, remedy or privilege of any
Lender, the Issuing Bank or the Agent under the Credit Agreement or any other
Loan Document, any and all of which rights, remedies and privileges are
reserved.
SECTION 5. CONDITIONS OF EFFECTIVENESS. Sections 1 and 2 of this
Amendment shall become effective as of the date hereof when and only when the
Agent shall have received counterparts of this Amendment duly executed by the
Borrower, the Issuing Bank and the Majority Lenders.
SECTION 6. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same agreement.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized, as of the date first above written.
THE BORROWER:
PHYSICIAN CORPORATION OF AMERICA
By: /s/ Clifford Donnelly
------------------------------------
Name: Clifford Donnelly
Title: Treasurer
THE LENDERS AND ISSUING BANK:
CITIBANK, N.A., as Lender and as Issuing Bank
By:
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
------------------------------------
Name:
Title:
NATIONSBANK OF TENNESSEE
By:
------------------------------------
Name:
Title:
<PAGE>
6
BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY
By:
------------------------------------
Name:
Title:
SUNTRUST BANK, MIAMI, N.A.
By:
------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
------------------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Physician Corporation of America for the three
months ended March 31, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 44,671
<SECURITIES> 178,847
<RECEIVABLES> 91,754
<ALLOWANCES> 7,048
<INVENTORY> 963
<CURRENT-ASSETS> 372,141
<PP&E> 84,202
<DEPRECIATION> 25,135
<TOTAL-ASSETS> 917,533
<CURRENT-LIABILITIES> 366,419
<BONDS> 139,364
0
0
<COMMON> 387
<OTHER-SE> 202,507
<TOTAL-LIABILITY-AND-EQUITY> 917,533
<SALES> 373,227
<TOTAL-REVENUES> 378,923
<CGS> 306,525
<TOTAL-COSTS> 383,530
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,027
<INCOME-PRETAX> (8,624)
<INCOME-TAX> (3,690)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,934)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
