SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JANUARY 21, 1997
COASTAL PHYSICIAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 001-13460 56-1379244
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2828 CROASDAILE DRIVE, DURHAM, NC 27705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (919)383-0355
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
Pursuant to a reimbursement agreement dated December 31,
1996 between Coastal Physician Group, Inc. (the "Company") and
Steven M. Scott, M.D., a director, the Company's founder and
beneficial owner of approximately thirty-three percent (33%) of
the Company's outstanding Common Stock, the Company has issued
226,690 shares of Common Stock (the "Common Shares") and 32,482
shares of Series B Convertible Preferred Stock (the "Preferred B
Shares") to Dr. Scott in satisfaction of the Company's obligation
to reimburse $1,654,550 of proxy contest expenses incurred by Dr.
Scott. The proxy expenses were incurred in Dr. Scott's
successful solicitation of proxies to (i) elect two nominees to
the Company's Board of Directors (the "Board") at the Company's
Annual Meeting of Shareholders on September 27, 1996 and (ii)
approve a resolution requesting the Board to form a committee of
independent non-management directors to consider and recommend to
the Board the best available means for maximizing shareholder
value. On January 30, 1997, the Board authorized the issuance of
258 additional Preferred B Shares to satisfy $7,728 of additional
proxy expenses incurred by Dr. Scott. For purposes of satisfying
the dollar amount of the proxy expenses, each Common Share was
valued at $3.00 per share, the closing price of the Common Stock
on the New York Stock Exchange on December 30, 1996, and each
Preferred B Share was valued at $30.00 per share. At the option
of the Company or the holder, each Preferred B Share is
convertible into ten (10) shares of Common Stock (subject to
adjustment in certain events), provided that the Preferred B
Shares are not convertible without prior approval of their
convertibility by the Company's shareholders at an annual or
special meeting of shareholders. Because of the Company's need to
conserve cash, the Board and Dr. Scott agreed that, in lieu of
cash, the Company's reimbursement obligation would be satisfied
by the issuance of the Common Shares and the Preferred B Shares.
The Company, Dr. Scott, Bertram E. Walls, M.D., a director,
and Joseph G. Piemont, the former president and chief executive
officer of the Company, entered into a Release and Settlement
Agreement on January 21, 1997 (the "Settlement Agreement") with
respect to the litigation styled Steven M. Scott, M.D. and
Bertram E. Walls, M.D. on their own behalf and on behalf of
Coastal Physician Group, Inc. v. Jacque Jenning Sokolov, Joseph
G. Piemont, Stephen D. Corman and Coastal Physician Group, Inc.,
No. 96 CvS 2748 (the "Lawsuit"). The Settlement Agreement was
approved by the court on January 21, 1997. Pursuant to the
Settlement Agreement, the Company agreed to pay Mr. Piemont
$150,000 upon execution of the Agreement plus a total $250,000 to
be paid in monthly installments of $20,000 each for a period of
12 months beginning February 15, 1997 and a final payment of
$10,000 on February 15, 1998. In addition, the Company granted
to Mr. Piemont stock appreciation rights for 50,000 shares of
Common Stock equal to the difference between $3.00 per share (the
closing price for shares of Common Stock on December 30, 1996)
and the average trading price for the 10 trading days prior to
the exercise of such rights, subject to a maximum of $4.00 per
share. On January 24, 1997, Mr. Piemont exercised the stock
appreciation rights for the full 50,000 shares and the Company
has paid Mr. Piemont $75,000 in full satisfaction of its
obligations for stock appreciation rights. The Settlement
Agreement provided for dismissal of Mr. Piemont from the Lawsuit
and mutual releases of Mr. Piemont and the Company for any claims
with respect to the Lawsuit or the employment agreement of Mr.
Piemont.
The Company, Dr. Scott and Dr. Walls entered into an
Agreement as of January 21, 1997 (the "Dismissal Agreement") with
respect to the Lawsuit, which was approved by the court on
January 21, 1997. Pursuant to the Dismissal Agreement, Dr. Scott
and Dr. Walls, as plaintiffs, agreed to file a dismissal without
prejudice of all remaining claims asserted by them in the
litigation, and the Company agreed to file a dismissal without
prejudice of all claims asserted by the Company against Dr. Scott
in the litigation. The Company also agreed not to seek a return
or refund of any moneys advanced to Dr. Sokolov that were
actually incurred for legal expenses in connection with the
litigation. All claims against Mr. Corman were settled in
November, 1996.
Under the Dismissal Agreement, the Company agreed to
reimburse Dr. Scott and Dr. Walls for legal fees and expenses
incurred by them in the litigation. Because of the Company's
need to conserve cash, the Company, Dr. Scott and Dr. Walls, with
the approval of the court, agreed that reimbursement would be
made by issuing shares of Series A Convertible Preferred Stock
(the "Preferred A Shares") to Dr. Scott and Dr. Walls in
satisfaction of the Company's obligation. For the purpose of
satisfying the dollar amount of the litigation expenses, the
court, after considering several factors, including the
illiquidity of the Preferred A Shares and the trading price of
the Company's Common Stock for fifteen days prior to January 10,
1997, determined that valuing the Preferred A Shares at $36.00
per share was reasonable and appropriate. At the option of the
Company or the holder, each Preferred A Share is convertible into
ten (10) shares of Common Stock (subject to adjustment in certain
events), provided that the Preferred A Shares are not convertible
without prior approval of their convertibility by the Company's
shareholders at an annual or special meeting of shareholders.
The Company anticipates that the aggregate amount of fees and
expenses incurred by Dr. Scott and Dr. Walls that the Company
will be obligated to reimburse under the Dismissal Agreement will
be approximately $1,600,000, which would result in the issuance
of approximately 44,500 Preferred A Shares.
The Common Shares and Preferred B Shares were issued to Dr.
Scott and the Preferred A Shares will be issued to Dr. Scott and
Dr. Walls in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Act"), and will
constitute "restricted securities" as defined in Rule 144
promulgated under the Act. No registration rights have been
granted by the Company to Dr. Scott or Dr. Walls with respect to
the Common Shares, the Preferred B Shares, the Preferred A Shares
or the Common Stock underlying the Preferred B Shares and the
Preferred A Shares.
Holders of the Preferred A Shares and the Preferred B Shares
vote together with holders of the Company's Common Stock on all
matters submitted to a vote by the Company's shareholders,
including the election of directors, except that the Preferred A
Shares do not vote on the approval of the convertibility of the
Preferred A Shares and the Preferred B Shares do not vote on the
approval of the convertibility of the Preferred B Shares. The
Preferred A Shares and the Preferred B Shares have dividend
rights that are pari pasu with the Company's Common Stock. The
Preferred A Shares have a liquidation preference of $36.00 per
share and the Preferred B Shares have a liquidation preference of
$30.00 per share.
The Common Shares issued to Dr. Scott represent less than 1%
of the Company's outstanding Common Stock. The shares of Common
Stock expected to be issued to Dr. Scott after shareholder
approval of the convertibility of the Preferred B Shares and
Preferred A Shares, represent approximately 3% of the Company's
outstanding Common Stock.
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.
COASTAL PHYSICIAN GROUP, INC.
(Registrant)
Date: February 5, 1997 By:________________________
Timothy W. Trost
Executive Vice President
and Chief Financial Officer
Date: February 5, 1997 By:_________________________
W. Randall Dickerson
Vice President, Corporate
Controller and Chief
Accounting Officer
