United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
{ } Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 001-13460
PhyAmerica Physician
Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 56-1379244
(State or other jurisdiction of (IRS
Employer
incorporation or organization) Identification
No.)
2828 Croasdaile Drive, Durham, NC 27705
(Address of principal executive offices) (Zip Code)
(919) 383-0355
(Registrant's telephone number including area code)
None
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
{X} Yes { } No
As of April 30, 2000 there were outstanding 42,629,295 shares of
common stock, par value $.01 per share.
PHYAMERICA PHYSICIAN GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999
and March 31, 2000 (unaudited)
Unaudited Consolidated Statements of Operations -
Three months ended March 31, 2000 and 1999
Unaudited Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Other Reports
SIGNATURES
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March December
31, 31,
2000 1999
Assets (Unaudite
d)
Current assets:
Cash and cash equivalents $ - $ -
Trade accounts receivable, net 31,324 25,113
Reserves held by NCFE 15,008 16,167
Accounts receivable, other 2,841 2,329
Receivables from related party 369 1,129
Prepaid expenses and other current 6,462 7,194
assets
Total current assets 56,004 51,932
Property and equipment, at cost, less 7,486 7,651
accumulated depreciation
Excess of cost over fair value of net 22,953 24,158
assets acquired, net
Other assets 4,587 5,042
Total assets $ 91,300 $ 88,783
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short- $ 5,328 $ 7,477
term borrowings
Accounts payable 31,884 30,277
Accrued physician fees and medical 18,140 18,429
costs
Accrued expenses 8,713 8,191
Total current liabilities 64,065 64,374
Long-term debt, excluding current 134,613 120,736
maturities
Total liabilities 198,678 185,110
Shareholders' equity (deficit):
Common stock $.01 par value; shares
authorized 100,000; shares
issued and outstanding 42,629 and 426 426
42,573, respectively
Additional paid-in capital 178,298 178,285
Common stock warrants 1,675 1,675
Retained earnings (accumulated (287,777) (276,713)
deficit)
Total shareholders' equity (107,378) (96,327)
(deficit)
Total liabilities and $ 91,300 $ 88,783
shareholders' equity (deficit)
See accompanying notes to consolidated financial statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three months ended
March 31,
2000 1999
Operating revenue, net $ 78,655 $ 50,695
Costs and expenses:
Physician and other 61,110 34,907
provider services
Medical support services 8,725 8,431
Selling, general and 15,489 7,250
administrative
Related party expense, net 404 90
Total costs and expenses 85,728 50,678
Operating (loss) income (7,073) 17
Other income (expense):
Interest expense (3,880) (2,429)
Interest income 17 63
Other related party income (101) (114)
(expense), net
Other, net (27) 127
Total other expense (3,991) (2,353)
Loss before income taxes (11,064) (2,336)
Benefit for income taxes - -
Net loss $ (11,064) $ (2,336)
Net loss per common share:
Basic and diluted loss per $ (0.26) $ (0.06)
share
Shares used to compute loss
per share, basic and 42,572 37,832
diluted
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months
Ended
March 31,
2000 1999
Net cash used in operating $ (11,50 $ (9,45
activities 3) 8)
Cash flows from investing
activities:
Purchases of property and (238) (158)
equipment, net
Net cash used in investing (238) (158)
activities
Cash flows from financing
activities:
Borrowing of debt, net 11,728 11,95
5
Net proceeds from issuances of 13 11
common stock
Net cash provided by 11,741 11,96
financing activities 6
Net increase in cash and 0 2,350
cash equivalents
Cash and cash equivalents at 0 45
beginning of period
Cash and cash equivalents at end of $ 0 $ 2,395
period
Supplemental disclosures of cash
flow information:
Cash payments during the period
for:
Interest $ 4,016 $ 2,565
Income taxes 135 60
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying consolidated financial statements of PhyAmerica
Physician Group, Inc. (the "Company") are unaudited and, in the
opinion of management, include all adjustments which are
necessary for a fair presentation. The unaudited consolidated
financial statements should be read in conjunction with the
Company's audited consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. Operating results for the
interim periods presented are not necessarily indicative of the
results that may be expected for the fiscal year ending December
31, 2000.
(2) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", establishes rules for the reporting and
display of comprehensive income and its components. This
Statement requires that unrealized gains or losses on the
Company's available-for-sale securities be included in other
comprehensive income.
The components of comprehensive income, net of related tax, for
the quarter ended March 31, 2000 and 1999, are as follows:
In thousands of Three months ended
dollars March 31,
2000 1999
Net loss $(11,064 $(2,336)
)
Unrealized gains -- --
(losses)on securities
Comprehensive Income $(11,064 $(2,336)
)
(3) Segment Information
During the quarters ended March 31, 2000 and 1999, the Company
had four reportable segments: emergency physician management,
government services, billing and business management services and
divested businesses. The emergency physician management group
contracts principally with hospitals and government agencies to
identify and recruit physicians as candidates for admission to a
client's medical staff and to coordinate the on-going scheduling
of independent contractor physicians who provide clinical
coverage in designated areas. While the Company also provides
obstetrics, gynecology and pediatrics emergency physician
management, the provision of contract management services to
hospital emergency departments represents the Company's principal
hospital-based service. The government services segment provides
similar services to governmental agencies such as the Department
of Defense and state and local governments. The billing and
business management services segment provides support to
independent contractor physicians, independent practices and
other health care practitioners. These services are often
provided as part of the Company's emergency physician management
and are also marketed independently to unaffiliated providers.
Divested businesses consist of two health plans which were
divested during 1998 and the wrap up of businesses divested prior
to 1998. The Company also has a corporate group included in "All
Other" that provides administrative services to the operating
segments. "All other" also includes amounts related to
eliminations.
Information About Segment Profit/Loss and Segment Assets
The Company evaluates performance based on profit or loss from
operations before interest, income taxes, depreciation and
amortization. Intersegment revenues are recorded at amounts
similar to revenues from external customers. Intersegment profits
or losses are eliminated in consolidation. Also, the Company does
not allocate certain expenses such as certain professional fees
or certain employee benefits to its segments. The Company's
reportable segments are business units that are responsible for
certain quantitative thresholds of revenue, profits or losses or
assets.
Quarter ended March 31, 2000
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther
Totals
Revenue from external sources$69,253$4,474 $4,910 $ -$78,637
$18 $78,655
Intersegment revenues - - 6,472 - 6,472 - 6,472
Interest expense 2,893 912 93 - 3,898(18) 3,880
Depreciation and amortization1,373 6 203 -1,582 28
1,610
Segment profit (loss)(9,211)(630)1,287 (2) (8,556)(2,508)(11,064)
Segment assets 71,614 4,11414,170 2,423 92,321(1,021)91,300
Quarter ended March 31, 1999
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther
Totals
Revenue from external sources$41,972$4,362 $4,345$ --$50,679
$16 $50,695
Intersegment revenues-- -- 3,544 -- 3,544 -- 3,544
Interest expense 1,642 743 -- -- 2,385 44 2,429
Depreciation and amortization104 9 197 1 311 43
354
Segment profit (loss)(874)(635)1,090 (21) (440)(1,896)(2,336)
Segment assets 32,721 2,78111,408 649 47,55913,58961,148
(4) Recently Issued Accounting Pronouncements
Effective for fiscal quarters and fiscal years beginning after
June 15, 2000, the Company will be required to adopt Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS
133 requires entities to disclose information for derivative
financial instruments, and to recognize all derivatives as assets
or liabilities measured at fair value. The Company does not
believe that this pronouncement will have a material impact on
its financial position or results of operations.
PHYAMERICA PHYSICIAN GROUP, INC.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 2000 COMPARED TO THE FIRST QUARTER
ENDED MARCH 31, 1999.
During 1998, the Company completed its divestiture strategy. The
objective of the divestiture strategy was to identify operating
units that were either underperforming or were not deemed
critical to the overall operating strategy. The Company sold
Doctors Health Plan, Inc. ("DHP") in March 1998, and HealthPlan
Southeast ("HPSE") in October 1998. The Company sold Better
Health Plan ("BHP") in August 1997. Collectively, these
businesses are referred to as the HMOs. During 1997, the
Company also sold the last of its clinic operations. The Company
refers to the HMOs, clinic operations and some smaller related
businesses as the divested businesses. The core businesses are
comprised of emergency medicine practice management, government
services and medical billing and business management services.
In July 1999, in order to expand its Emergency Physician
Management business, the Company acquired the hospital emergency
department staffing assets of Sterling Healthcare, Inc.
("Sterling"), a subsidiary of FPA Medical Management, Inc., which
was in a Chapter 11 proceeding under the United States Bankruptcy
Code, for a purchase price of approximately $69.3 million plus
assumption of up to $18 million in operating liabilities. In
addition, on December 14, 1999 the Company increased the size of
its Billing and Business Management business by approximately 25%
when Healthcare Business Resources, Inc. ("HBR"), a subsidiary of
the Company, acquired from a subsidiary of Per Se Technologies,
Inc. the assets used in providing billing services for the
hospital staffing contracts acquired in the Sterling Acquisition
(the "Per Se Acquisition"). The acquisitions were accounted for
in accordance with the purchase method of accounting, and,
therefore, the results of operations for the acquired operations
are included in the accompanying financial statements since the
acquisition date.
Operating Revenue, Net. Net operating revenue in the first
quarter of 2000 was $78.7 million, representing an increase of
$28.0 million, or 55.2 %, from operating revenues of $50.7
million in the first quarter of 1999. The increases in operating
revenue among the various businesses were as follows:
Three Months Ended March 31,
2000 1999 %
Increase
Core businesses $78.7 $50.7 $28.0 55.2%
Divested 0.0 0.0 0.0 0.0%
businesses
$78.7 $50.7 $28.0 55.2%
The increase in the revenue of the core businesses was due
mostly to the Sterling Acquisition. In the first quarter of
2000, the emergency physician management business generated
approximately $69.3 million in revenue, which was an increase of
approximately $27.3 million, or 65.0%, from approximately $42.0
million of revenue in the first quarter of 1999. Approximately
$29.9 of this increase was attributable to Sterling offset by a
decrease in the non-Sterling contracts, related to contract
terminations. The government services group accounted for
approximately $4.5 million in the first quarter of 2000, which
was an increase of approximately $0.1 million, or 2.3%, from $4.4
million in the first quarter of 1999. Revenue for the billing and
collections operations was $4.9 million for the first quarter of
2000, which was an increase of approximately $0.6 million, or
14.0%, from $4.3 million in the first quarter of 1999 due to
growth in the billing contracts and fees. Revenue of the billing
and business management operations excludes intersegment revenue
of approximately $6.5 million in the first quarter of 2000 and
approximately $3.5 million in the first quarter 1999 representing
fees billed to the emergency physician management business.
Physician and Other Provider Services Costs and Expenses.
Physician and other provider services costs and expenses consist
primarily of fees paid to physicians and other health care
providers. Physician and other provider services costs and
expenses increased by approximately $26.2 million, or 75.1%, to
approximately $61.1 million in the first quarter of 2000 from
approximately $34.9 million in the first quarter of 1999.
Physician and other provider services costs and expenses
increased as follows:
Three Months Ended March 31,
2000 1999 Increase %
Core businesses $61.1 $34.9 $26.2 75.1%
Divested 0.0 0.0 0.0 0.0%
businesses
$61.1 $34.9 $26.2 75.1%
These expenses for the core businesses increased mostly
because of the Sterling acquisition. In the first quarter of
2000, physician and other provider services costs and expenses
for the emergency physician management group were approximately
$57.6 million. This represented an increase of $26.3 million, or
84.0%, from $31.3 million in the first quarter of 1999.
Approximately $26.8 of this increase was attributable to
Sterling, offset by a decrease in the non-Sterling contracts,
related to contract terminations. The government services
group's expenses were approximately $3.5 million in the first
quarter of 2000, representing a decrease of approximately $0.1
million, or 2.8%, from approximately $3.6 million in the first
quarter of 1999. The billing and business management operations
did not incur physician and other provider services costs and
expenses.
Medical Support Services Costs and Expenses. Medical
support services costs and expenses include all other direct
costs and expenses of practice management activities, as well as
billing, collection and physician business management services
costs and expenses. Medical support services costs and expenses
increased by $0.3 million, or 3.6%, to $8.7 million in the first
quarter of 2000 from $8.4 million in the first quarter of 1999.
Medical support services costs and expenses increased as follows:
Three Months Ended March 31,
2000 1999 Increase %
Core businesses $8.7 $8.4 $0.3 3.6%
Divested 0.0 0.0 0.0 0.0%
businesses
$8.7 $8.4 $0.3 3.6%
These expenses for the core businesses increased due to
contract terminations in the emergency physician management group
and growth in the billing operations. In the first quarter of
2000, medical support services costs and expenses for the
emergency physician management group were approximately $0.9
million. This represented a decrease of $0.7 million, or 43.8%,
from $1.6 million in the first quarter of 1999. The government
services group's expenses were approximately $0.5 million in the
first quarter of 2000, representing an increase of approximately
$0.1 million, or 25.0%, from approximately $0.4 million in the
first quarter of 1999. The billing and business management
group's expenses were approximately $7.3 million in the first
quarter of 2000 representing an increase of approximately $0.9
million, or 14.1%, from approximately $6.4 million in the first
quarter of 1999.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses increased
by $8.2 million, or 112.3%, to $15.5 million in the first quarter
of 2000 from $7.3 million in the first quarter of 1999.
Selling, general and administrative costs and expenses increased
as follows:
Three Months Ended March 31,
2000 1999 Increase %
Core businesses $15.5 $7.3 $8.2 112.3%
Divested 0.0 0.0 0.0 0.0
businesses
$15.5 $7.3 $8.2 112.3%
Selling, general and administrative costs and expenses for
the core businesses increased because of the Sterling and Per Se
acquisitions. In the first quarter of 2000, selling, general and
administrative costs and expenses for the Physician Contract
group were approximately $10.6 million. This represented an
increase of $5.8 million, or 120.8%, from $4.8 million in the
first quarter of 1999. Approximately $4.8 million of the
increase is attributable to the Sterling acquisition. The
government services group's expenses were approximately $0.2
million in the first quarter of 2000 representing a decrease of
approximately $0.1 million, or 33.3%, from approximately $0.3
million in the first quarter of 1999. The billing and business
management group's expenses were approximately $2.7 million in
the first quarter of 2000 representing an increase of
approximately $2.3 million, or 575.0%, from approximately $0.4
million in the first quarter of 1999. Approximately $2.1 million
of the increase is attributable to the Per Se acquisition.
Selling, general and administrative costs and expenses for the
corporate group increased to approximately $2.0 million in the
first quarter of 2000 representing an increase of approximately
$0.2 million, or 11.1%, from approximately $1.8 million in the
first quarter of 1999.
Related party expense, net. Related party expenses, net
increased by $0.3 million, or 300.0%, to $0.4 million in the
first quarter of 2000 from $0.1 million in the first quarter of
1999. This increase is primarily due to rent and premium expense
to related parties.
Interest Expense. Interest expense increased by $1.5
million to $3.9 million in the first quarter of 2000 from $2.4
million in the first quarter of 1999 due primarily to the
Sterling Acquisition resulting in higher outstanding amounts of
debt during the first quarter of 2000. The costs associated with
the sale of eligible accounts receivable in the first quarter of
2000 and 1999 have been included in selling, general and
administrative expenses.
Other, net. Other expenses increased by $1.6 million or
66.7% , to $4.0 million in the first quarter of 2000 from $2.4
million in the first quarter of 1999.
Benefit (provision) for income taxes. There was no benefit
(provision) for income taxes for the first quarter of 2000 and
1999. This is due to continued net operating losses.
Net Loss. Primarily as a result of the foregoing, the
Company reported a net loss of $11.1 million in the first quarter
of 2000 compared to a net loss of $2.3 million in the first
quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing source consists of three
accounts receivable sale programs with affiliates of NCFE. Under
these programs, NCFE purchases qualified receivables generated by
the Company or acquired by the Company from independent
contractor physicians. The proceeds from these sales are used to
fund the Company's working capital needs. One program purchases
receivables generated by the hospital contracts of the Company
other than those acquired in the Sterling Acquisition (the
"Coastal Program"), one program purchases receivables generated
by the hospital contracts acquired in the Sterling Acquisition
(the "Sterling Program"), and a third program purchases
receivables generated in the Government Services business (the
"Government Program"). The Emergency Physician Management
business and the Government Services business have not been able
to generate sufficient receivables to sell to the programs to
finance the ongoing working capital needs of the Company. NCFE
has supported the Company by funding the purchase of receivables
billed by the Company and those to be billed in the future by the
Company. As of March 31, 2000, the Company had outstanding
advances of approximately $204 million of receivables financing,
of which approximately $74 million related to billed receivables
and approximately $130 of which related to future receivables.
Financing related to the purchase of future receivables is
reflected as long-term debt in the accompanying financial
statements. The Coastal Program provides for the purchase of up
to $115 million of receivables and terminates on June 30, 2001.
The Sterling Program provides for the purchase of up to $95
million of receivables and terminates on June 30, 2003. The
Government Program provides for the purchase of up to $50
million of receivables and terminates on June 30, 2001. Of the
total purchase commitments of $260 million on these facilities,
the remaining availability for purchases is approximately $17
million at March 31, 2000. Pursuant to the Sale Agreement, the
Company pays a program fee ranging from approximately 10.94% to
approximately 12.50% per annum on the outstanding amount of
uncollected purchased current and future receivables. The
Company also borrowed $6.7 million from NCFE under a note dated
December 14, 1999. The funds were used to terminate the billing
agreement with a subsidiary of Per Se Technologies, Inc. and to
acquire certain of its billing operations in December 1999. The
note is repayable in nine monthly installments beginning January
14, 2000, including interest at 13% per annum.
Under a separate loan and security agreement, an affiliate
of NCFE has agreed to provide the Company with a revolving line
of credit of up to $20 million through June 30, 2001. Interest
on outstanding amounts under this line of credit is payable
monthly at prime plus 4%. The line of credit is secured by
substantially all of the Company's assets, including pledges of
the common stock of each of its subsidiaries. There is no
outstanding balance as of March 31, 2000.
The Company has met its cash requirements during the periods
covered by the accompanying consolidated financial statements
through the sale of certain existing and future accounts
receivable, as more fully discussed below, and the sale of
certain of its subsidiaries. The Company's principal uses of
cash have been to support operating activities. Net cash used in
operating activities increased by $2.0 million, or 21.1%, for the
three months ended March 31, 2000, to $11.5 million as compared
to $9.5 million for the three months ended March 31, 1999. The
Company's net use of cash to support operating activities
resulted primarily from operating losses, including medical costs
of providers, administrative expenses, legal and professional
fees and information technology initiatives. Net cash used in
investing activities was $.2 million for the three months ended
March 31, 2000 and 1999. Net cash provided by financing
activities decreased by $0.3 million, or 2.5%, to $11.7 million
for the three months ended March 31, 2000, from $12.0 million for
the three months ended March 31, 1999. During the three months
ended March 31, 2000, the Company had net borrowings of $11.7
million as compared to $12.0 million for the three months ended
March 31, 1999. Net borrowings increased during the three months
ended March 31, 2000 in order to fund the Company's net cash used
to support operating activities.
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from the amounts
available under the various agreements with NCFE discussed above,
as well as a reduction in cash used in operations. The Company
continues to review all aspects of the business units and
implement actions to improve cash flow and profitability. Among
the key actions being implemented by the Company are changes in
the method of compensating the independent contractor physicians
under the Practice Partners Program. The Company also
centralized certain administrative tasks and is evaluating ways
of expanding its customer base. The primary objectives are to
increase cash flow to repay debt, to improve overall financial
results and improve the Company's stock price. If the Company is
unable to achieve these objectives, it will likely experience a
material decrease in liquidity which would cause the Company to
increase its reliance on financing under the revolving line of
credit provided by an affiliate of NCFE. Until the Company
significantly improves cash flow, it will be dependent upon the
continued weekly purchases of eligible accounts receivable by
NCFE and the line of credit provided by an affiliate of NCFE in
order to meet its obligations.
For the foreseeable future, to continue as a going concern,
the Company will depend upon NCFE to fund its working capital
needs either by purchases of current and future accounts
receivable or through the line of credit. The Company's accounts
receivables sales programs and line of credit with NCFE have been
extended to June 30, 2001 and beyond. Management believes that
NCFE will be able to fulfill the Company's needs. The
consolidated financial statements do not include any adjustments
to the financial statements that might be necessary should NCFE
not provide the necessary working capital or should the Company
be unable to continue as a going concern.
YEAR 2000 ISSUES
The Company places significant reliance upon information
technology for day to day operations. The Company's reliance on
non-Information Technology systems is not significant. In 1997,
the Company began a review of computer applications and platforms
to determine that they were Year 2000 compliant before December
31, 1999. The Company completed the review of all applications
and has not experienced any significant problems or adverse
consequences with its major applications. The costs of the
project were not material and a significant reallocation of
resources was not required to address Year 2000 issues.
The Company relies on a number of outside parties to process
claims for emergency department visits. The outside parties are
computer processing and telecommunications vendors, insurance
companies, HMOs and entities that process claims on behalf of
Medicare and state Medicaid programs. The Company is not aware
of any significant problems or adverse consequences encountered
by the outside parties that have had, or may have, an adverse
impact on the Company.
Forward-looking Information or Statements: Except for
statements of historical fact, statements made herein are forward-
looking in nature and are inherently subject to uncertainties.
The actual results of the Company may differ materially from
those reflected in the forward-looking statements based on a
number of important risk factors, including, but not limited to:
the level and timing of improvements in the operations of the
Company's businesses; the possibility that the Company may not be
able to improve operations as planned; the inability to obtain
continued and/or additional necessary working capital financing
as needed; and other important factors discussed above under
"Other Trends and Uncertainties" and disclosed from time to time
in the Company's Form 10-K, Form 10-Q and other periodic reports
filed with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 23, 2000, two shareholders filed a lawsuit styled Bosco,
et al v. Scott, et al in the U. S. District Court for the
District of Delaware, individually and on behalf of all those
similarly situated, and derivatively as shareholders of the
Company, alleging five claims for relief. The first claim
alleges breach of fiduciary duty by the directors, primarily
related to the sales of certain assets to Dr. Scott. The second
claim is brought against NCFE and Lance Poulsen, Chairman and
Chief Executive Officer of NCFE, alleging the aiding and
abetting the breach of fiduciary duty by the individual
defendents. The third claim is brought derivatively against Dr.
Scott, Mr. Poulsen and NCFE alleging violation of the Racketeer
Influenced and Corrupt Organizations Act. Count four is brought
against the individual directors for allegedly unlawfully
amending the Company's Certificate of Incorporation to restrict
transferability of the Company's stock. Count five is brought
individually against the directors for breach of fiduciary duty
in failing to disclose the reason for the delisting of the
Company's stock by the New York Stock Exchange in December 1998.
The Company believes that the actions taken by management and the
Board of Directors in divesting certain operations were
appropriate, were done for fair and adequate consideration and
have been properly documented and publicly disclosed. The
Company intends to vigorously defend the action and, at this
stage of the litigation, the exposure to the Company cannot be
determined.
The New York State Department of Taxation and Finance has
written a letter to Better Health Plan, Inc. ("BHP") stating that
as a result of an audit of the Corporation Finance Tax return
filed by BHP for the period from May 2, 1995 to May 5, 1995, it
has determined that an adjustment is required to the BHP tax
liability for that period. The Company has requested additional
time to review the findings. Based on the limited information
available at this time, the exposure to the Company, if any,
cannot be determined.
Item 5. Other Information
Effective April 30, 2000 W. Randall Dickerson resigned from the
Board of Director's of PhyAmerica Physician Group, Inc. Mr.
Dickerson also resigned from his positions as Executive Vice
President, Chief Financial Officer and Chief Accounting Officer.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibit Index
10. 1 Employment Agreement By and Between Coastal Physician
Services of South Florida, Inc. and
Sherman Podolsky, M.D. (1)
10.2 First Amendment to Employment Agreement By and Between
Coastal Physician Services of South
Florida, Inc. and Sherman Podolsky, M.D. Dated January
1, 1999. (2)
10.3 Second Amendment to Employment Agreement By and Between
Coastal Physician Services of South
Florida, Inc. and Sherman Podolsky, M.D. Dated January 1,
2000.
10.4 Restated and Amended Employment Agreement By and Between
Coastal Physician Group, Inc.
and Eugene F. Dauchert, Jr. Dated January 15, 1997. (3)
10.5 Amended and Restated Employment Agreement By and Between
Coastal Physician
Group, Inc. and Eugene F. Dauchert, Jr. Dated July 1,
1997. (1)
10.6 First Amendment to Employment Agreement By and Between
Coastal Physician Group, Inc. and
Eugene F. Dauchert, Jr. Dated January 1, 1999. (4)
10.7 Second Amendment to Employment Agreement By and Between
PhyAmerica Physician Group, Inc. and
Eugene F. Dauchert, Jr. Dated January 1, 2000.
10.8 Employment Agreement By and Between Healthcare Business
Resources, Inc., and Edward L. Suggs,
Jr. Dated March 1, 1997. (3)
10.9 First Amendment to Employment Agreement By and Between
Healthcare Business Resources, Inc. and
Edward L. Suggs, Jr. Dated March 1, 2000.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
(1) Incorporated by reference to the December 31, 1997 Form 10-K
filed by the Company on June 5, 1998.
(File No. 001-13460)
(2) Incorporated by reference to the December 31, 1999 Form 10-K
filed by the Company on April 14, 2000.
(File No. 001-13460)
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended
December 31, 1996.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended
December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
PHYAMERICA PHYSICIAN GROUP, INC.
(Registrant)
Name Title Date
/S/Steven M. Scott, M.D. Chairman of the
Board of May 22, 2000
Steven M. Scott, M.D. Directors,
President and
Chief Executive Officer
Exhibit 10.3
STATE OF NORTH CAROLINA SECOND AMENDMENT
TO
COUNTY OF DURHAM EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this
"Amendment") is made and entered into effective the 1st day of
January, 2000 by and between PHYAMERICA PHYSICIAN SERVICES OF
SOUTH FLORIDA, INC. ("the "Employer" or "PhyAmerica"), a Florida
corporation, and SHERMAN PODOLSKY, M.D. ("Employee").
W I T N E S S E T H
WHEREAS, Employer and Employee have previously entered into
an employment agreement dated January 1, 1998, as amended
pursuant to a First Amendment to Employment Agreement dated
September 1, 1999 (collectively the "Agreement"), under which
Employee is currently employed by Employer; and
WHEREAS, Employer and Employee desire to modify the existing
terms of employment of Employee to modify certain provisions
regarding the Base Salary;
NOW, THEREFORE, in consideration of the terms and conditions
set forth in this Amendment, the parties hereby agree that the
Agreement is hereby modified as follows:
1. Section 1, of Exhibit A, Compensation, is hereby
amended to delete all language after the first two sentences (to
eliminate provisions which provided for certain automatic CPI
adjustments to Base Salary), so that such section shall hereafter
read in its entirety as follows:
1. Base Salary. For services provided as an
employee of Employer, Employee shall receive,
beginning in January, 2000, a base salary of $300,000
per annum (the "Base Salary") payable in accordance
with Employer's current payroll practices. The Base
Salary shall be subject to annual review and
adjustment as of each January 1 during the term of
this Agreement, beginning January 1, 2001.
2. This Amendment shall be an amendment and modification
to the Agreement and shall become part of the Agreement and
employment arrangement between Employee and Employer from and
after the date of this Amendment. All capitalized terms not
defined herein shall have the same meaning as set forth in the
Agreement. Any conflict between terms of this Amendment and the
Agreement will be resolved in favor of this Amendment. Except as
amended herein, all terms of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
PHYAMERICA PHYSICIAN SERVICES
OF FLORIDA, INC.
By:_____________________________
Its:_____________________________
____________________________(SEAL)
Sherman Podolsky, M.D.
Exhibit 10.7
STATE OF NORTH CAROLINA SECOND AMENDMENT
TO
COUNTY OF DURHAM EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this
"Amendment") is made and entered into effective the 1st day of
January, 2000 by and between PHYAMERICA PHYSICIAN GROUP, INC.,
f/k/a COASTAL PHYSICIAN GROUP, INC. ("the "Employer" or
"PhyAmerica"), a Delaware corporation with its principal place of
business in Durham, North Carolina, and EUGENE F. DAUCHERT, Jr.
("Employee").
W I T N E S S E T H
WHEREAS, Employer and Employee have previously entered into
an employment agreement dated July 1, 1997 (the "Agreement"), and
amended January 1, 1999, under which Employee is currently
employed by Employer; and
WHEREAS, Employer and Employee desire to substantially and
materially modify the existing terms of employment of Employee
to, among other matters, increase his Base Salary, modify the
Incentive Bonus structure, extend the Term of employment, and
provide for payment of earned bonuses;
NOW, THEREFORE, in consideration of the terms and conditions
set forth in this Amendment, the parties hereby agree that the
Agreement is hereby modified as follows:
1. The Agreement is hereby extended, effective as of
January 1, 2000 and shall continue through and including December
31, 2000 (the "Term"), unless the Agreement is (a) otherwise
terminated in accordance with the provisions contained in the
Agreement, or (b) extended by mutual agreement of Employer and
Employee. After the Term, the Agreement may be renewed or
extended upon mutual agreement of the parties. If the parties do
not agree to an extension on other terms, then the Agreement
shall automatically renew on a year-to-year basis until either
Employer or Employee terminates the Agreement pursuant to Section
12 therein.
2. Replacement of Exhibit A. Exhibit A, Compensation,
attached to the Agreement is hereby replaced by the Exhibit A
dated January 1, 2000 and attached to this Amendment.
3. This Amendment shall be an amendment and modification
to the Agreement and shall become part of the Agreement and
employment arrangement between Employee and Employer from and
after the date of this Amendment. All capitalized terms not
defined herein shall have the same meaning as set forth in the
Agreement. Any conflict between terms of this Amendment and the
Agreement will be resolved in favor of this Amendment. Except as
amended herein, all terms of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
PHYAMERICA PHYSICIAN GROUP, INC.
By:_____________________________
Its:_____________________________
____________________________(SEAL)
Eugene F. Dauchert, Jr.
EXHIBIT A
Compensation
January 1, 2000
1. Base Salary. For services provided as an employee of
Employer, Employee shall receive, beginning January 1, 2000, a
base salary of $220,000 per annum (the "Base Salary") payable in
accordance with Employer's current payroll practices. The Base
Salary shall be subject to annual review and adjustment as of
each January 1, commencing January 1, 2001.
2. Earned Incentive Bonuses. Under Section 3 of the Exhibit A
which this Exhibit A replaces, Employee was entitled to earn
certain incentive bonuses. Employer acknowledges that Employee
earned incentive bonuses in the aggregate amount of $77,400,
which shall be paid in four monthly installments beginning in
December, 1999 and continuing through March, 2000.
3. Incentive Bonus. For 2000, Employee shall be entitled to an
incentive or performance bonus (the "Incentive Bonus") of up to
forty percent (40%) of annual Base Salary, based on the
following:
(a) Employee must be employed by Employer at the time the
event described below occurs and at December 31, 2000 unless
employment is terminated (i) by Employer without cause under
Section 12(a), (ii) by death or disability of Employee under
Section 12(d) where such death or disability occurs within the
last four months of the calendar year, or (iii) by Employee
because of a material breach by Employer as provided in section
12(e).
(b) Employee's Incentive Bonus shall be based on the
following criteria, or such other criteria as may be recommended
by the Chief Executive Officer and approved by the Compensation
Committee of the Board as a replacement or modification thereof,
subject to a cap of 40% of annual Base Salary as previously
indicated:
(i) 10% of Base Salary shall be earned upon the
closing of a transaction providing a complete or partial
replacement of the Company's existing securitization
financing program with a new bank loan, credit facility,
securitization or financing program, an equity infusion or
recapitalization of the Company and its subsidiaries, or an
additional capital or financing for the Company in addition
to the existing facility.
(ii) 0.5% of the "Transaction Consideration" paid shall
be earned upon the closing of a transaction involving any
significant merger, acquisition or divestiture of or by the
Company or any of its subsidiaries ("significant" shall be
understood to include any transaction, or series of
transactions that are related, involving purchase
consideration or valuation greater than $10,000,000 or a
target company with gross annualized revenues in excess of
$25,000,000). The "Transaction Consideration" shall be
understood to mean the consideration paid or calculated for
purposes of compensating the Company's investment bankers on
a percentage basis as such term, or its equivalent, is used
in the agreement between the Company and its investment
bankers retained for such transaction.
(iii) 2.5% of Base Salary for each calendar quarter
in which Employer and its consolidated subsidiaries achieve
a net profit (after all financing expenses) as reflected on
the regularly prepared financial statements of Employer.
(iv) One percent (1%) of any amounts recovered after
January 1, 2000 by Employer or any of its subsidiaries for
any disputed claims, unpaid amounts owed, recoveries from
bankruptcies, reorganizations, creditor arrangements or
similar insolvency proceedings, recoveries from litigation
or claim settlements; provided, however, this provision
shall not apply to any matter in which Employee shall become
a material witness.
(v) up to 8% of Base Salary as determined in the
discretion of Employer's Chief Executive Officer.
4. Stock Options or Awards. Employee shall be eligible for
stock options and awards available to other senior management of
Employer and its affiliates from time to time. This subsection
shall not be a guarantee of any awards or options, and Employee
recognizes that the awarding of such compensation is governed by
plans adopted by the Board of Directors of Employer from time to
time.
Exhibit 10.9
STATE OF NORTH CAROLINA FIRST AMENDMENT
TO
COUNTY OF DURHAM EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this
"Amendment") is made and entered into effective the 1st day of
January, 2000 by and between HEALTHCARE BUSINESS RESOURCES, INC.
("the "Employer" or "HBR"), a North Carolina corporation, and
EDWARD L. SUGGS, Jr. ("Employee").
W I T N E S S E T H
WHEREAS, Employer and Employee have previously entered into
an employment agreement dated March 1, 1997 (the "Agreement")
under which Employee is currently employed by Employer; and
WHEREAS, Employer and Employee desire to substantially and
materially modify the existing terms of employment of Employee
to, among other matters, increase his Base Salary, modify the
Performance Bonus structure, and provide for payment of earned
bonuses;
NOW, THEREFORE, in consideration of the terms and conditions
set forth in this Amendment, the parties hereby agree that the
Agreement is hereby modified as follows:
1. Replacement of Exhibit A. Exhibit A, Compensation,
attached to the Agreement is hereby replaced by the Exhibit A
dated January 1, 2000 and attached to this Amendment.
2. This Amendment shall be an amendment and modification
to the Agreement and shall become part of the Agreement and
employment arrangement between Employee and Employer from and
after the date of this Amendment. All capitalized terms not
defined herein shall have the same meaning as set forth in the
Agreement. Any conflict between terms of this Amendment and the
Agreement will be resolved in favor of this Amendment. Except as
amended herein, all terms of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
HEALTHCARE BUSINESS
RESOURCES, INC.
By:_____________________________
Its:_____________________________
____________________________(SEAL)
Edward L. Suggs, Jr.
EXHIBIT A
Compensation
January 1, 2000
1. Base Salary. For services provided as an employee of
Employer, Employee shall receive, retroactive to November 1,
1999, a base salary of $260,000 per annum (the "Base
Salary") payable in accordance with Employer's current
payroll practices. The Base Salary shall be subject to
annual review and adjustment as of each January 1,
commencing January 1, 2001. Employee has been paid from
November 1, 1999 through December 31, 1999 on the basis of
an annual salary of $220,000 and so was underpaid $6,666.67,
which amount shall be paid to Employee by the end of May,
2000. These amounts shall be added to and paid with the
payouts of deferred earned performance bonus described in
Section 2 below.
2. Earned Performance Bonus. Under Section 3 of the
Exhibit A which this Exhibit A replaces, Employee was
entitled to earn certain performance bonuses. Employer and
Employee acknowledge that Employee earned performance
bonuses in the aggregate amount of $60,000 which have not
been paid, the balance of which shall be paid in four equal
monthly installments of $10,000 beginning February, 2000 and
continuing through May, 2000. This amount shall be combined
with the payment of installments of deferred base
compensation under Section 1 (for a total monthly payment of
$11,333.33 per month during the first five months, and
$10,000 during the sixth month).
3. Incentive Bonus. For calendar year 2000, Employee
shall be entitled to an incentive or performance bonus (the
"Incentive Bonus") of up to forty percent (40%) of annual
Base Salary, based on the following:
(a) Employee must be employed by Employer on December
31, 2000 unless Employee's employment has been terminated
(i) by Employer without cause under Section 12(a), (ii) by
death or disability of Employee under Section 12(d) where
such death or disability occurs within the last four months
of 2000 or (iii) by Employee because of a material breach by
Employer as provided in Section 12(c).
(b) Employee's Incentive Bonus shall be based on the
following criteria, subject to a cap of 40% of annual Base
Salary as previously indicated:
(i) up to 16% of Base Salary based on Employer's
increase in Free Cash Flow ("FCF") for that calendar
year. The "Free Cash Flow" shall be understood to mean
the cash flow produced by the operations of HBR
(earnings of HBR before adjustments for noncash items
such as depreciation and amortization). The FCF payout
will be calculated as follows:
Increase in FCF Percentage of Base
Salary
Less than 10% 0%
10% to 19.99% Prorated from >0%
to <16%
20% or more 16%
(ii) up to 16% of Base Salary based on of the
increase in Net Revenues ("NR") related to clients
other than PhyAmerica for the calendar year. The "Net
Revenues" shall be understood to mean the excess of
revenues from contracts with non-PhyAmerica clients
over the operating expenses related to contracts. The
non-PhyAmerica transactions payout will be calculated
as follows:
Increase in NR Percentage of Base
Salary
Less than 10% 0%
10% to 19.99% Prorated from >0%
to <16%
20% or more 16%
(iii) up to 8% of Base Salary as determined
solely in the discretion of Employer's Board of
Directors.
4. Stock Options or Awards. Employee shall be eligible
for stock options and awards available to other senior
management of Employer and its affiliates from time to time.
This subsection shall not be a guarantee of any awards or
options, and Employee recognizes that the awarding of such
compensation is governed by plans adopted by the Board of
Directors of Employer from time to time.
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<FISCAL-YEAR-END> DEC-31-2000
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