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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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
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COASTAL PHYSICIAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1379244
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2828 Croasdaile Drive, Durham, NC 27705
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(Address of principal executive offices) (Zip Code)
(919) 383-0355
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(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $0.01 per share New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
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. [ ]Yes [X]No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant at February 28, 1997 was $34,380,558. The aggregate market value
was computed by reference to the closing price as of that date. (For purposes of
calculating this amount only, all directors, executive officers and greater than
10% shareholders of the Registrant are treated as affiliates.)
The number of shares outstanding of the Registrant's common stock as of
February 28, 1997 was 24,126,386.
Documents Incorporated by Reference
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None
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PART I
ITEM 1. BUSINESS
GENERAL
Coastal Physician Group, Inc., together with its subsidiaries (the
"Company", "Coastal" or the "Registrant"), is a physician management company
providing a broad range of health care and administrative services to
physicians, hospitals, governmental agencies, managed care programs, employers,
and other health care organizations nationwide. The Company provides such
services in more than 530 settings, of which over 500 include physician,
hospital and government contracts and 32 include primary care practices.
Founded in 1977 to assist hospitals in staffing their emergency
departments, the Company has expanded the range of its hospital-based physician
contract services to include obstetrics, gynecology, pediatrics and
anesthesiology, as well as physician business management services such as
practice management, billing and collection. The Company also owns and operates
two health maintenance organizations ("HMOs") and one prepaid health services
plan ("PHSP"), collectively ("Health Plans"), providing health care benefits to
over 128,000 commercial and Medicaid enrollees. In addition, the Company
operates primary care practices located primarily in North Carolina and Florida.
The Company began to aggressively enter the managed care arena in 1993
and 1994 through a series of acquisition and expansion efforts. Such efforts
included primarily the acquisition of a capitated south Florida-based primary
care clinic network, the acquisition of fee-for-service and capitated clinic
networks operating in New Jersey and Maryland, the acquisition of a commercial
HMO in north Florida, and the commencement of operations of a start-up HMO in
North Carolina. During the first two quarters of 1995, the Company continued its
managed care expansion efforts, primarily by acquiring Better Health Plan, Inc.
("BHP"), a Medicaid PHSP in New York State, as well as a number of primary care
practices located in North Carolina and Florida.
During the fourth quarter of 1995, however, the Company adjusted its
business mix by divesting the bulk of its south Florida capitated primary care
clinics to its payor in that market, following a determination that market
conditions and changes in the payor relationship would make it difficult for the
Company to operate such clinics at an acceptable profit margin. Given the
decline in overall profitability and increased debt service obligations
experienced by the Company over the previous five quarters, in July 1996, the
Board of Directors approved a comprehensive strategic and financial plan to
refocus on the Company's core operations and to divest certain other operating
units. The Company has since sold certain assets, including its capitated clinic
operations in New Jersey and Maryland, and identified other assets as non-core
assets that the Company has determined to sell. The Company has also retained an
investment banking firm to assist the Company in evaluating alternatives for
maximizing shareholder value, including the possible sale of the entire Company
and other strategic and financial transactions.
PRINCIPAL SERVICES
A discussion of the principal services provided by the Company, the
methods by which it provides such services and the market for each service is
set forth below.
PHYSICIAN CONTRACT SERVICES
Under contracts principally with hospitals and government agencies, the
Company identifies and recruits physicians as candidates for admission to a
client's medical staff and coordinates the on-going scheduling of independent
contractor physicians who provide clinical coverage in designated areas. While
the Company also
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provides obstetrics, gynecology, pediatrics and anesthesiology physician
contract services, the provision of contract management services to hospital
emergency departments represents the Company's principal hospital-based service.
Net operating revenue (referred to herein as "net revenue") related to the
Company's Physician Contract Services activities for the years ended December
31, 1996, 1995 and 1994 was $295,518,000, $383,985,000 and $392,587,000,
respectively, representing 54%, 47% and 52%, respectively, of the Company's net
revenue for such years.
To fulfill its obligations to clients, the Company obtains the services
of physicians who, as independent contractors, agree to provide the necessary
clinical coverage. The Company maintains a proprietary data base of physicians
who might be available as independent contractors in particular specialties and
locations. To carry out contract management services such as the contracting of
physicians, staffing and administration, the Company's local and regional
offices are generally staffed with a manager, often a consulting medical
officer, and an administrative staff consisting of one or more recruiters,
credentialers and staffing coordinators.
Emergency Department Services
The Company contracts, in most cases, to provide all necessary
physician coverage for hospital emergency departments on a 24-hour, 365-day
basis. The Company believes that hospitals utilize physician management firms to
help solve problems associated with the administration and management of
hospital emergency departments such as recruitment, scheduling and retention of
emergency department physicians, the relief of other hospital physicians from
emergency department coverage, budgetary concerns, risk shifting, increasing
patient volumes and the historically extensive use of hospital emergency
departments for routine primary care, particularly at night and on weekends. In
addition to obtaining the services of independent contractor physicians to
provide emergency department coverage, the Company also typically employs the
physician whom the hospital selects as the medical director of the emergency
department. The medical director works directly with the hospital medical staff
and administration in such areas as quality assurance, risk management and
departmental accreditation.
Government Services
The Company provides physician contract services to the United States
Army, Navy, Air Force and Coast Guard, the Department of Veterans Affairs,
Indian Health Services and county and state agencies, including those
responsible for correctional facilities. Governmental agencies contract with the
Company to assist such agencies in fulfilling their obligations to provide
health care for active-duty and retired military personnel and their dependents,
veterans and correctional facility inmates. The Company presently has government
services contracts for the operation, staffing and management of emergency,
obstetric, gynecological and other primary care facilities, and assists in the
implementation of quality assurance, quality control and risk management
programs which complement medical treatment. Net revenue from government
services contracts recognized in 1996 was $41,879,000. The dollar amount of all
such contracts through the end of the contract terms, assuming all options and
quantities are exercised by the government (which is within its sole
discretion), was approximately $47,307,000 as of December 31, 1996.
PHYSICIAN BUSINESS MANAGEMENT SERVICES
The Company provides a range of physician business management services,
principally coding, billing and collection services, to support independent
contractor physicians, independent practices and other health care
practitioners. These services are often provided as part of the Company's
physician contract services and primary care clinic operations and are also
marketed independently to unaffiliated providers. The Company provides these
services to over 5,000 physicians in over 250 hospitals in 28 states. Net
revenue related to the Company's Physician
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Business Management Services activities for the years ended December 31, 1996,
1995 and 1994 was $41,317,000, $50,975,000 and $52,644,000, respectively,
representing 7% of the Company's net revenue in all three years.
The Company codes, bills and collects for professional services with
respect to over 3.5 million patient visits annually. Approximately half of the
Company's billing and collection revenue is derived from providers with which
the Company's Physician Contract Services division does not have a contract
management relationship.
The Company specializes in providing physician business management
services to physicians in emergency medicine, anesthesiology, radiology and
pathology practices. The Company estimates that approximately 87% of its net
billing and collection revenue for 1996 (including work for contract management
clients and contracted health care professionals) was derived from emergency
room billing and collections, as compared with 70% in 1995 and 83% in 1994. This
change is primarily attributable to the termination by the Company of a large
office-based clinic billing contract.
The Company substantially completed its migration to a common
computerized billing system during 1996. The Company is evaluating the costs of
its information technology strategy and will continue to seek lower cost
alternatives in the marketplace. The Company has also developed a plan for
office and staff consolidations that is expected to lower headcount, occupancy
and telecommunications expenses during 1997.
PHYSICIAN CARE NETWORKS
The Company's Physician Care Networks division is comprised of managed
care organizations and clinical operations. The strategy is to assist employers,
insurers and other payors in controlling medical costs by contracting with
health care provider networks that provide high quality clinical services on a
cost-efficient basis and to assist physicians and other health care providers in
improving their efficiency in delivering services to patients. The principal
focus of the Physician Care Networks division is to increase the number of
patients served by its managed care organizations and clinics in selected
geographic markets. Net revenue related to the Company's Physician Care Network
services for the years ended December 31, 1996, 1995 and 1994 was $215,274,000,
$375,427,000 and $303,406,000, respectively, representing 39%, 46% and 41%,
respectively, of the Company's net revenue for such years.
Managed Care Organizations
On May 5, 1995, the Company acquired BHP, a PHSP operating in parts of
New York State. Incorporated on February 4, 1993, as of December 31, 1996, BHP
held contracts with approximately 7,700 physicians and 109 hospitals and
provided prepaid health care to approximately 40,000 Medicaid recipients in nine
counties in New York State and in the five boroughs of New York City. Net
revenue for the year ended December 31, 1996 was $47,492,000, representing 8.6%
of the Company's net revenue. In connection with this acquisition, the Company
paid an initial purchase price of $19,700,000 in cash and $2,400,000 in loan
repayments to shareholders and banks. Goodwill totaling $25,200,000 was
originally recorded as a result of the acquisition. The Company recorded a
writedown of the original goodwill balance totaling $13,562,000 in 1996. See
"Item 8. Financial Statements and Supplemental Data" - Note 2 of "Notes to
Consolidated Financial Statements". As of December 31, 1996, BHP was approved to
offer PHSP services in three additional New York counties. BHP has successfully
completed the state's network review process in nine other counties and believes
it has a good chance of approval in the near-term.
In November 1994, the Company acquired Health Enterprises, Inc. and its
wholly-owned subsidiary, Healthplan Southeast, Inc. ("HPSE"), an independent
practice association ("IPA") model HMO based in Tallahassee, Florida. As of
December 31, 1996, HPSE held contracts with approximately 1,350 employer groups
in north Florida and provided health care for approximately 66,000 individuals.
HPSE's net revenue for the year ended December 31, 1996 was $89,027,000,
representing 16.1% of the Company's net revenue.
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Doctors Health Plan, Inc. ("DHP"), an IPA model HMO started by the
Company, received its Certificate of Authority in September 1994 and began
enrolling members in May 1995. DHP is licensed to offer HMO services in all 100
North Carolina counties and five counties in South Carolina. As of December 31,
1996, DHP held contracts with approximately 175 employer groups statewide
serving approximately 9,000 members in small and large employer groups. As of
January 1, 1997, these numbers increased to approximately 200 employer groups
and over 15,000 members.
On November 22, 1996, a third party acquired MedCost Inc., a subsidiary
of the Company, which owns and operates preferred provider organization networks
and utilization management programs. The Company received approximately $14.0
million in net cash proceeds from the disposition which were used to reduce
borrowings under the Company's Senior Credit Facility.
The Company has relatively limited experience with capitated fee
arrangements, the assumption of insurance risks and the ownership of HMOs and
other managed care organizations. Given this limited experience, combined with
increasing pressures to restrain health care expenditures, increased competition
and the inherent uncertainties in insuring health care risks, there can be no
assurances that the Company's capitation arrangements or insurance activities
will be profitable.
Clinical Operations
Coastal provides physician practice management services to 32 practices
or clinical sites in four states: 12 in Florida, 18 in North Carolina, one in
Georgia and one in California. The Company's strategy is to improve the
physician practices' operating efficiencies through standardization of
operating processes, including the installation of enterprise-wide information
technology and billing systems, to assist practices in contracting on a network
basis with insurers, HMOs and other payors, and to earn a return through
management fees from the practices.
On September 30, 1996, the Company sold certain assets of Physicians
Planning Group, Inc. ("PPG"), a manager of primary care provider networks, and
Healthcare Automation, Inc. ("HCA"), a billing services and network management
company, for approximately $16,600,000 in net cash proceeds. Included in the
assets sold were six primary care sites located in Maryland. Effective November
30, 1996, the Company sold certain assets of the HealthNet Medical Group
division of PPG ("HealthNet") for approximately $9,700,000 in net cash proceeds.
HealthNet consisted of nine primary care sites in New Jersey and New York. Net
revenue from PPG, HCA and HealthNet comprised approximately 5% of the Company's
net revenue for the year ended December 31, 1996. Net proceeds to the Company
were used to pay obligations related to the sale transaction and to reduce
borrowings under the Company's Senior Credit Facility.
On November 30, 1995, the Company sold 47 of its Florida primary care
clinics for $51,300,000 in gross cash proceeds. During the third quarter of
1996, the Company received additional gross cash proceeds of $2,800,000, which
were based on the settlement of the final closing date balance sheet. Net
proceeds to the Company were used to pay obligations related to the sale
transaction and to reduce borrowings under the Company's Senior Credit Facility.
CONTRACTUAL ARRANGEMENTS AND CUSTOMERS
HOSPITAL CONTRACTS
The Company provides physician contract management services to
hospitals under two separate contractual arrangements: flat-rate contracts and
fee-for-service contracts. Hospitals entering into flat-rate contracts primarily
pay fees to the Company based on the hours of physician coverage provided.
Hospitals entering into fee-for-service contracts agree to authorize the Company
and its contracted health care professionals to bill and collect
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the professional component of the charges for medical services rendered by the
Company's contracted health care professionals. Under fee-for-service
arrangements, the Company generally receives directed reimbursement of the
amounts collected and, depending on the hospital's patient volume and payor mix,
may also receive an availability fee from the hospital. Pursuant to
fee-for-service contracts, the Company accepts responsibility for billing and
collection and assumes the risks of non-payment, changes in patient volume or
payor mix and delays attendant to reimbursement through government programs or
third-party payors. All of these factors generally are taken into consideration
by the Company in arriving at contractual arrangements with health care
institutions and professionals. While the term of the Company's service
contracts is generally one to three years, such contracts typically provide for
termination without cause by either party on 60 to 180 days' prior notice.
A significant portion of the Company's net revenue in recent years has
been attributable to fee-for-service billing and collection arrangements. As a
result of increasing public and private sector pressures to restrain health care
costs and to restrict reimbursement rates for medical services, fee-for-service
contracts have developed less favorable cash flow characteristics than
traditional flat-rate contracts, resulting in a need for increased liquidity and
capital resources.
PHYSICIAN CONTRACTS
In its Physician Contract Services businesses, the Company generally
contracts with physicians and certain other health care professionals to provide
services to fulfill the Company's contractual obligations to its clients. The
Company regards its contracted health care professionals as independent
contractors and, therefore, does not withhold income taxes or otherwise treat
such professionals as employees. Professional fees from the Company to the
physicians are typically calculated on an hourly basis. Most physicians may
receive, in addition to an hourly fee, certain incentive payments based on
activity and performance. Under the Company's contracts with its hospital and
other health care clients, the physician is responsible for the provision of
professional services and is required to obtain professional liability insurance
with coverage limits as specified in such contracts. The Company's agreements
with physicians typically have one-year terms (with options on the part of the
physicians for renewal) and can be terminated by the Company at any time under
certain circumstances (including termination of the Company's contract with the
health care facility) or by either party, typically upon 30 to 90 days' prior
notice. Under certain circumstances, clinics owned or managed by the Company may
contract with physicians as employees and not as independent contractors.
GOVERNMENT CONTRACTS
Federal government contracts are usually awarded for a base period
ranging from one month to twenty-four months with options on the part of the
contracting governmental agency for annual renewal for up to a five year total
contract term. Such renewals are dependent upon annual appropriations, budgetary
constraints, applicable governmental requirements and other factors and are
subject to termination for convenience, by the government. If a contract were to
be terminated for convenience, the Company would be reimbursed for its allowable
costs to the date of termination and would be paid a proportionate amount of the
stipulated profits or fees attributable to the work actually performed and, in
certain cases, costs incurred in connection with the termination of the
contract.
MANAGED CARE CONTRACTS
HPSE has a one-year contract with the State of Florida, which can be
renewed for a one-year period, to provide health care services to employees of
the State of Florida. This contract accounts for approximately 41% of HPSE's
total enrollment. The State of Florida can terminate the contract upon HPSE
losing its license or other evidence of default. The termination or non-renewal
of this contract with the State of Florida would have a material adverse effect
on both HPSE and the Company.
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GOVERNMENT REGULATION
The businesses in which the Company is engaged are to varying extents
subject to substantial regulation by federal and state governmental authorities.
The regulatory environment in which the Company operates may change
significantly as a result of federal and state health care reform initiatives.
The most significant regulatory requirements applicable to the Company's
businesses are summarized below.
A substantial portion of the Company's net revenue is derived from
payments made by government-sponsored health care programs (primarily Medicare
and Medicaid). In addition, continuing budgetary constraints at both the federal
and state level and the rapidly escalating costs of health care and
reimbursement programs may continue to lead to relatively significant reductions
in government and other third party reimbursements for certain medical charges.
Any such reductions could have a material adverse effect on the Company. These
programs and activities are subject to substantial regulation by the federal and
state governments which are continually reviewing and revising the programs and
their regulations. The Company's operations are subject to periodic audits by
government reimbursement programs to determine the adequacy of coding procedures
and reasonableness of charges. Any determination of material noncompliance with
such regulatory requirements or any change in reimbursement regulations,
policies, practices, interpretations or statutes that places material
limitations on reimbursement amounts or practices could adversely affect the
operations of the Company.
The Company's Health Plans are licensed and subject to periodic
examination by governmental agencies and are subject to state and federal
statutes which extensively regulate the activities of health plans. The
Company's Health Plans must file periodic reports and are subject to periodic
review by the licensing authorities that regulate health plans. The loss of a
health plan license in a particular state would require the Company to cease
offering health plan services in that state. To remain licensed, it may be
necessary for the Company's Health Plans to make changes from time to time in
their services, procedures, structures and marketing methods. Florida, North
Carolina and New York each require a health plan license to operate in such
state to meet minimum capital requirements which essentially restrict a portion
of each health plan's assets to use within its current operations. Prior to its
acquisition by the Company in November 1994, HPSE was denied accreditation by
the National Committee for Quality Assurance. Such accreditation is required
under Florida law. In October of 1996, HPSE was awarded a one-year accreditation
by the National Committee for Quality Assurance. The Company's PHSP has filed an
application for a commercial HMO license in New York. Each of the Company's
Health Plans is subject to regulatory review and approval regarding the
development of new products and the expansion of their service area. Each
respective application may be subject to federal, state and county government
review.
The Company's governmental contracting activities are subject to
substantial regulation by the applicable contracting agencies and federal law
and regulation. Contracts with government agencies are generally complex in
nature and require contractors to comply with exacting technical specifications
and numerous administrative regulations. Substantial penalties can result from
noncompliance with the technical specifications of a contract. Upon failure to
perform or violation of applicable contract or statutory provisions, a
contractor may be barred or suspended from obtaining future contracts for
specified periods of time. The Company is subject to periodic audits and reviews
in the ordinary course of business by appropriate federal government audit and
review agencies, which can result in adjustments to contract costs, including
direct and indirect expenses. Under the Truth in Negotiations Act, the federal
government is entitled for three years after final payment on any negotiated
fixed-price contract to examine all of the Company's cost records with respect
to such contract to determine whether the Company used complete, accurate and
current cost and pricing information in preparing bids on that contract or any
amendment thereto. The federal government also has the right for six years after
final payment to adjust a contract price based upon such examination. Section 31
of the Federal Acquisition Regulations governs the allocation of costs incurred
by the Company in the performance of its government contracts to the extent such
costs are allocable to its government contracts.
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Business corporations are legally prohibited from providing, or holding
themselves out as providers of, medical care in many states. While the Company
seeks to structure its operations to comply with the corporate practice of
medicine laws of each state in which it operates, there can be no assurance
that, given varying and uncertain interpretations of such laws, the Company
would be found to be in compliance with restrictions on the corporate practice
of medicine laws in all states. A determination that the Company is in violation
of applicable restrictions on the practice of medicine in any state in which it
operates could have a material adverse effect on the Company if the Company were
unable to restructure its operations to comply with the requirements of such
states.
The Company believes that its facilities are in compliance with
federal, state and local environmental protection regulations and does not
anticipate that its compliance with regulations concerning the packaging,
storage, treatment and transportation of biohazardous material will have a
material impact on the Company's earnings or competitive position.
CORPORATE LIABILITY AND INSURANCE
Each of the Company's Physician Contract Services and Physician Care
Networks subsidiaries maintains professional liability insurance in amounts
deemed appropriate by management based upon historical claims and the nature and
risks of the business. There can be no assurance that a future claim will not
exceed the limits of available insurance or that such coverage will continue to
be available. Such insurance provides coverage, subject to policy limits, in the
event the Company's contracting subsidiary were held liable as a co-defendant in
a lawsuit against a contracted health care professional or hospital client. To
the extent health care professionals were regarded as agents of the Company in
the practice of medicine, the Company could be held vicariously liable for any
medical negligence of such health care professionals. In addition, the Company
and its contracting subsidiaries may be exposed to liability in cases in which
the Company's contracting subsidiary itself was negligent.
In addition, the Company's contracts with hospital clients generally
contain provisions under which the Company's contracting subsidiary agrees to
indemnify the client for losses resulting from the contracting physician's
malpractice up to the limits of such contracting physician's liability insurance
(whether or not such losses are covered by insurance policies), and the client
agrees to indemnify the Company's contracting subsidiary up to the limits of the
client's professional liability insurance for losses resulting from the
negligence of the client or client personnel (whether or not such losses are
covered by insurance policies). In addition, the Company's contracts with the
Department of Defense and the Department of Veterans Affairs generally provide
for the Company's contracting subsidiary to indemnify the government, without
limitation as to amount, for losses incurred under similar circumstances. The
Company's contracting subsidiary requires the contracted physicians to indemnify
the Company's contracting subsidiary for losses related to the performance of
medical services and to obtain professional liability insurance.
COMPETITION
The businesses in which the Company operates are highly competitive.
The Company has both national and local competitors in its various business
lines. The Company also competes with the more traditional structures of health
care delivery systems. Competition in the industry is based on the scope,
quality and cost of services provided. Certain of the Company's actual or
potential competitors have substantially greater financial resources available
to them.
EMPLOYEES
At December 31, 1996, the Company had approximately 2,900 employees.
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ITEM 2. PROPERTIES
The Company's headquarters are located in Durham, North Carolina, where
the Company subleases, on a month-to-month oral basis, 59,000 square feet of an
office building from American Alliance Holding Company, a corporation controlled
by the Company's Chief Executive Officer, Dr. Steven M. Scott, who is also a
director and the principal shareholder of the Company. The Company also leases
and occupies 27,000 square feet of office space in Durham, North Carolina, from
a partnership controlled by Dr. Scott. This office space is the headquarters for
Coastal Physician Networks, Inc., a subsidiary of the Company.
The Company leases and occupies a 51,000 square foot office building in
Durham, North Carolina. The office space, leased from a third party, is the
headquarters for Healthcare Business Resources, Inc., a subsidiary of the
Company.
The Company leases and occupies two office buildings, totaling
approximately 52,000 square feet, located in Durham, North Carolina. The office
space, leased from a third party, is the headquarters for Coastal Government
Services, Inc., a subsidiary of the Company.
The Company's operating subsidiaries generally lease office space in
the locations in which they do business. Total rent expense for all office space
leased by the Company under noncancelable operating leases was $11,867,000 for
the year ended December 31, 1996.
Further information concerning properties is disclosed in "Item 13.
Certain Relationships and Related Transactions," below.
ITEM 3. LEGAL PROCEEDINGS
Following the announcement of the Company's first quarter operating
results on April 27, 1995, four class action lawsuits were commenced by certain
shareholders against the Company and certain of its current and former officers
and directors in the United States District Court for the Middle District of
North Carolina. These lawsuits have been consolidated into a single consolidated
and amended complaint styled In re Coastal Physician Group, Inc. Securities
Litigation, and class certification has been granted. The consolidated, amended
complaint seeks unspecified damages for alleged violations of the federal
securities laws and common law negligence related generally to the issuance of
allegedly false and misleading statements about the Company's operations and
present and future prospects. Discovery is under way . The parties are currently
engaged in mediation before a court-appointed mediator. The Company intends to
vigorously defend its position, and at this stage of the litigation, exposure to
the Company cannot be determined.
The Company and certain of its current and former officers and
directors have been named defendants in a purported shareholder class action
lawsuit filed on November 20, 1996, in Superior Court in Durham County, North
Carolina, styled Jerry Krim, on his own behalf and on behalf of all others
similarly situated, v. Coastal Physician Group, Inc., Steven M. Scott, Stephen
D. Corman and Jonathan E. Kennedy. The complaint alleges that the defendants
committed common law fraud and deceit and negligent misrepresentation against
the plaintiff and other purchasers of the stock of the Company and seeks
unspecified compensatory and punitive damages and costs. The Company intends to
vigorously defend its position, and at this stage of the litigation, exposure to
the Company cannot be determined.
A subsidiary of the Company is plaintiff in an action styled Coastal
Emergency Services of the West, Inc. v. Thomas Shelton Powers, M.D., which was
filed in the District Court in Harris County, Texas, on May 13, 1996, seeking to
collect on a promissory note signed by the defendant, with an outstanding
balance in excess of $1.5 million. On or about April 3, 1997, the defendant
filed an amended answer and counterclaim, in which he has asserted claims
against the Company for conversion, breach of fiduciary duty, breach of contract
and securities
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fraud, and has requested actual and exemplary damages and attorneys fees. The
Company intends to vigorously defend its position, and at this stage of the
litigation, exposure to the Company cannot be determined.
The Company and its subsidiaries are involved in various other legal
proceedings incidental to their businesses, substantially all of which involve
claims related to the alleged medical malpractice of contracted physicians,
contractual disputes or individual employee relations matters. In the opinion of
the Company's management, no individual item of litigation or group of similar
items of litigation, taking into account the insurance coverage available to the
Company, is likely to have a materially adverse effect on the Company's
financial position or results of operations.
On July 9, 1996, Dr. Steven M. Scott and Dr. Bertram E. Walls, a
director, initiated, on their own behalf and derivatively on behalf of the
Company, a lawsuit against the Company and certain of its officers and
directors, including Joseph G. Piemont, a former President and Chief Executive
Officer of the Company (the "Lawsuit"). The complaint alleged, among other
things, that certain members of the Board breached their fiduciary duties and
wasted corporate assets in taking certain actions specified in the complaint,
including approval of Mr. Piemont's employment agreement. On October 21, 1996,
Mr. Piemont gave notice to the Company of the termination of his employment
agreement for allegedly good reasons (as defined in the agreement) and requested
confirmation of the Company's intent to honor the severance terms of the
agreement.
On January 21, 1997, the Company, Drs. Scott and Walls, and Mr. Piemont
entered into a Release and Settlement Agreement to resolve the matters at issue
between them in the Lawsuit (the "Piemont Settlement"). Pursuant to the Piemont
Settlement, Mr. Piemont was awarded the following compensation in consideration
of his release of any claims against the Company under the employment agreement
and forfeiture of any outstanding stock options granted to him under his
employment agreement or otherwise: (i) an initial cash payment of $150,000; (ii)
a $250,000 non-interest bearing promissory note, payable in twelve monthly
installments, which commenced in February 1997; and (iii) stock appreciation
rights ("SARs"), payable in cash, on 50,000 shares of the Company's common
stock. The base price for Mr. Piemont's SARs was $3.00 per share and the maximum
per share appreciation for which he could receive payment was $4.00 per share.
On January 24, 1997, Mr. Piemont exercised the SARs for the full 50,000 shares
and the Company paid Mr. Piemont $75,000 in full satisfaction of its obligations
for the SARs. The Piemont Settlement was subject to approval by the court
presiding over the Lawsuit. The court approved the settlement on January 21,
1997.
The Lawsuit initiated by Drs. Scott and Walls also named Stephen D.
Corman, the Company's former Chief Financial Officer, as a defendant. The
complaint alleged, among other things, that certain members of the board,
including Mr. Corman, breached their fiduciary duties and wasted corporate
assets in taking certain actions specified in the complaint. On November 6,
1996, the Company, Drs. Scott and Walls, and Mr. Corman entered into a Release
and Settlement Agreement to resolve the matters at issue between them in the
Lawsuit (the "Corman Settlement"). Pursuant to the Corman Settlement, Mr. Corman
was awarded the following compensation in consideration of his release of any
claims against the Company under his employment agreement and forfeiture of any
outstanding stock options granted to him under his employment agreement or
otherwise: (i) an initial cash payment in the amount of $100,000; (ii) entry
into an agreement to serve as a consultant to the Company from November 1, 1996
through March 31, 1997 with respect to certain financial matters including, but
not limited to, preparation and review of the Company's external financial
reports; and (iii) SARs with respect to 50,000 shares of the Company's common
stock. For services rendered pursuant to the consulting agreement, Mr. Corman
will receive the sum of $200,000, payable in ten monthly installments which
commenced on November 15, 1996. The base price for Mr. Corman's SARs is $5.00
per share. The SARs are exercisable at Mr. Corman's option during a three-year
term and are subject to proportional adjustment in the event of any
reorganization of the Company's capital stock. The Corman Settlement was subject
to approval by the court presiding over the Lawsuit. The court approved the
settlement on December 2, 1996.
9
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
under the symbol "DR." The following table shows the range of market prices per
share for the Company's common stock in 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------
High Low High Low
------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $13.75 $ 8.88 $30.13 $22.50
Second Quarter $ 8.38 $ 6.75 $27.38 $12.63
Third Quarter $ 7.25 $ 4.25 $17.50 $12.88
Fourth Quarter $ 6.00 $ 2.75 $19.13 $13.13
------------------------------------------------------
</TABLE>
As of February 28, 1997, the Company had approximately 8,000
shareholders, of which approximately 1,000 were holders of record.
The Company has not paid, nor does it currently intend to pay, cash
dividends on its common stock but, rather, it intends to retain any future
earnings for reinvestment in its business. Under the terms of the Company's
Senior Credit Facility, which was retired on June 10, 1997, the Company was not
permitted to pay any dividends without the prior written consent of the lenders.
On May 29, 1996, the Company granted warrants to the lenders under its
Senior Credit Facility entitling them to purchase, at par value, up to 1,254,509
shares of common stock. The warrants were granted in connection with an
amendment of the Senior Credit Facility. A portion of the warrants vested
immediately, with the balance subject to cancellation based upon the Company's
compliance with a specified principal repayment schedule. Warrants to purchase
250,902 shares were canceled as a result of $40 million in payments made by the
Company prior to January 2, 1997. The remaining warrants, covering 1,003,607
shares of common stock, have vested. This transaction was not registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
On December 31, 1996, the Company agreed to issue 226,690 shares of its
common stock and 32,739 shares of Series B Convertible Preferred Stock to Dr.
Scott in satisfaction of the Company's obligation to reimburse him for certain
proxy solicitation expenses totaling $1,662,278. The Series B Convertible
Preferred Stock shall be convertible into common stock at an initial conversion
rate of ten shares of common stock for each share of Series B Convertible
Preferred Stock, subject to approval by the Company's common shareholders. This
transaction was not registered under the Securities Act pursuant to the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering. See "Item 13. Certain Relationships and Related Transactions."
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
- ------------------------------------------------------------------------------------------------
Operating revenue, net $ 552,109 $ 810,387 $748,637 $640,702 $516,376
- ------------------------------------------------------------------------------------------------
Net income (loss) (145,557) (46,901) 20,668 24,303 18,759
- ------------------------------------------------------------------------------------------------
Net income (loss) per share (6.10) (1.98) 0.92 1.27 1.00
- ------------------------------------------------------------------------------------------------
Weighted average shares 23,844 23,656 22,418 19,135 18,849
- ------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AT YEAR-END:
- ------------------------------------------------------------------------------------------------
Total assets $ 181,841 $ 313,057 $328,980 $255,761 $143,918
- ------------------------------------------------------------------------------------------------
Short-term debt 71,130 5,210 1,353 7,452 19,929
- ------------------------------------------------------------------------------------------------
Long-term debt 4,799 77,270 45,792 21,787 7,860
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 3,503 146,371 186,893 146,600 55,155
- ------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
OPERATING REVENUE, NET. Net operating revenue decreased $258.3 million,
or 31.9%, for 1996 to $552.1 million from $810.4 million for 1995. The decrease
in operating revenue due to dispositions completed during 1995 and 1996, for
which prior periods' results were not restated, was approximately $205.9
million, or 25.4%. This decrease was primarily due to the sale of 47 of the
Company's south Florida clinics on November 30, 1995, (the "Florida sale"). The
remaining decrease was primarily due to higher contract attrition rates in 1996,
less new business development during the second half of 1995 and throughout 1996
in the Company's hospital-based contract management division, lower net
collections per patient visit, and reimbursement regulatory changes experienced
by the Company's billing and accounts receivable management division. The
decrease was partially offset by an increase in revenue due to growth in the
number of enrollees in each of the Company's Health Plans in North Carolina, New
York and Florida.
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 decreased by $153.4 million, or 25.4%, to $450.5
million in 1996 from $603.9 million in 1995. The decrease in physician and other
provider services costs and expenses due to dispositions completed during 1995
and 1996, for which prior periods' results were not restated, was approximately
$173.2 million, or 28.7%. This decrease is primarily due to the Florida sale.
The remaining decrease was primarily due to higher contract attrition rates in
1996, less new business development during the second half of 1995 and
throughout 1996 in the Company's hospital-based contract management division,
and reimbursement regulatory changes experienced by the Company's billing and
accounts receivable management division. The decrease was partially offset by an
increase in revenue due to growth in the number of enrollees in each of the
Company's Health Plans in North Carolina, New York and Florida.
MEDICAL SUPPORT SERVICES COSTS AND EXPENSES. Medical support services
costs and expenses include all other direct costs and expenses of managing
clinics, as well as billing, collection and physician business management
services costs and expenses. Medical support services costs and expenses,
decreased by $38.6 million, or 29.4%, to $92.5 million in 1996 from $131.1
million in 1995. The decrease in medical support services costs and expenses due
to dispositions completed during 1995 and 1996, for which prior periods' results
were not restated, was approximately $33.1 million, or 25.2%. This decrease is
primarily due to the Florida sale. The remaining decrease was primarily due to
higher contract attrition rates in 1996, less new business development during
the second half of 1995 and throughout 1996 in the Company's hospital-based
contract management division, and reimbursement regulatory changes experienced
by the Company's billing and accounts receivable management division.
SELLING, GENERAL AND ADMINISTRATIVE COSTS AND EXPENSES. Selling,
general and administrative costs and expenses increased by $47.9 million, or
38.6%, to $171.9 in 1996 from $124.0 in 1995. This increase was due primarily to
increased goodwill impairment adjustments, professional fees associated with the
restructuring of credit agreements, increased investments in information
technology, the write-off of notes receivable, and increased expenses associated
with the growth in the number of enrollees in each of the Company's Health Plans
in North Carolina, New York and Florida.
GAIN (LOSS) ON DIVESTED ASSETS, NET. Gain (loss) on divested assets,
net consisted of the following in 1996: (i) net gains totaling $36.2 million
resulting from the divestiture of subsidiaries throughout the year, including
PPG, a manager of primary care provider networks located in Maryland, HealthNet,
the Company's New Jersey-
12
<PAGE> 14
based clinic operations, and MedCost, Inc., a managed care entity located in
North Carolina and (ii) $1.6 million of additional gain recorded in 1996 on the
Florida sale which was attributable to those clinics which were originally
acquired and recorded under the purchase method of accounting for business
combinations. See "Item 8. Financial Statements and Supplemental Data" - Note 3
of "Notes to Consolidated Financial Statements". Gain (loss) on divested assets,
net consisted of the following in 1995: a loss of $20.2 million on the Florida
sale which was attributable to those clinics which were originally acquired and
recorded under the purchase method of accounting for business combinations.
NET INTEREST EXPENSE. Net interest expense increased by $4.7 million to
$12.3 million in 1996 from $7.6 million in 1995 due primarily to the increase of
approximately $3.6 million in amortization expense related to debt issue costs
incurred to restructure the Company's credit facilities in May of 1996. The
remaining increase resulted from interest on increased borrowings to fund
operating losses, the continuing investments in information technology
initiatives, and the sale of marketable securities resulting in lower interest
income. In addition, net interest expense increased as a result of rate
increases charged under the Company's Senior Credit Facility. See "Liquidity and
Capital Resources."
ACQUISITION AND RELATED EXPENSES. Acquisition and related expenses
include professional fees and other costs related to acquisitions. Acquisition
and related expenses in 1995 were $1.5 million as compared to none in 1996.
Expenses incurred during 1995 related primarily to potential acquisitions which
did not materialize. See "Item 8. Financial Statements and Supplemental Data" -
Note 3 of "Notes to Consolidated Financial Statements".
INCOME TAX BENEFIT (PROVISION). Income tax benefit (provision) changed
from a benefit of $17.1 million in 1995 to a provision of $4.1 million in 1996
(a change of $21.2 million) primarily as a result of an increase in the
valuation reserve for its federal and state net operating loss carryforwards.
See "Item 8. Financial Statements and Supplemental Data" - Note 8 of "Notes to
Consolidated Financial Statements".
NET LOSS. The Company experienced a net loss of $145.6 million in 1996
compared to a net loss of $46.9 million in 1995. This change is due primarily to
the factors set forth above.
1995 COMPARED TO 1994
OPERATING REVENUE, NET. Net operating revenue increased $61.8 million,
or 8.3%, to $810.4 million in 1995 from $748.6 million for 1994. Of this
increase, $19.8 million was attributable to internal growth and $42.0 million
was attributable to acquisitions. Internal growth resulted primarily from the
growth in the number of HMO participants and the growth in the number of patient
visits at many of the primary care clinics acquired during 1994. Acquisitions
during 1995 consisted of BHP, 18 primary care practices, 2 hospital-based
contract management firms, a practice management company and a physician search
company.
PHYSICIAN AND OTHER PROVIDER SERVICES COSTS AND EXPENSES. Physician and
other provider services costs and expenses increased by $82.3 million, or 15.8%,
to $603.9 million in 1995 from $521.6 million in 1994. Of this increase, $32.5
million was due to acquisitions made during 1995. The remaining increase
resulted primarily from overall higher medical costs in the Company's south
Florida operations, the continued adverse trend in collection experience in the
Company's physician contract business, higher utilization rates in the Company's
managed care businesses and the increase in the number of health care
professionals employed or under contract associated with the growth in revenues
in primary care practices.
MEDICAL SUPPORT SERVICES COSTS AND EXPENSES. Medical support services
costs and expenses increased by $14.1 million, or 12.1%, to $131.1 million in
1995 from $117.0 million in 1994 due primarily to increases in administrative
salaries and other human resources expenses associated with billing and
collection activity and an increase in the indirect costs associated with the
growth in the number of health care professionals employed or under contract in
primary care practices.
13
<PAGE> 15
SELLING, GENERAL AND ADMINISTRATIVE COSTS AND EXPENSES. Selling,
general and administrative costs and expenses increased by $47.0 million, or
61.0%, to $124.0 million in 1995 from $77.0 million in 1994 due primarily to
goodwill impairment adjustments totaling $20.7 million, $9.8 million of
additional expense related to 1995 acquisitions, and continued funding of the
Company's start-up HMO in North Carolina.
GAIN (LOSS) ON DIVESTED ASSETS, NET. Gain (loss) on divested assets,
net consisted of the following in 1995: a loss of $20.2 million on the Florida
sale which was attributable to those clinics which were originally acquired and
recorded under the purchase method of accounting for business combinations.
NET INTEREST EXPENSE. Net interest expense increased by $6.8 million to
$7.6 million in 1995 from $0.8 million in 1994 due primarily to the interest on
increased borrowings to fund acquisitions and operating losses, increased
working capital needs associated with continuing investments in information
technology initiatives, and the sale of marketable securities resulting in lower
interest income. In addition, net interest expense increased as a result of rate
increases charged under the Company's Senior Credit Facility. See "Liquidity and
Capital Resources."
ACQUISITION AND RELATED EXPENSES. Acquisition and related expenses in
1995 were $1.5 million as compared to $9.4 million in 1994. Expenses during 1994
related primarily to four pooling-of-interests acquisitions while 1995 expenses
related primarily to potential acquisitions which did not materialize. See "Item
8. Financial Statements and Supplemental Data" - Note 3 of "Notes to
Consolidated Financial Statements".
INCOME TAX BENEFIT (PROVISION). Income tax benefit (provision) changed
from a provision of $1.2 million in 1994 to a benefit of $17.1 million in 1995
(a change of $18.3 million) as a result of the loss before taxes in 1995 as
compared to income before taxes in 1994. See "Item 8. Financial Statements and
Supplemental Data" - Note 8 of "Notes to Consolidated Financial Statements".
NET INCOME (LOSS). The Company experienced a net loss of $46.9 million
in 1995 compared to net income of $20.7 million in 1994. This change is due
primarily to the factors set forth above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements during the periods covered by
the accompanying consolidated financial statements primarily through cash
generated by certain of its operating activities, bank borrowings, and the sale
of certain of its subsidiaries. The Company's principal uses of cash have been
to support certain operating activities and repay bank debt. Net cash used in
operating activities was $47.1 million and $35.1 million in 1996 and 1995,
respectively. The Company's net use of cash for support of operating activities
resulted primarily from operating losses, including funding of start-up and
early stage HMOs, high professional fees associated with restructuring the
Company's credit facilities, proxy and litigation costs, and information
technology initiatives. Net cash provided by investing activities in 1996
amounted to $56.4 million primarily attributable to cash received from the
disposition of subsidiaries, net of cash disposed of $46.2 million, net sales of
marketable securities of $7.1 million and net proceeds from the sale of property
and equipment of $3.1 million. Net cash used in investing activities in 1995
amounted to $7.5 million primarily attributable to purchases of property and
equipment of $19.9 million, cash expenditures associated with acquisitions of
$43.8 million, offset by net sales of marketable securities of $7.9 million and
cash provided by the disposition of certain operations of $48.3 million. Net
cash used in financing activities in 1996 was $7.2 million and consisted
primarily of net repayments under the Company's Senior Credit Facility, as well
as cash payments for debt issue costs. Net cash provided by financing activities
in 1995 was $36.5 million and consisted primarily of net borrowings under the
Company's Senior Credit Facility. As a result of the aforementioned, cash and
cash equivalents increased from $8.1 million at December 31, 1995 to $10.2
million at December 31, 1996.
14
<PAGE> 16
The Company's number of days of revenue in average outstanding accounts
receivable for 1996 and 1995 was 68.9 and 76.1 days, respectively. This decrease
was partially attributable to the implementation of a common computerized system
to be used by all of the Company's billing operations. The decrease was also
attributable to the outsourcing of certain fee-for-service receivables
collections to other third parties and the voluntary downsizing of many
fee-for-service contracts in the summer of 1996. Significant efforts were
undertaken by management to collect flat rate receivables in 30 days or less.
A significant portion of the Company's net revenue in recent years has
been attributable to fee-for-service billing and collection arrangements. As a
result of increasing public and private sector pressures to restrain health care
costs and to restrict reimbursement rates for medical services, fee-for-service
contracts have developed less favorable cash flow characteristics than
traditional flat-rate contracts, resulting in a need for increased liquidity and
capital resources. The Company voluntarily terminated a significant number of
fee-for-service contracts in the summer of 1996 due to lack of profitability and
cash flow trends. To improve cash flow collections, the Company converted
several fee-for-service contracts to flat-rate contracts during 1996.
Throughout the first three quarters of 1996, the Company significantly
increased its borrowings under its credit facilities due to the net use of cash
in operating activities. The Company experienced a significant operating loss in
the fourth quarter of 1996. However, as a result of the proceeds received from
the sale of PPG on September 30, 1996, MedCost on November 22, 1996, and
HealthNet on November 30, 1996, the Company was able to significantly reduce its
outstanding obligation under the Senior Credit Facility as of December 31, 1996.
Borrowings outstanding under the Company's credit facilities totalled $67.9
million and $68.5 million for the years ended December 31, 1996 and 1995,
respectively.
During 1995, the Company significantly increased its borrowings due to
the use of cash for operating activities and acquisitions. The largest component
of cash used for acquisitions was for the purchase of BHP in May 1995, for
approximately $22.1 million. The remainder of the increase in borrowings for
acquisitions was primarily due to the purchase of medical practices in North
Carolina and Florida.
On May 29, 1996, the Company entered into new credit agreements which
restructured the existing Acquisition and Working Capital Facilities into a new
facility (the "Restructured Facility") and provided the Company with up to $40
million of additional borrowing availability under a new facility (the "Overline
Facility"). The Restructured Facility and the Overline Facility required total
principal payments of at least $40 million by January 2, 1997, which were made
by the Company, at which time the availability of additional working capital
borrowings under the Overline Facility declined to $10 million. The Restructured
Facility and the Overline Facility also required an amendment to be finalized by
January 15, 1997 which would establish financial covenants under these
Facilities for the period subsequent to February 1997. This amendment did not
occur by January 15, 1997 and therefore outstanding amounts, originally due on
July 1, 1997, under the Restructured Facility and the Overline Facility became
due on February 28, 1997. From February 28, 1997 through June 10, 1997, the
Company was in default on its Restructured Facility and Overline Facility
obligations, but accelerated payment under the Restructured Facility and
Overline Facility was not required by the lenders. From May 29, 1996 through
February 28, 1997, interest on loans under the Restructured Facility and the
Overline Facility accrued at the agent bank's prime rate plus 1.5% and 2.0%,
respectively, payable quarterly and monthly in arrears, respectively. Subsequent
to February 28, 1997, interest on loans under the Restructured and the Overline
Facility accrued at the agent bank's prime rate plus 3.5% and 4.5%,
respectively, payable quarterly and monthly in arrears, respectively. For
further information regarding the Company's previous lending agreements,
including covenant, collateral and warrant information, see Note 7 of "Notes to
Consolidated Financial Statements."
On June 6, 1997, the Company entered into a series of sale and
subservicing agreements (the "Sale Agreements") with various subsidiaries of
National Century Financial Enterprises, Inc. ("NCFE"). The Sale Agreements
provide for accounts receivable purchase commitments totaling $151 million for
the purchase of the Company's healthcare receivables from third party payors
that meet specified eligibility requirements.
15
<PAGE> 17
Certain Sale Agreements create facilities for the purchase of up to $36
million of receivables and terminate on July 1, 1998. Another Sale Agreement
creates a facility for the purchase of up to $115 million of receivables and
terminates on June 1, 2000. After taking into account required reserves and
administrative fees, the maximum amount of funding available under the Sale
Agreements at any one time is approximately $125 million. Pursuant to the Sale
Agreement, the Company pays a program fee ranging from approximately 10.97% to
approximately 12.50% per annum on the outstanding amount of uncollected
purchased receivables.
Pursuant to 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
$15 million. Interest on outstanding amounts under this line of credit is
payable monthly at prime plus 4%. The availability under the line of credit
declines based on the Company's receipt of net proceeds in excess of $10
million from the sale of specified assets, and the line of credit expires
June 15, 1998. The line of credit is secured by substantially all of the assets
of Coastal Physician Group, Inc., including pledges of the common stock of each
of its subsidiaries.
On June 10, 1997, the Company used proceeds of approximately $82
million from sales of its existing receivables and rights to future receivables
to repay outstanding balances under the Restructured and Overline Facilities
which terminated on that date. All collateral held by the lenders under those
facilities was released. After repayment, the Company had access to
approximately $40 million of cash from potential additional sales of receivables
and borrowing availability under the line of credit.
In connection with the National Century Financing transaction, as
explained above, Dr. Scott invested $10 million in cash in the Company and
received 1,000,000 shares of a new class of Series C Convertible Preferred Stock
("Series C Preferred"). The Series C Preferred, subject to approval by the
Company's common stockholders, is convertible into 10,000,000 shares of common
stock. In addition, Dr. Scott received 84,983 shares of Series C Preferred and
240,000 shares of common stock in satisfaction of certain obligations owed to
him by the Company of approximately $1.1 million.
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from the additional cash received
from the sale of stock described above, amounts available under the various
agreements with NCFE discussed above, the sale of certain non-core assets that
the Company has identified, as well as a reduction in cash used in operations.
The Company has implemented a management action plan which requires a
continuing review of all aspects of the Company's business units and the
implementation of actions to improve cash flow characteristics, profitability
and contributions to the Company's overall financial and strategic objectives.
The primary objectives of these actions are to generate increased cash flow to
repay debt and to improve the Company's financial results. If the Company is
unable to achieve these objectives, it will likely experience a material
decrease in liquidity, thus increasing its reliance on financing under the
various agreements with NCFE discussed above.
In addition to the restructuring of its credit facilities and
implementation of a management action plan, the Company recently engaged an
investment banking firm to assist in the exploration of potential strategic
alternatives for optimizing equity value and providing additional liquidity. The
investment banking firm, as well as other outside consultants, are expected to
advise the Company as to alternatives for maximizing shareholder value,
including the possible sale of the entire Company and other strategic and
financial transactions.
OTHER TRENDS AND UNCERTAINTIES
The Company's revenues decreased from 1995 to 1996 by approximately
$258.3 million. Revenues have continued to decline each quarter from the second
quarter of 1995 through the fourth quarter of 1996. The primary reasons for this
trend include higher contract attrition and lower new business development in
the Physician Contract Services division, the sale of 47 clinics in south
Florida on November 30, 1995, the sale of PPG on September 30, 1996, the sale of
MedCost on November 22, 1996, and the sale of HealthNet on November 30, 1996.
The decline in revenues is likely to continue during 1997 given the Company's
strategy to divest all non-core assets.
16
<PAGE> 18
The Company experienced decreasing operating margins during 1996
ranging from (6.5%) in the first quarter to (54.6%) in the fourth quarter.
Declining operating margins were encountered by each line of business in which
the Company operates, primarily due to lower new business development and
increased allowances for contractual adjustments and uncollectibles in the
Physician Contract Services division as well as goodwill impairment adjustments
of $15.1 million and $14.6 million in the third and fourth quarters,
respectively.
The Company operates in an industry characterized by consolidation and
combination led by a number of major health care companies. The Company
completed numerous acquisitions during 1994 and 1995, but is now directing its
primary efforts to improvements in existing operations and the sale of non-core
assets. This change in strategy is due to the deterioration in revenue growth,
increases in costs and the associated operating losses incurred in the Company's
traditional lines of business, debt obligations, as well as the relative rising
cost of, and potential limited access to, additional capital.
In late March, 1997, the Health Care Financing Administration ("HCFA")
indicated that it will no longer allow companies to obtain group provider
numbers to bill Medicare claims for services rendered by their independent
contractor physicians. This change may cause significant delays in payments to
the Company's subsidiaries. Since HCFA's decision is of such recent origin and
because HCFA has requested the Company's future participation in developing a
transition plan, the impact on the Company is not known at this time.
The Company is continuing to incur substantial expansion and operating
costs in its start-up health plans in North Carolina and New York. Profitable
future results for these entities, as well as its established HMO in north
Florida, are largely dependent on successful regulatory approval for expansion
into new markets. These approval processes, which are the domain of the
respective state (and in some cases, local) regulators, can increasingly be
characterized as evolving and difficult to precisely predict. This raises the
prospect of potential delays in obtaining the desired approvals on a timely
basis. The Company will continue to closely monitor developments in this area.
The Company believes successful competition in the health care industry
will increasingly require sophisticated information systems to rapidly provide a
broad range of data related to both clinical and financial aspects of medical
practice. The Company has consequently committed to substantial costs in
information technology related to clinical management information systems,
computerized billing operations, and its own internal financial reporting
systems.
If the Company is unable to return to profitability and increase cash
flow in the near term, it is possible that the Company may become unwilling or
unable to continue to sustain the losses from its start-up managed care
operations and provider network development in North Carolina, to continue to
fund its significant investments in information technology, or to provide the
working capital necessary to support growth in revenues in any of its existing
lines of business. The impairment of the Company's ability to continue these
initiatives could limit the Company's ability to realize its strategic and
financial goals. As mentioned above, the Company has identified certain assets
as non-core assets that the Company has determined to sell and has engaged an
investment banker to assist in the exploration of alternatives for maximizing
shareholder value, including the possible sale of the entire Company.
The Company's focus on its internal operations has resulted in senior
management changes in its contract management, government services, billing and
managed care operations. In addition to personnel changes in its operating
companies, the Company significantly reduced staffing at its Durham corporate
office during 1996 to approximately 65 employees from over 200. Various
administrative and support functions historically provided by the corporate
office have been significantly reduced, eliminated completely or redeployed to
the operating companies requiring those functions.
Developments in the health care industry in general are also expected
to impact the Company's financial performance and operating strategy. These
developments include trends of medical expenses in HMOs and other businesses
where the risk of higher medical costs is assumed, as well as changing levels of
utilization in
17
<PAGE> 19
hospital-based and clinic operations. Additionally, the Company will continue to
monitor proposed changes in premiums and levels of reimbursement from payors
including HMOs, insurance companies, Medicare and Medicaid.
The Company's near-term focus is the stabilization of operations and
management and to return to profitability. As mentioned earlier, the Company has
identified certain operations as vital to the Company's success in the future
and is focusing its efforts on returning the core operating units to
profitability.
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: receipt of
sufficient proceeds from divested assets, and the timing of any divestitures;
the level and timing of improvements in the operations of the Company's core
businesses; the possibility of increased medical expenses due to increased
utilization; the possibility that the Company may not be able to improve
operations or execute its divestiture strategy 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 Securities and Exchange Commission filings.
18
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Review
<TABLE>
<S> <C>
Report of Independent Auditors ..................................................................................20
Consolidated Balance Sheets, December 31, 1996 and 1995 .........................................................21
Consolidated Statements of Operations, Years ended December 31, 1996, 1995 and 1994 .............................22
Consolidated Statements of Shareholders' Equity, Years ended December 31, 1996, 1995 and 1994 ...................23
Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 .............................24
Notes to Consolidated Financial Statements ......................................................................25
</TABLE>
19
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
COASTAL PHYSICIAN GROUP, INC.
We have audited the accompanying consolidated balance sheets of Coastal
Physician Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
The consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Coastal
Physician Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Raleigh, North Carolina
March 31, 1997 except for paragraphs 5 and 6 of Note 10,
which are as of May 30, 1997, and for paragraphs 1 and 4
of Note 9, which are as of June 3, 1997, and for paragraphs
6, 8, 9 and 10 of Note 7 and the last paragraph of Note 11,
which are as of June 10, 1997.
20
<PAGE> 22
COASTAL PHYSICIAN GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,239 $ 8,147
Marketable securities 7,020 9,303
Trade accounts receivable, net 87,410 149,891
Accounts receivable, other 11,187 11,315
Notes receivable from shareholders -- 1,879
Refundable income taxes 2,498 12,804
Deferred income taxes -- 4,265
Prepaid expenses and other current assets 10,923 3,882
- -----------------------------------------------------------------------------------------------
Total current assets 129,277 201,486
- -----------------------------------------------------------------------------------------------
Property and equipment, at cost, less accumulated depreciation 19,041 33,441
Excess of cost over fair value of net assets acquired, net 19,305 53,836
Deferred income taxes -- 2,244
Other assets 14,218 22,050
- -----------------------------------------------------------------------------------------------
Total assets $181,841 $313,057
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities and other short-term borrowings $ 71,130 $ 5,210
Accounts payable 46,307 19,600
Accrued physicians fees and medical costs 33,709 38,468
Accrued expenses 20,182 26,138
Income taxes payable 2,211 --
- -----------------------------------------------------------------------------------------------
Total current liabilities 173,539 89,416
- -----------------------------------------------------------------------------------------------
Long-term debt, excluding current maturities 4,799 77,270
- -----------------------------------------------------------------------------------------------
Total liabilities 178,338 166,686
===============================================================================================
Commitments and contingencies (Notes 7, 10, and 12)
Shareholders' equity:
Preferred stock $.01 par value, authorized 10,000 shares;
none issued or outstanding -- --
Common stock $.01 par value, authorized 100,000 shares;
issued and outstanding 24,126 and 23,754 shares, respectively 241 238
Additional paid-in capital 144,070 142,345
Common stock warrants 987 --
Retained earnings (accumulated deficit) (141,931) 3,626
Unrealized appreciation of available-for-sale securities 136 162
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 3,503 146,371
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $181,841 $313,057
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 23
COASTAL PHYSICIAN GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Operating revenue, net $ 552,109 $ 810,387 $748,637
Costs and expenses:
Physician and other provider services 450,526 603,881 521,618
Medical support services 92,460 131,097 116,953
Selling, general and administrative 171,903 123,989 77,006
- --------------------------------------------------------------------------------------------------
Total costs and expenses 714,889 858,967 715,577
- --------------------------------------------------------------------------------------------------
Gain (loss) on divested assets, net 37,751 (20,195) --
- --------------------------------------------------------------------------------------------------
Operating income (loss) (125,029) (68,775) 33,060
- --------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (12,774) (8,261) (2,725)
Interest income 500 671 1,928
Acquisition and related expenses --- (1,535) (9,364)
Other net (5,982) (2,374) (987)
- --------------------------------------------------------------------------------------------------
Total other expense (18,256) (11,499) (11,148)
- --------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item (143,285) (80,274) 21,912
Provision (benefit) for income taxes 4,136 (17,136) 1,244
- --------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (147,421) (63,138) 20,668
Extraordinary item - gain on pooled portion
of South Florida divestiture, net of income taxes
of $647, $9,796 and $0 for the years ended
December 31, 1996, 1995 and 1994, respectively 1,864 16,237 --
- --------------------------------------------------------------------------------------------------
Net income (loss) $(145,557) $ (46,901) $ 20,668
- --------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Income (loss) before extraordinary item $ (6.18) $ (2.67) $ 0.92
Extraordinary gain 0.08 0.69 --
- --------------------------------------------------------------------------------------------------
Net income (loss) $ (6.10) $ (1.98) $ 0.92
- --------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 23,844 23,656 22,418
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
COASTAL PHYSICIAN GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Appreciation
Retained (Depreciation )
Share of Additional Common Earnings of Available) Total
Common Common Paid-In Stock (Accumulated) for-sale Shareholders'
Stock Stock Capital Warrants Deficit) Securities Equity)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 21,779 $218 $113,191 $--- $ 32,947 $ 244 $ 146,660
- ----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 20,668 -- 20,668
Shares issued:
Employee stock compensation awards 3 -- 320 -- -- -- 320
Stock options exercised 45 -- 531 -- -- -- 531
In connection with business
combinations 1,587 16 21,602 -- (502) -- 21,116
Employee stock purchase plan 4 -- 134 -- -- -- 134
Capital contributions from shareholders
of pooled companies -- -- 772 -- -- -- 772
Cash dividends of pooled companies -- -- -- -- (2,586) -- (2,586)
Unrealized depreciation of available-
for-sale securities, net of tax -- -- -- -- -- (662) (662)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 23,418 234 136,550 -- 50,527 (418) 186,893
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- (46,901) -- (46,901)
Shares issued:
Stock options exercised 149 2 1,593 -- -- -- 1,595
In connection with business
combinations 117 1 3,139 -- -- -- 3,140
Employee stock purchase plan 70 1 1,063 -- -- -- 1,064
Unrealized appreciation of available-
for-sale securities, net of tax -- -- -- -- -- 580 580
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 23,754 238 142,345 -- 3,626 162 146,371
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- (145,557) -- (145,557)
Shares issued:
Stock options exercised 63 -- 425 -- -- -- 425
Employee stock purchase plan 82 1 518 -- -- -- 519
Payment of proxy contest costs 227 2 678 -- -- -- 680
Issuance of common stock warrants -- -- -- 987 -- -- 987
Employee stock compensation awards -- -- 22 -- -- -- 22
Stock options vested -- -- 82 -- -- -- 82
Unrealized depreciation of available-
for-sale securities, net of tax -- -- -- -- -- (26) (26)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 24,126 $241 $144,070 $987 $(141,931) $ 136 $ 3,503
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
COASTAL PHYSICIAN GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(145,557) $(46,901) $ 20,668
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 7,157 7,062 3,693
Amortization 3,049 4,274 1,926
Noncash interest expense 12 48 62
Extraordinary gain (2,511) (26,033) --
(Gain) loss on sale of purchased portion of south Florida
divestiture (1,579) 16,943 --
Gain on disposition of subsidiaries (36,172) -- --
Loss on disposal of fixed assets, net 1,709 966 --
Gain on sale of marketable securities and investments (288) -- --
Goodwill impairment loss 29,679 20,648 --
Deferred income taxes 6,407 2,272 (3,148)
Other 124 ,263 ,046
Change in assets and liabilities,
net of effects from acquisitions:
Trade accounts receivable, net 59,730 (8,819) (14,983)
Accounts receivable, notes receivable and other (1,001) (5,528) (13,119)
Refundable income taxes 10,306 (4,227) --
Prepaid expenses and other current assets (2,322) 3,156 (2,215)
Other assets 2,188 (1,366) 1,563
Accounts payable, accrued expenses and
income taxes payable 26,668 (6,532) (8,632)
Accrued physicians fees and medical costs (4,653) 8,650 2,282
- -----------------------------------------------------------------------------------------------------------------
Total adjustments 98,503 11,777 (32,525)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (47,054) (35,124) (11,857)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities and investments (2,973) (4,605) (59,301)
Proceeds from sale of marketable securities and investments 8,210 12,472 80,444
Proceeds from maturity of marketable securities and investments 1,853 -- --
Proceeds (purchases) of property and equipment, net 3,074 (19,846) (7,724)
Acquisition of subsidiaries, net of cash acquired , -- (43,788) (10,271)
Disposition of subsidiaries, net of cash sold 46,189 48,275 --
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 56,353 (7,492) 3,148
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of long-term debt (76,610) (36,846) (18,904)
Borrowings on long-term debt 71,424 69,995 29,000
Cash payments for debt issue costs (3,048) -- --
Net proceeds from issuance of common stock 1,027 2,661 --
Repayment of shareholder loans -- 667 --
Capital contributions from shareholders P
of pooled companies -- -- ,772
Dividends paid by pooled companies -- -- (2,586)
Other -- -- 719
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,207) 36,477 9,001
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,092 (6,139) ,292
Cash and cash equivalents at beginning of year 8,147 14,286 13,994
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 10,239 $ 8,147 $ 14,286
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash payments (receipts) during the year:
Interest $ 9,327 $ 7,699 $ 1,975
Income taxes $ (15,477) $ (2,925) $ 15,275
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
Coastal Physician Group, Inc. (the "Company" or "Coastal") is a physician
management company which provides a broad range of health care and
administrative services to physicians, hospitals, government agencies, managed
care programs and other health care organizations. Such services consist
primarily of the provision of physician coverage to hospital and government
facility clients, the provision of billing and collection services to various
health care practitioners, the operation of two health maintenance organizations
("HMOs") and a Medicaid managed care entity, and the operation of primary care
clinics and physician practices. The Company operates on a nationwide basis.
B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts
of Coastal and its wholly-owned subsidiary companies. All significant
intercompany balances and transactions have been eliminated in consolidation.
These consolidated financial statements have been prepared to give retroactive
effect to certain of the mergers discussed in Note 3.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates and assumptions.
C. CASH AND CASH EQUIVALENTS AND REGULATORY REQUIREMENTS
Cash in excess of daily requirements invested in short-term investments
with maturities of three months or less are considered to be cash equivalents
for financial statement purposes.
The Company's HMOs and prepaid health services plan ("PHSP") are required
to maintain certain levels of restricted deposits to satisfy certain regulatory
requirements. These deposits (included in Other assets in the accompanying
consolidated balance sheets) totaled approximately $5,968,000 and $3,940,000 as
of December 31, 1996 and 1995, respectively. In addition, the Company's HMOs and
PHSP are required to maintain certain net worth levels which restrict the
transfer of funds between companies.
D. MARKETABLE SECURITIES
Under Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, securities are classified
either as held-to-maturity, available-for-sale, or trading. Securities
classified as held-to-maturity are carried at amortized cost ($1,208,000 and
$4,161,000 at December 31, 1996 and 1995, respectively) and primarily consisted
of state and political subdivision securities, U.S. Government securities and
municipal bonds. Securities classified as available-for-sale are carried at fair
value ($6,017,000 and $6,192,000 at December 31, 1996 and 1995, respectively)
and primarily consisted of equity securities. Unrealized gains and losses on
such securities are carried as a separate component of shareholders' equity.
Realized investment gains and losses are computed using specific costs of
securities sold. Held-to-maturity securities included in other assets on the
accompanying consolidated balance sheets amounted to $205,000 and $1,050,000 at
December 31, 1996 and 1995, respectively.
25
<PAGE> 27
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
E. ACCOUNTS RECEIVABLE
Trade accounts receivable are primarily amounts due from hospitals under
flat rate contracts and amounts due under fee-for-service contracts from
patients, government-sponsored health care programs (primarily Medicare and
Medicaid) and other third party payors such as insurance companies and
self-insured employers. These receivables are geographically dispersed
throughout the United States.
Accounts receivable due under fee-for-service contracts include an
allowance for contractual adjustments and uncollectibles which is charged to
operations based on an evaluation of potential losses. Contractual adjustments
result from the differences between the physician rates for physician services
performed and amounts allowed by government-sponsored health care programs,
insurance companies and other payors for such services. Uncollectibles represent
receivables considered unrecoverable. The allowance considered necessary to
cover contractual adjustments and uncollectibles is based on an analysis of
current and past due accounts, collection experience in relation to amounts
billed and other relevant information. Although the Company believes amounts
provided are adequate, the ultimate amounts uncollectible could be in excess of
the amounts provided.
F. DEPRECIATION
Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives of the assets as follows:
Buildings 31 1/2 years
Leasehold improvements 5 years
Furniture and equipment 3 to 10 years
Airplane 12 years
Automobiles 3 years
G. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The assets and liabilities of acquired entities accounted for under the
purchase method of accounting are adjusted to their estimated fair values as of
the acquisition dates. The amounts recorded as excess of cost over fair value of
net assets acquired ("goodwill") represent amounts paid that exceed estimated
fair values assigned to the assets and liabilities of each acquired business.
Such amounts are being amortized on a straight-line basis over periods ranging
from five to forty years, depending on the specific circumstances of each
acquisition. Accumulated amortization of goodwill was $3,581,000 and $3,136,000
at December 31, 1996 and 1995, respectively.
During the fourth quarter of 1995, the Company elected early adoption of
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Prior to the early adoption of SFAS 121, the Company accounted for both
identifiable and unidentifiable intangible assets that were acquired in
accordance with APB Opinion No. 17 ("APB 17"), Intangible Assets. Under the
provisions of APB 17, management would periodically evaluate the carrying value
and remaining amortization periods of unamortized amounts based on an analysis
of estimated undiscounted operating earnings from the operations of each
specific business. In addition, management would consider any events and
circumstances occurring during the year which might have an impact on such
carrying value or remaining amortization periods. No such events or
circumstances indicating impairment were identified prior to 1995.
26
<PAGE> 28
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Upon early adoption of SFAS 121, management performed an evaluation of the
carrying value and remaining amortization periods of unamortized amounts. In
connection with the ongoing application of SFAS 121, management will perform
such an evaluation whenever events or changes in circumstances occur which
indicate such carrying values may not be recoverable. With the exception of the
matters related to the goodwill impairment discussed in Note 2, no such events
or changes in circumstances were identified during 1996.
H. REVENUE AND MEDICAL COST RECOGNITION
Contractual arrangements with hospitals are primarily (a) flat rate
contracts whereby the Company receives fees from hospitals based on hours of
physician coverage provided and (b) fee-for-service contracts whereby the
Company bills and collects the charges for medical services rendered by the
Company's contracted health care professionals and assumes the financial risks
related to patient volume, payor mix, reimbursement rates, and collection.
The Company recognizes capitation revenue from employers and prepaid
managed care plans that contract with the Company for the delivery of health
care services on a monthly basis. This capitation revenue is at the
contractually agreed-upon per-member, per-month rates.
Premium revenue for prepaid healthcare is recognized as earned on a pro
rata basis over the contract period.
Costs of medical services are recorded as expenses in the period in which
they are incurred. Accrued medical claims are based upon costs incurred for
services rendered prior to the balance sheet date. Incurred but not reported
medical claims are estimated by the Company based on trends, experience and
judgement. The ultimate amount of such claims may differ from amounts provided
and such adjustment will be reflected in the period in which such differences
become apparent.
I. PRESENTATION OF EXPENSES
Physician and other provider services costs and expenses are comprised
primarily of fees paid to physicians and other health care providers and include
medical supplies and pharmaceutical expenses in the clinic operations.
Medical support services costs and expenses include all other direct
costs and expenses of managing clinics, as well as billing, collection and
physician business management services costs and expenses.
Selling, general and administrative costs and expenses include all
other operating expenses.
J. STOCK-BASED COMPENSATION
The Company applies APB Opinion 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans and its stock purchase
plan. In addition, no pro forma disclosure of net income and earnings per share,
in accordance with statement of Financial Accounting Standards No. 123, has been
provided due to the immaterial effect of the amount of stock-based compensation
expense.
K. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation. Such reclassifications
had no impact on net income (loss) or shareholders' equity as previously
reported.
27
<PAGE> 29
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. GOODWILL IMPAIRMENT
1996
During 1996, the Company recognized a goodwill impairment loss (included in
Selling, general and administrative costs and expenses in the accompanying
consolidated statements of operations) of $29,679,000 related to goodwill
associated with (i) certain long-lived assets of entities identified for sale by
the Company and (ii) certain acquired operations.
PENDING ASSET DISPOSITIONS - In conjunction with the Company's efforts to
sell certain units to address its debt service requirements and improve the
enterprise value of the Company, the carrying amount of the long-lived assets
and identifiable intangibles associated with assets specifically identified for
sale was compared to the estimated fair value of the assets, less estimated
costs to sell. Fair value was based on the estimated amount at which the assets
could be sold in a current transaction based on management's evaluations and
discussions with the Company's outside financial advisors. This reevaluation
resulted in impairment losses recognized in 1996 of $13,562,000 for Better
Health Plan, Inc., a New York-based Medicaid managed care entity acquired in
1995, and $6,517,000 for the Company's North Carolina clinics, acquired at
various dates.
ADVANCED HEALTH PLANS, INC. - The primary underlying factor contributing to
the decision to reevaluate the carrying value of goodwill associated with
Advanced Health Plans, Inc. ("AHP") was the uncertainty associated with the time
that AHP's founder and Chief Executive Officer, Dr. Sokolov, may be able to
continue to devote to AHP and his continuing role with AHP. Dr. Sokolov also
serves as Vice Chairman of the Company's Board of Directors. Dr. Sokolov is
considered critical to the continued operations of AHP, and the Company believes
that without his full-time involvement the operations and cash flows of AHP
could decline. The reevaluation resulted in a $6,611,000 write-off of AHP's
goodwill balance in 1996.
COASTAL PHYSICIAN SERVICES , INC. - The primary underlying factor
contributing to the decision to reevaluate the carrying value of goodwill
associated with certain acquired operations of Coastal Physician Services, Inc.
("CPS") was the termination of a significant number of contracts. The
reevaluation resulted in a $2,989,000 write-off of goodwill in 1996.
In determining the amount of the impairment loss, the Company developed
its best estimate of operating cash flows over the remaining business life
cycle of both AHP and CPS based on earnings history, market conditions and
assumptions reflected in internal operating plans and strategies. Future cash
flows, excluding interest charges, were discounted using the Company's weighted
average cost of capital. These estimates reflected that the present value of
the future cash flows was not adequate to recover the existing carrying amount
of goodwill. Accordingly, the goodwill impairment loss was recognized to adjust
the carrying amount to estimated fair value.
1995
During the fourth quarter of 1995, the Company recognized a goodwill
impairment loss (included in Selling, general and administrative costs and
expenses in the accompanying consolidated statements of operations) of
$20,648,000 related to certain of its acquired operations . Such operations
included HealthNet Corp., a New Jersey-based clinic operation acquired in 1994
("HealthNet"), the clinics in south Florida, acquired at various dates,
remaining after the divestiture described in Note 3 ("south Florida clinics"),
and Medi/Tab Consulting Co., Inc., a New York-based billing operation acquired
in 1992 (" Medi/Tab"). The impairment loss was primarily the result of current
period, as well as historical and projected, operating and cash flow losses,
28
<PAGE> 30
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
which resulted in strategic and operational reviews of these businesses and
an evaluation of the respective goodwill carrying values for possible
impairment. The following is a summary by entity of the primary reasons for the
operating losses as well as the resulting goodwill write-downs.
HEALTHNET - The underlying factors contributing to the decline in financial
results were changes in the marketplace (increased managed care penetration in
New Jersey relating to both the commercial market and the workers compensation
market) and the fact that the HealthNet clinics are not primary care oriented.
This resulted in declines in patient volume and average reimbursements to
HealthNet's primarily fee-for-service revenue base. The evaluation resulted in a
$12,588,000 write-down of HealthNet's goodwill balance in the fourth quarter of
1995.
SOUTH FLORIDA CLINICS - The underlying factors contributing to the decline
in financial results included changes in the marketplace, as well as the
Company's decision to divest the bulk of its south Florida primary care clinic
operations (as discussed in Note 3), thus limiting the remaining clinics'
ability to participate in managed care contracts as part of a larger network.
The evaluation resulted in a $7,388,000 write-down of the remaining south
Florida clinics' goodwill balance in the fourth quarter of 1995.
MEDI/TAB - The primary underlying factor contributing to the decline in
financial results was increased competitiveness in Medi/Tab's marketplace
resulting in a significant deterioration in its client base and decreasing
margins. The evaluation resulted in a $672,000 write-down of Medi/Tab's
goodwill balance in the fourth quarter of 1995. On March 15, 1996, the Company
consummated the sale of all of the outstanding common stock of Medi/Tab. Such
divestiture did not have a material effect on 1996 results of operations. In
determining the amount of the impairment loss, the Company developed its best
estimate of operating cash flows over the remaining business life cycle of each
specific operation based on earnings history, market conditions and assumptions
reflected in internal operating plans and strategies. Future cash flows,
excluding interest charges, were discounted using the Company's weighted
average cost of capital. These projections reflected that the present value of
the future cash flows was not adequate to recover the existing carrying amount
of goodwill. Accordingly, the goodwill impairment loss was recognized to adjust
the carrying amount to estimated fair value.
3. SIGNIFICANT TRANSACTIONS
A substantial portion of the Company's consolidated operations consists of
entities acquired in a succession of acquisitions during the period from January
1993 through November 1995. Additionally, the Company consummated a number of
significant divestitures from November 1995 through November 1996. The following
is a summary of certain accounting aspects of such acquisitions and
divestitures, as well as a description of the more significant transactions.
Certain of the Company's acquisitions were accounted for under the purchase
method of accounting ("purchases"). Under this method, the assets and
liabilities of the acquired entity are recorded at their estimated fair market
values at the date of acquisition, any excess of the purchase price over the
respective fair market value is accounted for as goodwill, and the results of
operations of the acquired company are included in the Company's consolidated
financial statements from the respective date of acquisition. The remaining
acquisitions were accounted for under the pooling-of-interests method of
accounting ("poolings"). Under this method, the assets and liabilities of the
combined entity are recorded at their respective book values, and the Company's
consolidated financial statements are restated for all periods presented to
include the results of operations of the combined entity.
29
<PAGE> 31
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A. SOUTH FLORIDA
Original Acquisitions
The Company's south Florida primary care clinic operations resulted from a
series of acquisitions during the period from July 1993 through November 1995.
Certain of such acquisitions were accounted for as purchases, while the
remainder were accounted for as poolings.
South Florida purchases consisted primarily of the July 1993 acquisition of
Gold Star Medical Group ("Gold Star"), a network comprised of 13 primary care
clinics. The initial purchase price for Gold Star was $12,000,000, with
additional consideration to be payable if certain criteria were met. In June
1994, the Gold Star agreement was modified whereby the Company issued an
additional 400,000 shares of its common stock (increasing goodwill by
$11,220,000) and providing for additional consideration to be payable if certain
criteria were met. Additional consideration was paid in July 1995 (a combination
of cash and common stock) under the modified agreement, resulting in $1,000,000
of additional goodwill. In addition to Gold Star, south Florida purchases
included a number of less significant acquisitions, which are included in the
aggregate information under Other Acquisitions below.
South Florida poolings consisted of the February 1994 acquisition of Health
Management Associates of America, Inc. and Medical Management Associates, Inc.
("HMA/MMA") and the June 1994 acquisition of Southeast Health Systems, Inc. and
Medical Associates Systems, P.A. ("SHS/MAS"). HMA/MMA and SHS/MAS together
operated a network of 21 primary care clinics. The Company issued 2,301,000
shares of its common stock in exchange for all of the outstanding shares of the
companies comprising HMA/MMA and 1,088,000 shares of its common stock in
exchange for all of the outstanding shares of the companies comprising SHS/MAS.
1995 DIVESTITURE
On November 30, 1995, the Company sold 47 of its south Florida clinics for
$51,300,000 in gross cash proceeds, subject to $3,000,000 held in escrow
(included in prepaid expenses and other current assets on the accompanying
consolidated balance sheets). The divested entities included both a portion
originally accounted for as purchases (the "purchased portion") and a portion
originally accounted for as poolings (the "pooled portion"). The purchased
portion consisted primarily of Gold Star, as well as certain (but not all) of
the less significant south Florida purchases; the pooled portion consisted of
HMA/MMA and SHS/MAS.
In 1995, the Company realized (on an aggregate basis) a gain on
disposal, before applicable income taxes, of approximately $5,840,000, income
tax expense on the transaction of $6,540,000, and a loss on the disposal on an
after-tax basis of $700,000. The relationship of income tax expense on the
transaction to the pre-tax gain is due to the addback of nondeductible goodwill
related to the purchased portion.
1996 SETTLEMENT
During the third quarter of 1996, the Company received additional gross cash
proceeds of $2,800,000 as an adjustment to the original sale price. These
proceeds were based on the settlement of the final closing date balance sheet
and were recorded as a gain on the sale transaction. The Company realized an
additional gain of $1,290,000 resulting from other non-cash post-closing balance
sheet settlements. Because the disposal occurred within two years following
acquisition of the entities comprising the pooled portion, the component of the
total gain applicable to the pooled portion, less applicable income tax expense,
30
<PAGE> 32
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
is required to be classified as an extraordinary item in the accompanying
consolidated statements of operations. The loss on the purchased portion, gross
of applicable income taxes, has been included in Gain (loss) on divested assets,
net in the accompanying consolidated statements of operations. In determining
the breakdown of the transaction for purposes of disclosing the gain (loss) on
the sale of the respective portions, proceeds have been allocated based upon the
relative fair market values of the respective entities. The accounting bases for
the respective portions were based on a specific identification of the entities
comprising each portion. Provisions and transaction-related expenses which could
not be specifically identified with either the purchased or pooled portion were
allocated on a basis consistent with the allocation of proceeds. The direction
and magnitude of the net impact of the respective portions (loss on purchased
portion, gain on pooled portion) is due to the allocation of a majority of the
proceeds to the pooled portion and the higher accounting basis which results
under the purchase method.
B. PHYSICIANS PLANNING GROUP/HEALTHCARE AUTOMATION ACQUISITION
Original Acquisition
In August 1994, the Company issued 857,000 shares of its common stock in
exchange for all of the outstanding shares of Physicians Planning Group, Inc.
("PPG"), a manager of primary care provider networks, and Healthcare Automation,
Inc.("HCA"), a billing services and network management company. This acquisition
was accounted for as an immaterial pooling without restatement of prior results
of operations.
1996 DIVESTITURE
Effective September 30, 1996, the Company sold certain assets of PPG and the
common stock of HCA. The Company realized a net gain on the sale of PPG and HCA
(included in Gain (loss) on divested assets, net in the accompanying statements
of operations), of approximately $15,692,000 before applicable income taxes.
Income tax expense on the transaction totaled $1,163,000, resulting in a gain on
an after tax basis of $14,529,000.
C. HEALTH ENTERPRISES ACQUISITION
In November 1994, the Company issued 2,097,000 shares of its common stock in
exchange for all the outstanding shares of Health Enterprises, Inc. ("HEI"), an
acquisition accounted for as a pooling. HEI's wholly-owned subsidiary,
Healthplan Southeast, Inc., an independent practice association ("IPA") model
HMO, had over 66,000 members enrolled and insured approximately 1,350 employer
groups in north Florida as of December 31, 1996.
D. BETTER HEALTH PLAN ACQUISITION
On May 5, 1995, the Company acquired (and accounted for as a purchase)
Better Health Plan, Inc. ("BHP"), a Medicaid managed care entity. Incorporated
on February 4, 1993, BHP provided prepaid health care to approximately 40,000
Medicaid recipients in five counties in New York State as of December 31, 1996.
The initial purchase price was $19,700,000 in cash and $2,400,000 in loan
repayments to shareholders and banks. Goodwill totaling $25,200,000 was
originally recorded in connection with the acquisition. The Company recorded an
impairment loss of $13,562,000 during 1996 relating to this goodwill balance.
Pro forma results of operations assuming this purchase had taken place at the
beginning of 1995 have been included in the aggregate pro forma information
under Other Acquisitions below. See Note 10 regarding the settlement of a
contingent earnout payment in connection with the acquisition of BHP.
31
<PAGE> 33
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
E. OTHER ACQUISITIONS
In addition to the above described acquisitions, Coastal made a number of
less significant acquisitions in 1995 and 1994. No acquisitions were made during
1996. Such acquisitions consisted of (in 1995) 18 practices, two hospital-based
contract management firms, a practice management company and a physician search
company and (in 1994) 31 practices, a billing company, a consulting company and
a physician placement company. Aggregate consideration for these other
acquisitions was (in 1995) $25,861,000 (consisting of $23,566,000 in cash and
$2,295,000 in the Company's common stock) and (in 1994) $20,898,000 (consisting
of $10,045,000 in cash and $10,853,000 in the Company's common stock). These
acquisitions were all accounted for as purchases. The excess purchase price over
the estimated fair market value of the net assets acquired is being amortized on
a straight line basis over periods ranging from 5 to 40 years. The following
unaudited pro forma results of operations (on an aggregate basis for all of
these acquisitions and BHP) assume all purchases occurred as of the beginning of
the respective periods presented after giving effect to certain adjustments,
including the amortization of the excess of cost over the fair value of net
assets acquired, increased interest expense on acquisition debt and related
income tax effects.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
(In thousands, except per share data) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Operating revenue, net $ 825,282 $ 797,615
=========================================================================
Income (loss) before
extraordinary item (64,339) 10,247
Extraordinary gain 16,237 --
- -------------------------------------------------------------------------
Net income (loss) $ (48,102) $ 10,247
=========================================================================
Income (loss) per share:
Income (loss) before
extraordinary item $ (2.72) $ 0.46
Extraordinary gain 0.69 --
- -------------------------------------------------------------------------
Net income (loss) $ (2.03) $ 0.46
=========================================================================
</TABLE>
F. HEALTHNET DIVESTITURE
Effective November 30, 1996 the Company sold certain assets of the HealthNet
Medical Group division of Physicians Planning Group, Inc. ("HealthNet"), the
Company's New Jersey-based clinic operations, for approximately $10,500,000 in
cash. HealthNet consisted of nine primary care sites in New Jersey and New York.
The Company realized a gain of approximately $8,300,000 which is included in
Gain (loss) on divested assets, net in the accompanying statements of
operations.
G. MEDCOST DIVESTITURE
Effective November 22, 1996 MedCost, Inc., one of the Company's managed care
entities, was sold for approximately $15,000,000 in gross cash proceeds from the
transaction and recorded a gain of approximately $12,200,000 which is included
in Gain (loss) on divested assets, net in the accompanying statements of
operations.
32
<PAGE> 34
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. TRADE ACCOUNTS RECEIVABLE AND OPERATING REVENUE
Trade accounts receivable, net, consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
(In thousands) 1996 1995
=========================================================================================================
<S> <C> <C>
Gross trade receivables $ 184,579 $ 247,823
Less allowance for contractual adjustments and uncollectibles (97,169) (97,932)
- ---------------------------------------------------------------------------------------------------------
Trade accounts receivable, net $ 87,410 $ 149,891
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating revenue, net, consisted of the following:
Years Ended December 31,
---------------------------------------------
(In thousands) 1996 1995 1994
=========================================================================================================
<S> <C> <C> <C>
Gross non-capitated revenue $ 692,665 $ 962,118 $ 910,542
Gross capitated revenue 145,105 101,420 68,790
- ---------------------------------------------------------------------------------------------------------
Total gross revenue 837,770 1,063,538 979,332
Less contractual adjustments and uncollectibles (285,661) (253,151) (230,695)
- ---------------------------------------------------------------------------------------------------------
Operating revenue, net $ 552,109 $ 81 ,387 $ 748,637
=========================================================================================================
</TABLE>
5. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has very limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
On March 31, 1995, the Company entered into a fixed interest rate hedge
contract with a financial institution. Under the terms of the contract, the
Company pays a fixed rate of 8.45% on a notional amount of $6,600,000, which
amortizes quarterly by $235,714 beginning July 3, 1995. In return, the financial
institution pays the Company a floating rate of interest calculated using the
three-month LIBOR plus 1.125%. The contract expires on March 31, 2002.
33
<PAGE> 35
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. PROPERTY AND EQUIPMENT
The cost, accumulated depreciation, and book value of property and equipment
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
(In thousands) 1996 1995
=======================================================================================================
<S> <C> <C>
Land $ 2,511 $ 2,608
Buildings 3,184 3,184
Leasehold improvements 6,009 6,666
Construction in progress 675 2,127
Furniture and equipment 27,198 29,652
Airplane --- 6,635
Automobiles 259 262
- --------------------------------------------------------------------------------------------------------
39,836 51,134
Less accumulated depreciation (20,795) (17,693)
- --------------------------------------------------------------------------------------------------------
$ 19,041 $ 33,441
========================================================================================================
</TABLE>
7. BORROWINGS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
(In thousands) 1996 1995
=====================================================================================================
<S> <C> <C>
Borrowing under reducing revolving credit facility $ 43,069 $ 36,625
Borrowing under overline facility 24,813 ---
Borrowing under revolving credit facility --- 31,875
Term note payable in quarterly installments
through April 2002 bearing interest at 8.45% --- 6,129
Term note payable in monthly installments
through November 1998 bearing interest at 8.25% 3,286 ---
Obligations under capital leases 2,900 3,165
Note payable in three installments bearing interest
at the prime rate (8.25% at December 31, 1996) --- 1,488
Term note due February 1998 bearing interest at the
same rate as the Company's credit facility --- 1,300
Term note payable in quarterly installments
through 1999 bearing interest at 8.0% 935 1,267
Other 926 631
- -----------------------------------------------------------------------------------------------------
75,929 82,480
Less current maturities 71,130 5,210
- -----------------------------------------------------------------------------------------------------
$ 4,799 $ 77,270
=====================================================================================================
</TABLE>
34
<PAGE> 36
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During 1994, the Company obtained an extension of its Senior Credit Facility
whereby the Company could borrow up to $200,000,000, consisting of a $50,000,000
3-year revolving credit facility to be used for working capital purposes
("Working Capital Facility") and a $150,000,000 7-year reducing revolving credit
facility ("Acquisition Facility") to be used for acquisitions.
The Senior Credit Facility contained covenants that, among other things,
required the Company to maintain certain financial ratios and imposed certain
limitations and prohibitions on the Company with respect to additional
indebtedness, mergers or acquisitions, liens and encumbrances, dispositions of
assets, transactions with related parties, investments and the payment of
dividends.
As of June 30, 1995, due primarily to the operating loss generated for the
three months ended June 30, 1995, the Company was in violation of four such
covenants. On August 10, 1995, the Company and the lenders amended the Senior
Credit Facility under which the lenders waived compliance with or amended those
covenants. The amended Senior Credit Facility permanently reduced the commitment
for the Acquisition Facility to $125,000,000, included new financial covenants
tied to operating results for the third and fourth quarters of 1995, required
approval for certain investments and acquisition expenditures and specified how
net cash proceeds from the sale of assets were to be applied to outstanding
borrowings.
Prior to the amendment, interest on loans under the Senior Credit Facility
accrued at either an adjusted prime rate (prime to prime plus 0.375%) or an
adjusted LIBOR rate (LIBOR plus 1.125% to 1.875%). Effective August 10, 1995,
interest on loans under the Senior Credit Facility accrued at either the bank's
prime plus 0.875% or at LIBOR plus 2.375%.
On November 30, 1995, the Company was required to apply part of the net
proceeds from the sale of its south Florida clinics to reduce the outstanding
balance under the Acquisition Facility by $19,875,000 to $36,625,000; the
commitment under that facility was simultaneously reduced from $125,000,000 to
$111,750,000. The remaining net proceeds were used to pay transaction-related
expenses and to reduce the outstanding balance on the Working Capital Facility.
As of December 31, 1995, due primarily to the operating loss generated for
the three months ended December 31, 1995, the Company was in violation of
certain financial covenants under the amended Senior Credit Facility. A number
of temporary waivers of default and any resulting events of default were
obtained by the Company through May 1996. On May 29, 1996, the Company entered
into new credit agreements which restructured the existing Acquisition and
Working Capital Facilities and provided the Company with up to $40 million of
additional borrowing availability under a new facility ("Overline Facility").
Under the terms of the restructured Senior Credit Facility ("Restructured
Facility"), outstanding amounts under the Working Capital Facility were
transferred to the Acquisition Facility, the Working Capital Facility was
cancelled and no additional borrowings were permitted under the Acquisition
Facility. The Restructured Facility and the Overline Facility required total
principal payments of at least $40 million by January 2, 1997, which were made
by the Company, at which time the availability of additional working capital
borrowings under the Overline Facility declined to $10 million. The Restructured
Facility and the Overline Facility also required an amendment to be finalized by
January 15, 1997 which would establish financial covenants, under these
Facilities, for the period subsequent to February 1997. This amendment did not
occur by January 15, 1997 and therefore outstanding amounts, originally due on
July 1, 1997, under the Restructured Facility and the Overline Facility became
due on February 28, 1997. From February 28, 1997 through June 10, 1997, the
Company was in default on its Restructured Facility and Overline Facility
obligations, but accelerated payment under the Restructured Facility and
Overline Facility was not required by the lenders. From May 29, 1996 through
February 28, 1997, interest on loans under the Restructured Facility and the
Overline Facility accrued at the agent bank's prime rate plus 1.5% and 2.0%,
respectively, payable quarterly and monthly in arrears, respectively.
35
<PAGE> 37
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Subsequent to February 28, 1997, interest on loans under the Restructured and
the Overline Facility accrued at the agent bank's prime rate plus 3.5% and
4.5%, respectively, payable quarterly and monthly in arrears, respectively.
The Overline Facility prohibited borrowings for purposes other than working
capital requirements, required compliance with other financial covenants and
imposed limitations on certain investments, dispositions of assets, additional
indebtedness and capital expenditures. As collateral for the loans, the Company
granted a security interest in substantially all of its assets, including
substantially all of its trade accounts receivable and contract rights, and
provided a guaranty from, and pledged the common stock of, substantially all of
the Company's subsidiaries. The Company also granted common stock purchase
warrants to the lenders entitling them to purchase at par value up to 1,254,509
shares of its common stock. A portion of the warrants vested immediately, with
the balance subject to cancellation based upon the Company's compliance with a
specified repayment schedule. Warrants to purchase 250,902 shares were canceled
as a result of $40 million in payments made by the Company prior to January 2,
1997. The remaining warrants, covering 1,003,607 shares, have vested.
On June 6, 1997, the Company entered into a series of sale and subservicing
agreements (the "Sale Agreements") with various subsidiaries of National
Century Financial Enterprises, Inc. ("NCFE"). The Sale Agreements provide for
accounts receivable purchase commitments totaling $151 million for the purchase
of the Company's healthcare receivables from third party payors that meet
specified eligibility requirements. Certain Sale Agreements create facilities
for the purchase of up to $36 million of receivables and terminate on July 1,
1998. Another Sale Agreement creates a facility for the purchase of up to $115
million of receivables and terminates on June 1, 2000. After taking into
account required reserves and administrative fees, the maximum amount of
funding available under the Sale Agreements at any one time is approximately
$125 million. Pursuant to the Sale Agreement, the Company pays a program fee
ranging from approximately 10.97% to approximately 12.50% per annum on the
outstanding amount of uncollected purchased receivables.
Pursuant to 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
$15 million. Interest on outstanding amounts under this line of credit is
payable monthly at prime plus 4%. The availability under the line of credit
declines based on the Company's receipt of net proceeds in excess of $10
million from the sale of specified assets, and the line of credit expires
June 15, 1998. The line of credit is secured by substantially all of the assets
of Coastal Physician Group, Inc., including pledges of the common stock of each
of its subsidiaries.
On June 10, 1997, the Company used proceeds of approximately $82
million from sales of its existing receivables and rights to future receivables
to repay outstanding balances under the Restructured and Overline Facilities
which terminated on that date. All collateral held by the lenders under those
facilities was released. After repayment, the Company had access to
approximately $40 million of cash from potential additional sales of receivables
and borrowing availability under the line of credit.
The Company expects to satisfy its anticipated demands and commitments for
cash in the next twelve months from the additional cash received from the sale
of stock described in Note 11, amounts available under the various agreements
with NCFE discussed above, the sale of certain non-core assets that the Company
has identified, as well as a reduction in cash used in operations.
The assets represented by the obligations under capital leases shown above
consist primarily of one building having a cost basis of $3,041,000 and
accumulated depreciation of $553,000 and $456,000 as of December 31, 1996 and
1995, respectively.
36
<PAGE> 38
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following is a schedule of maturities of long-term debt and minimum
lease payments under capital leases as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Obligations Under
Years Ended December 31, Long-Term Debt Capital Leases Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $70,827 $ 426 $71,253
1998 1,820 433 2,253
1999 305 451 756
2000 4 469 473
2001 5 487 492
Thereafter 68 3,149 3,217
- ----------------------------------------------------------------------------------------------------
73,029 5,415 78,444
Less amount representing interest on capital leases 2,515
====================================================================================================
75,929
Less current maturities 71,130
====================================================================================================
$ 4,799
====================================================================================================
</TABLE>
8. INCOME TAXES
Benefit (provision) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
(In thousands) 1996 1995 1994
======================================================================================
<S> <C> <C> <C>
Current:
Federal $ 4,452) $ 17,976 $(3,459)
State (2,181) 1,432 (933)
Deferred:
Federal (5,638) (973) 1,803
State (769) (1,299) 1,345
- --------------------------------------------------------------------------------------
Benefit (provision) for income taxes $(4,136) $ 17,136 $(1,244)
======================================================================================
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands) 1996 1995
========================================================================================
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 37,235 $ 5,037
Reserve for liabilities 15,988 7,060
Other 4,167 1,357
- ---------------------------------------------------------------------------------------
Total gross deferred tax assets 57,390 13,454
Less valuation allowance (54,334) (2,887)
- ---------------------------------------------------------------------------------------
Net deferred tax assets $ 3,056 $ 10,567
=======================================================================================
Deferred tax liabilities:
Depreciation of property and equipment $ (39) $ 1,018
Deferred revenue and prepaid expenses 2,376 2,383
State income taxes 162 261
Other 557 396
- ---------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,056 4,058
=======================================================================================
Net deferred tax assets $ -- $ 6,509
=======================================================================================
</TABLE>
37
<PAGE> 39
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company increased the valuation reserve by $51,447,000 for its federal
and state net operating loss ("NOL") carryforwards for the year ended December
31, 1996. Realization of deferred tax assets associated with the NOL
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Management believes that there is a risk that certain of the
NOL and credit carryforwards may expire unused and, accordingly, has established
a valuation allowance against them.
As of December 31, 1996, the Company had federal NOL carryforwards of
$77,000,000. In addition, as of December 31, 1996, the Company had state NOL
carryforwards of $157,000,000, available for use without limitation. These net
operating loss carryforwards expire at various dates through 2012.
A reconciliation of the benefit (provision) for income taxes to the amount
computed by applying the 34% statutory federal income tax rate (35% for 1994) to
income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994
==========================================================================================
<S> <C> <C> <C>
"Expected" benefit (provision) 34.0% 34.0% (35.0)%
State income taxes, net of federal income tax effect (1.5) 0.1 1.2
Utilization of net operating loss carryforwards -- -- 7.1
Effect of including pooled S-Corporations (see Note 3) -- -- 19.6
Nondeductible purchased goodwill (7.7) (13.5) (1.8)
Change in valuation reserve (28.2) -- --
Other 0.5 0.7 3.2
- ------------------------------------------------------------------------------------------
"Actual" benefit (provision) (2.9)% 21.3% (5.7)%
==========================================================================================
</TABLE>
9. CAPITAL STOCK
On January 20, 1995, the Board of Directors adopted a Shareholder Rights
Plan, under which the Company distributed a dividend of one Preferred Share
Purchase Right (a "Right") for each outstanding share of the Company's common
stock. Each Right becomes exercisable upon the occurrence of certain events for
one one-hundredth of a share of Junior Participating Cumulative Preferred Stock,
par value $.01 per share, at a purchase price of $120. Under the Shareholder
Rights Plan, 500,000 shares of Junior Participating Cumulative Preferred Stock
have been reserved for issuance. The Rights currently are not exercisable.
Pursuant to an amendment to the Shareholder Rights Plan (effective June 3,
1997), the Rights will become exercisable only if a person or group acquires
beneficial ownership of 20% or more of the Company's outstanding shares of
common stock, or in the case of a group consisting of Dr. Scott and his
associates and affiliates (the "Scott Group"), more than 55% of the Company's
outstanding shares of common stock. Prior to December 27, 1996, the Rights were
exercisable when a person or group acquired beneficial ownership of 15% or more
of the Company's outstanding shares of common stock, or in the case of the Scott
Group, 33.2% or more. The Rights, which expire on February 3, 2005, are
redeemable in whole, but not in part, at the Company's option at any time for
the price of $.01 per Right.
On January 21, 1997, the Company authorized 47,500 shares of Series A
Convertible Preferred Stock ("Series A Preferred") and 32,500 shares of Series B
Convertible Preferred Stock ("Series B Preferred"), and on June 3, 1997,
authorized 1,200,000 shares of Series C Convertible Preferred Stock ("Series C
Preferred"), each series with a par value of $0.01 per share. On February 21,
1997, the Company increased the number of authorized shares of Series B
Preferred from 32,500 to 33,000. Following the Trigger Date (as defined below),
shares of the Series A Preferred, the Series B Preferred, and the Series C
Preferred shall be convertible into common
38
<PAGE> 40
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
stock at an initial conversion rate of ten shares of common stock for each share
of Series A Preferred, Series B Preferred, or Series C Preferred. The Trigger
Date means the date on which the conversion feature of each series of preferred
stock is approved by the Company's common shareholders. Management of the
Company plans to recommend to the Board of Directors that a proposal regarding
the conversion feature of the preferred stock be submitted to the common
shareholders at the next annual or special meeting.
The holders of shares of Series A Preferred, Series B Preferred, and Series
C Preferred shall be entitled to receive dividends, when, as and if declared by
the Board of Directors (as well as simultaneous with any dividend payable on
common stock). Upon any liquidation, dissolution or winding up of the Company,
no distribution shall be made to the holders of shares of stock ranking junior
to the Series A Preferred unless the holders of the Series A Preferred have
received $36 per share, no distribution shall be made to the holders of shares
of stock ranking junior to the Series B Preferred unless the holders of the
Series B Preferred have received $30 per share, and no distribution shall be
made to the holders of shares ranking junior to the Series C Preferred unless
the holders of the Series C Preferred have received an amount per share equal to
ten times the average of the closing prices of a share of common stock on the
New York Stock Exchange for the ten trading days immediately preceding the
distribution date.
On January 21, 1997, the Company reserved 800,000 shares of common stock for
issuance upon conversion of the Series A Preferred and Series B Preferred, and
on June 3, 1997, reserved 10,000,000 shares of common stock for issuance upon
conversion of the Series C Preferred.
For additional capital stock transactions with related parties, see Note 11.
10. COMMITMENTS AND CONTINGENCIES
The Company procures professional liability insurance coverage on behalf of
its operating subsidiaries on a claims-made basis. The insurance contracts
specify that coverage is available only during the term of each insurance
contract. Management of the Company intends to renew the existing claims-made
policies annually and expects to be able to obtain such coverage. When coverage
is not renewed, the subsidiary companies purchase an extended reporting period
endorsement to provide professional liability coverage for losses incurred prior
to, but reported subsequent to, the termination of the claims-made policies.
The Company and each of its independent contractor physicians obtain their
professional liability insurance coverages from various insurance carriers.
Several insurance carriers who underwrote certain portions of these coverages
from 1986 to 1992 have announced a moratorium on the payment of claims or have
established plans to pay claims in the future based on formal plans of
arrangement. The Company has receivables of approximately $4,386,000 at December
31, 1996 (included in other assets in the accompanying consolidated balance
sheets) related to certain claims for which reimbursement is still pending.
The Company and certain independent contractor physicians are defendants in
various medical malpractice lawsuits arising under the 1990 policy year for
medical malpractice insurance. The primary layers of medical malpractice
insurance for that policy year have been exhausted, and pending and unasserted
claims for that policy year are covered by a reinstatement insurance policy,
with coverage that varies somewhat from the primary coverage. Under the
reinstatement insurance, the Company must advance the costs of defense and
settlement of claims, and seek reimbursement from the insurers. Insurers
responsible for 55% of the reinstatement insurance are in receivership or
liquidation status and are not paying claims currently. The Company estimates
that the cost of defending and resolving the pending medical malpractice
lawsuits for the 1990 policy year will be approximately $4,300,000, of which
approximately $1,000,000 (representing the amounts estimated to be unrecoverable
from the reinstatement insurers) has been recorded as a liability as of December
31, 1996.
39
<PAGE> 41
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In late March, 1997, the Health Care Financing Administration ("HCFA")
indicated that it will no longer allow companies to obtain group provider
numbers to bill Medicare claims for services rendered by their independent
contractor physicians. This change may cause significant delays in payments to
the Company's subsidiaries. Since HCFA's decision is of such recent origin and
because HCFA has requested the Company's future participation in developing a
transition plan, the impact on the Company is not known at this time.
In August 1995, the Company entered into an agreement with a data processing
service provider pursuant to which the Company agreed to purchase approximately
$58,000,000 in services through 2005. In March 1997, the service provider
notified the Company that it believed that the Company had committed a material,
uncured breach of its payment obligations under the agreement and that as a
result the agreement was terminated. On May 30, 1997, the Company and the
service provider agreed to terms for the payment of certain arrearages under the
agreement. An arrearage payment of $1,000,000 was made on May 27, 1997. Further
arrearage payments of $2,500,000 will be paid by the Company pursuant to the
following schedule: (i) $1,500,000 payment on June 27, 1997 (subject to the
condition described below); and (ii) $1,000,000 payment on September 10, 1997
(subject to the condition described below). The payments due on June 27, 1997
and September 10, 1997 are conditioned upon the sale of certain assets by the
Company on or before those dates. If the asset sale anticipated for September
10, 1997 does not occur, the Company has agreed to negotiate to establish an
alternative payment schedule resulting in payment of the $1,000,000 by November
30, 1997. The Company will provide the service provider with information
regarding the status of negotiations pertaining to the sale of these assets and
place the proceeds of any sales in escrow for the benefit of the service
provider. In addition, the Company agreed to pay $1,000,000 for operating and
transition services through July 31, 1997, and the service provider agreed to
provide the Company with certain systems back-up materials to facilitate its
transition to a new service provider and, upon payment of the arrearages
installments due on June 27, 1997 and September 10, 1997, to provide additional
systems back-up materials upon request by the Company. By its agreement to the
terms described above, neither the Company nor the service provider waived any
of their claims arising under the original agreement. The Company and its
counsel are reviewing the claims made by the service provider under that
agreement and, at this time, the Company's exposure cannot be determined. The
Company and the service provider agreed to forbear from pursuing any litigation
against each other until June 3, 1998, if ever, to allow time for further
negotiation with respect to these claims.
The Company has entered into a long-term contract for telecommunications
services which obligates the Company to purchase approximately $39,500,000 in
services through 2005. In March 1997, the service provider notified the Company
that it believed the Company had committed a material, uncured breach of its
payment obligations under this agreement. On May 30, 1997, the Company and the
service provider agreed to the terms for settlement of this contract dispute.
Under those terms, the Company made a $1,000,000 payment on May 30, 1997 toward
a total arrearage of $3,000,000. The remaining $2,000,000 will be paid by the
Company pursuant to the following schedule: (i) $1,000,000 payment on June 27,
1997 (subject to the condition described below); (ii) $500,000 payment on August
10, 1997; (iii) $250,000 payment on September 10, 1997; and (iv) $250,000
payment on October 10, 1997. The payment due on June 27, 1997 is conditioned
upon the sale of certain assets by the Company on or before that date. The
Company will provide the service provider with information regarding the status
of negotiations pertaining to the sale of these assets and place the proceeds of
any sales in escrow for the benefit of the service provider. If the payment due
on June 27, 1997 is not made on a timely basis, interest of 1.5% per month will
begin to accrue on July 27, 1997 on the total outstanding balance of $2,000,000,
until the late payment is made. If the asset sale anticipated for June 27, 1997
does not occur by August 27, 1997, the parties will renegotiate the terms for
payment of the $1,000,000. In addition, the Company
40
<PAGE> 42
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
agreed to pay $399,000 for additional services through August 31, 1997 and
agreed to continue to negotiate the cost and level of services to be provided
subsequent to that date. The parties also agreed to begin negotiating a new
agreement.
The Company leases and occupies two office buildings, totaling approximately
52,000 square feet, located in Durham, North Carolina. The lease requires the
Company to lease the properties until it purchases the properties no later than
June 30, 2002. The purchase price ranges from $5,000,000 to $6,100,000,
depending upon the date of purchase. The lessor has the option of requiring the
Company to purchase the properties upon 75 days' notice, subsequent to January
1, 1998, unless prior to that date the Company (a) fails to pay its rental
payments promptly, (b) is in default of its loan agreements and such default has
not been cured or waived by its lenders within any grace or cure periods
provided by the respective loan agreements, (c) files a voluntary petition in
bankruptcy or has an involuntary petition in bankruptcy filed against it, and
such petition is not dismissed within 90 days, (d) is dissolved or liquidated,
or (e) is sold or a change in stock ownership of more than 50% of its shares
outstanding occurs.
The Company also leases and occupies an office building, totaling
approximately 51,000 square feet, located in Durham, North Carolina. The lease
requires the Company to lease the property until it purchases the property no
later than June 30, 2002. The purchase price ranges from $3,000,000 to
$3,600,000, depending upon the date of purchase. The lessor has the option of
requiring the Company to purchase the property upon 75 days' notice, subsequent
to January 1, 1998, unless prior to that date the Company (a) fails to pay its
rental payments promptly, (b) is in default of its loan agreements and such
default has not been cured or waived by its lenders within any grace or cure
periods provided by the respective loan agreements, (c) files a voluntary
petition in bankruptcy or has an involuntary petition in bankruptcy filed
against it, and such petition is not dismissed within 90 days, (d) is dissolved
or liquidated, or (e) is sold or a change in stock ownership of more than 50% of
its shares outstanding occurs.
The Company and certain of its current and former officers and directors are
defendants in certain consolidated shareholder class actions, with respect to
representations concerning the Company's operations and prospects. The Company
intends to vigorously defend its position, and at this stage of the litigation,
exposure to the Company cannot be determined.
The Company and certain of its current and former officers and directors are
defendants in a purported shareholder class action alleging common law fraud and
deceit and negligent misrepresentation. The suit seeks unspecified compensatory
and punitive damages and costs. The Company intends to vigorously defend its
position, and at this stage of the litigation, exposure to the Company cannot be
determined.
In January 1997, the Company and two subsidiaries were named as defendants
in a lawsuit relating to the acquisition by the Company of all of the
outstanding shares of BHP. The plaintiffs were all former shareholders of BHP.
The complaint alleged common law fraud, negligent misrepresentation, unjust
enrichment and promissory estoppel against the Company in connection with
contingent earnout payments relating to the acquisition of BHP. The parties have
agreed to the terms of a settlement pursuant to which the plaintiffs were
awarded $5 million, $1.75 million of which was payable upon the closing of the
NCFE financing transaction, and the remaining $3.25 million is payable upon the
earlier of November 20, 1998 or the closing of a sale of BHP.
The Company and its subsidiary, Coastal Physician Services of the West,
Inc., have been named as defendants in a lawsuit alleging abuse of process,
malicious prosecution, defamation, interference with contractual relations and
prima facie tort. The suit seeks unspecified compensatory and punitive damages.
The Company believes the suit is without merit, intends to vigorously defend its
position, and does not expect such litigation to have a material adverse effect
on the Company's financial position or results of operations.
41
<PAGE> 43
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A subsidiary of the Company, Coastal Emergency Services of the West, Inc.,
is the plaintiff in a lawsuit seeking to collect on a promissory note, signed by
the defendant, with an outstanding balance in excess of $1.5 million. On or
about April 3, 1997, the defendant filed an amended answer and counterclaim, in
which he has asserted claims against the Company for conversion, breach of
fiduciary duty, breach of contract and securities fraud, and has requested
actual and exemplary damages and attorneys fees. The Company intends to
vigorously defend its position, and at this stage of the litigation, exposure to
the Company cannot be determined.
In addition to the above matters, the Company's operating subsidiaries are
defendants in various malpractice and other lawsuits. Management believes that
these suits should not result in judgments which, after consideration of
professional liability and general insurance coverages, would have a material
adverse effect on the Company's financial position or results of operations.
11. RELATED PARTY TRANSACTIONS
The Company engages in transactions with American Alliance Holding Company
and its affiliates ("Alliance"), Century American Insurance Company ("Century
Insurance") and Quality Management Consultants, Inc., and affiliates thereof.
Coastal's principal shareholder is the sole shareholder of Alliance. Amounts
paid by the Company to these entities, net of amounts received, were $5,135,000,
$3,371,000 and $2,588,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company and certain of its subsidiaries sublease office space in Durham,
North Carolina, consisting of approximately 59,000 square feet, from Alliance
under sublease agreements on a month-to-month oral basis. The building is owned
by American Alliance Real Estate Corporation which leases the building to
Century Insurance. During the year ended December 31, 1996, the Company paid
Alliance approximately $960,000 under these sublease agreements. The Company,
American Alliance Holding Company and Century Insurance are all liable to the
holder of a first mortgage on the property for the total rentals specified in
the prime lease, however, the Company has an agreement of indemnity from
American Alliance Holding Company , and American Alliance Holding Company has an
agreement of indemnity from Century Insurance. The prime lease commenced in
August 1988 and has a fifteen-year term requiring minimum lease payments of
approximately $788,000 per year for years one through five, $959,000 per year
for years six through ten and $1,166,000 per year for years eleven through
fifteen.
In addition, on March 31, 1995, the Company purchased an airplane from
Alliance Aviation, Inc., a wholly-owned subsidiary of Alliance. The purchase
price was $6,600,000, based upon a third-party appraisal performed on March 6,
1995. The airplane was sold to an unrelated third party on May 9, 1996 for
$6,200,000.
The Company leases office space from corporations controlled by the
principal shareholder of Coastal. Rent paid during 1996, 1995 and 1994 was
$1,513,000, $517,000 and $606,000, respectively.
The Company holds unsecured notes receivable bearing interest at rates
ranging from 8.5% to 10% (prime plus 1.5%) from shareholders due on demand
totaling $1,651,000 and $1,879,000 at December 31, 1996 and 1995, respectively.
The Company has recorded an allowance of $1,651,000 against the note receivable
balance at December 31, 1996, pending the result of current litigation.
Prior to becoming a wholly-owned subsidiary of the Company in November 1994,
HEI entered into a participating individual practice association agreement with
Tallahassee Physicians Association, Inc. ("TPA"), which provided that TPA would
contract with health care providers for the provision of health care services at
agreed-upon fees. These fees were paid directly to participating physicians and
were $20,768,000 for the year ended December 31, 1994. At the time, all
directors of Healthplan Southeast, Inc. and Health Management Southeast, Inc.,
wholly owned subsidiaries of HEI, and a majority of the directors and
shareholders of HEI, were members of TPA.
42
<PAGE> 44
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In January 1997, pursuant to a reimbursement agreement dated December 31,
1996 between the Company and Dr. Steven M. Scott, Coastal's Chief Executive
Officer, a director and largest shareholder, the Company issued 226,690 shares
of common stock and 32,739 shares of Series B Preferred to Dr. Scott in
satisfaction of the Company's obligation to reimburse certain proxy solicitation
expenses incurred by Dr. Scott.
On January 21, 1997, the Company, Dr. Scott, and Dr. Bertram E. Walls, a
director, entered into a dismissal agreement with respect to certain litigation
whereby the Company, with court approval, agreed to reimburse Dr. Scott and Dr.
Walls for legal fees and expenses incurred by them in the litigation by issuing
shares of Series A Preferred to Dr. Scott and Dr. Walls in satisfaction of the
Company's obligation. The Company has issued a total of 46,033 shares of Series
A Preferred Stock in payment of the aggregate amount of fees and expenses
incurred by Dr. Scott and Dr. Walls.
In connection with the National Century Financing transaction, as explained
in Note 7, Dr. Scott invested $10 million in cash in the Company
and received 1,000,000 shares of Series C Preferred. The Series C Preferred,
subject to approval by the Company's common stockholders, is convertible into
10,000,000 shares of common stock. In addition, Dr. Scott received 84,983 shares
of Series C Preferred and 240,000 shares of common stock in satisfaction of
certain obligations owed to him by the Company of approximately $1.1 million.
12. OPERATING LEASES
The Company leases office space (see Note 11) and equipment under
noncancelable operating leases which have terms of one to twelve years remaining
at December 31, 1996. Rent expense related to noncancelable office space and
equipment leases amounted to $15,614,000, $16,800,000, and $12,477,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments required under noncancelable operating leases
as of December 31, 1996, are as follows: 1997 - $6,531,000; 1998 - $5,510,000;
1999 - $4,564,000; 2000 - $4,104,000; 2001 - $3,309,000; and thereafter -
$2,805,000.
13. STOCK OPTIONS AND STOCK COMPENSATION
At December 31, 1996, the Company had four stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its three fixed stock option plans and its stock
purchase plan. Had compensation cost for the Company's four stock-based
compensation plans been determined on the fair value at the grant dates for
awards under those plans consistent with the method of FASB Statement 123, there
would have been no material effect on the Company's net loss and earnings per
share for the years ended December 31, 1996 and 1995.
The Company adopted, on May 8, 1991, an incentive stock option plan
primarily for selected key employees. Under the plan, options may be granted at
not less than the fair market value of the stock at the date of grant. Options
are exercisable at various times from the date of grant, as determined by the
Compensation Committee of the Board of Directors (the "committee"), and expire
after ten years from the date of grant. The Company has authorized 4,000,000
shares of common stock for grants of options under the incentive stock option
plan. In 1987, the Company adopted a non-qualified stock option plan that allows
for options to be granted at not less than 90% of the estimated fair market
value of the stock at the date of grant. These options are exercisable at
various times, as determined by the committee, and expire after ten years from
the date of
43
<PAGE> 45
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
grant. The Company has authorized 4,000,000 shares of common stock for grants of
options under the non-qualified stock option plan. Included in these
non-qualified stock options (although not a part of the 1987 non-qualified stock
option plan) were options held by HEI directors and officers which became fully
vested and were converted into options to acquire 169,000 shares of the
Company's common stock upon consummation of the merger. The exercise price of
the converted options ranged from $1.09 per share to $2.73 per share. All of the
converted options were exercised as of December 31, 1996. In 1994, the Company
adopted a stock option plan for its independent directors. Under this plan,
non-qualified stock options ("NSOs") may be granted at not less than the fair
market value of the stock at the date of grant to directors who are not employed
by the Company. The NSOs are exercisable after one year from the date of grant
and expire after ten years from the date of grant. The Company has authorized
500,000 shares of common stock for grants of NSOs under this stock option plan.
On October 25, 1995, the Company approved the issuance of replacement stock
options in lieu of unexercised stock options previously granted to certain
employees under the 1991 incentive stock option plan and the 1987 non-qualified
stock option plan between January 1, 1994 and April 30, 1995. Under the
replacement option procedure, such unexercised options could be replaced, at the
election of the optionee, on a two existing for one replacement option basis.
The exercise price of the replacement options was $13.88 per share, the closing
NYSE price on November 17, 1995. The exercise dates and vesting periods of the
replacement options remained the same as provided for in the original grants.
Under an employee stock purchase plan adopted in 1994, the Company is
authorized to issue up to 1,000,000 shares of common stock to its full-time
employees and part-time employees working 20 or more hours a week, all of whom
are eligible to participate after six months of service. Under the terms of the
plan, employees can choose to have from 1% to 10% of their annual base earnings
withheld to purchase the Company's common stock. The purchase price of the stock
is 90 percent of the lesser of the market price of the common stock as of the
first or last day of each quarter. If no such price is reported for that day,
the market price of the last preceding day for which such price is reported is
used. Under the Plan, the Company sold 83,000 shares, 71,000 shares and 5,000
shares to employees in 1996, 1995 and 1994, respectively.
A summary of the status of the Company's three fixed stock option plans as
of December 31, 1994, 1995, and 1996, and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Fixed Options (000) Price (000) Price (000) Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 504 $14.28 2,593 $28.67 3,145 $26.31
Granted 2,288 32.53 1,710 21.98 475 9.90
Exercised (45) 11.84 (149) 3.86 (63) 2.86
Reduction due to reprice in 1995 --- --- (462) 27.28 --- ---
Forfeited (154) 32.01 (547) 27.24 (1,543) 23.23
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,593 $28.67 3,145 $26.31 2,014 $25.60
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 130 7.12 368 23.99 786 22.60
Weighted-average fair value of options
granted during the year $13.89 $9.60 $2.70
</TABLE>
44
<PAGE> 46
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ------------------------------
Number Number
Outstanding Weighted-Avg. Exercisable
Range of at 12/31/96 Remaining Weighted-Avg. at 12/31/96 Weighted-Avg.
Exercise Prices (000) Contractual Life Exercise Price (000) Exercise Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.80 to 8.38 291 8.23 years $ 7.85 250 $ 8.06
11.50 to 13.88 284 7.79 13.47 36 11.50
14.00 to 25.50 142 6.35 16.94 127 17.26
25.75 to 30.25 352 7.81 27.38 4 26.56
30.75 to 38.00 543 7.78 31.05 209 30.86
38.44 to 43.82 402 7.79 41.13 160 41.13
- -------------------------------------------------------------------------------------------------------------
$ 4.80 to 43.82 2,014 7.75 $25.60 786 $22.60
</TABLE>
14. RETIREMENT PLAN
The Company has a qualified contributory savings plan as allowed under
Section 401(k) of the Internal Revenue Code. The plan permits participant
contributions and requires a minimum contribution from the Company based on the
participant's contribution. Participants may elect to defer up to 12% of their
annual compensation by contributing the deferred amounts to the plan. The
Company made contributions of $1,265,000, $1,492,000 and $952,000 to the plan
during the years ended December 31, 1996, 1995 and 1994, respectively.
15. REVENUES FROM A MAJOR CUSTOMER
Certain subsidiaries of the Company (which were divested in 1995 as
discussed in Note 3) provided health care services subject to affiliated
provider agreements with entities affiliated with one HMO. For the years ended
December 31, 1996, 1995 and 1994, approximately 0%, 24%, and 26%, respectively,
of the Company's revenues were derived from such agreements. As of December 31,
1996, the Company had no receivables from this HMO.
45
<PAGE> 47
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
=======================================================================================================================
First Second Third Fourth
Year Ended December 31, 1996 Quarter Quarter Quarter Quarter
=======================================================================================================================
<S> <C> <C> <C> <C>
Operating revenue, net $ 152,734 $ 146,038 $ 137,805 $ 115,532
Operating loss (9,909) (22,398) (29,677) (63,045)
Loss before extraordinary item (11,730) (24,860) (40,319) (70,512)
Net loss (11,730) (24,860) (38,455) (70,512)
Loss per share before
extraordinary item (0.49) (1.04) (1.69) (2.96)
Net loss per share $ (0.49) $ (1.04) $ (1.61) $ (2.96)
Weighted average number of
shares outstanding 23,791 23,839 23,862 23,883
=======================================================================================================================
First Second Third Fourth
Year Ended December 31, 1995 Quarter Quarter Quarter Quarter
=======================================================================================================================
Operating revenue, net $ 207,859 $ 211,342 $ 209,989 $ 181,197
Operating income (loss) 11,380 (12,406) (2,347) (65,402)
Income (loss) before extraordinary item 6,367 (10,491) (3,439) (55,575)
Net income (loss) 6,367 (10,491) (3,439) (39,338)
Income (loss) per share before
extraordinary item 0.27 (0.44) (0.15) (2.35)
Net income (loss) per share $ 0.27 $ (0.44) $ (0.15) $ (1.66)
Weighted average number of
shares outstanding 23,539 23,657 23,691 23,735
=======================================================================================================================
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
46
<PAGE> 48
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of the Company and executive officers of
subsidiaries of the Company who have significant policy-making authority:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------------
<S> <C> <C>
Steven M. Scott, M.D. 49 Chairman of the Board, President and Chief
Executive Officer
Jacque J. Sokolov, M.D. 42 Vice Chairman of the Board; Chief Executive
Officer, Advanced Health Plans, Inc.
W. Randall Dickerson 43 Executive Vice President and Chief Financial
Officer
Mitchell W. Berger(1)(2) 41 Director
John P. Mahoney, M.D.(1)(2) 49 Director
Bertram E. Walls, M.D. 45 Director
Charles E. Potter(1)(2) 53 Director
Eugene F. Dauchert, Jr. 44 Director, Secretary, President and Chief
Executive Officer, Coastal Physician
Networks, Inc.
Edward L. Suggs, Jr. 45 Director, President and Chief Executive
Officer, Healthcare Business Resources, Inc.
Deborah L. Redd 48 Director, President, Coastal Managed
Healthcare, Inc.
Ray A. Spillman 50 Senior Vice President and General Counsel
Mary Anne Z. Wingert 32 Vice President, Corporate Controller and
Chief Accounting Officer
</TABLE>
- ----------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Dr. Scott has been a director of the Company since its formation in
1977. Until he resigned from the position on December 1, 1994, Dr. Scott also
served as Chairman of the Board of Directors and from 1977 to May 29, 1996, Dr.
Scott served as President and Chief Executive Officer of the Company. Dr. Scott
was re-elected Chairman of the Board of Directors on January 14, 1997, and
re-appointed President and Chief Executive Officer of the Company on March 1,
1997. Dr. Scott has obstetrics and gynecology practice experience and clinical
and administrative emergency department experience. He is board-certified in
obstetrics and gynecology and is a member of the clinical faculty at Duke
University Medical Center. Dr. Scott received his undergraduate degree and
medical education from Indiana University. Dr. Scott completed his residency in
the Department of Obstetrics and Gynecology at Duke University Medical Center.
Dr. Sokolov served as Chairman of the Board from December 1, 1994 to
January 14, 1997, when he became Vice Chairman. He is the founder and Chief
Executive Officer of Advanced Health Plans, Inc., which became a subsidiary of
the Company in November 1994. Dr. Sokolov received a B.A. degree in medicine
from the University of Southern California and an M.D. with honors from the
University of Southern California School of Medicine. He completed his internal
medicine residency at the Mayo Graduate School of Medicine
47
<PAGE> 49
and his fellowship in cardiovascular diseases from the University of Texas -
Southwestern Medical School. Dr. Sokolov previously held and currently holds
academic appointments and advisory board responsibilities, including positions
in the Schools of Medicine, Management, Public Health and Pharmacy at Harvard
University, the Massachusetts Institute of Technology, the University of
Pennsylvania, the University of California at Los Angeles, the University of
Southern California and the Wharton School of the University of Pennsylvania. He
serves on the boards of the Washington Business Group on Health, the National
Fund for Medical Education and the National Health Foundation. Dr. Sokolov also
serves on the advisory boards of the National Health Policy Council, the
National Resource Center on Worksite Promotion and the White House Health
Project.
Mr. Dickerson became Chief Financial Officer on March 17, 1997. He
joined the Company in 1993 and has served as Chief Financial Officer of
Healthcare Business Resources, Inc., the Company's physician billing and
collections services subsidiary, as Corporate Controller, and as Corporate
Treasurer. Prior to joining the Company, Mr. Dickerson was a partner with the
accounting firm of Ernst & Young LLP. He is a certified public accountant and a
graduate of the University of South Carolina.
Mr. Berger has been a director of the Company since September, 1996. He
is the President and Founder of Berger, Davis & Singerman, a law firm with
offices located in Fort Lauderdale, Miami, and Talahassee, Florida. Mr. Berger
currently serves on the Board of Governors of the Nova University School of
Business and was a Commissioner on the Florida Environmental Regulation
Commission from 1991 to 1997. Mr. Berger was recently appointed by the Governor,
and approved by the Florida Senate, to serve on the Board of the South Florida
Water Management District and has been a member of the Board of the Student Loan
Marketing Association (Sallie Mae) since 1994.
Dr. Mahoney, a director since December 1, 1994, served as Chief
Executive Officer of Health Enterprises, Inc. from 1987 until it was acquired by
the Company in 1994. Dr. Mahoney served as President and Chief Executive Officer
of Healthplan Southeast, Inc., a subsidiary of the Company, through 1995. Dr.
Mahoney is currently employed in private practice as a board certified
pathologist with Ketchum Wood & Burgert, Chartered d/b/a Pathology Associates.
In addition to his medical degree, Dr. Mahoney holds a Masters of Business
Administration degree from the University of South Florida.
Dr. Walls, a director since 1991, was President of Coastal Physician
Contract Services Group, Inc. from January through December 1994. Effective
January 1, 1995, Dr. Walls became the President and Chief Executive Officer of
Century American Insurance Company ("Century Insurance"). From 1992 to 1993, Dr.
Walls was the President of Sunlife OB/GYN Services, Inc., a subsidiary of the
Company, as well as its Chief Medical Officer from 1991 to 1993. From 1981
through 1990, Dr. Walls was in the private practice of obstetrics and gynecology
with Valley Women's Center, P.A. in Fayetteville, North Carolina. He is board
certified in obstetrics and gynecology and is a member of the clinical faculty
at Duke University Medical Center. Dr. Walls received a B.S. degree in Science
from North Carolina A&T State University and his medical degree from Duke
University. He completed his residency in obstetrics and gynecology at Duke
University Medical Center. In addition, Dr. Walls holds an MBA degree from the
Duke Fuqua School of Business.
Mr. Potter, a director of the Company since April 1997, is President of
The Potter Financial Group, a small independent financial planning firm in
central North Carolina and a Principal in The Potter Financial Advisory Group,
LLC, a Registered Investment Advisory firm. He graduated from St. Peters College
in Jersey City, NJ with a BS degree in Marketing in 1966. He has been in the
financial services industry since 1966. He holds four professional designations:
(CLU) Chartered Life Underwriter, (ChFC) Chartered Financial Consultant from the
American College, Bryn Mawr, PA, (RFC) Registered Financial Consultant from the
International Association of Registered Financial Consultants and (AEP)
Accredited Estate Planner from the National Association of
48
<PAGE> 50
Estate Planning Councils. He is also a member of the Association for Advanced
Life Underwriters and a Qualifying and Life Member of the Million Dollar Round
Table, an international sales organization.
Mr. Dauchert, a director since October 1996, has been President and
Chief Executive Officer of Coastal Physician Networks, Inc. ("CPN"), a
subsidiary of the Company, since January 1, 1996. Prior to that, Mr. Dauchert
served as President of Integrated Provider Networks, Inc., a subsidiary of CPN.
Prior to joining the Company, Mr. Dauchert was a partner in the law firm of
Moore & Van Allen, PLLC where he focused his practice on health care, corporate
and tax matters for 16 years. Mr. Dauchert received a B.A. from the University
of North Carolina at Chapel Hill and a J.D. degree with honors from the
University of North Carolina School of Law. He is a member of the North Carolina
and American Bar Associations, and is active in numerous health care sections of
those organizations.
Mr. Suggs, a director since March 1997, has been with Healthcare
Business Resources, Inc., a subsidiary of the Company, since 1986 and its
President since 1987. Mr. Suggs previously served as a director of the Company
from 1989 to 1994. Previously, Mr. Suggs was Assistant Controller of Oxford
Development Company, a real estate development firm, and a tax manager for the
accounting firm of Ernst & Young LLP. He received a B.S. degree in Accounting
from the University of North Carolina at Charlotte. Mr. Suggs is a member of the
American Institute of Certified Public Accountants, the North Carolina
Association of Certified Public Accountants and the Healthcare Financial
Management Association.
Ms. Redd, a director since March 1997, has been with Coastal since
1995. She was initially President of the Company's subsidiary HealthCare
Automation, Inc., and was named President of the Coastal Managed Healthcare,
Inc. on September 1, 1996. Prior to joining Coastal, Ms. Redd was Vice
President, Network Development for Blue Cross/Blue Shield of Maryland, Inc.
("BCBSM") from 1990 to 1995, and was responsible for managing the provider
networks, all provider contracting, services for indemnity and managed care,
medical management for the HMOs, credentialling, quality improvement,
utilization management, case management and facilities management. Ms. Redd was
President of the Primary Care Group, Potomac Physicians, P.A., and gained
certification from the National Committee for Quality Assurance (NCQA) for
BCBSM's three HMOs. BCBS held contracts with approximately 23,000 physicians and
1.3 million subscribers, of which 200,000 were HMO members. From 1977 to 1990,
Ms. Redd held various executive positions with Chesapeake Physicians, P.A., a
professional association comprising multi-specialty physicians associated with
The Johns Hopkins School of Medicine. Ms. Redd is an active member of the
American Heart Association, is a member of the Board of Directors of the
Baltimore Regional Burn Center Association, Inc., and holds a bachelor's degree
in accounting from the University of Cincinnati.
Mr. Spillman joined the Company as Senior Vice President and General
Counsel on July 22, 1996. Prior to joining the Company, Mr. Spillman served as
Assistant General Counsel of NationsBank Corporation since 1994 and prior to
that served as Associate General Counsel of NationsBank of Texas, N.A. from 1989
until he was named Deputy General Counsel in 1992. Mr. Spillman is a member of
the Bar in the States of North Carolina and New York and received an A.B. degree
in Economics from the University of North Carolina at Chapel Hill and a J.D.
degree from Columbia University School of Law.
Ms. Wingert was named Vice President, Corporate Controller and Chief
Accounting Officer in February 1997. Prior to joining the Company in July 1996,
Ms. Wingert was a manager with KPMG Peat Marwick LLP in the Health Care and Life
Sciences practice and held positions with New York Life Insurance Company in the
Internal Audit and Controller's Departments. Ms. Wingert is a certified public
accountant and holds a Bachelor of Science degree in Business Administration
from the College of New Rochelle and a Master of Business Administration in
Accounting from C.U.N.Y. Bernard M. Baruch College.
49
<PAGE> 51
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the common stock, to file initial reports of ownership and reports of changes in
ownership of the common stock with the Commission. Officers, directors, and
greater than ten percent shareholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received by the Company and written representations from certain
reporting persons that no other reports were required for those persons, during
fiscal 1996, all Section 16(a) filing requirements applicable to the Company's
officers, directors, and greater than ten percent shareholders were complied
with, except that W. Randall Dickerson's initial Form 3 after he became Vice
President, Corporate Controller and Chief Accounting Officer of the Company on
November 11, 1996 was filed late, Mitchell Berger's initial Form 3 and Henry
Murphy's initial Form 3 after they each became Directors on October 10, 1996
were filed late, Bettina Whyte's initial Form 3 and Dennis Simon's initial Form
3 after they each became Plan Managers on April 4, 1996 were filed late, and
John G. Ball's initial Form 3 after he became President of Coastal Physician
Services, Inc. on May 20, 1996 was filed late.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation received by all
individuals serving as the President and Chief Executive Officer of the Company
during 1996, its four other most highly compensated executive officers who were
serving as executive officers at December 31, 1996, and one additional
individual who was one of the four most highly compensated executive officers
during 1996 but was no longer an executive officer at December 31, 1996
(collectively, the "Named Executive Officers"), for services rendered to the
Company or its subsidiaries during the years ended December 31, 1996, 1995 and
1994, as applicable:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------- Number of
Other Annual Securities All Other
Salary Bonus Compensation(1) Underlying Compensation(2)
Name and Principal Position Year ($) ($) ($) Options/SARs(#) ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Scott, M.D. (3) 1996 333,333 -- 12,806 -- 5,296
Chairman of the Board, 1995 333,333 -- 51,492 103,529 165,818
President and Chief 1994 357,290 20,000 -- 28,588 193,730
Executive Officer of the
Company
Jacque J. Sokolov, M.D.
Vice Chairman of the 1996 400,000 400,000 -- -- 5,464
Board of the Company 1995 400,000 150,000 -- 3,883 4,215
and Chief Executive 1994 33,333 12,500 -- 903,000 --
Officer, Advanced Health
Plans, Inc.(4)
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deborah L. Redd
Director, President, Coastal 1996 237,519 35,000 -- 20,000 3,538
Managed Healthcare, Inc. 1995 47,163 -- -- -- 70
John G. Ball(5) 1996 106,154 58,000 -- 20,833(6) 13,750
Former President and Chief
Executive Officer, Coastal
Physician Services, Inc.(7)
Edward L. Suggs, Jr.
Director, President and 1996 190,000 -- -- -- 2,442
Chief Executive Officer, 1995 188,539 -- -- 40,000 3,754
Healthcare Business 1994 166,736 31,000 -- 93,947 3,720
Resources, Inc.(8)
Henry J. Murphy(3) 1996 69,130 -- -- 100,000(9) --
Former President and
Chief Executive Officer
Joseph G. Piemont(3) 1996 208,605 20,000 -- 200,000(10) 3,754
Former President and 1995 175,000 -- -- 38,883 3,720
Chief Executive Officer 1994 144,167 11,000 -- 28,947 1,230
Stephen D. Corman 1996 290,000 100,000 -- 50,000 1,200
Former Chief Financial 1995 200,000 -- -- 100,000(11) 1,768
Officer
</TABLE>
- -----------------
(1) Reflects imputed income for personal use of the Company's aircraft.
(2) Includes for 1996: (i) contributions made under the Company's 401(k)
plan of $3,800, $4,750, $2,917, $1,973, and $3,563 for Dr. Scott, Dr.
Sokolov, Ms. Redd, Mr. Suggs and Mr. Piemont, respectively, (ii)
premiums paid for term life insurance policies of $1,496, $714, $621,
$285, $191 and $1,200 for Dr. Scott, Dr. Sokolov, Ms. Redd, Mr. Suggs,
Mr. Piemont and Mr. Corman, respectively, and (iii) a severance payment
of $13,750 paid to Mr. Ball on December 19, 1996 called for in his May
20, 1996 employment agreement, which was terminated effective December
2, 1996. See "Employment and Certain Other Agreements" below.
(3) Dr. Scott served as President and Chief Executive Officer of the
Company from January 1, 1996 to May 29, 1996. Joseph G. Piemont served
as President and Chief Executive Office of the Company from May 29,
1996 to October 23, 1996. Mr. Murphy served as President and Chief
Executive Officer of the Company from October 24, 1996 to March 1,
1997. See "Employment and Certain Other Agreements" below.
(4) Advanced Health Plans, Inc. is a subsidiary of the Company.
(5) John G. Ball's employment with the Company began in June 1996 and ended
in March 1997. See "Employment and Certain Other Agreements" below.
(6) Amount includes 7,500 non-qualified stock options and 13,333 SARs,
based upon the value of the SARs granted and the closing price per
share on the date of grant. The 7,500 stock options were forfeited on
March 10, 1997. See "Employment and Certain Other Agreements" below.
51
<PAGE> 53
(7) Coastal Physician Services, Inc. is a subsidiary of the Company.
(8) Healthcare Business Resources, Inc. is a subsidiary of the Company.
(9) Mr. Murphy was granted 100,000 stock appreciation rights ("SARs") on
November 1, 1996. 12,000 SARs vested on each of November 1, 1996,
December 1, 1996, January 1, 1997, February 1, 1997 and February 28,
1997. Due to the termination of Mr. Murphy's employment on March 1,
1997, the 20,000 SARs scheduled to vest on March 31, 1997, and an
additional 20,000 SARs scheduled to vest on April 30, 1997, had Mr.
Murphy's employment extended through these dates, were forfeited.
(10) The 200,000 non-qualified stock options granted to Mr. Piemont during
1996 were forfeited on January 21, 1997. See "Employment and Certain
Other Agreements" below.
(11) The 100,000 non-qualified stock options granted to Mr. Corman during
1995 were forfeited on November 6, 1996. See "Employment and Certain
Other Agreements" below.
STOCK OPTION AND SAR GRANTS
The following table provides certain information with respect to stock
options and SARs granted during 1996 to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Number of Percent of Total Price Appreciation for
Securities Options/SARs Option Term
Underlying Granted to Exercise ------------
Options/SARs Employees in or Base Expiration
Name Granted(#) Fiscal Year(%) Price($/Sh) Date 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deborah L. Redd 20,000(1) 2.91 13.25 01/11/06 166,659 422,331
John G. Ball 7,500(2) 1.09 6.88 09/16/06 32,428 82,175
13,333(3) 1.82 3.75 06/30/99 5,125 10,500
Stephen D. Corman 50,000(4) 7.28 5.00 11/06/99 39,406 82,750
Henry J. Murphy 100,000(5) 14.56 5.13 02/28/99 12,608 25,830
3,000(6) 0.44 5.25 10/14/06 9,905 25,101
</TABLE>
- -----------------
(1) Options vest and become fully exercisable on the fifth anniversary of
the date of grant.
(2) Options were forfeited on March 10, 1997. See "Employment and Certain
Other Agreements" below.
(3) SARs vest in five equal monthly installments from January to May 1997.
(4) SARs vested on the date of grant.
(5) 12,000 SARs vested on each of November 1, 1996, December 1, 1996,
January 1, 1997, February 1, 1997 and February 28, 1997. 40,000 SARs
were forfeited on March 1, 1997.
(6) Options vest and become fully exercisable on the first anniversary of
the date of grant.
52
<PAGE> 54
AGGREGATED OPTION/SAR EXERCISES AND OPTION/SAR VALUES
The following table provides certain information concerning the number
of securities underlying unexercised options held by each of the Named Executive
Officers and the value of such officers' unexercised options at December 31,
1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at Fiscal Year-End (#) at Fiscal Year-End ($)
- -------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven M. Scott, M.D. -- 132,117 -- --
Jacque J. Sokolov, M.D. 363,000 543,883 -- --
Deborah L. Redd -- 20,000 -- --
John G. Ball 7,500(1) 13,333 -- --
Edward L. Suggs, Jr. 20,345 133,947 -- --
Henry J. Murphy 24,000 3,000 -- --
Joseph G. Piemont 200,000(2) -- -- --
Stephen D. Corman 50,000 -- -- --
</TABLE>
- -----------------
(1) These options were forfeited on March 10, 1997. See "Employment and
Certain Other Agreements" below.
(2) These options were forfeited on January 21, 1997. See "Employment and
Certain Other Agreements" below.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company (an
"Independent Director") receives $20,000 annually for serving as a director plus
$1,200 for each meeting of the Board of Directors attended. The respective
Chairmen of the Audit and Compensation Committees receive an additional $1,200
annually for services rendered in that capacity. At each director's election,
compensation may be paid either currently, in cash, or deferred and paid in cash
or in shares of common stock at the distribution date of the deferred
compensation. Pursuant to the Company's 1994 Independent Directors' Stock Option
Plan, an Independent Director who is elected to the Board of Directors
automatically receives an option to purchase 3,000 shares of common stock and
any Independent Director who continues to serve as a director following an
annual meeting of shareholders automatically receives an option for 1,000 shares
of common stock. The respective Chairmen of the Audit and Compensation
Committees automatically receive an additional option to purchase 2,000 shares
of common stock as of the first committee meeting following an annual meeting of
shareholders. The exercise price of these options is the fair market value of
the underlying shares on the date of grant. The options become exercisable one
year from the date of grant and have a ten year term.
53
<PAGE> 55
EMPLOYMENT AND CERTAIN OTHER AGREEMENTS
STEVEN M. SCOTT, M.D.
In April 1991, Dr. Scott and the Company entered into a five-year
employment agreement which renews automatically each year, unless either party
gives notice of nonrenewal, and terminates in any event when Dr. Scott reaches
age 70. The employment agreement provides for an annual base salary of $400,000,
which is to be reviewed annually by, and can be increased at the discretion of,
the Compensation Committee. Dr. Scott is also entitled to incentive compensation
in an amount determined at the discretion of the Compensation Committee, based
on its consideration of the Company's financial results, the development,
implementation and attainment of strategic business planning goals and
objectives, increases in the Company's revenues and operating profits, and other
factors deemed relevant by the Compensation Committee in evaluating Dr. Scott's
performance. Although not a requirement, the target for Dr. Scott's incentive
compensation is two percent of the Company's earnings before interest and taxes,
not to exceed his annual base salary. In addition, the Compensation Committee
may grant Dr. Scott discretionary bonuses from time to time.
In its discretion, the Compensation Committee may award any incentive
or discretionary bonus compensation payable to Dr. Scott as an immediately
payable cash payment, a deferred cash payment or in nonqualified stock options.
A range of valuation for any such options will be established by the
Compensation Committee using the Black-Scholes or binomial pricing model, or
other recognized pricing model, or using the assumptions and specifications
adopted by the Securities and Exchange Commission (the " Commission") which
govern the disclosure of executive compensation in proxy statements and other
Commission filings. Any such options will expire after the earlier to occur of
the tenth anniversary of the termination of Dr. Scott's employment, the date of
Dr. Scott's 70th birthday or the expiration of the maximum term of such options
set forth in the stock option plan pursuant to which such options are granted.
In the event of Dr. Scott's disability prior to the age of 70, he would
be entitled to base compensation, incentive compensation and bonus compensation
for twelve months. The bonus compensation would equal the average of the bonus
compensation paid or payable to Dr. Scott during the thirty-six months preceding
the disability. The incentive compensation would equal the greater of (i) the
average of the incentive compensation paid or payable to Dr. Scott during the
thirty-six months preceding the disability or (ii) an amount equal to (x) 50% of
Dr. Scott's base salary for any year in which the Company's revenues and
operating profits increased 12% over the prior year, (y) 75% of Dr. Scott's base
salary if the Company's annual revenues and operating profits increased 17% over
the prior year or (z) 100% of Dr. Scott's base salary if the Company's annual
revenues and operating profits increased 22% over the prior year. If the
disability is continuous for a period of twelve consecutive months, Dr. Scott
would be entitled to receive 75% of his base salary and the averages of both
incentive compensation and bonus compensation paid or payable during the
thirty-six months preceding the disability, which amount shall be increased by
five percent annually. In the event of Dr. Scott's death prior to the age of 70,
his surviving spouse (or his estate in the event of her death or remarriage)
would be entitled to receive for ten years an amount equal to Dr. Scott's base
salary and the average of both incentive compensation and bonus compensation
paid or payable during the thirty-six months preceding his death, which amount
shall be increased by five percent annually.
If the Company terminates Dr. Scott without cause, Dr. Scott would be
entitled to receive for the remainder of the then existing five-year term of the
agreement his base salary and the averages of both incentive compensation and
bonus compensation paid or payable during the thirty-six months preceding
termination, which amount shall be increased by five percent annually. In the
event that Dr. Scott terminates his employment agreement as a result of the
Company's material breach thereof, which breach remains uncured for 60 days
after written notice, Dr. Scott would be entitled to receive compensation equal
to that payable to him upon termination by the Company without cause.
54
<PAGE> 56
JACQUE J. SOKOLOV, M.D.
In connection with its acquisition of Advanced Health Plans, Inc. in
November of 1994, the Company entered into an employment agreement with Dr.
Sokolov. During the five year term of the agreement, the Company is obligated to
use its best efforts to cause Dr. Sokolov to be elected Chairman or Vice
Chairman of the Board of Directors. In addition to serving as Chairman or Vice
Chairman, Dr. Sokolov will serve in other appropriate management positions with
the Company or its subsidiaries and report directly to the Chief Executive
Officer. Dr. Sokolov's base salary under the agreement is $400,000 per year. He
also is entitled to receive incentive cash compensation in the amount of not
less than $150,000 per year. In addition, in the event the compensation paid to
Dr. Sokolov by third parties for speaking and specified consulting engagements
is less than $450,000 per year, Dr. Sokolov will receive from the Company the
difference between the amount actually paid as a result of such engagements and
$450,000. The employment agreement imposes certain confidentiality obligations
upon Dr. Sokolov and contains a covenant not to compete with the Company or
solicit its employees for a specified period of time. The agreement is
terminable by either party upon 90 days' notice. If Dr. Sokolov is terminated
without cause, he is entitled to receive an ongoing payment of his base salary,
minimum incentive bonus and speaking and consulting guarantees for the remainder
of the unexpired term.
DEBORAH L. REDD
In September 1996, Ms. Redd entered into an employment agreement with
the Company pursuant to which she became employed as President of Coastal's
Managed Care Division, as well as President of Coastal Managed Healthcare, Inc.
("CMH") and an officer of Health Enterprises, Inc. ("HEI"), Healthplan
Southeast, Inc. ("HPSE") and shall serve on the Board of Directors of HEI, HPSE,
Better Health Plan, Inc. ("BHP") and Doctors Health Plan, Inc. ("DHP"). The
effective date of the agreement was September 1, 1996 with an initial term
through September 30, 1998. Ms. Redd may be removed at any time as deemed
appropriate by (i) the Board of Directors of the Company or (ii) the
shareholders of the applicable entity. Under the agreement, Ms. Redd is entitled
to receive a base salary of $234,000 per year through August 31, 1997, which is
subject to annual review and adjustment as of September 1 of each year during
the term of employment. Ms. Redd will be eligible for performance bonuses based
upon certain performance criteria up to a maximum of $90,000 per year. In the
event that HEI or HPSE is divested during the term of her agreement, and prior
to September 30, 1998, Ms. Redd shall be entitled to receive a bonus equal to
one-tenth of one percent (0.1%) of the net proceeds of any such divestitures.
The employment agreement imposes certain confidentiality obligations upon Ms.
Redd and contains a covenant not to compete with the Company or solicit its
employees for a specified period of time. The Company may terminate the
employment agreement without cause at any time upon 90 days' prior written
notice to Ms. Redd, and Ms. Redd may terminate the employment agreement without
cause at any time upon 120 days' prior written notice. If the employment
agreement is terminated without cause by the Company at any time through
September 30, 1998, the Company will be obligated to pay Ms. Redd an amount
equal to the annual base salary in effect on the date of termination plus any
earned performance bonus to be paid out in equal installments over the twelve
months following the date of termination, beginning in the month after
termination.
JOHN G. BALL
In May 1996, Performance Partners, Inc. ("PPI") and John G. Ball ("Mr.
Ball") entered into an independent contractor agreement ("original agreement")
with the Company pursuant to which Mr. Ball became employed as President of
Coastal Physician Services, Inc. ("CPS"), a subsidiary of the Company. The
effective date of the original agreement was May 20, 1996 with an initial term
continuing through May 19, 1997. The original agreement was terminated and a new
independent contractor agreement ("new agreement") was entered into on December
2, 1996, under which Mr. Ball became employed as President and Chief Executive
Officer of CPS. The new agreement provided for an initial term continuing
through December 1, 1997. On March 10, 1997, PPI and Mr. Ball entered into a
separation agreement and mutual release whereby the services
55
<PAGE> 57
of PPI and Mr. Ball were voluntarily terminated, effective March 31, 1997. Mr.
Ball is the President and sole shareholder of PPI, and the Company made all
payments for compensation of services rendered under the original agreement and
the new agreement directly to PPI. Under the new agreement, for Mr. Ball's
services PPI was entitled to receive an annual fee of $300,000, prorated weekly
over the initial term. PPI received a $20,000 signing bonus upon execution of
the original agreement, a $13,750 severance payment upon termination of the
original agreement, and was eligible for a retention bonus of up to $50,000 had
PPI and Mr. Ball been still engaged under the terms of the new agreement on July
1, 1997. Under the original agreement, PPI received options under the NSO Plan
to acquire 7,500 shares of the Company's common stock. These options, although
vested upon the expiration of the term of the original agreement, were forfeited
under the separation agreement and mutual release. In addition, under the new
agreement, PPI received the right to receive an amount equal to any appreciation
occurring from and after December 2, 1996, on $50,000 worth of shares of the
Company's common stock. Such right with regard to each share is hereafter
referred to as SARs. Vesting, with regard to these SARs, occurred as follows:
$10,000 on January 2, 1997, $10,000 on February 2, 1997, and $10,000 on March 2,
1997. PPI will have the right to exercise the SARs which have vested at any time
and from time to time during the two-year period beginning July 1, 1997 and
ending June 30, 1999. Per the agreement, the Company reimbursed Mr. Ball for all
reasonable out-of-pocket expenses incurred in performing his duties, including
travel to and from his office in Dallas, Texas, living expenses in Durham North
Carolina, during the term of the agreement and travel expenses related to
performing contractual duties. The separation agreement and mutual release
imposes certain confidentiality obligations upon Mr. Ball and contains a
covenant not to compete with the Company or to solicit its employees for a
specified period of time.
EDWARD L. SUGGS, JR.
On March 1, 1997, Mr. Suggs entered into an employment agreement with
Healthcare Business Resources, Inc. ("HBR"), a subsidiary of the Company. The
initial term of the agreement is from March 1, 1997 through February 29, 2000.
Under the agreement, Mr Suggs will serve as the President and Chief Executive
Officer of HBR and shall serve on the Board of the Company. Mr. Suggs will
receive an annual base salary of $220,000, subject to annual review and
adjustment as of each March 1 during the term of the agreement. As an initial
signing bonus, the Company forgave and forever waived any claim to the then
outstanding indebtedness of approximately $16,000 evidenced by a promissory note
in the original face amount of $25,000. Mr. Suggs will be eligible for up to
$20,000 each quarter in performance bonuses, based upon the financial
performance of HBR and other factors, which may include the discretion of HBR or
the Company. If Mr. Suggs is still employed by HBR on September 1, 1997, he will
receive a stay bonus equivalent to twelve weeks of his base salary, or
approximately $50,000. The employment agreement imposes certain confidentiality
obligations upon Mr. Suggs and contains a covenant not to compete with HBR or
its affiliates or solicit its employees for a specified period of time.
EUGENE F. DAUCHERT, JR.
On January 15, 1997, Mr. Dauchert entered into a restated and amended
employment agreement with the Company pursuant to which Mr. Dauchert will
continue as the President and Chief Executive Officer of Coastal Physician
Networks, Inc. ("CPN"), a subsidiary of the Company. The effective date of the
agreement was September 1, 1996 and terminates on April 30, 1997. After April
30, 1997, the term may be extended on a month to month basis. Mr. Dauchert will
receive an annual base salary of $160,000 and will be eligible for certain
divestiture bonuses as described below. Mr. Dauchert received a divestiture
bonus, based upon the sale of the HealthNet Medical Group division of Physician
Planning Group, Inc., of approximately $35,000 and will be entitled to receive a
divestiture bonus based on the sale or divestiture of Integrated Provider
Networks, Inc. (0.5% of the net proceeds), Practice Solutions, Inc. (0.5% of the
net proceeds), and certain remaining clinics in south Florida (1.0% of the net
proceeds). The employment agreement imposes certain confidentiality obligations
upon Mr. Dauchert and contains a covenant not to compete with the Company or its
affiliates or solicit its employees for a specified period of time.
56
<PAGE> 58
HENRY J. MURPHY
In November of 1996, Mr. Murphy entered into an employment agreement
with the Company pursuant to which Mr. Murphy became employed as President and
Chief Executive Officer of the Company. The effective date of the agreement was
November 1, 1996, with an initial term that ended on February 28, 1997. The
agreement was not renewed. Under the agreement, Mr. Murphy received a base
salary of $30,000 per month. Mr. Murphy received a $100,000 signing bonus upon
the execution of the agreement. In addition, pursuant to the agreement, Mr.
Murphy became entitled to receive additional compensation in the form of either
stock appreciation rights (SARs), a debt restructure fee, or a business
combination transaction fee. Mr. Murphy had the right to receive an amount equal
to any appreciation occurring from and after November 1,1996 in up to 100,000
shares of the Company's common stock. As of the date of his termination, 60,000
of Mr. Murphy's SARs had vested and 40,000 were forfeited. Mr. Murphy had the
right to exercise the SARs which had vested at any time and from time to time
during the two-year period beginning March 1, 1997 and ending February 28, 1999.
At any time on or before 60 days after the termination of his employment
agreement, Mr. Murphy had the right to make an election to retain the SARs or to
forfeit them and be eligible instead to receive either the debt restructure fee
or the business combination transaction fee.
The terms of the restructure fee provided that, in the event that,
within six months from the date of termination of his agreement, the Company
restructures its debts other than in bankruptcy proceedings resulting in at
least a 15% reduction in the stated principal amount and accrued interest of (i)
the Company's existing bank debt, or (ii) the Company's total liabilities, Mr.
Murphy, if he elected to receive a debt restructure fee, would receive a payment
equal to one-half of one percent (0.5%) of the amount of the reduction
determined as of the date immediately after the final debt restructuring. Such
payment would be due within three business days after conclusion of the final
debt restructuring.
The terms of the business combination transaction fee provide that, in
the event the Company consummates a transaction within six months from the date
of termination of his agreement, or with an entity or entities with which the
Company entered into a binding contract within six months from the date of
termination of his agreement, Mr. Murphy, if he elected to receive a business
combination transaction fee, would receive a payment equal to one-half of one
percent (0.5%) of the fair market value of the acquisition price paid by the
acquiring entity or entities in connection with the transaction. A transaction
is defined as any one or more transactions or series of transactions which are
conditioned on each other or which occur or are planned or are committed to
occur at substantially the same time and which, taken together result in either
(i) merger or consolidation where the Company is not the consolidated or
surviving company or where the shareholders of the Company prior to the merger
or consolidation do not own a majority of the shares of the consolidated or
merged company, (ii) a transfer of over 50% of the assets of the Company, or
(iii) a transfer or issuance of over 50% of the common stock of the Company.
Mr Murphy has elected to be eligible to receive the business
combination transaction fee and has taken the position that the sale of accounts
receivable to affiliates of National Century Financial Enterprises constitutes a
transfer of over 50% of the assets of the Company which entitles him to payment
of the business combination transaction fee. The Company reserves the right to
challenge whether the accounts receivable transaction obligates the Company to
pay the business combination transaction fee to Mr. Murphy.
Upon presentation in accordance with Company policies, the Company
reimbursed Mr. Murphy for all reasonable and necessary travel and living
expenses and other disbursements incurred by Mr. Murphy on behalf of the Company
in the performance of his duties under his employment agreement. These travel
and living expenses included Mr. Murphy's weekly plane trips to and from his
home in Atlanta, Georgia, and daily meal and living expenses in Durham, North
Carolina, and other locations to which Mr. Murphy traveled on company business.
57
<PAGE> 59
JOSEPH G. PIEMONT
On June 1, 1996, the Company entered into an agreement with Mr. Piemont
providing for his employment as Chief Executive Officer and President of the
Company and nomination to the Board of Directors. Mr. Piemont was elected to the
Board on August 20, 1996. The agreement provided for an initial term ending
December 31, 1996, subject to extension and renewal by the Company through May
1999, an initial base salary of $350,000 and eligibility for discretionary
performance-based bonuses and options to purchase 200,000 shares of the
Company's common stock. The agreement also obligated the Company to make certain
payments to Mr. Piemont in the event the Company terminated his employment
without cause or failed to extend and renew the agreement through 1999 or upon
Mr. Piemont's termination of the agreement in certain enumerated circumstances,
defined therein as "good reason."
On July 9, 1996, Drs. Scott and Walls initiated, on their own behalf
and derivatively on behalf of the Company, a lawsuit against the Company and
certain of its officers and directors, including Mr. Piemont (the "Lawsuit").
The complaint alleged, among other things, that certain members of the Board
breached their fiduciary duties and wasted corporate assets in taking certain
actions specified in the complaint, including approval of Mr. Piemont's
employment agreement. On October 21, 1996, Mr. Piemont gave notice to the
Company of the termination of his employment agreement for allegedly good
reasons (as defined in the agreement) and requested confirmation of the
Company's intent to honor the severance terms of the agreement.
On January 21, 1997, the Company, Drs. Scott and Walls, and Mr. Piemont
entered into a Release and Settlement Agreement to resolve the matters at issue
between them in the Lawsuit (the "Piemont Settlement"). Pursuant to the Piemont
Settlement, Mr. Piemont was awarded the following compensation in consideration
of his release of any claims against the Company under the employment agreement
and forfeiture of any outstanding stock options granted to him under his
employment agreement or otherwise: (i) an initial cash payment in the amount of
$150,000; (ii) a $250,000 non-interest bearing promissory note, payable in
twelve monthly installments, which commenced in February 1997; and (iii) stock
appreciation rights ("SARs"), payable in cash, on 50,000 shares of the Company's
common stock. The base price for Mr. Piemont's SARs was $3.00 per share and the
maximum per share appreciation for which he could receive payment was $4.00 per
share. On January 24, 1997, Mr. Piemont exercised the SARs for the full 50,000
shares and the Company paid Mr. Piemont $75,000 in full satisfaction of its
obligations for the SARs. The Piemont Settlement was subject to approval by the
court presiding over the Lawsuit. The court approved the settlement on January
21, 1997.
STEPHEN D. CORMAN
In April 1995, Mr. Corman entered into an agreement with the Company
providing for his employment as Executive Vice President and Chief Financial
Officer of the Corporation, with an initial term continuing through April 1998.
The Lawsuit initiated by Drs. Scott and Walls also named Mr. Corman as
a defendant. The complaint alleged, among other things, that certain members of
the Board, including Mr. Corman, breached their fiduciary duties and wasted
corporate assets in taking certain actions specified in the complaint. On
November 6, 1996, the Company, Drs. Scott and Walls, and Mr. Corman entered into
a Release and Settlement Agreement to resolve the matters at issue between them
in the lawsuit (the "Corman Settlement"). Pursuant to the Corman Settlement, Mr.
Corman was awarded the following compensation in consideration of his release of
any claims against the Company under his employment agreement and forfeiture of
any outstanding stock options granted to him under his employment agreement or
otherwise: (i) an initial cash payment in the amount of $100,000; (ii) entry
into an agreement to serve as a consultant to the Company from November 1, 1996
through March 31, 1997 with respect to certain financial matters including, but
not limited to, preparation and review of the Company's external financial
reports; and (iii) SARs with respect to 50,000 shares of the Company's common
stock. For services rendered pursuant to
58
<PAGE> 60
the consulting agreement, Mr. Corman will receive the sum of $200,000, payable
in ten monthly installments which commenced on November 15, 1996. The base price
for Mr. Corman's SARs is $5.00 per share. The SARs are exercisable at Mr.
Corman's option during a three-year term and are subject to proportional
adjustment in the event of any reorganization of the Company's capital stock.
The Corman Settlement was subject to approval by the court presiding over the
Lawsuit. The court approved the settlement on December 2, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Janeway and Mr. Hatcher served as members of the Compensation
Committee from January 1, 1996 through August 6, 1996, and October 10, 1996,
respectively. Dr. Chenven replaced Dr. Janeway on August 20, 1996 and served as
a member of the Compensation Committee through October 23, 1996. Mr. Berger and
Mr. Mahoney were elected to serve as members of the Compensation Committee on
December 3, 1996. Neither Mr. Hatcher, Dr. Janeway, Dr. Chenven nor Mr. Berger
has ever served as an officer or employee of the Company or any of its
subsidiaries. Mr. Mahoney served as President and Chief Executive Officer of
Healthplan Southeast, Inc., a subsidiary of the Company, from December 1994
through December 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Except as indicated under "Security Ownership of Management," the
following are the only shareholders known to the Company to be the beneficial
owners of more than five percent of the common stock as of February 28, 1997:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Common Stock
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Heartland Advisors, Inc. .......................... 3,870,650(1) 15.78%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Pioneer Management Corp. .......................... 2,337,200(2) 9.53%
60 State Street
Boston, Massachusetts 02109
</TABLE>
(1) Includes 3,239,550 shares with respect to which the shareholder has
voting and investment power and 631,100 shares with respect to which
the shareholder has investment power only.
(2) Includes 95,000 shares with respect to which the shareholder has voting
and investment power and 2,242,200 shares with respect to which the
shareholder has investment power only.
59
<PAGE> 61
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's voting securities as of February 28, 1997
by: (i) each director of the Company; (ii) each Named Executive Officer; and
(iii) all current directors and executive officers of the Company as a group.
Except as otherwise indicated, each shareholder named has sole voting and
investment power with respect to such shareholder's securities.
<TABLE>
<CAPTION>
Name and Address(1) Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Ownership Class(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Steven M. Scott, M.D 7,327,823(3) 29.90%
Series A Convertible Steven M. Scott, M.D. 46,033 100.00%
Preferred Stock
Series B Convertible Steven M. Scott, M.D. 32,739 100.00%
Preferred Stock
Common Stock Jacque J. Sokolov, M.D 443,423(4) 1.81%
Common Stock Bertram E. Walls, M.D. 422,775(5) 1.73%
Common Stock Edward L. Suggs, Jr. 44,075(6) *
Common Stock John P. Mahoney, M.D. 21,445(7) *
Common Stock Stephen D. Corman 5,138(8) *
Common Stock Eugene F. Dauchert, Jr. 1,504 *
Common Stock Deborah L. Redd 400 *
Common Stock John G. Ball -- *
Common Stock Mitchell W. Berger -- *
Common Stock Henry J. Murphy -- *
Common Stock Joseph G. Piemont -- *
Shares of Common Stock
owned by all directors and
executive officers as a group
(15 persons) 8,272,402(9) 33.76%
</TABLE>
(1) Except as otherwise indicated, the address for all persons listed below
is c/o Coastal Physician Group, Inc., 2828 Croasdaile Drive, Durham,
N.C. 27704.
(2) An asterisk (*) indicates less than one percent.
(3) Includes 6,369,120 shares held by Scott Medical Partners, L.P., of
which Dr. Scott is the sole general partner. Also includes 535,766
shares held by a partnership, the partners of which are Dr. Scott and
certain trusts established for the benefit of Dr. Scott's children. Dr.
Scott has sole investment power with respect to these shares, but has
sole voting power with respect to only 390,666 shares. Voting power
with respect to the remaining 145,100 shares is held by Dr. Walls, as
trustee of the trustee of the trusts. Also includes 39,110 shares held
by a foundation and 303,334 shares held by Century Insurance over which
Dr. Scott may be deemed to share voting and investment power. Dr. Scott
disclaims beneficial ownership of the shares held by Century Insurance.
The remaining 80,493 shares are held directly by Dr. Scott. Dr. Scott's
address is 17020 Brookwood Drive, Boca Raton, Florida 33496.
60
<PAGE> 62
(4) Includes 363,000 shares subject to presently exercisable stock options
and 696 shares reserved for issuance under the Deferred Compensation
Plan for outside directors (the "Deferred Compensation Plan").
(5) Includes 145,100 shares with respect to which Dr. Walls has voting
power and Dr. Scott has investment power. Such shares also are included
under the beneficial ownership of Dr. Scott. Also includes 248,915
shares held by certain trusts established for the benefit of Dr.
Scott's children with respect to which Dr. Walls, as trustee, holds
voting and investment power. Includes 4,000 shares subject to presently
exercisable stock options and 12,700 shares reserved for issuance under
the Deferred Compensation Plan.
(6) Includes 22,976 shares subject to presently exercisable stock options
and 265 shares owned by Mr. Suggs' wife. Mr. Suggs disclaims beneficial
ownership of the shares held by his wife.
(7) Includes 3,000 shares subject to exercisable stock options and 18,216
shares reserved for issuance under the Deferred Compensation Plan.
(8) Includes 2,438 shares reserved for issuance under the Deferred
Compensation Plan.
(9) Includes 398,795 shares subject to presently exercisable stock options
and 34,050 shares reserved for issuance under the Deferred Compensation
Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into various transactions and has continuing
relationships with American Alliance Holding Company and certain of its
affiliates ("Alliance"), including Century Insurance. Dr. Scott is the
beneficial owner of all of the outstanding shares of common stock of Alliance.
These transactions and relationships are described below.
The Company paid approximately $3,550,000 in insurance premiums to
Century Insurance for professional liability insurance for itself and its
subsidiaries for the year ended December 31, 1996. The Company received
approximately $124,000 for certain computer, financial, statistical and other
advice and services provided to Alliance and its subsidiaries for the year ended
December 31, 1996.
The Company and certain of its subsidiaries sublease office space in
Durham, North Carolina, consisting of approximately 59,000 square feet, from
Alliance under sublease agreements on a month-to-month oral basis. The building
is owned by American Alliance Real Estate Corporation which leases the building
to Century Insurance. During the year ended December 31, 1996, the Company paid
Alliance approximately $960,000 under these sublease agreements. The Company,
American Alliance Holding Company and Century Insurance are all liable to the
holder of a first mortgage on the property for the total rentals specified in
the prime lease, however, the Company has an agreement of indemnity from
American Alliance Holding Company , and American Alliance Holding Company has an
agreement of indemnity from Century Insurance. The prime lease commenced in
August 1988 and has a fifteen-year term requiring minimum lease payments of
approximately $788,000 per year for years one through five, $959,000 per year
for years six through ten and $1,166,000 per year for years eleven through
fifteen.
The Company leases an office facility in Durham, North Carolina,
consisting of approximately 27,000 square feet from Chateau LLC, which is
controlled by Dr. Scott. The Company paid approximately $504,000 to Chateau LLC
for this space during 1996. The Company also leases 3,600 square feet of space
in Rocky Mount, North Carolina from Durham Investment Corp. and 44,000 square
feet of space in Ft. Lauderdale, Florida from Coral Ridge LP, which entities are
also controlled by Dr. Scott. During 1996, the Company paid approximately
61
<PAGE> 63
$97,000 for the Rocky Mount space and approximately $912,000 for the Ft.
Lauderdale space. In addition, the Company leases a clinical facility in
Fayetteville, North Carolina, consisting of approximately 5,000 square feet,
from Sunco Properties, a general partnership in which Drs. Scott and Walls each
have a 50% interest. During 1996, the Company paid Sunco Properties
approximately $76,000.
For the year ended December 31, 1996, the Company paid approximately
$118,000 to Berger, Davis & Singerman, a law firm of which Mr. Berger has been a
partner since 1985.
On January 21, 1997, the Company authorized 47,500 shares of Series A
Convertible Preferred Stock ("Series A Preferred") and 32,500 shares of Series B
Convertible Preferred Stock ("Series B Preferred"), and on June 3, 1997,
authorized 1,200,000 shares of Series C Convertible Preferred Stock ("Series C
Preferred"), each series with a par value of $0.01 per share. On February 21,
1997, the Company increased the number of authorized shares of Series B
Preferred from 32,500 to 33,000. Following the Trigger Date (as defined below),
shares of the Series A Preferred, the Series B Preferred, and the Series C
Preferred will be convertible into common stock at an initial conversion rate of
ten shares of common stock for each share of Series A Preferred, Series B
Preferred, or Series C Preferred. The Trigger Date means the date on which the
conversion feature of each series of preferred stock is approved by the
Company's common shareholders. A proposal regarding the conversion feature of
the preferred stock will be submitted to the common shareholders at the next
annual or special meeting.
The holders of shares of Series A Preferred, Series B Preferred, and
Series C Preferred shall be entitled to receive dividends, when, as and if
declared by the Board of Directors (as well as simultaneously with any dividend
payable on common stock). Upon any liquidation, dissolution or winding up of the
Company, no distribution shall be made to the holders of shares of stock ranking
junior to the Series A Preferred unless the holders of the Series A Preferred
have received $36 per share, no distribution will be made to the holders of
shares of stock ranking junior to the Series B Preferred unless the holders of
the Series B Preferred have received $30 per share, and no distribution shall be
made to the holders of shares ranking junior to the Series C Preferred unless
the holders of Series C Preferred have received an amount per share equal to ten
times the average of the closing prices of a share of common stock on the New
York Stock Exchange for the ten trading days immediately preceding the
distribution date.
In January 1997, pursuant to a reimbursement agreement dated December
31, 1996 between the Company and Dr. Scott, the Company issued 226,690 shares of
common stock and 32,739 shares of Series B Preferred to Dr. Scott in
satisfaction of the Company's obligation to reimburse certain proxy solicitation
expenses incurred by Dr. Scott.
On January 21, 1997, the Company, Dr. Scott and Dr. Walls entered into
a dismissal agreement with respect to certain litigation whereby the Company,
with court approval, agreed to reimburse Dr. Scott and Dr. Walls for legal fees
and expenses incurred by them in the litigation by issuing shares of Series A
Preferred to Dr. Scott and Dr. Walls in satisfaction of the Company's
obligation. The Company has issued a total of 46,033 shares of Series A
Preferred Stock in payment of the aggregate amount of fees and expenses incurred
by Dr. Scott and Dr. Walls. See "Item 3. Legal Proceedings".
On January 21, 1997, the Company reserved 800,000 shares of common
stock for issuance upon conversion of the Series A Preferred and Series B
Preferred, and on June 3, 1997, reserved 10,000,000 shares of common stock for
issuance upon conversion of the Series C Preferred.
In connection with the National Century Financing transaction, as
explained in Note 7 of "Notes to Consolidated Financial Statements",
Dr. Scott invested $10 million in cash in the Company and received
1,000,000 shares of Series C Preferred. The Series C Preferred, subject to
approval by the Company's common stockholders, is convertible into 10,000,000
shares of common stock. In addition, Dr. Scott received 84,983 shares of Series
C Preferred and 240,000 shares of common stock in satisfaction of certain
obligations owed to him by the Company of approximately $1.1 million.
62
<PAGE> 64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NUMBER
(a) 1. FINANCIAL STATEMENTS: IN THIS FORM 10-K
<S> <C>
Report of Independent Auditors ......................................... 20
Consolidated Balance Sheets, December 31, 1996 and 1995 ................ 21
Consolidated Statements of Operations, Years Ended December 31,
1996, 1995 and 1994 ................................................ 22
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1996, 1995 and 1994 ....................................... 23
Consolidated Statements of Cash Flows, Years Ended
December 31, 1996, 1995 and 1994 ....................................... 24
Notes to Consolidated Financial Statements ............................. 25
<CAPTION>
PAGE NUMBER
2. FINANCIAL STATEMENT SCHEDULES IN THIS FORM 10-K
<S> <C>
Report of Independent Auditors ........................................ S-1
Schedule II -- Valuation and Qualifying Accounts ...................... S-2
</TABLE>
3. EXHIBITS
The exhibits which are filed with this Form 10-K are set forth in the
Exhibit Index, which immediately precedes the exhibits to this report.
(b) REPORTS ON FORM 8-K
One report on Form 8-K was filed during the last quarter for the period
covered by this report:
1. On December 16, 1996, the Company filed a report on Form 8-K
dated November 30, 1996 which reported, pursuant to Item 2
thereof, the sale of certain assets of the HealthNet Medical
Group division of Physicians Planning Group, Inc., the
Company's New Jersey-based clinic operations, to the Valley
Care Corporation, the parent of The Valley Hospital, for
approximately $9.5 million in cash and an additional $1.05
million which was received as of December 31, 1996. As part of
Form 8-K, the Company's unaudited, condensed, consolidated pro
forma balance sheet as of September 30, 1996, and the
Company's unaudited, condensed, consolidated pro forma
statements of operations for the nine months ended September
30, 1996 and for the year ended December 31, 1995 were filed.
63
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 12, 1997
COASTAL PHYSICIAN GROUP, INC.
By: /s/ Steven M. Scott, M.D.
-------------------------------------
Steven M. Scott, M.D.
Chairman of the Board of Directors,
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
Title Date
----- ----
<S> <C> <C>
/s/ Jacque J. Sokolov, M.D. Vice Chairman of the Board of Directors June 12, 1997
- --------------------------------
Jacque J. Sokolov, M.D.
/s/ W. Randall Dickerson Executive Vice President and June 12, 1997
- -------------------------------- Chief Financial Officer
W. Randall Dickerson
/s/ Mary Anne Z. Wingert Vice President, Corporate Controller and June 12, 1997
- -------------------------------- Chief Accounting Officer
Mary Anne Z. Wingert
/s/ Edward L. Suggs, Jr. Director June 12, 1997
- --------------------------------
Edward L. Suggs, Jr.
/s/ John P. Mahoney, M.D. Director June 12, 1997
- --------------------------------
John P. Mahoney, M.D.
/s/ Mitchell W. Berger Director June 12, 1997
- --------------------------------
Mitchell W. Berger
/s/ Bertram E. Walls, M.D. Director June 12, 1997
- --------------------------------
Bertram E. Walls, M.D.
/s/ Eugene F. Dauchert, Jr. Director June 12, 1997
- --------------------------------
Eugene F. Dauchert, Jr.
/s/ Deborah L. Redd Director June 12, 1997
- --------------------------------
Deborah L. Redd
/s/ Charles E. Potter Director June 12, 1997
- --------------------------------
Charles E. Potter
</TABLE>
64
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Coastal Physician Group, Inc.:
Under the date of March 31, 1997, except for paragraphs 5 and 6 of Note 10,
which are as of May 30, 1997, and for paragraphs 1 and 4 of Note 9, which are as
of June 3, 1997, and for paragraphs 6, 8, 9 and 10 of Note 7 and the last
paragraph of Note 11, which are as of June 10, 1997, we reported on the
consolidated balance sheets of Coastal Physician Group, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, as contained in the 1996 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Raleigh, North Carolina
June 10, 1997
S-1
<PAGE> 67
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
---------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996 $97,932 $285,661 $ -- $286,424 $97,169
Allowance for contractual
adjustments and uncollectibles
Year ended December 31, 1995 $93,631 $253,151 $ -- $248,850 $97,932
Allowance for contractual
adjustments and uncollectibles
Year ended December 31, 1994 $71,613 $230,695 $ -- $208,677 $93,631
Allowance for contractual
adjustments and uncollectibles
</TABLE>
S-2
<PAGE> 68
EXHIBIT INDEX
Exhibit
Number Description
2.1 Asset Purchase Agreement between Physicians Planning Group,
Inc.; HealthNet Medical Group of New Jersey, P.A.; HealthNet
Medical Services of New York, P.C.; Coastal Physician
Networks, Inc.; Coastal Physician Group, Inc. and Valley Care
Corporation Dated: October 29, 1996 (1)
3.1 Bylaw amendments
10.1 Employment Agreement By and Between Coastal Physician Group,
Inc., and Steven M. Scott, M.D. Dated April 1, 1991 (2)
10.2 Employment Agreement By and Between Coastal Physician Group,
Inc., and Jacque J. Sokolov, M.D. Dated November 30, 1994 (3)
10.2(a) Amendment to Dr. Sokolov's Employment Agreement November 30,
1995
10.3 Employment By and Between Coastal Physician Group, Inc., and
Stephen D. Corman Dated April 20, 1995 (4)
10.4 Price Waterhouse LLP Engagement Letter (4)
10.5 Separation Agreement and Mutual Release By and Between Coastal
Physician Services, Inc., Performance Partners, Inc. and John
G. Ball Dated March 10, 1997
10.6 Third Amendment and Limited Waiver to Credit Agreement, Dated
as of May 29, 1996 (5)
- -------------------------
(1) Incorporated by reference to the Form 8-K for the event dated November
30, 1996, filed by the Company on December 16, 1996. (File No.
001-13460)
(2) Incorporated by reference to the S-1 registration statement, as
amended, filed by the Company on June 20, 1991. (File No. 33-40490)
(3) Incorporated by referenced to the post-effective amendment number 1 to
the Form S-3 registration statement filed by the Company on February
23, 1995. (File No. 33-86434)
(4) Incorporated by reference to the December 31, 1995 Form 10-K filed by
the Company on May 31, 1996. (File No. 001-13460)
(5) Incorporated by reference to the Form 8-K for the event dated May 31,
1996, filed by the Company on June 17, 1996. (File No. 001-13460)
S-3
<PAGE> 69
Exhibit
Number Description
10.6(a) Secured Overline Credit Agreement Dated as of May 29, 1996 (5)
10.6(b) Form of Warrant to Purchase Common Stock at $.01 Per Share (5)
10.6(c) Security Agreement, Dated as of May 29, 1996 (5)
10.6(d) Amended and Restated Pledge Agreement, Dated as of May 29,
1996 (5)
10.6(e) Form of Amended and Restated Subsidiaries Pledge Agreement,
Dated as of May 29, 1996 (5)
10.6(f) Form of Amended and Restated Guaranty Agreement, Dated as of
May 29, 1996 (5)
10.6(g) Form of Subsidiaries Security Agreement, Dated as of May 29,
1996 (5)
10.7 Employment Agreement By and Between Coastal Physician Group,
Inc., and Joseph G. Piemont Dated June 1, 1996 (6)
10.8 Employment Agreement By and Between Coastal Physician Group,
Inc., and Deborah L. Redd Dated September 1, 1996
10.9 Employment Agreement By and Between Coastal Physician Group,
Inc. and Henry J. Murphy Dated November 1, 1996
10.10 Release and Settlement Agreement By and Between Steven M.
Scott, M.D., Bertram E. Walls, M.D., M.B.A., and Coastal
Physician Group, Inc. on the one hand and Stephen D. Corman on
the other hand, Dated November 6, 1996
10.11 Reimbursement Agreement By and Between Coastal Physician
Group, Inc. and Steven M. Scott, M.D., Dated December 31, 1996
10.12 Restated and Amended Employment By and Between Coastal
Physician Group, Inc., and Eugene F. Dauchert, Jr. Dated
January 15, 1997
10.13 Release and Settlement Agreement By and Between Steven M.
Scott, M.D., Bertram E. Walls, M.D., M.B.A., and Coastal
Physician Group, Inc. on the one hand and Joseph G. Piemont on
the other hand, Dated January 21, 1997
10.14 Coastal Physician Group, Inc. Settlement Agreement Dated
January 21, 1997
- -------------------------
(6) Incorporated by reference to the June 30, 1996 Form 10-Q filed by the
Company on July 14, 1996. (File No. 001-13460)
S-4
<PAGE> 70
Exhibit
Number Description
10.15 Employment Agreement By and Between Healthcare Business
Resources, Inc., and Edward L. Suggs, Jr. Dated March 1, 1997
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP
99.1 Verified Complaint, filed on July 9, 1996, by Steven M. Scott,
M.D. and Bertram E. Walls, M.D., each on his own behalf and on
behalf of Coastal Physician Group, Inc., against Jacque J.
Sokolov, Joseph G. Piemont, Stephen D. Corman and Coastal
Physician Group, Inc. (7)
99.2 Coastal Physician Group, Inc.'s Answer (With Motions to
Dismiss) and Counterclaims, filed on July 29, 1996, by the
Company in response to an action brought by Drs. Steven M.
Scott and Bertram E. Walls, on their own behalf and
derivatively on behalf of the Company, against the Company and
Dr. Jacque J. Sokolov and Messrs. Joseph G. Piemont and
Stephen D. Corman (8)
99.3 Amendment to Rights Agreement dated as of December 27, 1996,
between Coastal Physician Group, Inc. and First Union National
Bank of North Carolina (9)
99.4 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of Coastal Physician Group, Inc.
Dated January 21, 1997
99.5 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock of Coastal Physician Group, Inc.
Dated January 21, 1997
99.5(a) Amendment of Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock of Coastal
Physician Group, Inc. Dated January 30, 1997
- ---------------------------
(7) Incorporated by reference to the Form 8-K for the event dated July 9,
1996, filed by the Company on July 19, 1996. (File No. 001-13460)
(8) Incorporated by reference to the Form 8-K for the event dated July 26,
1996, filed by the Company on July 29, 1996. (File No. 001-13460)
(9) Incorporated by reference to the Form 8-A/A for the event dated
December 27, 1996, filed by the Company on December 30, 1996. (File No.
001-13460)
S-5
<PAGE> 1
EXHIBIT 3.1
RESOLUTION OF THE BOARD OF DIRECTORS
COASTAL PHYSICIAN GROUP, INC.
Amendment to the By-laws
WHEREAS, the Board of Directors of Coastal Physician Group,
Inc. (the "Corporation") believe that the current Bylaws of the
Corporation are ambiguous and in need of clarification with
regard to the issue of who should preside at the meetings Board
of Directors of the Corporation; and
WHEREAS, the Board of Directors desires to provide such
clarification; and
WHEREAS, the Article IX of the Bylaws of the Corporation
allow for the Bylaws to be amended by the Board of Directors;
NOW, THEREFORE, IT IS
RESOLVED, that in accordance with Article IX of
the Bylaws, the Bylaws of the Corporation are hereby
amended in the following manner:
Section 3.4 is repealed and replaced by the following
provision, in its entirety:
Section 3.4 The President, or such other
individual as may be appointed by the Board of
Directors of the Corporation, shall serve as Chairman
of the Board of Directors. Subject to the provisions
of Section 3.11, the President, or the Chairman if
the President and Chairman are different people,
shall preside at all meetings of the Board of
Directors and perform such other duties as may be
directed by the Board.
Section 3.11 is repealed and replaced by the
following provision, in its entirety:
Section 3.11 Unless otherwise restricted by
the certificate of incorporation or these bylaws,
members of the Board of Directors, or any committee
designated by the Board of Directors, may participate
in a meeting of the Board of Directors, or any
committee, by conference telephone or other means by
<PAGE> 2
which all persons participating in the meeting can
hear each other, and such participation in a meeting
shall constitute presence in person at the meeting.
If members of the Board of Directors are
participating in a meeting of the Board of Directors
by conference telephone or other means and are not
physically present at a single location, and if the
Chairman, or such other person as has been designated
to preside at the meeting, is not physically present
at the location where the greatest number of members
are physically present, then the President, if
different than the Chairman and present as such
location, shall preside at the meeting. If neither
the Chairman nor the President are physically present
at such location, then the Board of Directors shall
select from among the members at the location where
the greatest number of directors are physically
present a person to preside at the meeting.
Section 5.6 is repealed and replaced by the following
provision in its entirety:
Section 5.6 The President shall be the Chief
Executive Officer of the Corporation, and shall
preside (subject to the provisions of Section 3.4 and
Section 3.11) at all meetings of the stockholders and
the Board of Directors; shall have general and active
management of the business of the Corporation and
shall see that all orders and resolutions of the
Board of Directors are carried into effect. Subject
to the direction and control of the Board of
Directors and the Executive Committee, if created, he
shall have general charge and authority over the
business of the Corporation. He shall make reports
regarding the business and activities of the
Corporation for the preceding fiscal year to the
stockholders at each annual meeting.
<PAGE> 1
EXHIBIT 10.2(A)
[COASTAL PHYSICIAN GROUP, INC. LETTERHEAD]
November 30, 1995
Jacque J. Sokolov, M.D.
Advanced Health Plans, Inc.
9000 Sunset Blvd., Suite 800
Los Angeles, CA 90069
Re: 1995-1996 Modification of that Certain "Employment
Agreement", dated November 30, 1994, by and between Dr.
Jacque J. Sokolov and Coastal Physician Group, Inc.
(f/k/a "Coastal Healthcare Group, Inc.")
Dear Dr. Sokolov:
The purpose of this letter is to confirm the recent
discussions between you and representatives of Coastal
regarding a desired modification of the above referenced
Employment Agreement (the "Agreement"). Specifically,
pursuant to Section 5(c) of the Agreement, Coastal has a
contingent obligation to pay you additional compensation to
the extent aggregate compensation derived by you from
"Outside Speaking Engagements" and " Outside Consulting
Services" (as such terms are used and defined under the
Agreement) during each year the Agreement remains in effect
is less than $450,000.00. The obligation payable by Coastal
pursuant to Section 5(c) matures at the end of each year
during the term of the Agreement and is payable if and only
to the extent that those specified sources of outside income
are less than $450,000.00. You have advised Coastal that it
is unlikely for the year beginning December 1, 1995 and
ending November 30, 1996, that your aggregate earnings from
Outside Speaking Engagements and Outside Consulting Services
will reach $450,000.00 and consequently a payment would be
due and payable to you under Section 5(c) for such year. You
have further requested that Coastal consider modifying the
payment mechanism otherwise required by Section 5(c) as
follows: Coastal pays the sum of $62,500.00 on each of
January 1, 1996; March 1, 1996; July 1, 1996; and October 1,
1996 (individually and collectively a "Quarterly Payment" or
"Quarterly Payments") as partial payments of any obligations
that may accrue under Section 5(c) in respect of the 1995-
1996 Agreement year.
Subject to approval of the Compensation Committee of the
Coastal Board of Directors, Coastal is willing to modify the
Agreement to the extent requested and
<PAGE> 2
make the Quarterly Payments if and to the extent that such
Quarterly Payments are necessary to compensate for shortfalls
in your earnings attributable to Outside Speaking Engagements
and Outside Consulting Services. In order to determine the
necessity of each such Quarterly Payment, you are asked to
furnish to Coastal monthly statements (in the form and
content contemplated by Section 5(c) of the Agreement)
setting forth the cumulative amounts of compensation received
or receivable from Outside Speaking Engagements and Outside
Consulting Services during each month for the 1995-1996
Agreement year. If such statements indicate that any
Quarterly Payment may not be necessary, in whole or in part,
then such Quarterly Payment or any future Quarterly Payments
will be reduced proportionately. In no event will the
aggregate Quarterly Payments exceed $250,000.00, and each
Quarterly Payment or partial Quarterly Payment will be: (i)
first credited against amounts arising and due and owing
under Section 5(c); and (ii) to the extent of any excess
payments, credited against Coastal's obligations arising
under the Agreement.
We also understand that you are interested in assigning your
right to receive payments under Section 5(c) to your wholly-
owned corporation, JJS, Inc. Again, subject to the approval
of the Compensation Committee, such a partial assignment of
your interests under the Agreement would be permissible under
Section 17 of the Agreement and Coastal would consent to such
an assignment.
If the foregoing is consistent with your understanding of the
desired arrangements and modifications to the Agreement,
please sign below where indicated, return the signed letter
to me, and Coastal will submit this letter for the
Compensation Committee's review and approval.
COASTAL PHYSICIAN GROUP, INC.
/S/ JOSEPH G. PIEMONT
Joseph G. Piemont, Executive Vice President
ACCEPTED AND AGREED:
/S/ JACQUE J. SOKOLOV
Jacque J. Sokolov, M.D.
ACKNOWLEDGED AND AGREED:
JJS, INC.
By: /S/ JACQUE J. SOKOLOV
Its:CEO
<PAGE> 1
EXHIBIT 10.5
SEPARATION AGREEMENT AND MUTUAL RELEASE
This SEPARATION AGREEMENT AND MUTUAL RELEASE("Agreement
and Release") is made this 10th day of March, 1997 by and between
COASTAL PHYSICIAN SERVICES, INC., a North Carolina corporation
("CPS"), PERFORMANCE PARTNERS, INC., a Texas corporation ("PPI"),
and JOHN G. BALL, an individual ("Ball").
RECITALS
WHEREAS, CPS, PPI, and Ball are parties to that certain
agreement dated May 20, 1996 ("Original Agreement");
WHEREAS, CPS, PPI, and Ball entered into an oral
agreement to amend the Original Agreement, which amended
agreement is memorialized in that certain unexecuted Independent
Contractor Agreement dated December 2, 1996 ("Superseding
Agreement"); and
WHEREAS, CPS, PPI, and Ball desire to terminate the
Superseding Agreement on the terms and conditions stated in this
Agreement and Release
Therefore, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and the
mutual covenants contained herein, the parties agree as follows:
1. CONFIDENTIALITY. The parties agree that the terms and
conditions of this Agreement and Release are to remain
confidential and shall not be disclosed or revealed to, or
discussed with, any person or entity not a party to this
Agreement and Release with the exceptions that (a) the parties
shall be entitled to disclose and discuss the terms of this
Agreement and Release with their respective attorneys or to
enforce this Agreement and Release (b) any party may disclose the
terms of this Agreement and Release if required to do so by a
court order, a subpoena, or the securities or tax laws of the
United States or any state, and (c) the parties shall jointly
agree on the content of an internal information release
announcing the termination of the services of Ball and PPI.
2. TERMINATION OF ORIGINAL AGREEMENT AND SUPERSEDING AGREEMENT
2.1. The parties agree that the Original Agreement was
terminated and superseded by the Superseding Agreement and that
the Superseding Agreement shall be deemd to have been executed
and now shall be voluntarily terminated, effective March 31, 1997
(the "Termination Effective Date"), except that Sections 8, 9,
10, and 12 shall survive termination of the Superseding Agreement
and except that Exhibit A to the Superseding Agreement shall
remain in effect pursuant to its terms, as amended by this
Agreement and Release. For the purpose of Sections 8, 9, 10, and
12 of the Superseding Agreement, the "Term of this Agreement"
shall end on the Termination Effective Date. After the
Termination Effective Date Ball and PPI shall no longer perform
or provide any further services for CPS or any Releasee, except
as provided in Section 5.2.
<PAGE> 2
2.2. Ball and PPI agree that, other than the amounts and
other consideration set forth in paragraph 6 herein, they have
received all amounts, including compensation, bonuses, financial
incentives, stock appreciation rights, stock options, or any
other benefits or consideration, due them under the Original
Agreement and Superseding Agreement and that any further
obligations arising under those agreements shall be deemed
released as of the Termination Effective Date, except as provided
herein.
3. MUTUAL GENERAL RELEASE
3.1. Except for the obligations set forth in this Agreement
and Release, Ball and PPI hereby fully and forever releases and
discharges CPS, its subsidiaries and affiliates and their
respective present and former shareholders, directors, officers,
agents, assignees, attorneys, executors, administrators,
predecessors, successors and assigns (collectively referred to as
"Releasees"), of and from any and all claims, demands,
agreements, contracts, covenants, suits, actions, causes of
action, obligations, controversies, debts, costs, expenses,
accounts, damages, judgments, losses and liabilities, of whatever
kind or nature, in law, equity or otherwise, whether known or
unknown, concealed or hidden, which Ball and PPI has had, may
have had or now have, to and including April 15, 1997, against
any of the Releasees. This release includes, but is not limited
to, any claim arising under the Original Agreement or Superseding
Agreement or relating to the termination of those agreements; any
claims for wrongful termination, public policy violations,
defamation, fraud, deceit, emotional distress or other common law
or tort matters; any claim of harassment, discrimination or
retaliation arising under state or federal law; and any claims
for or relating to any other employment benefits, including
claims arising under the Employee Retirement Income Security Act.
3.2. Ball and PPI represent, as a material inducement to CPS
to enter into this Agreement and Release, that he shall not file
or otherwise initiate any legal action of any kind against CPS
with respect to any matter released and discharged under the
preceding section.
3.3. Except for the obligations set forth herein, CPS hereby
fully and forever releases and discharges Ball and PPI of and
from any and all claims, demands, agreements, contracts,
covenants, suits, actions, causes of action, obligations,
controversies, debts, costs, expenses, accounts, damages,
judgments, losses and liabilities, of whatever kind or nature, in
law, equity or otherwise, whether known or unknown, concealed or
hidden, which CPS has had, may have had or now has, to and
including April 15, 1997. This release includes, but is not
limited to, any claim arising under the Original Agreement or
Superseding Agreement or relating to the termination of those
agreements; any claims for wrongful termination, public policy
violations, defamation, fraud, and deceit.
3.4. CPS represents, as a material inducement to Ball and
PPI to enter into this Agreement and Release, that CPS shall not
file or otherwise initiate any legal action of any kind against
Ball or PPI with respect to any matter released and discharged
under the preceding section.
3.5. CPS agrees to indemnify and hold harmless Ball and PPI
for and from any damages, losses, or expenses resulting from the
assertion or prosecution of any claims, demands,
<PAGE> 3
agreements, contracts, covenants, suits, actions, causes of
action, obligations, controversies, debts, costs, expenses,
accounts, damages, judgments, losses and liabilities, of whatever
kind or nature, in law, equity or otherwise, whether known or
unknown, concealed or hidden, which the Releasees or any of them
may assert against Ball and/or PPI for services rendered by
either of them to CPS, excluding a breach of a term of this
Agreement and Release.
4. NO ASSIGNMENT OF CLAIMS. Ball and PPI represent that they
have not assigned any claim against a Releasee to any other
person, and acknowledge that CPS is relying upon that
representation in entering into this Agreement and Release and
performing its obligations and agreements hereunder. CPS
represents that it has not assigned any claim against Ball or PPI
to any other person, and acknowledge that Ball and PPI are
relying upon that representation in entering into this Agreement
and Release and performing their obligations and agreements
hereunder.
5. SERVICES UNDER SUPERSEDING AGREEMENT
5.1. In accordance with the Superseding Agreement and the
obligations of Ball and PPI to render services to CPS under that
agreement, (a) by the Termination Effective Date, Ball and PPI
shall complete a further downsizing of CPS consistent with the
attrition of CPS's hospital contracts, and Ball and PPI shall
report regularly under Section 2 of the Superseding Agreement
regarding these services, and (b) Ball and PPI shall provide all
assistance requested by CPS or its parent, Coastal Physician
Group, Inc. ("CPG"), regarding the efforts of CPG to sell CPS.
Ball and PPI shall not be entitled to any additional compensation
from CPS or CPG or any Realesee for any of the services rendered
under this Section other than the compensation provided for in
this Agreement and Release.
5.2. From the Termination Effective Date through April 15,
1997, PPI and Ball shall assist CPG and CPS upon the request of
either of them with respect to the efforts of CPG to sell CPS.
PPI and Ball shall not be entitled to any additional fee or other
compensation from CPS or CPG or any Releasee for any of the
services rendered under this Section other than the compensation
provided for in this Agreement and Release. CPS shall pay the
reasonable travel, lodging, and meal expenses of PPI and Ball in
rendering any services requested under this Section. CPS agrees
to hold harmless and indemnify Ball and PPI from and against any
claims, expenses, losses, or damages resulting from assertion
and/or prosecution of claims by third-parties against Ball or PPI
as a result of services rendered by Ball or PPI within the scope
of this Section 5.2 between April 1, 1997 and April 15, 1997 to
the same extent an officer of CPS and/or CPG would be entitled to
or receives indemnification for acts and omissions commited by
them during such period.
5.3. Neither Ball nor PPI shall have any liability for their
actions or omissions in rendering the services required by this
Agreement, unless such act or omission constitutes gross
negligence or willful misconduct.
6. PAYMENTS AND OTHER CONSIDERATION TO PPI.
6.1. On the Termination Effective Date:
<PAGE> 4
6.1.1. CPS shall pay to PPI (by wire transfer) all fees
and expenses due to PPI under the Superseding Agreement for
services rendered by Ball and PPI through the Termination
Effective Date. CPS shall have no obligation to pay any fee for
any services rendered by Ball or PPI to CPS, CPG, or any Realesee
after the Termination Effective Date;
6.1.2. CPS shall pay to PPI (by wire transfer) the sum of
$50,000, representing the retention bonus agreed to be paid to
PPI under the Superseding Agreement; and
6.1.3. the Stock Appreciation Rights granted to PPI under
Exhibit A to the Superseding Agreement shall vest as of December
2, 1996 such that PPI shall have stock appreciation rights in
13,333 shares of CPG with an Initial Price (as defined in that
ExhibitA) of $3.75. Notwithstanding any contrary provision of
the Exhibit A to the Superseding Agreement, the "SAR Due Date,"
as that term is used in the Exhibit A, shall mean, with regard to
each exercise of SAR rights under that Exhibit A, the date that
is six months after CPG's receipt of notice of PPI's exercise of
those rights.
6.2. Ball and PPI acknowledge that the payments set forth in
this Section 6 are beyond any amount they would otherwise be
entitled to, that Ball and PPI are entering into this Agreement
and Release knowingly and voluntarily, and have not been coerced
or threatened, and have not been promised anything else in
exchange for signing this Agreement and Release, other than the
consideration and mutual promises set forth herein.
7. EFFECTIVE DATE OF AGREEMENT AND RELEASE
7.1. Ball acknowledges that he has been given up to twenty-
one days to consider the Agreement and Release, which time will
be sufficient. Ball and PPI acknowledge that they have been
advised to consult an attorney, if desired, before signing the
Agreement and Release and that this Agreement and Release has
been individually negotiated between the parties and is not part
of a group exit incentive or other termination program.
7.2. The parties agree that Ball may, at his election, sign
this Agreement and Release at any time prior to the expiration of
the twenty-one-day period. This Agreement and Release shall
become enforceable at the later of (a) seven days after it has
been signed by Ball or (b) the day on which it has been signed by
PPI. The Agreement and Release can be revoked at any time by
Ball prior to the expiration of the seven-day period following
the signing of the Agreement and Release by him.
8. MISCELLANEOUS
8.1. This Agreement and Release shall inure to the benefit
of, and shall be binding upon, the successors and assigns of the
parties hereto and each of them.
8.2. No representation, warranty or promise not expressly
set forth in this Agreement and Release has been made by any
party or agents of that party, and this
<PAGE> 5
Agreement and Release has not been entered into on the basis of
any such representation, warranty or promise.
8.3. The descriptive headings and the paragraph numbers are
inserted for convenience only and shall not control or affect the
meaning or construction of any provisions of this Agreement and
Release.
8.4. Any and all notices, designations, consents, offers,
acceptances or any other communications provided for herein shall
be given in writing by registered or certified mail, return
receipt requested, or by recognized overnight service, which
shall be addressed in to the following addresses, or such other
address as the parties may designate by notice given in
accordance with this Section:
If to CPS:
Cosatal Physician Services, Inc.
3708 Mayfair Street
Durham, North Carolina 27707
If to CPS:
Coastal Physician Group, Inc.
2828 Croasdaile Drive
Durham, North Carolina 27705
If to PPI or Ball:
2911 Trutle Creek Blvd., Suite 300
Dallas, Texas 75219
8.5. The waiver by any party of any breach of a provision of
this Agreement and Release shall not operate or become construed
as a waiver of any subsequent breach by the parties.
8.6. This Agreement and Release supersedes any and all other
understandings and agreements, either oral or in writing, between
the parties hereto with respect to the subject matter hereof and
constitutes the sole and only agreement between the parties with
respect to said subject matter. Each party to this Agreement and
Release acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any
party or by anyone acting on the behalf of any party, which are
not embodied herein, and that no agreement, statement or promise
not contained in this Agreement and Release shall be valid or
binding or in any way have any force or effect on the parties.
No change or modification of this Agreement and Release shall be
valid or binding upon the parties hereto unless such change or
modification is in writing and signed by the parties hereto.
8.7. In the event that any one or more of the provisions
contained in this Agreement and Release shall be held by a court
or arbitrator of competent jurisdiction to be
<PAGE> 6
invalid, illegal or unenforceable in any respect for any reason,
(a) the invalid, illegal, or unenforceable provision shall be
construed in a manner matching as nearly as possible the parties'
intent with respect to that provision as evidenced by that
language of that provision, (b) that the invalidity, illegality
or unenforceability shall not affect any other provisions hereof,
and (c) that this Agreement and Release shall be construed as if
that invalid, illegal or unenforceable provision had never been
contained herein.
8.8. Any disputes arising from or related to this Agreement
and Release shall be resolved in an arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration
Association before a single arbitrator. All hearings and other
proceedings in the course of, or related to, the arbitration or
the arbitrability of any dispute shall occur in Durham, North
Carolina. PPI and Ball agree to venue and personal jurisdiction
in Durham, North Carolina. North Carolina law shall apply to and
govern this Agreement and Release.
8.9. The parties do not intend by this Agreement to create
in any other person or entity any right of any kind.
Executed in counterparts and effective on the
Termination Effective Date.
COASTAL PHYSICIAN SERVICES, INC. COASTAL PHYSICIAN GROUP, INC.
By: /S/ KIRK R. DOOLITTLE By: /S/ TIMOTHY W. TROST
Name: Kirk R. Doolittle Name: Timothy W. Trost
Title: Chief Operations Officer Title: EVP & CFO
PERFORMANCE PARTNERS, INC. JOHN G. BALL
By: /S/ JOHN G. BALL By: /S/ JOHN G. BALL
Name: John G. Ball
Title: President
<PAGE> 7
SCHEDULE A
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
INDEPENDENT CONTRACTOR AGREEMENT
THIS INDEPENDENT CONTRACTOR AGREEMENT (the
"Agreement") is made and entered into effective the 2nd day of
December, 1996, by and between COASTAL PHYSICIAN SERVICES, INC.,
a North Carolina corporation ("CPS"), PERFORMANCE PARTNERS, INC.,
a Texas corporation ("PPI"), and JOHN G. BALL ("Ball").
W I T N E S S E T H
WHEREAS, CPS is a wholly-owned subsidiary of
Coastal Physician Group, Inc. ("Coastal");
WHEREAS, CPS owns and operates a business which
arranges and contracts to provide physician coverage for medical
services for hospital emergency rooms and other health care
facilities;
WHEREAS, Ball is the President and sole
shareholder of PPI, a corporation which provides consulting and
management services;
WHEREAS, CPS, Ball and PPI have entered into an
independent contractor agreement dated May 20, 1996 (the "May
1996 Agreement"); and
WHEREAS, CPS, Ball and PPI now desire to terminate
the May 1996 Agreement, and CPS desires to engage the services of
Ball as an independent contractor to serve as President and Chief
Executive Officer of CPS on the terms and conditions set forth
below.
NOW THEREFORE for and in consideration of the
mutual promises, covenants, obligations and rights hereinafter
specified, CPS, Ball and PPI mutually agree as follows:
1. TERMINATION OF MAY 1996 AGREEMENT. The May
1996 Agreement is hereby terminated effective December 2, 1996.
CPS agrees to pay PPI, upon the execution of this Agreement, the
severance payment of $13,750.00 called for in Section 5.b(i) of
the May 1996 Agreement.
<PAGE> 8
2. SERVICE. Ball agrees to serve as full-time
President and Chief Executive Officer of CPS, and to perform such
duties and services usually vested in such office, subject to the
direction and control of the Chief Executive Officer (the "CEO")
of Coastal or his designee. In rendering such services, Ball
shall report directly to the CEO.
3. PPI. CPS recognizes and acknowledges that
Ball is an employee of PPI. Accordingly, CPS shall make all
payments of compensation for the services rendered under this
Agreement directly to PPI. PPI consents and agrees that Ball
shall provide such services as an independent contractor to CPS
and agrees to cause Ball to provide the services as described in
this Agreement.
4. COMPENSATION. For Ball's services, PPI shall
be entitled to receive the following (collectively, the
"Compensation"):
a. CPS will pay an PPI a base fee of
$300,000.00 per annum, prorated weekly during the Term (the
"Fee") and payable in equal weekly payments of $5,769.23;
b. If PPI and Ball are still engaged under
the terms of this Agreement on July 1, 1997, PPI will
receive a retention bonus of $50,000.00 (the "Retention
Bonus");
c. Stock Appreciation Rights. PPI shall
also receive Stock Appreciation Rights (SAR's) in the amount
and form as described in EXHIBIT A, attached hereto and made
a part hereof.
d. CPS will reimburse PPI, at the
discretion of the CEO, for all reasonable out-of-pocket
expenses of Ball incurred in performing his duties,
including travel to and from his office at PPI in Dallas,
living expenses of Ball in Durham during the Term and travel
expenses related to performing contractual duties. Such
reimbursement will be due within one week of presentation to
CPS by PPI of a request for reimbursement with appropriate
receipts consistent with Internal Revenue Service
requirements.
5. TERM. The Term of this Agreement shall be
for one (1) year, commencing on the 2nd day of December, 1996 and
ending on the 1st day of December, 1997; subject to the following
provisions (the "Term"):
a. Any party may terminate this Agreement, for any
reason, upon ninety (90) days written notice to the other
<PAGE> 9
parties, if such notice is given prior to July 1, 1997. If
notice of termination is given on or after July 1, 1997,
then any party may terminate this Agreement upon thirty (30)
days written notice to the other parties. If this Agreement
is terminated by CPS pursuant to the provisions of this
Section 5.a prior to July 1, 1997, then the Retention Bonus
will be deemed earned by and payable to PPI and the SAR's
granted under Section 4.c will vest immediately upon the
date of termination.
b. In the event that Ball dies or becomes disabled
(such that the CEO has determined Ball cannot or will be
unable to perform his duties under this Agreement for a
period of four consecutive weeks, with or without
accommodation) during the Term of this Agreement; (i) this
Agreement shall terminate as of the date of death or
disability; (ii) CPS shall pay to PPI the Fee prorated
through the fourth week following the date of death or
disability, as an earned Fee; and (iii) the parties shall
have no further obligation to each other except to the
extent of matters subject to the indemnification clauses of
this Agreement.
c. The CEO may terminate this Agreement prior to the
expiration of its Term for just cause. "Just cause" is
defined as material and credible evidence of criminal or
fraudulent acts, moral turpitude, gross neglect, failure to
follow the reasonable directives of the CEO. For just
cause, the Agreement can be terminated within twenty-four
(24) hours, and in such event (i) the Fee Payment under
subsection 4.a. shall cease as of the date of termination;
(ii) PPI shall be entitled to receive and retain all Fees
prorated through termination, as an earned Fee; and (iii) if
such termination occurs prior to July 1, 1997, PPI and Ball
shall forfeit any interest in the Retention Bonus, and any
SAR's not yet vested shall be forfeited.
d. All Compensation is payable or deliverable to PPI
at its offices in Dallas, Texas on the day of the month or
occurrence of the event giving rise to CPS' obligation for
such Compensation. Time is of the essence with respect to
Compensation. If it becomes necessary for PPI to retain an
attorney to collect Compensation, CPS shall pay all
reasonable attorney's fees and court costs incurred by PPI
or Ball.
<PAGE> 10
6. WORKING FACILITIES. CPS shall furnish Ball
with office space, materials and support services reasonably
necessary to perform his duties under this Agreement in a manner
consistent with provision of office space, materials and support
services to senior executives of CPS.
7. INDEPENDENT CONTRACTOR. The parties agree
that Ball shall perform his duties and services as an independent
contractor. Ball and/or PPI shall be responsible for payment of
all taxes, including without limitation, self-employed taxes, on
any and all Compensation and reimbursements Ball or PPI receives
as a result of this Agreement. Ball and PPI agree to indemnify
and hold harmless CPS, Coastal, any affiliate of Coastal and any
officers, employees, agents, directors, successors or assigns of
CPS, Coastal or any affiliate of Coastal from any liability due
to failure to pay any federal or state taxes. Further it is
agreed and understood that Ball is not covered by any of the
fringe benefit programs (including medical coverage) of CPS or
Coastal, nor is he covered by workers' compensation inasmuch as
he is not an employee of CPS.
8. COVENANT NOT TO COMPETE.
a. NONCOMPETITION. During the Term of this Agreement
and for a period of one (1) year thereafter, irrespective of
the time, manner or cause of termination thereof, neither
Ball nor PPI shall directly or indirectly, as employer,
independent contractor, owner, stockholder of greater than
5% of any public company or 35% of any private company,
agent, employee, or otherwise enter into or in any manner
participate in any business or other endeavor which would be
in direct competition with CPS or in any business in which
CPS has engaged during the period of the independent
contractor relationship within the territory consisting of
the states within which CPS provides services during the
Term of this Agreement without the prior written permission
of Coastal.
b. RESPECT FOR ECONOMIC RELATIONSHIPS. Neither PPI
nor Ball shall, during the Term of this Agreement and for a
period of one (1) year thereafter, irrespective of the time,
manner or cause of termination thereof, in any fashion,
form, or manner, either directly or indirectly, solicit,
interfere with, or endeavor to entice away from CPS or
Coastal any customer, person, firm, account, employee,
independent contractor or corporation regularly dealing with
CPS or Coastal or interfere with or entice away any other
<PAGE> 11
independent contractor or employee of CPS or Coastal without
the prior written permission of Coastal. This section shall
not apply to the following: William Snyder, Richard
Rosenkrantz, and Timothy Hassenger.
c. CONFIDENTIALITY. PPI and Ball acknowledge and
agree that the information they may to acquire at CPS as a
result of their engagement is proprietary and confidential.
Neither PPI nor Ball shall, during the Term of this
Agreement, and for a period of one (1) year thereafter,
irrespective of the time, manner, or cause of the
independent contractor relationship termination, in any
fashion, form or manner, either directly or indirectly,
disclose or divulge any such confidential or proprietary
information concerning the business, strategies or methods
used by CPS or Coastal and acquired by PPI or Ball during
the Term of this independent contractor relationship with
the Corporation without the prior written permission of
Coastal, unless responding to the subpoena or order of a
court or governmental agency or body. At no time, either
during or after the Term of this Agreement, shall PPI or
Ball discuss any aspects of their involvement with CPS or
any information relating to CPS with Dennis Simon, Price
Waterhouse, or any representative thereof.
d. VALIDITY OF COVENANTS. PPI and Ball agree that
the covenants contained in this Section are reasonably
necessary to protect the legitimate interests of CPS and
Coastal and are reasonable with respect to time and
territory, and do not interfere with the interests of the
public. PPI and Ball further agree that the description of
the covenants contained in this Section is sufficiently
accurate and definite to inform them of the scope of the
covenants. The terms and conditions of this Section shall
survive the expiration and termination of this Agreement.
e. SPECIFIC PERFORMANCE. PPI and Ball agree that a
breach or violation of any of the covenants under this
Section will result in immediate and irreparable harm to CPS
and Coastal in an amount which will be impossible to
ascertain at the time of the breach or violation and that
the award of monetary damages will not be adequate relief to
CPS and Coastal. Therefore, the failure on the part of PPI
or Ball to perform all of the covenants established by this
Section shall give rise to a right to CPS or Coastal to
obtain enforcement of this Section in a court of equity by a
decree or specific performance or any other injunctive
relief
<PAGE> 12
deemed necessary. This remedy, however, shall be cumulative
and in addition to any other remedy CPS or Coastal may have
against PPI and Ball.
9. INDEMNIFICATION. Ball is providing services
as an officer of CPS. CPS agrees to hold harmless and indemnify
Ball and PPI from and against any claims, losses or damages
asserted by third parties against Ball or PPI as a result of
services rendered by Ball or PPI within the scope of this
Agreement to the same extent any other officer of CPS and Coastal
would be entitled to or has received any indemnification by CPS
and Coastal for acts and omissions committed during the Term of
this Agreement. CPS and Coastal will maintain directors' and
officers' liability insurance coverage on Ball during the Term of
this Agreement in the same manner as all other officers and
directors of CPS and Coastal are insured during the Term.
10. EXPENSES OF LEGAL ACTION. Should PPI, its'
employees, agents, officers, and/or directors, be compelled to,
become party to, or be asked to assist in any legal action
arising out of their engagement under this Agreement, CPS shall
compensate PPI for the time spent by its employees, agents,
officers and directors in connection with depositions,
preparation of materials, court testimony, settlement
negotiations, preparation for testimony and other such time
related to the legal action at a billing rate of $200.00 per hour
(except for Ball's time during the Term of this Agreement).
There shall be no limitation as to the number of hours within any
week that PPI may bill for these activities. CPS shall provide
such funds and pay such invoices for counsel in the
representation of PPI, it's employees, agents, officers and
directors in such legal action. Counsel for PPI shall be
selected solely by PPI. PPI shall review the invoices of counsel
for correctness. Coastal shall pay such invoices submitted by
PPI upon receipt of same.
11. PROHIBITION AGAINST ASSIGNMENT. This
Agreement is for the personal services of Ball, and Ball and PPI
agree that this Agreement and the obligations of Ball hereunder
may not be assigned, delegated or performed by any party other
than Ball without the express written consent of the CEO, which
consent may be withheld in the sole discretion of the CEO. CPS
and Coastal can assign their rights and duties hereunder without
the consent of Ball and PPI.
12. PROPERTY OF CPS. Ball and PPI agree that
upon termination of this independent contractor relationship,
Ball and PPI will surrender to CPS all lists, books, records and
similar
<PAGE> 13
items, and all copies thereof in their possession which contain
confidential information regarding the business of CPS or
Coastal, and will also turn over to CPS all of the property of
CPS or Coastal which has come into their possession while an
independent contractor of CPS.
13. NOTICES. Any and all notices, designations,
consents, offers, acceptances or any other communications
provided for herein shall be given in writing by registered or
certified mail, return receipt requested, or by recognized
overnight service, which shall be addressed in to the following
addresses, or such other address as the parties may designate by
notice given in accordance with this Section:
If to CPS:
Coastal Physician Services, Inc.
3708 Mayfair Street
Durham, North Carolina 27707
If to Coastal:
Coastal Physician Group, Inc.
2828 Croasdaile Drive
Durham, North Carolina 27705
If to PPI or Ball:
2911 Turtle Creek Blvd., Suite 300
Dallas, Texas 75219
14. WAIVER OF BREACH. The waiver by any party of
any breach of a provision of this Agreement shall not operate or
become construed as a waiver of any subsequent breach by the
parties.
15. ENTIRE AGREEMENT. This Agreement supersedes
any and all other understandings and agreements, either oral or
in writing, between the parties hereto with respect to the
subject matter hereof and constitutes the sole and only agreement
between the parties with respect to said subject matter. Each
party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been
made by any party or by anyone acting on the behalf of any party,
which are not embodied herein, and that no agreement, statement
or promise not contained in this Agreement shall be valid or
binding or in any way have any force or effect on the parties. No
change or
<PAGE> 14
modification of this Agreement shall be valid or binding upon the
parties hereto unless such change or modification is in writing
and signed by the parties hereto.
16. SEVERABILITY. In the event that any one or
more of the provisions contained in this Agreement shall be held
by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect for any reason, that invalidity,
illegality or unenforceability shall not affect any other
provisions hereof and this Agreement shall be construed as if
that invalid, illegal or unenforceable provision had never been
contained herein.
17. DISPUTES. Any disputes arising from or
related to this Agreement shall be resolved in a court of
competent jurisdiction in the State of North Carolina, and PPI
and Ball agree to venue and personal jurisdiction in such court.
North Carolina law shall apply to and govern this Agreement.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first above written.
CPS:
COASTAL PHYSICIAN SERVICES, INC.
By: _________________________________
___________ President
ATTEST:
______________________________
________ Secretary
[CORPORATE SEAL]
PPI:
PERFORMANCE PARTNERS, INC.
By: ______________________________
President
ATTEST:
______________________________
Secretary
[CORPORATE SEAL]
CONTRACTOR:
__________________________________ (SEAL)
John G. Ball
<PAGE> 16
EXHIBIT A
STOCK APPRECIATION RIGHTS.
Unless forfeited under the termination provisions of
this Agreement, CPS shall pay PPI an amount determined in
accordance with the following provisions:
1. PURPOSE. Subject to the terms hereof, PPI
shall have the right to receive an amount equal to any
appreciation occurring from and after the Initial Date (hereafter
defined) in $50,000 worth of shares of Coastal's common stock
(the number of corresponding shares to be determined by the
closing price of such stock on the New York Stock Exchange on the
Initial Date), and these provisions shall be interpreted with a
view to accomplishing such purpose. Such right with regard to
each share is referred to herein as a "Stock Appreciation Right"
or "SAR".
2. VESTING. So long as the engagement of PPI
has not terminated under Section 4(b) or 4(c) of this Agreement,
SAR's shall vest as follows:
DATE AMOUNT OF SAR'S
VESTING
1/2/97 $10,000
2/2/97 $10,000
3/2/97 $10,000
4/2/97 $10,000
5/2/97 $10,000
TOTAL $50,000
3. DEFINITIONS. Terms used herein shall have
the following meanings: (a) the term "Initial Price" shall mean
the price per share for Coastal's common shares at the close of
business of the New York Stock Exchange (as reflected on the New
York Stock Exchange Composite Tape) on December 2, 1996 (the
"Initial Date"); (b) the term "Sales Price" shall mean either:
(i) if there is a public market for such shares on the Sales
Date, the average price per share for Coastal's common shares at
the close of business of the New York Stock Exchange (as
reflected on the New York Stock Exchange Composite Tape, or if
those shares are not traded at that time on the New York Stock
Exchange, the comparable standard for the trading market on which
those shares are then traded) on the ten trading days next
preceding the date (the "Sales Date") on which delivery of notice
of exercise of the rights granted hereunder occurs; or (ii) if
there is no public market for such shares on the Sales Date, the
<PAGE> 17
fair market value per share for Coastal's common shares at the
close of business on the Sales Date, determined by agreement of
Coastal and PPI or, in the absence of agreement, by an
independent professional appraisal firm. The appraisal firm
shall be selected by agreement of the parties or, in the absence
of such agreement, by an arbitrator appointed by the American
Arbitration Association, by and through its offices in Atlanta,
Georgia or Durham, North Carolina. Coastal shall pay all costs
and expenses arising out of or relating to determination of the
Sales Price, including without limitation all of Coastal's and
PPI's arbitration fees, costs, and expenses, and all appraisal
fees, and all attorneys' fees and expenses that PPI may incur in
connection with selection of an appraisal firm and determination
of fair market value as herein set forth.
4. EXERCISE. PPI shall have the right to
exercise the SAR's granted hereunder which have vested at any
time and from time to time during the two-year period beginning
on July 1, 1997 and ending at 12:00 p.m. Eastern Standard Time on
June 30, 1999. Such rights may be exercised by delivering
written notice thereof (which notice shall specify the number of
shares with respect to which such rights are being exercised) by
facsimile (919-383-0247) to Coastal's CEO or its general counsel
with copies thereof being mailed promptly thereafter by certified
mail addressed to Coastal, P. O. Box 15309, Durham, North
Carolina 27704, to the attention of such officer or officers and
with copies thereof also being given promptly to Coastal in the
manner prescribed for notices in Section 13 of this Agreement.
5. AMOUNT. The amount payable to PPI hereunder
shall be determined in accordance with the following provisions:
(a) The Initial Price shall be subtracted from the Sales Price to
determine the per share appreciation which has occurred; (b) the
per share appreciation shall then be multiplied by the number of
shares with respect to which PPI has exercised his rights
hereunder; and (c) the resulting sum shall be the amount payable
to PPI hereunder. Such amount shall be paid to PPI on the SAR
Due Date (as defined herein), provided, that if the Sales Price
is determined by agreement or appraisal, such amount shall be
paid within three days after conclusion of such agreement or
appraisal, together with interest (the rate of which shall be the
applicable federal rate established pursuant to Section 7872 of
the Internal Revenue Code of 1986, as amended) on the amount thus
determined, payable for the period beginning on the SAR Due Date
and ending on the date of payment. The "SAR Due Date" shall
mean, with regard to each exercise of SAR rights hereunder, such
date which is the later of July 1, 1997 or three (3) days after
<PAGE> 18
receipt of notice exercising such rights. To the extent not
exercised, such rights shall remain in full force and effect, and
upon subsequent exercise by PPI as hereinabove provided, the
amount payable to PPI shall again be determined in accordance
with the foregoing provisions.
6. ADJUSTMENT. In the event Coastal's
outstanding common shares shall be subdivided (split) or combined
(reverse split), by reclassification or otherwise, or in the
event of any special dividend payable on such shares in shares of
Coastal's stock, the Initial Price and the number of shares with
respect to which the rights granted hereunder exist shall be
proportionately adjusted to accomplish the purposes hereof.
7. REORGANIZATIONS. If at any time during the
three year term hereof there shall be a capital reorganization of
Coastal's common shares, then as part of such reorganization,
lawful provision shall be made so that PPI's rights hereunder
shall be protected in a manner which will accomplish the purposes
hereof.
8. MERGER, BUSINESS COMBINATION. If a merger,
consolidation, share exchange or business combination occurs
which results in Coastal's common shares being acquired by
another entity or entities (whether for cash, securities, or
other consideration), or if substantially all of Coastal's assets
and properties are sold to another entity or entities, the
following provisions shall be controlling of purposes hereof:
(a) PPI shall be deemed to have exercised its remaining rights on
the closing date of such transaction; (b) the amount payable to
PPI shall be determined and paid within three days after such
closing date; and (c) PPI shall not thereafter have any further
right to receive payments based upon appreciation in Coastal's
common shares.
9. INFORMATION. Upon the occurrence of each adjustment or
readjustment pursuant to the provisions contained herein, Coastal
at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish PPI
with information setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or
readjustment is based.
<PAGE> 19
SCHEDULE B
AMENDMENT TO
INDEPENDENT CONTRACTOR AGREEMENT
THIS AMENDMENT TO INDEPENDENT CONTRACTOR AGREEMENT
(the "Amendment) is made and entered into effective the ___ day
of February, 1997, by and between COASTAL PHYSICIAN SERVICES,
INC., a North Carolina corporation ("CPS"), PERFORMANCE PARTNERS,
INC., a Texas corporation, and JOHN G. BALL ("Ball").
W I T N E S S E T H
WHEREAS, CPS, PPI and Ball have previously entered into an
independent contractor agreement dated December 2, 1996 (the
"Agreement"); and
WHEREAS, the CPS, PPI and Ball now wish to amend the
Agreement to provide for new termination provisions.
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 the Agreement ("Termination of May 1996
Agreement") is amended to refer to section 4.b of the May 1996
Agreement, rather than Section 5.b(i).
2. Section 5 is deleted and replaced in its entirety as
follows:
Section 5. TERM. The Term of this Agreement shall be
for one (1) year, commencing on the 2nd day of December,
1996 and ending on the 1st day of December, 1997; subject to
the following provisions (the "Term"):
a. Any party may terminate this Agreement, for
any reason, upon thirty (30) days written notice to the
other parties. If this Agreement is terminated by CPS
pursuant to the provisions of this Section 5.a prior to July
1, 1997, then the Retention Bonus will be deemed earned by
and payable to PPI and the SAR's granted under Section 4.c
will vest immediately upon the date of termination.
b. If this Agreement is terminated as a result
of an acquisition, merger, buyout or other business
combination
<PAGE> 20
between CPS and a party prior to July 1, 1997, then the
Retention Bonus shall be deemed earned and payable to PPI
and the SAR's granted under Section 4.c shall vest
immediately upon the date of termination.
c. In the event the President/CEO of Coastal is
replaced by an individual not deemed acceptable to the bank
group that holds the bank debt of Coastal, or if the duties
and responsibilities of the President/CEO of Coastal are
substantially changed or modified, PPI may, in its sole
discretion, terminate this Agreement immediately. Further,
any and all fees and expenses unpaid through the date of
termination shall be paid upon the receipt of a final
invoice. Further, if this occurs prior to July 1, 1997,
then the Retention Bonus shall be deemed earned and payable
to PPI and the SAR's granted under Section 4.c shall vest
immediately upon the date of termination.
d. In the event that Ball dies or becomes
disabled (such that the CEO has determined Ball cannot or
will be unable to perform his duties under this Agreement
for a period of four consecutive weeks, with or without
accommodation) during the Term of this Agreement; (i) this
Agreement shall terminate as of the date of death or
disability; (ii) CPS shall pay to PPI the Fee prorated
through the fourth week following the date of death or
disability, as an earned Fee; and (iii) the parties shall
have no further obligation to each other except to the
extent of matters subject to the indemnification clauses of
this Agreement.
e. The CEO may terminate this Agreement prior to
the expiration of its Term for just cause. "Just cause" is
defined as material and credible evidence of criminal or
fraudulent acts, moral turpitude, gross neglect, failure to
follow the reasonable directives of the CEO. For just
cause, the Agreement can be terminated within twenty-four
(24) hours, and in such event (i) the Fee Payment under
subsection 4.a. shall cease as of the date of termination;
(ii) PPI shall be entitled to receive and retain all Fees
prorated through termination, as an earned Fee; and (iii) if
such termination occurs prior to July 1, 1997, PPI and Ball
shall forfeit any interest in the Retention Bonus, and any
SAR's not yet vested shall be forfeited.
<PAGE> 21
f. All Compensation is payable or deliverable to
PPI at its offices in Dallas, Texas on the day of the month
or occurrence of the event giving rise to CPS' obligation
for such Compensation. Time is of the essence with respect
to Compensation. If it becomes necessary for PPI to retain
an attorney to collect Compensation, CPS shall pay all
reasonable attorney's fees and court costs incurred by PPI
or Ball.
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment as of the date first above written.
<PAGE> 22
CPS:
COASTAL PHYSICIAN SERVICES, INC.
By: _________________________________
President
ATTEST:
______________________________
Secretary
[CORPORATE SEAL]
PPI:
PERFORMANCE PARTNERS, INC.
By: _________________________________
President
ATTEST:
______________________________
Secretary
[CORPORATE SEAL]
CONTRACTOR:
__________________________________ (SEAL)
John G. Ball
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into this 1st day of September, 1996, effective as set
forth in Section 2 below, by and between COASTAL PHYSICIAN GROUP,
INC., a Delaware corporation ("Employer") and DEBBIE HOLLOWAY-
REDD ("Employee").
WHEREAS, Employee has significant experience and background
in the business in which the Employer and its affiliates operate;
WHEREAS, subject to the terms and conditions hereinafter
provided, Employer desires to employ Employee, and Employee
desires to accept such employment on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the employment of
Employee and the compensation to be paid by Employer to Employee,
Employee hereby accepts employment hereunder subject to the terms
and conditions stated below, including the agreement of Employee
not to enter into certain competitive activities with the
Employer, as follows:
1. hereby accepts such employment, subject to the terms and
conditions stated herein.
2. TERM. This Agreement shall commence effective as of
EMPLOYMENT. Employer hereby employs Employee, and Employee
September 1, 1996 (the "Effective Date") and shall continue
through and including September 30, 1998 (the "Initial Term"),
unless this Agreement is (a) otherwise terminated in accordance
with the provisions contained herein, or (b) extended by written
consent of Employer and Employee.
3. DUTIES. Employee shall perform the following duties
pursuant to this Agreement:
(a) Employee shall be given the title of "President of
Coastal's Managed Care Division" and shall be president of
Coastal Managed Healthcare, Inc. ("CMH") and an officer of
Health Enterprises, Inc. ("HEI"), Healthplan Southeast, Inc.
("HPSE") and shall serve on the Board of Directors of HEI,
HPSE, Better Health Plan, Inc. ("BHP") and Doctors Health
Plan, Inc. ("DHP"). Employee may be removed at anytime from
any officer position and/or board seat as deemed appropriate
by (i) Price Waterhouse as plan manager (the "Plan Manager")
under the engagement letter between Employer and Price
Waterhouse dated April 4, 1996 pursuant to which the Plan
Manager implements the Management Action Plan referred to
therein (the "Management Action Plan"), (ii) the Board of
Directors of Employer or (iii) the shareholder of the
applicable entity.
(b) As President of Employer's Managed Care Division,
Employee shall be principally responsible for the overall
operations of CMH and its affiliates in managed care.. In
addition Employee shall be available to assist Employer and
its related entities in connection with the management and
operation of their respective businesses, including without
limitation coordinating the managed care activities of
Employer, CMH,
<PAGE> 2
HEI, HPSE, BHP and DHP and other related entities. Employee
shall perform all duties and responsibilities normally
associated with the officer and director positions with such
entities and shall carry out such other duties and
responsibilities and as otherwise may be reasonably assigned
to Employee by the Plan Manager or the Employer's Board of
Directors, including but not limited to, being involved and
consulted in determining major business decisions regarding
the development and strategic expansion affecting the
managed care subisidiaries of Employer.
(c) Employee shall be expected to travel as may be
determined by Employer to be necessary or appropriate to
Employee's performance of her duties hereunder.
(d) Employee shall at all times abide and observe
Employer's policies and procedures as are in effect from
time to time. Employee acknowledges that Employer is an
equal opportunity employer and that Employer's established
policy is not to discriminate on the basis of age, marital
status, race, color, sex, religion or national origin, or to
violate any federal or state anti-discrimination law.
Employee shall be responsible for carrying out and
implementing the foregoing policy throughout the operations
and activities of Employer.
4. COMPENSATION. For the services provided by Employee as an
employee of Employer, Employer shall pay Employee the annual base
salary (the "Base Salary") and other compensation identified on
EXHIBIT A.
5. CHANGE OF MANAGEMENT OR CONTROL. A change in management or
control of Employer shall not be considered a breach of this
Agreement by Employer or a termination of Employee by Employer so
long as the Plan Manager is retained and continues to implement
the Management Action Plan, and this Agreement will continue in
full force and effect. However, Employee will have the option to
deem termination of the agreement between Employer and the Plan
Manager a termination of this Agreement without cause by the
Employer as described in paragraph 15(a), and Employee will have
thirty (30) days to elect to continue employment under this
Agreement or to accept the termination without cause provisions
as outlined in paragraphs 15(a) and (b) below. If Employee
elects to accept the termination without cause provisions due to
a termination of the Plan Manager, then Employee shall provide a
minimum of thirty (30) days notice of termination. In the event
that the agreement between Employer and the Plan Manager or Price
Waterhouse is terminated for any reason, then the President of
Employer will fulfill all duties of the Plan Manager under this
Agreement.
6. DEVOTION OF TIME. During the term of this Agreement,
Employee shall devote her full time and attention to the business
of Employer and its subsidiaries in a manner and to an extent
commensurate with the commitment of other executive officers of
Employer, to fulfill her duties and responsibilities under the
Agreement and to advance the business interests and good
reputation of Employer.
7. CONFIDENTIALITY AND NON-DISCLOSURE. Employee acknowledges
that, during this employment, he/she will gain access to, or
possession or knowledge of, numerous trade secrets, confidential
information, other valuable properties not generally available to
the public and
<PAGE> 3
proprietary information, including but not limited to, hospital
and healthcare facility client lists, client files and records,
lists of potential clients, prospects or targets, and/or other
market and marketing data and plans, price books, promotional
devices and methods, business methods, manuals and plans,
business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential
Information"). Employee acknowledges that such Confidential
Information is unique and a valuable asset which is owned solely
by Employer and is to be used only for Employer's or its
affiliates' (other than any natural persons) benefit. Employee
shall not, during or after the term of this Agreement, disclose,
divulge, reveal, transfer, reproduce, sell, capitalize upon or
take advantage of such Confidential Information and, in addition,
Employee shall exercise all reasonable efforts and precautions to
protect against such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality,
or other conduct or action inconsistent with Employer's rights;
PROVIDED, however, that Confidential Information may be disclosed
to the extent (i) required by law or court order or (ii)
generally available to the public other than by unauthorized
disclosure. Upon termination of this Agreement, Employee shall
return immediately to Employer all of Employer's property
(including, without limitation, Confidential Information) in
Employee's possession or control.
8. COVENANT NOT TO COMPETE. Employee will, as a result of this
employment, be responsible for the executive management and
direction of substantial business resources and assets of
Employer and its operating subsidiaries and will develop
additional contacts and relationships with numerous individuals,
executives, companies, insurers, providers and health maintenance
organizations which are also involved in the managed healthcare
business. Such individuals and organizations will have business
and contractual relationships with Employer or its operating
subsidiaries that will be a valuable asset thereof. Accordingly,
Employee agrees as follows:
(a) Employee agrees that, during this Agreement and for a
period of eighteen (18) months after termination of this
Agreement, she will not solicit, nor will she in any way
affiliate herself with (as an employee, agent, principal,
consultant or otherwise) any individual or entity that
solicits, any hospital, health maintenance organization,
independent practice association, physician hospital
organization, managed care company, insurance company,
employer, payor, hospital, clinic, healthcare facility or
any other client having a contractual or business
relationship with Employer or any of its affiliates or
subsidiaries, or any prospective entity or individual to
which a marketing proposal, presentation or contact was made
during the six (6) month period immediately preceding the
termination of this Agreement (collectively, all such
current and prospective clients, the "Clients"), for the
purpose of providing healthcare or healthcare related
services similar to the services provided by Employer or any
of its affiliates or subsidiaries.
(b) Employee further agrees to refrain, for the term of
this Agreement and for a period of eighteen (18) months
following the termination of this Agreement, from any
activity of any nature intended or reasonably calculated to
result in the termination, cancellation or diversion of any
contractual or business arrangement between Employer or any
of its affiliates or subsidiaries and any Clients. The
above restriction applies, without limitation, to activities
undertaken through relationships with competitors of
Employer or
<PAGE> 4
any of its affiliates or subsidiaries, as well as activities
undertaken at the direct request of, and perhaps based upon
any employment relationship with, any such Clients.
(c) Nothing in this Agreement shall prevent Employee from
making passive investments in third parties so long as such
investments do not require Employee to perform any services
in connection with any such investments in such third
parties.
9. SOLICITATION OF OTHER EMPLOYEES. Employee shall not during
the term of this Agreement and for eighteen (18) months after the
termination of this Agreement, solicit or seek or influence,
either directly or indirectly, any employee or any physician or
healthcare provider under contract with Employer or any of its
affiliates or subsidiaries, to enter into any employment
agreement, independent contractor arrangement, or any other
contractual arrangement whereby such individual would perform
services for compensation, either directly or indirectly, for any
person, firm, corporation or other entity or business that
provides products or services in competition with Employer or any
of its affiliates or subsidiaries.
10. BREACH AND REMEDIES.
(a) Employee acknowledges that the breach or threatened
breach of any of the covenants set forth in Sections 7, 8 or
9 may result in immediate and irreparable injury to
Employer. Accordingly, Employee agrees that in addition to
any rights or remedies available to Employer for a breach by
Employee of Sections 7, 8 or 9, Employer shall be entitled
to injunctive relief to enforce the obligations of Employee
contained in such Sections. Nothing herein shall be
construed as prohibiting Employer from pursuing any other
legal or equitable remedies that may be available to it for
any such breach or threatened breach, including the recovery
of damages from Employee.
(b) The periods of time provided for in Sections 7, 8 or 9
shall be extended by any period of violation or periods of
time required to resolve by arbitration, not to exceed 45
days, any dispute regarding the provisions thereof.
(c) Employee hereby acknowledges that the covenants set
forth in Sections 7, 8 and 9 are reasonable in all respects
and are necessary to protect the legitimate business
interests of Employer. In the event that any of the
provisions of this Agreement are found to be unenforceable
or void (either in whole or in part), then the offending
portion shall be construed as valid and enforceable only to
the extent permitted by law and the balance of this
Agreement will remain in full force and effect. It is the
intention of parties to restrict the activities of Employee
only to the extent necessary to protect the legitimate
business interests of Employer, its subsidiaries and/or
affiliates, and not to deprive Employee of the right to earn
a livelihood.
11. BENEFITS.
(a) Employee shall be eligible to participate in employee
benefits programs commensurate with those accorded to
executive officers of Employer. Additionally, Employer
shall be entitled to the following:
<PAGE> 5
i) four (4) weeks of paid vacation per year;
ii) reimbursement, in accordance with Employer's
policies and procedures, for reasonable and necessary
business expenses incurred in connection with the
performance of the duties hereunder; and
ii) if Employee agrees to relocate (Employer shall not
require Employee to relocate during the term of this
Agreement), Employee will be reimbursed for Employee's
relocation expenses in accordance with Employer's
policies as are then in effect.
(b) Employer shall have the right and option, in its sole
discretion and at its cost and expense, to purchase "key
man" or other life insurance with respect to Employee, and,
in the event Employer elects to purchase such insurance,
Employee shall cooperate as may be necessary in connection
with the purchase of such insurance, including undergoing
physical examinations in connection therewith.
12. VACATION AND SICK LEAVE. All earned, accrued and unused
vacation pay will be payable to Employee upon termination. Any
unused sick pay, upon termination, will be governed by Employer's
then current policies.
13. WRITTEN AGREEMENT; ATTORNEYS' FEES. Employee shall be
reimbursed for all reasonable attorneys' fees incurred in
reviewing and preparing this Agreement, but not to exceed $2,000.
Reimbursement may be deferred by the Plan Manager at his
discretion until December 1, 1996.
14. OFFICE SPACE AND EQUIPMENT. Employer shall provide
Employee, as needed, with a computer, one fax machine and one
phone line for Employee's home office. In addition, Employer
shall provide one fax machine, one printer and one phone line for
Employee's administrative assistant, Bonnie Rose, to operate at
her home office. This is in lieu of any other office equipment
or space rental in Baltimore, Maryland. Employer shall also
designate office space in Durham, North Carolina for Employee.
15. TERMINATION. This Agreement may be terminated as follows:
(a) Employer may terminate this Agreement without cause at
any time upon ninety (90) days' prior written notice to
Employee, and Employee may terminate this Agreement without
cause at any time upon one hundred twenty (120) days' prior
written notice to Employer. This ninety or one hundred
twenty day period (as applicable) is hereafter referred to
as the "Notice Period." In the event of such termination,
Employee, if requested by Employer, shall continue to
perform her obligations and duties under this Agreement and
assist with the transition of duties to a new employee
during the Notice Period. Employer, at its option, may
notify Employee at any time during the Notice Period that no
further services are to be performed. If Employer
terminates this Agreement without cause, the non-compete
portion (Sections 8 and 9) of this Agreement becomes
invalid. Notwithstanding the above stated Notice Periods,
in the event that
<PAGE> 6
Employee elects, under Section 5, to treat a termination of
the Plan Manager as a termination of Employee by Employer
without cause, then the Notice Period shall be considered to
be the thirty (30) day period after Employee notifies
Employer that she is electing to treat the termination of
the Plan Manager as a termination of Employee by Employer
without cause.
(b) If this Agreement is terminated WITHOUT CAUSE by
Employer at any time through September 30, 1998, Employer
shall pay Employee an amount equal to the annual Base Salary
in effect on the date of termination plus any earned
Performance Bonus (see EXHIBIT A) to be paid out in equal
installments over the twelve months following the date of
termination, beginning in the month after termination.
(c) This Agreement may be terminated by Employer at any
time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of
this Subsection 15(c), cause shall include, but shall not be
limited to, the following: fraud; dishonesty; substantial
and continuous nonperformance of assigned duties; failure to
comply with a material written policy of Employer;
continuous performance of duties at a level significantly
below the performance level expected from an employee in a
similar position and at a similar compensation level within
Employer's industry; unlawful activities for which Employee
is indicted or convicted in a jurisdiction of the United
States; and material breach of this Agreement.
(d) This Agreement may be terminated by Employee at any
time for cause upon written notice to Employer, which notice
shall specify the reason for termination. For purposes of
this Subsection 15(d), cause shall include, but shall not be
limited to, the following: fraud, dishonesty; knowing and
intentional unlawful criminal activities, for which there is
a finding of probable cause that Employer or any of its
subsidiaries or control persons has been engaged in, not
occasioned by Employee's actions or omissions, and material
breach of this Agreement.
(e) In the event Employee terminates this Agreement
pursuant to Subsection 15(d), Employer shall pay Employee an
amount equal to the then applicable annual Base Salary plus
any Performance Bonus that has accrued as of the date of
termination.
(f) This agreement shall terminate upon the death or total
and permanent disability of Employee. In the event that
this Agreement terminates due to Employee's death or total
and permanent disability, Employer shall pay upon such
termination to Employee, Employee's Base Salary accrued
through the date of Employee's death or the date he/she
becomes totally and permanently disabled, as the case may
be. Permanent disability for purposes of this Agreement
shall mean the inability to perform the functions of
Employee's position for a continuous period of six (6)
months.
(g) Except as expressly set forth herein, all of Employer's
obligations for compensation or other benefits shall
terminate upon the effective date of the termination of this
Agreement.
<PAGE> 7
16. COMPLIANCE WITH SECURITIES LAWS. Employee agrees to comply
with all applicable federal and state securities laws and with
all applicable policies of Employer concerning the buying and
selling of stock of Employer by employees to the extent such
policies do not restrict Employee's express rights under this
Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties and supersedes and cancels any
prior oral and written understanding and/or agreements between
them respecting the subject matter of this Agreement. This
Agreement may be amended or modified only in writing signed by
both parties.
18. SEVERABILITY. If any provision, term, condition, or clause
of this Agreement or the application thereof shall be invalid or
unenforceable to any extent, the remainder of this Agreement
shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
19. GOVERNING LAW. This Agreement is made and entered into in
the State of Maryland and is to be construed in accordance with
and take effect under the laws of the State of Maryland without
regard to principles of conflicts of laws.
20. DISPUTE RESOLUTION. All disputes under this Agreement shall
be resolved by binding arbitration.
21. ASSIGNMENT. No party shall have any right to assign,
mortgage, pledge, hypothecate or encumber this Agreement in whole
or in part, or any benefit or any right accruing hereunder,
without in any such case first obtaining the prior written
consent of the other party hereto, except that Employer may
assign this Agreement to one of its affiliates or wholly-owned
subsidiaries, provided that in the event of such an assignment,
Employer shall remain primarily responsible for its obligations
hereunder. All rights hereunder are personal to the Employee and
shall cease upon the termination of this Agreement unless
otherwise stated herein; PROVIDED, HOWEVER, that the provisions
hereof shall inure to the benefit of the personal
representatives, heirs and legatees of Employee.
22. NOTICE. Any notice, or other written communication to be
given pursuant to this Agreement for whatever reason shall be
deemed duly given and received (a) if delivered personally, from
the date of delivery, or (b) by certified mail, postage pre-paid,
return receipt requested, three (3) days after the date of
mailing, addressed: in the case of Employer, to its principal
office and marked "Attention: President," and in the case of
Employee, to her last known permanent address according to the
books and records of Employer.
23. MISCELLANEOUS. Any protection, benefits, rights or other
provisions given to Employer in this Agreement shall also be
deemed to apply to, protect and inure to the benefit of
Employer's affiliates and subsidiaries. All rights of Employer
expressed in this Agreement are in addition to any rights
available under the common law or other legal principles.
Section or paragraph titles or captions contained in this
Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any provision hereof.
All pronouns and any variation thereof shall be deemed to refer
to
<PAGE> 8
the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or
corporations, and as context may require.
<PAGE> 9
IN WITNESS WHEREOF, the parties sign and seal below,
effective the date first written in this Agreement.
EMPLOYEE: EMPLOYER:
/S/ DEBBIE HOLLOWAY-REDD COASTAL PHYSIAN GROUP, INC.
Debbie Holloway-Redd
By: /S/ JOSEPH G. PIEMONT
Name: Joseph G. Piemont
Title: President & CEO
<PAGE> 10
EXHIBIT A
COMPENSATION
1. BASE SALARY. For all services provided as an employee of
Employer, Employee shall receive, beginning on the Effective Date
and continuing through September 30, 1997 a base salary of
$234,000 per annum (Employee's Base Salary) payable in accordance
with Employer's current payroll practices. The Employee's Base
Salary shall be subject to annual review and adjustment as of
October 1 of each year during the term of employment.
2. EARNED DISCRETIONARY BONUS. In recognition of the progress
in performance made at HPSE from January 1, 1996 to September 1,
1996, Employer will pay a bonus of $20,000 to Employee, to be
paid in two equal installments of $10,000 on the last days of
November and December, 1996.
3. PERFORMANCE BONUS. Employee will be eligible for
performance bonuses (the "Performance Bonuses") based on the
certain performance criteria (the "Performance Drivers"). The
Performance Drivers and the measurement of the Performance
Drivers (the "Performance Measurements") will be established by
Employer as described below. The Performance Drivers will
include at least the following:
(a) Medical Loss Ratio for HPSE;
(b) Enrollment for HPSE;
(c) Administrative Expense for HPSE;
(d) A portion (30-35%) will be based on discretionary
evaluation of performance by Employer. Tasks to be
evaluated will include: Securing a continuing provider
network for HPSE (up to $15,000 in the discretionary
component of the Performance Bonus may be paid upon the
successful negotiation of the physician network);
improving the operations of HPSE; realizing any synergy
between the various Employer affiliated HMO entities;
facilitating the divestiture process and implementing
the Management Action Plan approved by Employer's Board
of Directors relating to BHP; assisting with the growth
and management of DHP; and assisting the Plan Manager
in other operational areas of Employer as considered
necessary by the Plan Manager.
Employer shall establish
Performance Measurements for each of the Performance
Drivers above (other than the discretionary portion of
the plan) based upon the Business Plan and Financial
Budgets established for HPSE for Employer's lending
group (the "Banks"). The expected completion date of
the Business Plan and Financial Budgets is September
30, 1996 or within 45 days thereafter. Employer will
provide the Performance Measurements to Employee within
15 days after approval of the completed Financial
Budgets by the Employer's Board of Directors and the
Employer's Bank Group and the final "setting" of the
Bank Loan Covenants. All calculations of Performance
Measurements will be based upon the HPSE financial
statements
<PAGE> 11
prepared consistently and in accordance with GAAP and will
exclude any charges to HPSE by Employer under the name of
Management Fees.
The Performance Measurements will be based on the period
from October 1 to the following September 30 during each year of
the term of this Agreement. Each calendar quarter, beginning
October 1, 1996, shall constitute a measurement period.
Performance Bonuses will be earned on a quarterly basis and will
be paid in three (3) equal payments on the last day of each of
the three months following the quarter end. New Performance
Measurements will be established for each year during the term of
this Agreement as of October 1 of each year.
The maximum amount of the Performance Bonus (including any
discretionary component) will be $90,000.
4. PAYMENT OF PERFORMANCE BONUS UPON EARLY TERMINATION. In the
event that the Employee is terminated without cause prior to
Employer providing the Performance Measurements for the
Performance Drivers for the year commencing October 1, 1996 to
Employee, Employee will be entitled to 1/3 of the maximum amount
of the Performance Bonus ($30,000).
5. DIVESTITURE BONUS PROGRAM. In the event that HEI or HPSE
is divested during the term of Employee's employment hereunder
and prior to September 30, 1998, Employee shall be entitled to
receive a bonus equal to one-tenth of one percent (0.1%) of the
net proceeds. (the "Divestiture Bonus"). "Net Proceeds" shall be
defined as the net cash received by Employer from the sale of HEI
(or HEI from the sale of HPSE) after payment of professionals
fees, including investment bankers, accounting and legal fees and
all operating expenses or liabilities retained by seller and
accrued through the date of sale. Extraordinary expenses
incurred by Employer and any other corporate expenses incurred by
Employer in connection with the sales process (e.g., travel
expenses of Employer's employees, agents, or expenses of Plan
Manager and Price Waterhouse personnel assigned to this project)
and federal taxes will not be deducted in determining Net
Proceeds. In the event that the accounts receivable of the
clinical sites are retained by Employer and not transferred to
the buyer(s), the reasonable value of such accounts receivable as
determined by Employer shall be added in determining the Net
Proceeds, and any and all liabilities and future operating costs
to wind down the business, if any, not transferred shall be
deducted in determining Net Proceeds.
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of November 1, 1996 (the "Employment Date"), by and between
COASTAL PHYSICIAN GROUP, INC., a corporation organized and existing under the
laws of the State of Delaware (hereinafter referred to as "Company"), and
HENRY J. MURPHY, an individual resident of the State of Georgia (hereinafter
referred to as "Executive").
For and in consideration of the mutual covenants and promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereto,
intending to be legally bound, agree as follows:
1. EMPLOYMENT. Company hereby agrees to employ Executive in the
positions of Interim President and Chief Executive Officer of Company, and
Executive accepts such employment, all subject to the terms and conditions
hereafter set forth in this Agreement. Executive shall perform his duties
hereunder on a full-time basis during normal business hours principally at the
Company's headquarters in Durham, North Carolina. Executive is, and shall
remain, a member of Company's Board of Directors, and this Agreement shall not
affect Executive's position, responsibilities, compensation, or rights as a
director, except as otherwise expressly set forth herein.
2. EMPLOYMENT TERM. The initial term of this Agreement is from the
Employment Date until February 28, 1997 (the "Initial Term"). In addition to
the Initial Term, this Agreement may be renewed for two additional successive
periods of one month each (each period a "Renewal Term"), unless either party
gives written notice of non-renewal at least thirty (30) days prior to the
expiration of the Initial Term or any Renewal Term. Either the Initial Term or
any Renewal Term may be terminated only pursuant to Section 7 hereof. If, prior
to the expiration of the Initial Term or any Renewal Term, Company gives notice
to Executive of non-renewal of this Agreement, then upon the expiration of the
Initial Term and any Renewal Term with regard to which notice of non-renewal
has not been and cannot be timely given, this Agreement shall terminate and
Company shall immediately pay to Executive all benefits and payments due him
under this Agreement through such termination date. In addition, upon
termination of this Agreement for any reason, except Executive's voluntary
written resignation pursuant to Section 7.1(b) or termination for cause
pursuant to Section 7.1(e), Company shall continue to provide insurance
benefits and health and medical insurance reimbursement (described in Section 6
below), for a period beginning on the date that termination is effective and
continuing for six (6) months after such termination is effective or until
Executive obtains other employment with comparable insurance benefits,
whichever shall first occur.
3. DUTIES OF EXECUTIVE. Executive shall have the duties set forth in
this Section 3 during the Initial Term and any Renewal Term of this Agreement.
3.1 DUTIES OF EXECUTIVE GENERALLY. Executive shall manage and
operate Company as President and Chief Executive Officer pursuant to the
By-Laws of Company and in
<PAGE> 2
accordance with the contractual obligations of Company as they existed on the
Employment Date. If Executive's authority as it exists on the Employment Date
is changed without his prior written consent so as to materially diminish his
authority or so as to remove authority or responsibilities customarily
commensurate with the authorities and responsibilities of a chief executive
officer of similar corporations, then Executive at his election may resign, and
such resignation shall be deemed to be a termination without cause by Company
pursuant to Section 7.2 hereof.
3.2 AUTHORITY TO SELECT SENIOR MANAGEMENT AND PROFESSIONALS.
Subject to the prior approval of the Board of Directors, Executive shall have
the duty and authority, on behalf of Company, to hire and fire senior
management and key executives and to select and retain such attorneys,
accountants (subject to the rights of the shareholders to approve auditors),
consultants, and other professionals as Executive determines are necessary or
appropriate to maximize value to shareholders of the Company, provided,
however, that prior approval of the Board shall not be required with regard to
the selection and retention of attorneys, accountants, consultants, and other
professionals to provide services in connection with the day to day operations
of the Company and other routine matters. If the Board shall decline to follow
any recommendation of Executive regarding the hiring of any qualified senior
management or key executives, the firing of any senior management or key
executives, or the selection and retention of any qualified attorney,
accountant, consultant or professional (including without limitation the
removal or replacement, in whole or in part, of any current attorney,
accountant, consultant or professional) that Executive has made in good faith,
then Executive at his election may resign, and such resignation shall be deemed
to be a termination without cause by Company pursuant to Section 7.2 hereof.
3.3 FURNISHING OF INFORMATION TO BOARD OF DIRECTORS. Executive
shall be responsible for providing information to the Board of Directors as the
members shall from time to time reasonably request. All requests by a member of
the Board of Directors for information about the Company and any other
communications by a member of the Board relating to the business and affairs of
the Company and matters of concern to the Board of Directors shall be directed
to Executive or to such other person as the Board of Directors might designate.
3.4 SEARCH FOR PERMANENT CHIEF EXECUTIVE OFFICER. Executive will
assist Company in the search for a permanent Chief Executive Officer. Such
search shall not exclude any existing employees, officers, or directors of
Company. During the Initial Term or any Renewal Term, Executive will work with
a new Chief Executive Officer through an orderly transition period and will be
compensated through such transition period in accordance with the provisions of
this Agreement otherwise in effect. Executive may not treat the employment of a
Permanent Chief Executive Officer as a termination of this Agreement.
4. COMPENSATION OF EXECUTIVE. Except as otherwise provided in
this Agreement, Company shall compensate Executive in the manner set forth in
this Section 4 during the Initial Term and any Renewal Term of this Agreement.
<PAGE> 3
4.1 BASE SALARY. Executive shall receive a Base Salary during
the Initial Term of Thirty Thousand Dollars ($30,000) per month and a Base
Salary during any Renewal Term of Fifty Thousand Dollars ($50,000) per month as
compensation for his services hereunder. The Base Salary shall be payable in
accordance with the general payroll practices of Company. The amount of the
Base Salary shall be reviewed at the beginning of each Renewal Term, but shall
not be decreased below the amounts specified herein. Company, in its sole
discretion, may increase the amount of compensation provided in this Section
4.1 without the necessity of amending this Agreement, but Company shall not
decrease the Base Salary at any time during the term of this Agreement without
the prior written consent of the Executive. Any increase shall not affect any
of the other terms and conditions of this Agreement.
4.2 SIGNING BONUS. Company shall pay Executive $100,000.00 upon
execution of this Agreement. If this Agreement is not terminated, Company may,
but shall not be obligated to, pay Executive additional bonuses on the first
day of each Renewal Term.
4.3 STOCK APPRECIATION RIGHTS. Unless Executive shall make an
election under Section 4.4 to forfeit the following Stock Appreciation Rights
(as defined below) in consideration of electing to have an opportunity to
receive alternative additional compensation, Company shall pay Executive an
amount determined in accordance with the following provisions:
(a) PURPOSE. Subject to the terms hereof, Executive shall have
the right to receive an amount equal to any appreciation occurring from and
after the Initial Date (hereafter defined) in 100,000 shares of Company's
common stock (presently traded on the New York Stock Exchange) and these
provisions shall be interpreted with a view to accomplishing such purpose. Such
right with regard to each share is referred to herein as a "Stock Appreciation
Right" or "SAR".
(b) VESTING. So long as the employment of Executive has not
terminated under Section 7.1(b) or 7.1(e) of this Agreement, Stock Appreciation
Rights shall vest as follows, unless Executive shall elect accelerated vesting
set forth in paragraph 4.4: 12,000 SARs shall vest on each of November 1, 1996,
December 1, 1996, January 1, 1997, February 1, 1997 and February 28, 1997 (for
a total vesting of 60,000 SARs during the Initial Term), and in the event
employment is extended through the first Renewal Term an additional 20,000 SARs
shall vest on March 31, 1997 and in the event employment is extended through
the second Renewal Term an additional 20,000 SARs shall vest on April 30, 1997.
(c) DEFINITIONS. Terms used herein shall have the following
meanings: (i) the term "Initial Price" shall mean the price per share for
Company's common shares at the close of business of the New York Stock Exchange
(as reflected on the New York Stock Exchange Composite Tape) on the Employment
Date (the "Initial Date"); (ii) the term "Sales Price" shall mean either: (A)
if there is a public market for such shares on the Sales Date, the average
price per share for Company's common shares at the close of business of the New
York Stock Exchange (as reflected on the New York Stock Exchange Composite
Tape, or if those shares are not traded at that time on the New York Stock
Exchange, the comparable standard for the trading
<PAGE> 4
market on which those shares are then traded) on the ten trading days next
preceding the date (the "Sales Date") on which delivery of notice of exercise
of the rights granted hereunder occurs; or (B) if there is no public market for
such shares on the Sales Date, the fair market value per share for Company's
common shares at the close of business on the Sales Date, determined by
agreement of Company and Executive or, in the absence of agreement, by an
independent professional appraisal firm. The appraisal firm shall be selected
by agreement of the parties or, in the absence of such agreement, by an
arbitrator appointed by the American Arbitration Association, by and through
its offices in Durham, North Carolina. Company shall pay all costs and expenses
arising out of or relating to determination of the Sales Price, including
without limitation all of Company's and Executive's arbitration fees, costs,
and expenses, and all appraisal fees, and all of Executive attorneys' fees and
expenses that Executive may incur in connection with selection of an appraisal
firm and determination of fair market value as herein set forth.
(d) EXERCISE. Executive shall have the right to exercise the
rights granted hereunder which have vested at any time and from time to time
during the two-year period beginning on March 1, 1997 and ending at 12:00 p.m.
Eastern Standard Time on February 28, 1999. Such rights may be exercised by
delivering written notice thereof (which notice shall specify the number of
shares with respect to which such rights are being exercised) by facsimile
(919-383-0247) to Company's chief executive officer or its general counsel with
copies thereof being mailed promptly thereafter by certified mail addressed to
Company, P.O. Box 15309, Durham, North Carolina 27704, to the attention of such
officer or officers and with copies thereof also being given promptly to
Company in the manner prescribed for notices in Section 11.7 hereof.
(e) AMOUNT. The amount payable to Executive hereunder shall be
determined in accordance with the following provisions: (i) The Initial Price
shall be subtracted from the Sales Price to determine the per share
appreciation which has occurred; (ii) the per share appreciation shall then be
multiplied by the number of shares with respect to which Executive has
exercised his rights hereunder; and (iii) the resulting sum shall be the amount
payable to Executive hereunder. Such amount shall be paid to Executive on the
SAR Due Date (as defined herein), provided, that if the Sales Price is
determined by agreement or appraisal, such amount shall be paid within three
days after conclusion of such agreement or appraisal, together with interest at
the rate specified in Section 11.8 hereof on the amount thus determined,
payable for the period beginning on the SAR Due Date and ending on the date of
payment. The "SAR Due Date" shall mean, with regard to each exercise of SAR
rights hereunder, such date which is the later of November 1, 1997 or three (3)
days after receipt of notice exercising such rights. To the extent not
exercised, such rights shall remain in full force and effect, and upon
subsequent exercise by Executive as hereinabove provided, the amount payable to
Executive shall again be determined in accordance with the foregoing
provisions.
(f) ADJUSTMENT. In the event Company's outstanding common shares
shall be subdivided (split) or combined (reverse split), by reclassification or
otherwise, or in the event of any special dividend payable on such shares in
shares of Company's stock, the Initial Price and
<PAGE> 5
the number of shares with respect to which the rights granted hereunder exist
shall be proportionately adjusted to accomplish the purposes hereof.
(g) REORGANIZATIONS. If at any time during the three year term
hereof there shall be a capital reorganization of Company's common shares, then
as part of such reorganization, lawful provision shall be made so that
Executive's rights hereunder shall be protected in a manner which will
accomplish the purposes hereof.
(h) MERGER, BUSINESS COMBINATION. If a merger, consolidation,
share exchange or business combination occurs which results in Company's common
shares being acquired by another entity or entities (whether for cash,
securities, or other consideration), or if substantially all of Company's
assets and properties are sold to another entity or entities, the following
provisions shall be controlling of purposes hereof: (i) Executive shall be
deemed to have exercised his remaining rights on the closing date of such
transaction; (ii) the amount payable to Executive shall be determined and paid
within three days after such closing date; and (iii) Executive shall not
thereafter have any further right to receive payments based upon appreciation
in Company's common shares.
(i) INFORMATION. Upon the occurrence of each adjustment or
readjustment pursuant to the provisions contained herein, Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish Executive with information setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
4.4 Alternatives to SARs. At any time on or before sixty (60) days
after the termination of this Agreement (which date is hereinafter referred to
as the "Election Date"), Executive may make an election under this Section to
either retain the SARs or to forfeit the SARs provided for in Section 4.3 and be
eligible instead to receive either, but not both, of the following:
(a) TRANSACTION FEE. In the event Company consummates a
Transaction (as herein defined) during the term of this Agreement or within six
(6) months from the date of termination of this Agreement or with an entity or
entities with which the Company entered into a binding contract during the term
of this Agreement or within six (6) months from the date of termination of this
Agreement, Company shall pay, or cause to be paid, to Executive, at the time
the Transaction is consummated, a payment equal to one-half of one percent
(0.5%) of the fair market value of the acquisition price paid by the acquiring
entity or entities in connection with the Transaction. As used herein,
"Transaction" means any one or more transactions or series of transactions
which are conditioned on each other or which occur or are planned or are
committed to occur at substantially the same time and which, taken together
result in either (i) merger or consolidation where Company is not the
consolidated or surviving company or where the shareholders of Company prior to
the merger or consolidation do not own a majority of the shares of the
consolidated or merged company;, (ii) a transfer of over fifty percent (50%) of
the assets of Company;, or (iii) a transfer or issuance of over fifty percent
(50%) of the Common Stock of Company.
<PAGE> 6
(b) DEBT RESTRUCTURE FEE. In the event that, during the term of
this Agreement or within six months from the date of termination of this
Agreement, Company restructures its debts other than in bankruptcy proceedings
resulting in at least a fifteen percent (15%) reduction in the stated principal
amount and accrued interest of (i) Company's existing bank debt, or (ii)
Company's total liabilities, Company shall pay Executive a payment equal to
one-half of one percent (0.5%) of the amount of the reduction determined as of
the date immediately after the final debt restructuring. Such payment shall be
due within three (3) business days after conclusion of the final debt
restructuring.
Executive shall, if he elects to receive the full accelerated vesting of the
SARs or to be eligible for either the Transaction Fee or the Debt Restructure
Fee, notify the Company in the same manner as provided in Section 11.7. Such
notice shall be in writing and shall state specifically which fee Executive had
elected to be eligible for. Failure to make an election by the Election Date to
accept the 100,00 SARs or be eligible for either the Transaction Fee or the
Debt Restructure Fee shall mean that Executive shall retain the SARs described
in Section 4.3 subject to the vesting schedule and requirements set forth in
Section 4.3. Election to be eligible for either the Transaction Fee or the Debt
Restructure Fee shall be deemed an abandonment and waiver of the SARs described
in section 4.3 and a waiver of a right to receive whichever fee Executive did
not elect. The election shall be made only once and shall be irrevocable when
made.
4.5 DIRECTOR FEE. Executive shall not receive a fee or other
compensation for attending meetings and other services provided as a member of
Company's Board of Directors for so long as Executive shall remain a salaried
employee of the company.
5. BUSINESS RELATED EXPENSES. Upon presentation in accordance with
Company policies of itemized accounts of his expenditures relating to his
performance as an Executive, Company promptly shall reimburse Executive for all
reasonable and necessary travel and living expenses and other disbursements
incurred by Executive on behalf of Company in the performance of his duties
under this Agreement. Without limiting the generality of the foregoing, Company
agrees to reimburse Executive in accordance with the provisions of this Section
5 for any and all travel and living expenses incurred by Executive in
connection with or related to Executive's weekly plane trips to and from his
home in Atlanta, Georgia, and daily meal and living expenses in Durham, North
Carolina, and other locations to which Executive travels on Company business.
6. EXECUTIVE BENEFITS.
6.1 BENEFITS GENERALLY. Executive shall be eligible to
participate in all Executive benefits, bonus, and similar programs of Company
and in all other incentive, pension, thrift, profit sharing, stock option,
deferred compensation, Executive loan and insurance plans, and arrangements
maintained by Company from time to time for the benefit of its Executives;
except that Executive shall not, at his request, participate in any medical or
health benefit plan maintained by Company. Executive shall continue to maintain
his own medical, health, and
<PAGE> 7
dental benefit plan and Company shall reimburse Executive $400 per month for
the premiums of that plan (plus any increases in the monthly premium). Company
may change, alter, or modify any benefits or benefit programs from time to
time, provided Executive continues to receive benefits equivalent to those
received by other members of Company's senior management and continues to be
reimbursed for the full cost of his medical, health, and dental plan. Any
compensation received by Executive pursuant to any benefit programs shall be in
addition to the compensation described elsewhere in this Agreement.
6.2 INSURANCE BENEFITS. Company shall provide for Executive and
his dependents life and disability insurance coverage in keeping with the
insurance benefits provided to other members of Company's senior management and
on the same expense sharing basis as other members of Company's senior
management; but Company shall not provide any medical and health insurance,
other than reimbursement of Executive for the full cost of his medical, health,
and dental insurance as set forth in Section 6.1.
6.3 VACATION. Executive shall be entitled to vacations in
accordance with Company policy, during which time his compensation shall be
paid in full; provided, however, Executive shall receive no less than two (2)
days of vacation for each month of the Initial Term and each Renewal Term for
which Executive is employed hereunder. If Executive is unable to take any or
all of his vacation during the time it accrues due to business reasons,
Executive may take his unused paid vacation at a later time, or, at his option,
receive supplemental pay in lieu of vacation.
6.4 OTHER FRINGE BENEFITS. Executive shall also be entitled to
any other fringe benefits, including regular holiday and personal days, that
are normally available to other members of Company's senior management.
7. TERMINATION.
7.1 COMPENSATION AND BENEFITS UPON TERMINATION. This Agreement may
be terminated prior to the expiration of the Initial Term or any Renewal Term
by any of the following events:
(a) Mutual written agreement expressed in a single document signed
by both Company and Executive;
(b) Voluntary written resignation (other than a resignation which
is deemed to be a termination without cause pursuant to Section 3.1, 3.2 or
10.2 or which is permitted pursuant to Section 7.1(f) by Executive as President
and Chief Executive Officer of Company); provided, however, that Executive
shall be permitted to resign solely as a member of the Board of Directors of
Company at any time, and such resignation shall not be deemed a termination
hereunder;
(c) Death of Executive or such disability of Executive that
prevents him from carrying out the essential functions of his job with or
without reasonable accommodation;
<PAGE> 8
(d) Written notice of termination without cause as defined in
Section 7.2;
(e) Written notice of termination with cause as defined in
Section 7.3;
(f) By Executive, in his sole election upon the occurrence of
any of the following events:
(1) Company filing bankruptcy (whether voluntary or
involuntary);
(2) Company "going private", i.e., acquiring all of its Common
Stock and ceasing to trade its Common Stock on the New York Stock Exchange, or
otherwise ceasing to trade its Common Stock on the public market;
(3) Merger or consolidation where Company is not the
consolidated or surviving company;
(4) Discontinuation of business by Company;
(5) The occurrence of any event described in Section 3.1,
3.2, or 10.2 permitting Executive to resign.
Upon termination for any of the foregoing reasons, Executive shall
continue to render his services and shall be paid his regular compensation
and benefits up to the date of termination.
Upon termination of this Agreement under any of Sections 7.1(a), (c),
(d), or (f) hereof, such termination shall be deemed to be by Company without
cause and Company shall pay to Executive or his estate (as the case may be)
(i) any and all accrued compensation under this Agreement; (ii) insurance
benefits and reimbursement as set forth in Section 6 hereof; and (iii) any and
all Base Salary which would be due if Executive's employment continued
through the remaining period of the Initial Term and any Renewal Term with
regard to which notice of non-renewal has not been, and cannot be, timely given
(which Base Salary shall be due on the last date that Executive actually reports
to Company's premises for full time duties). In addition, Executive or his
estate (as the case may be) shall retain all rights with regard to Stock
Appreciation Rights described in Section 4.3 and shall continue to be
eligible to elect to receive the Transaction Fee or the Debt Reduction Fee in
accordance with the terms of Section 4.4, unless such election has been made,
in which event Executive (or his estate, as the case may be) shall retain the
rights Executive has as a result of his election. In the event of
Executive's death, all Stock Appreciation Rights vested in Executive, all of
Executive's rights with regard to the Transaction Fee or the Debt Restructure
Fee, and all rights relating to the election (if unexercised) concerning
same shall be retained and exercisable by his personal representative. If
this Agreement is terminated under Sections 7.1(b) or 7.1(e), Company will have
no obligation to pay amounts specified in the preceding clauses (i) through
(iii) above, and all unexercised and non-vested Stock Appreciation Rights
will terminate (or if Executive has elected
<PAGE> 9
to be eligible for the Transaction Fee or the Debt Reduction Fee,
the rights of Executive to such fee shall terminate).
7.2 TERMINATION WITHOUT CAUSE. Company may terminate without cause
by giving Executive written notice thereof. The noninsurability of Executive,
either present or future, does not constitute grounds for termination under
this or any other Section of this Agreement. If Executive is terminated under
this Section 7.2, Executive shall be entitled to compensation and benefits as
set forth in Section 7.1 above.
7.3 TERMINATION WITH CAUSE.
(a) Company may terminate this Agreement at any time with cause
upon written notice to Executive specifying the cause and the effective date of
termination. For purposes of this Agreement, "cause" shall mean only the
following: (i) willful breach of fiduciary duty or willful dishonesty, in
either case involving material personal profit and involving acts directed
towards Company, and which acts have had a material adverse effect on the
operation of Company; (ii) engaging in unethical or illegal conduct which is
substantially damaging to the reputation and/or business interests of the
Company; (iii) failure to carry out the lawful directives of the Board of
Directors provided that such directives are not in conflict with or inconsistent
with the terms of this Agreement; or (iv) criminal conduct of Executive against
Company which results in a felony conviction of Executive with respect to which
all opportunities for appeal have expired. Company agrees that in the event that
it shall allege that Executive engaged in a willful breach of fiduciary duty or
willful dishonesty of the type for which Company believes that it has cause for
Executive's termination, Company shall give notice to the Executive. If the
Executive, following receipt of such notice, shall demonstrate in good
faith to the reasonable satisfaction of the Board of Directors that any such
alleged action was unintentional, the Executive shall have the right to cure
such action by full reimbursement to the Company of any sums wrongfully
received; provided that such cure shall be permitted only if, with respect to
any single act or occurrence, the amount wrongfully received by Executive with
respect to such single act or occurrence was less than $5,000. The agreement by
Executive to return such sums shall constitute a cure, and Company shall not be
entitled to terminate the Executive with cause under this Section 7.3 for such
act or occurrence. Termination with cause shall be determined in good faith by
Company's Board of Directors after written notice to Executive and an
opportunity for Executive to be heard by Company's Board of Directors.
(b) If Executive is terminated under this Section 7.3, Executive
shall receive compensation and benefits as set forth in Section 7.1. If
Executive is given notice of termination under this Section 7.3, and it is later
determined that no "cause" existed, Executive shall be entitled to all
compensation and benefits which he would have received had the termination been
"Without Cause", plus reasonable attorneys' fees and costs incurred by Executive
in contesting the notice of termination, plus interest at the rate specified in
Section 11.8 hereof on the unpaid amounts from the date the same would have been
received until the date of payment.
7.4 RETURN OF COMPANY PROPERTY. Executive agrees to return all
property of Company, including, but not limited to, details of equipment,
prices, specifications, programs,
<PAGE> 10
customers, and prospective customer lists and any other proprietary data or
objects acquired through the Executive's employment with Company, within seven
(7) days after termination of employment, regardless of the reason therefor.
7.5 SERVICES AFTER TERMINATION. Executive agrees to cooperate and
assist Company after his termination in prosecuting and defending any lawsuits.
Company agrees to compensate Executive at the rate of $300 per hour for all
services provided pursuant to this Section 7.5,. including, but not limited to,
conferences with Company or its experts, agents, or attorneys; depositions;
trial (including preparation); and all other conferences, meetings, or
preparation time; provided that such compensation shall not be paid in any
action filed by or against the Company by or against the Executive.
8. NOTICE OF TERMINATION.
8.1 Any termination by Executive or Company shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
11.7. For purposes of this Agreement, a "Notice of Termination" means a written
notice which:
(a) Indicates the specific termination provision in this Agreement
relied upon;
(b) To the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated; and
(c) If the effective date of termination is other than the date of
receipt of such notice, specifies the effective date of termination (which date
shall be not more than fifteen (15) days after the giving of such notice).
The failure by Executive or Company to set forth in the Notice of
Termination any fact or circumstances which contribute to the termination shall
not waive any right of Executive or Company hereunder or preclude Executive or
Company from asserting such fact or circumstance in enforcing Executive's or
Company's rights hereunder.
9. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
9.1 Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense, or other claim,
right, or action which Company may have against Executive or others. In no event
shall Executive be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not Executive obtains other employment. If, and to the extent that, Executive is
the prevailing party therein, Company agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which Executive may
reasonably incur as a result of any contest by Company, Executive, or others as
to the validity or enforceability of, or liability under, any
<PAGE> 11
provisions of this Agreement or any guarantee of performance thereof (including
as a result of any contest by Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment, at the
rate specified in Section 11.8 hereof.
9.2 If there shall be any dispute between Company and Executive
concerning any termination of Executive's employment, then, unless and until
there is a final, non-appealable judgment by a court of competent jurisdiction
declaring either that such termination was pursuant to Section 7.1(b) or 7.1(e),
Company shall pay all amounts, and provide all benefits, to Executive and/or
Executive's family or other beneficiaries, as the case may be, that Company
would be required to pay or provide pursuant to this Agreement as though such
termination were by Company Without Cause; provided, however, that Company shall
not be required to pay any disputed amounts pursuant to this Section 9.2 except
upon receipt of an undertaking, satisfactory to the Board of Directors, by or on
behalf of Executive to repay all such amounts to which Executive is ultimately
adjudged by such court not to be entitled.
10. INDEMNIFICATION AND LIABILITY INSURANCE.
10.1 Company shall indemnify Executive to the fullest extent
permitted by Company's Articles of Incorporation, Bylaws, and applicable federal
or state laws for all amounts (including, without limitation, judgments, fines,
settlement payments, expenses, and reasonable attorneys' fees) incurred or paid
by Executive in connection with any action, suit, investigation, or proceeding
arising out of or relating to the performance by Executive of Services for, or
the action by Executive as a director, officer, or Executive of Company, any
subsidiary of Company, or any other person or enterprise at Company's request.
Expenses, including (but not limited to) reasonable attorneys' fees and
disbursements, incurred in defending any action, suit, investigation, or
proceeding, for which Executive may be entitled to indemnification under this
Section 10.1 upon final disposition of such action, shall be paid by Company
monthly and in advance of the final disposition, to the maximum extent permitted
by applicable laws and regulations; provided, however, that prior to making any
such payments Company shall receive an undertaking by or on behalf of Executive
to repay such amounts if it shall ultimately be determined that he is not
entitled to indemnification. The parties acknowledge and agree that when used in
this Agreement, "reasonable attorneys' fees" shall be deemed to mean the normal
billing rates of counsel of Executive's choice. The parties further agree that
Company's obligations hereunder shall survive the termination of Executive's
employment and termination of his service as a Director of Company.
10.2 Company will maintain in effect its Officers' and Directors'
liability policy at its present limits or greater for the term of Executive's
employment plus whatever extensions are necessary to provide full coverage of
Executive. If the Company fails to maintain such coverage, then Executive at his
election may resign, and such resignation shall be deemed to be a termination
without cause by Company pursuant to Section 7.2 hereof.
<PAGE> 12
11. MISCELLANEOUS.
11.1 GOVERNING LAW. This Agreement is made in the State of
North Carolina and shall be construed and enforced in accordance with the
laws of that state, except to the extent that federal law applies. The parties
agree that any action brought hereunder shall be brought in the appropriate
court having jurisdiction in Durham County, North Carolina or any federal court
in North Carolina having jurisdiction.
11.2 TIME. Time is of the essence of this Agreement.
11.3 BOARD APPROVAL. Company represents and warrants that the
execution and delivery of this Agreement have been approved by all requisite
Board of Directors or Committee Action; provided that the Board has required
that, as promptly as possible and in any event on or before December 20, 1996,
the Company request an opinion, at the expense of the Company, from a qualified
human resources firm selected by Executive, that the compensation provided for
hereunder is fair and reasonable in light of the circumstances. Company and
Executive shall use their best efforts to obtain such opinion as promptly as
possible and in any event on or before January 7, 1997. This Agreement shall
remain in effect unless and until the human resources firm provides an opinion
that any material part of this Agreement is not fair and reasonable and for five
(5) business days thereafter. In the event such an unfavorable opinion is
received, then Executive and Company agree to reconsider aspects of this
Agreement that the human resources firm has found not to be fair and reasonable
and to negotiate in good faith to formulate an alternative mutually acceptable
to the Company and Executive.
11.4 SEVERABILITY. In the event that this Agreement, or any
paragraph or provisions thereof, is declared invalid, void, or unenforceable by
a court of competent jurisdiction, the remaining provisions shall nevertheless
continue in full force and effect without being impaired or invalidated in any
way or to any extent.
11.5 ATTORNEYS' FEES AND COSTS. Company shall pay Executive's
reasonable attorney's fees and costs incurred in connection with negotiating his
employment with Company, including such fees and costs incurred in connection
with preparing and negotiating the terms of this Agreement. In the event of any
dispute or action hereunder between Company and Executive as to this Agreement
and the terms hereof, the reasonable attorneys' fees and expenses (up to a total
of $125,000) of the Executive shall be paid by the Company, but only if
Executive is the prevailing party. Executive shall not under any circumstances
be responsible for payment of any attorneys' fees or costs of the Company.
11.6 WAIVER OF BREACH. Failure or delay of either party to insist
upon compliance with any provisions hereof shall not operate as, and is not to
be construed as, a waiver or amendment of such provision or the right of the
aggrieved party to insist upon compliance with such provisions or to take
remedial steps to recover damages or other relief for noncompliance. Any express
waiver of any provision of this Agreement shall not operate and is not to be
construed as a waiver of any subsequent breach, whether occurring under similar
or dissimilar circumstances.
<PAGE> 13
11.7 NOTICES. All notices, consents, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or delivered if (i) delivered personally; (ii) mailed by certified
mail, return receipt requested, with proper postage prepaid; or (iii) delivered
by facsimile; or (iv) delivered by recognized courier contracting for same day
or next day delivery:
(a) To Company:
Ray A. Spillman
General Counsel
Coastal Physician Group, Inc.
2828 Croasdaile Drive
Durham, North Carolina 27705
(800) 476-4587; fax (919) 383-2921
and
James H. Clarke
Moore & Van Allen, PLLC
2200 West Main Street, Suite 800
Durham, North Carolina 27705
(919) 286-8000; fax (919) 286-8199
(b) To Executive:
Henry J. Murphy
622 Belmont Crest Drive
Marietta, Georgia 30067
(770) 955-7726; fax (770) 952-8786
and
Paul W. Bonapfel
Lamberth, Bonapfel, Cifelli & Stokes, P.A.
Ste. 550 East, Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
(404) 262-7373; fax (404) 262-9911
or such other address as the parties hereto shall have last designated by notice
to the other parties. Any item delivered personally or by recognized courier
contracting for same day or next day delivery shall be deemed delivered on the
date of delivery. Facsimile deliveries shall be deemed delivered on the date of
transmission by the sender provided sender has evidence of successful
<PAGE> 14
transmission. Any item mailed shall be deemed to have been delivered on the
earlier of the date evidenced on the return receipt or three business days after
mailing of the item.
11.8 INTEREST. Any obligation of either party which is not paid when
due shall bear interest. Whenever interest is due hereunder, the rate of
interest shall be the applicable federal rate established pursuant to Section
7872 of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF, Company has caused this Agreement to be executed and
delivered by its duly authorized officers under seal and its corporate seal to
be affixed hereto, and Executive has executed and delivered this Agreement and
has hereunto affixed his hand and seal, each on the date(s) set forth beside
their respective signatures below, with this Agreement to be effective as of the
Employment Date.
COMPANY:
COASTAL PHYSICIAN GROUP, INC.
(CORPORATE SEAL)
Date:12/5/96 By /S/ JACQUE JENNING SOKOLOV (SEAL)
-------------------------------------
Jacque Jenning Sokolov
Title: Chairman
Attest:
/S/ RAY A. SPILLMAN
- ----------------------------
Secretary
EXECUTIVE:
Date:12/9/96 /S/ HENRY J. MURPHY (SEAL)
-------------------------------------
HENRY J. MURPHY
<PAGE> 1
EXHIBIT 10.10
STATE OF NORTH CAROLINA RELEASE AND SETTLEMENT
AGREEMENT
COUNTY OF DURHAM
This Release and Settlement Agreement is made and entered
into this 6th day of November, 1996 by and between Steven M.
Scott, M.D. ("Dr. Scott"), Bertram E. Walls, M.D., M.B.A. ("Dr.
Walls"), and Coastal Physician Group, Inc. ("Coastal") on the one
hand and Stephen D. Corman ("Corman") on the other hand
(collectively the "Parties");
WHEREAS, the Parties are currently engaged in litigation in
the General Court of Justice, Superior Court Division, of Durham
County, North Carolina in a case styled STEVEN M. SCOTT, ET AL V.
JACQUE JENNING SOKOLOV, JOSEPH G. PIEDMONT, STEPHEN D. CORMAN AND
COASTAL PHYSICIAN GROUP, INC.; 96 CvS 2748 (the "Lawsuit"); and
WHEREAS, Corman has resigned his position as a member of the
board of directors of Coastal (the "Board"), as a director of any
subsidiaries of Coastal on which he may serve, as a member of any
Committees of the Board or of boards of directors of subsidiaries
of Coastal on which he may serve, as trustee (or similar
position) with any benefit plan maintained by or for employees of
Coastal or its subsidiaries, and be is resigning as an employee
and officer of Coastal or any of its subsidiaries upon execution
of this Release and Settlement Agreement (the "Agreement"); and
WHEREAS, Dr. Scott and Dr. Walls, on behalf of themselves
and in their capacities as representatives of Coastal desire to
compromise and settle the Lawsuit with Corman and Corman desires
to compromise and settle the Lawsuit with Dr. Scott and Dr.
Walls; and
WHEREAS, as part of this settlement the Parties also desire
to agree upon compensation and benefits to be paid to Corman in
lieu of the compensation and benefits called for under his
contract of employment; and
<PAGE> 2
WHEREAS, the Parties have agreed to enter into this
Agreement to accomplish their joint goal of settling and
resolving all claims against Corman in the lawsuit and any claims
Corman might have with respect to his contract of employment.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, the adequacy and sufficiency of which
is hereby acknowledged, the undersigned parties hereto agree as
follows:
1. INITIAL PAYMENT: Coastal shall pay Corman the sum of
One Hundred Thousand Dollars ($100,000.00) simultaneously with
the execution of this Agreement;
2. CONSULTING AGREEMENT: Corman shall serve as a
consultant to Coastal for the period beginning November 1, 1996
and ending March 31, 1997. During such period, Corman shall be
available at reasonable times to render and provide consulting or
advisory services to Coastal, including Board, Coastal's Plan
Manager, or the President and Chief Executive Officer of Coastal,
from time to time by telephone, facsimile, or letter. In light
of the fact that Corman served as Coastal's Chief Financial
Officer throughout the entire period of Coastal's fiscal quarter
ended September 30, 1996, such services shall include but not be
limited to Corman's finalization and signature as Chief Financial
Officer of Coastal's Third Quarter Form 10-Q, and Corman's review
of and comment on Coastal's 1996 Form 10-K. Upon reasonable
notice, and for reasonable periods of time, both in duration and
frequency, Corman shall be available to provide such other
consulting or advisory services at the offices of Coastal or at
such other places and locations as Coastal may reasonably
require, with reimbursement for any reasonable travel expenses.
Coastal acknowledges that Corman plans to investigate other
business opportunities, to become involved in other
<PAGE> 3
businesses and investments and to travel with his family during
such five month period. Coastal further acknowledges that Corman
will not be required or requested to be available to provide
consulting or advisory services on any given day, for substantial
parts of any given week, or during any given week during the five
month period; provided, however, that Corman shall not be
unavailable to render consulting services for a period of more
than ten business days of any calendar month. Corman agrees that
he will not refuse a reasonable request of Coastal, to provide
consulting or advisory services in accordance with the provision
of this Agreement. Coastal acknowledges a substantial portion of
Corman's duties hereunder will be to provide information and/or
advice in connection with transitional matters. Coastal and
Corman further agree that each will use their best efforts to
accommodate the needs and schedules each of the other. Corman
shall receive, as compensation for services rendered as a
consultant, the sum of Two Hundred Thousand Dollars ($200,000.00)
to be paid by Coastal in equal monthly installments of Twenty
Thousand Dollars ($20,000.00) each over the five (5) month period
of the consultancy and then in equal monthly installments of
Twenty Thousand Dollars ($20,000.00) each over the five (5) month
period following the conclusion of the consultancy. Coastal
shall make the first such installment payment on November 15,
1996 and continue thereafter to make succeeding payments on the
fifteenth day of each successive month until August 15, 1997.
Corman shall be engaged as an independent contractor by Coastal
and shall not be construed to be an employee of Coastal for any
purpose nor shall he be entitled to any benefits as an employee
of Coastal except as specifically provided herein. Corman, as an
independent contractor, shall not be an agent of Coastal for any
purpose and shall
<PAGE> 4
have no right to bind Coastal by contract or otherwise except and
only to the extent specifically authorized by the Board.
If any dispute shall occur between the parties, then Coastal
shall make all payments required hereunder to Corman
notwithstanding the pendency of such dispute. In the event it
shall be finally determined that Corman breached his obligations
under this section of this Agreement, however, then Coastal shall
be entitled to recover such payments from Corman, as well as
interest on such amounts at the rate of eighteen percent per
annum from the date payment was made to Corman to the date it is
recovered, plus the reasonable attorneys' fees (based upon
regular hourly rates) incurred by Coastal in recovering such
payments.
If Coastal shall determine that Corman is in default under
the consulting obligations of this paragraph 2, which
determination shall require the affirmative vote of a majority of
the members of the board, Coastal shall provide written notice
thereof to Corman, which notice shall specifically describe the
actions, events and circumstances constituting such default, and
Corman shall have ten days after receipt of such notice to cure
such default, in which case, this agreement (and Coastal's
obligations to make payments hereunder) shall remain in full
force and effect if such default is cured within such ten day
period.
Further, Corman's agreement to provide consulting services
and Coastal's agreement to pay compensation therefor shall
constitute a separate agreement, and if Corman defaults hereunder
(and fails to cure such default within the applicable cure
period), then Coastal's sole remedy shall be to recover payments
made after such default (and interest thereon at the rate of
eighteen (18) percent per annum and reasonable attorneys' fees
incurred in recovering such payments) and Coastal shall
<PAGE> 5
not have any right to recover sums paid to Corman prior to such
default or reduce or recover payments made pursuant to paragraphs
1 and 3 hereof.
3. ADDITIONAL PAYMENT: Coastal shall pay Corman an amount
determined in accordance with the following provisions:
(a) PURPOSE. Subject to the terms hereof, Corman shall
have the right to receive an amount equal to any appreciation
occurring from and after the Initial Date (hereinafter defined)
in 50,000 shares of Coastal's common stock (presently traded on
the New York Stock Exchange) and these provisions shall be
interpreted with a view to accomplishing such purpose.
(b) DEFINITIONS. Terms used herein shall have the
following meanings: (i) the term "Initial Price" shall mean the
price per share for Coastal's common shares at the close of
business of the New York Stock Exchange (as reflected on the New
York Stock Exchange Composite Tape) on the next trading day (the
"Initial Date") after release of the jointly approved press
release attached hereto; (ii) the term "Sales Price" shall mean
the average price per share for Coastal's common shares at the
close of business of the New York Stock Exchange (as reflected on
the New York Stock Exchange Composite Tape, or if those shares
are not traded at that time on the New York Stock Exchange, the
comparable standard for the trading market on which those shares
are then traded) on the ten trading days next preceding the date
(the "Sales Date") on which delivery of notice of exercise of the
rights granted hereunder occurs.
(c) EXERCISE. Corman shall have the right to exercise the
rights granted hereunder at any time and from time to time during
the three-year period beginning on the date hereof and ending at
12:00 p.m. EST on the third anniversary of this Agreement. Such
rights may be exercised by
<PAGE> 6
delivering written notice thereof (which notice shall specify the
number of shares with respect to which such rights are being
exercise) by facsimile (Fax 919-383-0247) to Coastal's chief
executive officer or its general counsel with copy thereof being
delivered promptly thereafter by certified mail addressed to
Coastal, P.O. Box 15309, Durham, N.C. 27704 to the attention of
such officer or officers.
(d) AMOUNT. The amount payable to Corman hereunder shall
be determined in accordance with the following provisions: (i)
the Initial Price shall be subtracted from the Sales Price to
determine the per share appreciation which has occurred (ii) the
per share appreciation shall then be multiplied by the number of
shares with respect to which Corman has exercised his rights
hereunder and (iii) the resulting sum shall be the amount payable
to Corman hereunder. Further, such amount shall be paid to
Corman within three days after receipt of the notice exercising
such rights. To the extent not exercised, such rights shall
remain in full force and effect, and upon subsequent exercise
thereof by Corman as hereinabove provided, the amount payable to
Corman shall again be determined in accordance with the foregoing
provisions.
(e) ADJUSTMENT. In the event Coastal's outstanding common
shares shall be subdivided (split), combined (reserve split), by
reclassification or otherwise, or in the event of any special
dividend payable on such shares of Coastal stock, the Initial
Price and the number of shares with respect to which the rights
granted hereunder exist shall be proportionately adjusted to
accomplish the purposes hereof.
(f) REORGANIZATIONS. If at any time during the three year
term hereof there shall be a capital reorganization of Coastal's
common shares, then as part of such reorganization, lawful
<PAGE> 7
provision shall be made so that Corman's rights hereunder shall
be protected in a manner which will accomplish the purposes
hereof.
(g) MERGER, BUSINESS COMBINATION. If a merger,
consolidation, share exchange or business combination occurs
which results in Coastal's common shares being acquired by
another corporation (whether for cash, securities or other
consideration), or if substantially all of Coastal's assets and
properties are sold to another person, the following provisions
shall be controlling for purposes hereof: (i) Corman shall be
deemed to have exercised his remaining rights on the closing date
of such transaction, (ii) the amount payable to Corman shall be
determined and paid within three days after such closing date and
(iii) Corman shall not thereafter have any further right to
receive payments based upon appreciation in Coastal's common
shares.
(h) INFORMATION. Upon the occurrence of each adjustment or
readjustment pursuant to the provisions contained herein, Coastal
at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish
Corman with information setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
4. RELEASE BY CORMAN: Corman does hereby relinquish,
remise, release and forever discharge Dr. Scott, Dr. Walls, and
Coastal and their respective attorneys, agents, heirs, assigns,
servants, officers, directors, shareholders, representatives, and
any and all other persons, parties or corporations that might be
in privity with them, whether named herein or not, of and from
all liabilities, costs, claims, expenses, attorney's fees,
demands, damages, losses, causes of action, suits and all
incidental and consequential damages of whatever kind, and
however arising, which Corman
<PAGE> 8
may now have or claim to have, or might hereafter have or claim
to have, whether known or unknown, matured or unmatured, from the
beginning of time through the date of this Agreement, including,
but not limited to, matters arising out of or related to the
claims that were asserted, or could have been asserted, in the
Lawsuit, and any claims for compensation or benefits arising out
of or related to his contract of employment.
5. RELEASE BY DR. SCOTT AND DR. WALLS: Dr. Scott and Dr.
Walls do hereby relinquish, remise, release and forever discharge
Corman and his respective attorneys, agents, heirs, assigns,
servants, employees, representatives, and any and al other
persons or parties or corporations that might be in privity with
them, whether named herein or not, of and from all liabilities,
costs, claims, expenses, attorney's fees, demands, damages,
losses, causes of action, suits and all incidental and
consequential damages of whatever kind, and however arising which
Dr. Scott and Dr. Walls, may now have or claim to have, or might
hereafter have or claim to have, whether known or unknown,
matured or unmatured, from the beginning of time through the date
of this Agreement, including, but not limited to, maters arising
out of or related to the claims that were asserted, or could have
been asserted, in the Lawsuit.
6. RELEASE BY COASTAL: Coastal, acting on behalf of its
predecessors, successors and assigns, and its present and former
officers, directors, employees, representatives, and agents, does
hereby relinquish, remise, release and forever discharge Corman
and his respective attorneys, agents, heirs, assigns, servants,
representatives, and any and all other persons, or parties that
might be in privity with them, whether named herein or not, of
and from all liabilities, costs, claims, expenses, attorney's
fees, demands, damages, losses, causes of action, suits and all
incidental and
<PAGE> 9
consequential damages of whatever kind, and however arising,
which Coastal may now have or claim to have, or might hereafter
have or claim to have, whether known or unknown, matured or
unmatured, from the beginning of time through the date of this
Agreement, including, but not limited to, matters arising out of
or related to the claims that were asserted, or could have been
asserted, in the Lawsuit. Provided, however, that this release
shall not include claims against Corman by Coastal for
intentional acts (including gross negligence) or material
misrepresentations with respect to the financial condition or
results of operations of Coastal, its subsidiaries or affiliates.
7. SHARES OWNED: Nothing herein shall in any way affect
any shares in Coastal owned by Corman as of the date hereof.
Coastal shall deliver to Corman certificates evidencing ownership
in the shares deliverable to him in lieu of payments for services
as a director, a committee member or service as chairman of any
committee. Corman hereby waives any options, vested or unvested,
described in Section 4(c) of his contract of employment.
8. PERSONAL PROPERTY: Corman shall be entitled to remove
from his office at Coastal, in addition to items which were
purchased by personal funds of Corman, the following items of
personal property: (1) two lamps, (2) a rug, and (3) a computer,
provided however, that in the event the value of the items
removed exceeds Three Thousand Dollars ($3,000.00), Corman shall
pay to Coastal a sum equal to such excess.
9. INSURANCE: Coastal agrees to use its best efforts to
continue to provide coverage for Corman under the executive
protection insurance policies for officers and directors
previously associated with Coastal so long as Coastal does not
incur additional premium cost therefor.
<PAGE> 10
10. INDEMNITY: Coastal hereby indemnifies Corman and
agrees to hold him harmless from and against all damages, claims,
losses, liabilities and expenses (including reasonable attorneys'
fees) arising from or in any way connected with Corman's service
as an officer, director, employee, consultant, agent or
representative of Coastal to the maximum extent permitted under
Section 145 of the General Corporation Law of the State of
Delaware and Article VIII of Coastal's by-laws (as presently
existing or as hereafter amended to broaden or increase such
indemnification), which shall continue in full force and effect
notwithstanding any resignation by Corman as an officer,
director, employee, consultant, agent or representative of
Coastal. Further, if Corman incurs expenses (including
reasonable attorneys' fees) in defending any civil, criminal,
administrative or investigative action, suit or proceeding,
Coastal shall promptly and forthwith advance Corman funds to pay
such expenses in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking from Corman to
repay such amount if it shall ultimately be determined that he is
not entitled to indemnification by Coastal pursuant to Delaware
law and pursuant to Coastal's bylaws in effect at the time of the
execution of this Agreement. Further, these indemnifications
provisions shall remain in full force and effect, notwithstanding
any insurance coverage afforded to Corman with respect to such
matters. For purposes of this agreement reasonable attorneys'
fees shall be determined with reference to regular hourly billing
rates for time spent by the attorney on the matters for which
attorneys' fees may be paid or reimbursed.
11. DEFAULT BY COASTAL: If Coastal fails to make any
payment required to be made by this Agreement, Corman may give
notice of default to Coastal which may, within ten (10) days
following the giving of such notice, cure any default. If
Coastal fails to cure any default as
<PAGE> 11
provided herein, the payment for which Coastal is in default
shall accrue interest at the rate of eighteen percent (18%) per
annum, simple interest, from the tenth day following the giving
of the default notice until paid. Upon commencement of
litigation related to a default, the prevailing party in any such
litigation shall be entitled to recover its costs and expenses,
including reasonable attorneys' fees (determined by reference to
such attorney's regular hourly billing rates) from the party no
prevailing in the litigation. For the purposes of this
paragraph, the term "prevailing party" means that party who has a
final, non-appealable judgment entered in its favor by a court of
competent jurisdiction.
12. DISMISSAL. Upon final approval of this Agreement by
the Court, Dr. Scott and Dr. Walls, individually and on behalf of
Coastal, shall file a voluntary dismissal with prejudice as to
all direct and derivative claims asserted against Corman in the
Lawsuit.
13. NO ADMISSION OF LIABILITY: The Parties hereto
understand and agree that this Agreement constitutes a compromise
of disputed claims, and that the payments and agreements
contained herein are not to be construed in any way to constitute
an admission of liability of the Parties.
14. FINAL APPROVAL OF COURT. It is expressly agreed and
understood that the effectiveness of this Agreement is expressly
conditioned on the final approval of this Agreement by the Court
and shall have no force or effect, nor be binding upon any Party
hereto until such time as final approval of the Court is given.
The Parties agree that, as soon as practicable following
execution of this Agreement (and not later than five business
days in any event), they will jointly move the Court to
preliminary approve the Agreement, to authorize the giving of
notice of the Settlement to
<PAGE> 12
shareholders (if deemed necessary by the Court), to set a hearing
for the final approval of the Agreement, and to grant final
approval of the Agreement.
Notwithstanding the foregoing paragraph, the Parties shall
conduct themselves as though the Agreement is in full force and
effect upon execution and perform all obligations required
thereby. In the event the Court does not grant final approval of
the Agreement prior to January 31, 1997, this Agreement shall be
void and of no effect and the parties shall revert to the status
quo ante as of the date of the Agreement although Corman shall
not be restored to his positions as either an officer or employee
of Coastal. In the event the Court does not grant final approval
of this Agreement, Coastal shall be deemed to have satisfied its
obligations to Corman under his contact of employment by paying
Corman the sum of $450,000 in equal monthly installments over a
period of eighteen months, with the amount of each installment
determined by deducting from the sum of $450,000 the amounts
previously paid pursuant to this Agreement and dividing the
remainder by 18. The first such installment shall be due within
ten days after the entry of a final Order by the Court denying
approval of the settlement, with the remaining seventeen payments
due on the last day of each succeeding month until paid in full.
Likewise, in the event the Court does not grant final approval of
this agreement, Corman shall be deemed to have satisfied his
obligations under his contract of employment by providing the
consulting services described in paragraph 2 above during the
ninety day period after October 31, 1996, as contemplated by his
contract of employment.
15. ENTIRE CONSIDERATION AND AGREEMENT. This document sets
forth the entire consideration for this Agreement, which
consideration is contractual and not a mere recital. All
agreements and understandings between the parties are embodied
and expressed herein.
<PAGE> 13
16. NO OTHER PROMISES OR INDUCEMENT. The undersigned
parties expressly warrant that no promise or inducement has been
offered except as set forth herein. This Agreement is executed
without reliance upon any statement or representation of any
person or party, or their representatives. Acceptance of the
consideration set forth herein is in full accord and satisfaction
of each of the causes of action which are disputed or could have
been disputed herein.
17. VOLUNTARY EXECUTION. The Parties enter into this
Agreement voluntarily, upon advice of counsel and of their own
accord and represent and warrant that they are under no duress
and coercion in entering said agreement. The Parties further
represent and warrant that they have reviewed the Agreement and
agree in all respects to its terms.
18. BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of and shall be binding upon the undersigned parties
and their respective heirs, executors, administrators, trustees,
successors and/or assigns.
19. WARRANTY OF OWNERSHIP OF CLAIMS. All Parties warrant
and represent that they are the sole holder and owner of each and
every claim, cause of action, right or chose in action relating
to the matters that are asserted or could have been asserted by
the Parties in the Lawsuit and that no assignment, in whole or in
part, of these claims, causes or rights has been made to any
other party.
20. CONFIDENTIALITY.
(a) It is expressly agreed that the terms and
conditions of the Agreement, are, and shall remain, confidential,
and shall not be revealed or disclosed by any party hereto except
(1) with the express written consent of all Parties hereto, (2)
upon the order of a court of competent jurisdiction, (3) as may
be necessary to enforce the terms of this Agreement, (4) as may
be required
<PAGE> 14
by law, (5) as may be required by any regulatory agencies
exercising oversight over any of the parties, or (6) as set forth
in the jointly approved press release attached hereto as Exhibit
A.
(b) Promptly after execution of the Agreement, Coastal
shall issue the jointly approved press release attached hereto as
Exhibit A.
21. NORTH CAROLINA LAW. This Agreement shall be construed
under and governed by the laws of the State of North Carolina.
All Parties consent to the jurisdiction of the General Court of
Justice of in Wake County, North Carolina for the enforcement of
this Agreement.
22. INTEGRATION AND MERGER. This Agreement embodies,
merges and integrates all prior and current agreements and
understandings of the parties with regard to the settlement of
the claims asserted or which could have been asserted by either
Party in the above styled and numbered causes and may not be
clarified, modified, changed or amended, except in writing,
signed by each of the signatories hereto. The terms of the
Protective Order shall survive this Agreement.
The parties hereto have set their hands and seals this the 6th
day of November, 1996.
/S/ STEVEN M. SCOTT, M.D.
Steven M. Scott, M.D.
/S/ BERTRAM E. WALLS
Bertram E. Walls, M.D., M.B.A.
COASTAL PHYSICIAN GROUP, INC.
By:/S/ HENRY J. MURPHY
Its:President & CEO
/S/ STEPHEN D. CORMAN
Stephen D. Corman
<PAGE> 15
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, Sharon J. Baker, a Notary Public of the County and State
aforesaid, certify that STEVEN M. SCOTT, M.D. personally appeared
before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 6th day of
November 1996.
/S/ SHARON J. BAKER
Notary Public
My Commission Expires:
3-16-00
[NOTARY SEAL]
<PAGE> 16
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, Sharon J. Baker, a Notary Public of the County and State
aforesaid, certify that BERTRAM E. WALLS, M.D., M.B.A. personally
appeared before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 6th day of
November 1996.
/S/ SHARON J. BAKER
Notary Public
My Commission Expires:
3-16-00
[NOTARY SEAL]
<PAGE> 17
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, Sharon J. Baker, a Notary Public of the County and State
aforesaid, certify that Henry J. Murphy personally came before me
this day and acknowledged that he is President & CEO of COASTAL
PHYSICIAN GROUP, INC., a Delaware corporation, and that, by
authority duly given and as the act of the corporation, the
foregoing instrument was signed in its name by its President,
sealed with its corporate seal.
WITNESS my hand and notarial seal, this 6th day of November,
1996.
/S/ SHARON J. BAKER
Notary Public
My Commission Expires:
3-16-00
[NOTARY SEAL]
<PAGE> 18
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, Sharon J. Baker, a Notary Public of the County and State
aforesaid, certify that STEPHEN D. CORMAN personally appeared
before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 6th day of
November 1996.
/S/ SHARON J. BAKER
Notary Public
My Commission Expires:
3-16-00
[NOTARY SEAL]
<PAGE> 1
EXHIBIT 10.11
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (the "Agreement") is made as of
the 31st day of December, 1996, by and between COASTAL PHYSICIAN
GROUP, INC., a Delaware corporation (the "Company"), and STEVEN
M. SCOTT, M.D. ("Dr. Scott").
W I T N E S S E T H:
WHEREAS, on November 1, 1996, the Board of Directors of the
Company adopted resolutions authorizing the reimbursement of
expenses incurred by Dr. Scott in the recent proxy contest
involving, among other issues presented to the Company's
shareholders, the election of directors of the Company;
WHEREAS, the resolutions of the Board of Directors provided
that in the event the Company could not make reimbursement in
cash without violating the loan covenants in its lending
relationships, the officers of the Company were directed and
authorized to enter into discussions with Dr. Scott and to reach
an agreement with Dr. Scott permitting reimbursement of expenses
in the form of promissory notes, stock options, securities or
other non-cash forms of compensation; and
WHEREAS, in the current financial situation of the Company,
the Company and Dr. Scott have agreed that it is not in the best
interests of the Company to reimburse the proxy expenses
completely in cash and have instead reached an agreement to
satisfy the reimbursement obligations of the Company by a
combination of (i) cash, (ii) issuance of shares of the Company's
common stock to Dr. Scott and (iii) issuance of shares of a new
series of preferred stock to Dr. Scott having the terms set forth
in EXHIBIT A attached hereto, all in accordance with the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Dr.
Scott agree as follows:
1. PROXY EXPENSES. Dr. Scott has submitted invoices to
the Company for proxy expenses in the total amount of
$1,654,550.12. The Company acknowledges that as of December 31,
1996 it was indebted to Dr. Scott in such amount. Dr. Scott
agrees to accept such amount as reimbursement in full of his
proxy expenses.
2. REIMBURSEMENT IN CASH, COMMON STOCK OR PREFERRED STOCK.
The Company agrees to reimburse Dr. Scott for the proxy expenses
in a combination of (i) cash, (ii) shares of newly-issued common
stock of the Company ("Common Stock") valued at the closing price
of $3.00 per share on the New York Stock Exchange ("NYSE") on
December 30, 1996, and/or (iii) shares of newly issued
convertible preferred stock of the Company ("Preferred Stock")
valued at $30.00 per share and having the terms and conditions
set forth on EXHIBIT A attached hereto. The exact combination of
cash, Common Stock and Preferred Stock shall be determined by Dr.
Scott.
<PAGE> 2
3. INITIAL ISSUANCE OF COMMON STOCK. On December 31,
1996, the Company issued 226,690 shares of Common Stock to Dr.
Scott. The issuance of the 226,690 shares of Common Stock will
be deemed to satisfy $680,070 of the Company's reimbursement
obligation, leaving a balance of $974,480.12 to be reimbursed.
4. CONDITIONS TO ADDITIONAL ISSUANCE OF COMMON STOCK. In
the event Dr. Scott elects to have an additional portion of the
reimbursement obligation of the Company paid in the form of
Common Stock, the Company shall undertake to issue additional
shares of Common Stock to satisfy such portion of the remaining
reimbursement obligation as is designated by Dr. Scott. Such
shares of Common Stock shall be issued promptly upon satisfaction
of any conditions to the issuance of such shares of Common Stock
, including compliance with the applicable provisions of NYSE
rules that may require shareholder approval of the issuance. In
the event shareholder approval of the issuance of such shares of
Common Stock is required by the NYSE or otherwise, the Company
agrees, at its expense, to undertake to solicit shareholder
approval at its next annual meeting of shareholders or at any
earlier special meeting of shareholders.
5. PREFERRED STOCK. In the event Dr. Scott elects to have
a portion of the reimbursement obligation of the Company paid in
the form of Preferred Stock, the Company will issue shares
Preferred Stock promptly upon written request of Dr. Scott. In
the event shareholder approval of the conversion of the Preferred
Stock into Common Stock is required by the NYSE or otherwise, the
Company agrees, at its expense, to undertake to solicit
shareholder approval at its next annual meeting of shareholders
or at any earlier special meeting of shareholders.
6. FAILURE TO SATISFY CONDITIONS FOR ADDITIONAL ISSUANCE.
In the event Dr. Scott elects to have the Company satisfy a
portion of the reimbursement obligations in Common Stock and the
Company is not able to satisfy preconditions for the issuance of
such shares, then Dr. Scott may elect to have such amount paid in
either Preferred Stock or cash.
7. NO FRACTIONAL SHARES. The Company shall not issue
fractional shares of Common Stock or Preferred Stock in the event
that the reimbursement amount is not evenly divisible by the
price per share, but shall pay cash in lieu of any fractional
share.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COASTAL PHYSICIAN GROUP, INC.
(CORPORATE SEAL)
By:/S/ HENRY J. MURPHY
Henry. J. Murphy, President
ATTEST:
/S/ RAY A. SPILLMAN
Ray A. Spillman, Secretary
/S/ STEVEN M. SCOTT, M.D.(SEAL)
STEVEN M. SCOTT, M.D.
<PAGE> 1
EXHIBIT 10.12
STATE OF NORTH CAROLINA ) RESTATED AND AMENDED
) EMPLOYMENT AGREEMENT
COUNTY OF DURHAM )
THIS RESTATED AND AMENDED EMPLOYMENT AGREEMENT, made and
entered into effective the 15th day of January by and between
COASTAL PHYSICIAN GROUP, INC. (the "Employer" or "Coastal"), a
Delaware corporation with its principal place of business in
Durham, North Carolina and EUGENE F. DAUCHERT, JR. ("Dauchert"),
a resident of Durham, North Carolina:
W I T N E S S E T H:
WHEREAS, Dauchert is currently employed as the President and
Chief Executive Officer of Coastal Physician Networks, Inc.
("CPN") pursuant to an Employment Agreement with Coastal dated
September 1, 1996; and
WHEREAS, CPN is a subsidiary of the Employer; and
WHEREAS, certain conditions and reporting relationships
contemplated in the September 1, 1996 Employment Agreement have
changed and Dauchert and the Employer desire to restate and amend
the terms of the Employment Agreement in order to extend the term
of employment, redefine reporting relationships and reset certain
incentive bonuses in light of changes that have occurred;
WHEREAS, this Restated and Amended Employment Agreement (the
"Agreement") is intended to restate and amend and supersede and
replace any and all prior agreements, written or oral, related to
Employee's employment with Employer with the exception of the
Agreement Not to Compete dated September 1, 1994, a copy of which
is attached hereto as Exhibit A;
NOW, THEREFORE, in consideration of the terms and conditions
set forth in this Agreement, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Employer hereby employs
Dauchert for a period of time (the "Term") commencing September
1, 1996 and terminating on April 30, 1997, unless sooner
terminated as hereinafter provided. After April 30, 1997, the
Term may be extended on a month to month basis by mutual
agreement of Dauchert and the Chief Executive Officer of
Employer, but neither party will be obligated to extend the Term
after April 30, 1997.
2. POSITION AND DUTIES. During the term of this
Agreement, Dauchert shall be employed as the President and Chief
Executive Officer of CPN and shall perform such duties as he
shall from time to time be directed by the Board of Directors of
CPN. The Board of Directors has designated the Chief Executive
Officer of Employer as the person to whom Dauchert shall report
on a day-to-day basis. Dauchert shall have overall
responsibility for the day to day operations of CPN subject to
the control and direction of the Chief Executive Officer of
<PAGE> 2
Employer and the Board of Directors of CPN. Dauchert hereby
accepts such employment and agrees to use his best efforts and
diligence and to devote his full time and energy to performing
the duties of his position. The Employer will provide, or will
cause CPN to provide, to Dauchert during the Term of this
Agreement an executive secretary, office space and other support
and working conditions as the same are approved by the Chief
Executive Officer of Employer.
3. COMPENSATION AND BENEFITS. Dauchert's base salary for
the Term shall be an amount equal to $13,334 per month ($160,000
per annum) for each month during the Term (prorated on a daily
basis for any partial month), payable in equal monthly
installments payable on the last day of each month during the
Term. During the Term, Dauchert shall be entitled to participate
in all standard benefit programs provided or offered to other
executives of CPN as such programs may exist from time to time.
It is understood that the Employer and CPN reserve the right to
amend, modify or terminate such programs in their sole
discretion.
4. TERMINATION. This Agreement may be terminated by
either Dauchert or the Employer as set forth below:
(a) This Agreement may be terminated at any time by
mutual agreement; provided, however, that such mutual agreement
will not be valid unless the same is in writing and signed by
both Dauchert and the Employer.
(b) This Agreement shall automatically terminate on
April 30, 1997 without the need for notice or any other action by
either Dauchert or Employer unless the Chief Executive Officer of
Employer and Dauchert have agreed to extend the Term on a month
to month basis, and then the Agreement shall automatically
terminate at the end of any month if the Chief Executive Officer
of Employer and Dauchert have not agreed to a further monthly
extension. Agreements to extend the Term on a month to month
basis need not be in writing, but Employer and Dauchert both
agree that, upon request of the other party, they will confirm
any agreed upon extensions in writing. Upon termination, the
Severance Benefit shall be paid to Dauchert in three (3) equal
monthly installments commencing within thirty (30) days of the
date of termination, and any earned Divestiture Bonus as of the
termination date shall be paid in accordance with the provisions
of Paragraph 8 of this Agreement.
(c) This Agreement may be terminated by the Employer
at any time for cause. For the purposes of this Agreement, cause
for termination by the Employer shall include, but shall not be
limited to, the following: fraud; dishonesty; failure to comply
with a material written policy of Employer; failure by Employee
to perform or meet objective and measurable standards; unlawful
activities for which Employee is indicted or convicted in a
jurisdiction of the United States; and material breach of this
Agreement. If this Agreement is terminated for cause, the
Employer shall have no obligation to provide further compensation
or benefits following the date of termination except as may be
required by COBRA or the terms of any applicable benefit plans.
It is specifically understood that in the event this Agreement is
terminated for cause, Dauchert will not be entitled to receive
the Severance Benefit or any unearned Divestiture Bonus, as
hereinafter defined. Any Divestiture Bonus earned prior to the
date of the termination for cause shall continue to be paid as
provided herein.
<PAGE> 3
(d) This Agreement may be terminated by the Employer
at any time without cause. In the event of termination of this
Agreement without cause, the Employer will pay to Dauchert any
unpaid base salary that would have been earned through the end of
the Term. In addition, the Employer will pay to Dauchert the
Severance Benefit, as hereinafter defined, together with any
earned portion of the Divestiture Bonus, as hereinafter defined.
The sum of the unpaid base salary, the Severance Benefit and the
earned portion of the Divestiture Bonus shall be paid to Dauchert
in three (3) equal monthly installments commencing within thirty
days of the date of termination. Further, for the period of
three (3) months following the date of the termination of this
Agreement without cause, Dauchert shall be entitled to continue
to participate in all benefit plans as if he were continuously
employed during such time; provided, however, in the event that
an employee on severance and not actively employed is not covered
by any insured benefit, it is understood that Dauchert shall not
participate in any such insured benefit.
(e) This Agreement may be terminated by the Employer
in the event that Dauchert shall be totally disabled from
performing his duties for the remaining portion of the Term. If
this Agreement is terminated due to Dauchert's disability, the
Employer shall have no obligation to provide compensation or
benefits beyond the date of termination except as required by
COBRA or the terms of any applicable benefit plans. If this
Agreement is terminated due to Dauchert's disability, it is
specifically understood that Dauchert shall not be entitled to
receive the Severance Benefit or any unearned Divestiture Bonus,
as hereinafter defined. Any Divestiture Bonus earned prior to
the date of termination due to disability shall continue to be
paid as provided herein.
(f) This Agreement shall automatically terminate in
the event of Dauchert's death during its term. In such event,
the Employer will pay to Dauchert's estate all compensation and
benefits due up to and including the date of death. If this
Agreement is terminated due to Dauchert's death, it is
specifically understood that Dauchert shall not be entitled to
receive the Severance Benefit or any unearned Divestiture Bonus,
as hereinafter defined. Any Divestiture Bonus earned prior to
the date of termination due to death shall continue to be paid as
provided herein. Any such payments of earned Divestiture Bonus
will be paid to Dauchert's estate.
(g) This Agreement shall be terminated if Dauchert
shall voluntarily resign. In such event, the Employer will pay
to Dauchert all compensation and benefits due up to and including
the date of resignation. If this Agreement is terminated due to
Dauchert's voluntary resignation, it is specifically understood
that Dauchert shall not be entitled to receive the Severance
Benefit or any unearned Divestiture Bonus, as hereinafter
defined. Any Divestiture Bonus earned prior to the date of
termination due to voluntary resignation shall continue to be
paid as provided herein.
5. PROPERTY OF EMPLOYER. Upon the termination of this
Agreement for whatever reason, it is understood and agreed that
all files and other information regarding the Employer or CPN and
their operations are the sole and exclusive property of the
Employer or CPN. Upon termination of this Agreement, Dauchert
shall only remove those personal effects and any property which
he has purchased without reimbursement by the Employer or CPN.
<PAGE> 4
6. AGREEMENT NOT TO COMPETE. The Agreement Not To Compete
executed by Dauchert and dated September 1, 1994 is incorporated
by reference herein and made a part of this Agreement.
7. SEVERANCE BENEFIT. The Severance Benefit for purposes
of this Agreement shall be equal to six months base salary less
withholding of all required federal and state taxes. In the
event that the Divestiture Bonus (or a portion thereof)
contemplated under Section 8 is not earned due to the expiration
of this Agreement or the termination of Dauchert's employment
without cause prior to the date the Divestiture Bonus (or a
portion thereof) is earned, then the Severance Benefit shall be
increased by the amount of the Divestiture Bonus that would have
been paid as a result of the divestiture of IPN/PSI/South Florida
(but not less than four (4) months base salary). It is
understood that the Divestiture Bonus to be paid as a result of
the divestiture of HealthNet has already been earned as of the
date of this Restated and Amended Agreement. It is understood
that the Severance Benefit is only payable in the event of the
termination of this Agreement without cause or upon termination
at the expiration of its Term.
8. DIVESTITURE BONUS. Dauchert will be entitled to
receive a Divestiture Bonus based upon sale or divestiture of the
following Coastal companies: HealthNet Medical Group division of
Physicians Planning Group, Inc. ("HealthNet"); Integrated
Provider Networks, Inc. ("IPN"); Practice Solutions, Inc.
("PSI"); and the Belle Glade Obstetrics, Inc. and Lehigh Medical
Associates, Inc. practices of Coastal Physician Group of Florida,
Inc. ("South Florida"). The Divestiture Bonus shall be the
product of the Net Proceeds, as hereinafter defined, and the
applicable percentage as shown below:
(a) HealthNet. The Divestiture Bonus shall be equal
to 0.375% of the Net Proceeds, which for purposes of this
paragraph are equal to $9,375,000. As of the date of this
Restated and Amended Employment Agreement, HealthNet has been
sold and the Divestiture Bonus of $35,156.25 has been earned by
Dauchert.
(b) IPN/PSI. The Divestiture Bonus shall be equal to
0.5% of the Net Proceeds for the companies or assets divested by
Advest, Inc. pursuant to the terms of the engagement letter
between Advest and Coastal dated November 22, 1996 (the "Advest
Letter"). For purposes of this paragraph, Net Proceeds shall
have the same meaning as the term "Transaction Consideration" as
set forth in the Advest Letter. The Divestiture Bonus shall be
earned upon Coastal's receipt of the sales proceeds from a sale
or divestiture.
(c) South Florida. The Divestiture Bonus shall be
equal to 1.0% of the Net Proceeds for the companies or assets
divested of IPN, PSI or South Florida which are sold or divested
without the assistance of Advest, Inc. (and without the
requirement that a fee be paid to Advest, Inc.). The Divestiture
Bonus shall be earned upon Coastal's receipt of the sales
proceeds from a sale or divestiture. For purposes of this
paragraph, Net Proceeds shall be defined as net cash received by
Coastal from the sale after payment of professional fees,
including investment bankers, accounting and attorneys' fees
(relating to the respective transactions) and all operating
expenses of the company sold accrued as of the date of sale which
are not assumed by the purchaser. Extraordinary expenses
incurred by Coastal and any other corporate expenses
<PAGE> 5
incurred by Coastal in connection with sales process (such as
travel expenses of Coastal employees assigned to a project) and
taxes will be excluded from the calculation. In the event that
all or some portion of the accounts receivable of the companies
are retained by Coastal and not transferred to the buyer(s), the
reasonable value as determined by Coastal will be included in the
Net Proceeds calculation as will any liabilities not transferred.
(d) Any Divestiture Bonus will be paid in two equal
monthly installments commencing within thirty (30) days of the
date of receipt of the Net Proceeds from the sale or divestiture.
(e) Payment of Divestiture Bonus. Payment of any
Divestiture Bonus will be made in two equal monthly installments
commencing within thirty days of the receipt of the Net Proceeds
by Coastal for the company for which the Divestiture Bonus is
earned.
9. VACATION AND SICK LEAVE. Upon termination of this
Agreement for any reason, Dauchert will be entitled to all
earned, accrued and unused vacation pay upon termination. Upon
termination of this Agreement for any reason, Dauchert will
forfeit any unused sick pay.
10. MANAGEMENT BUY OUT. In the event that (i) Dauchert is
a principal in the purchaser of all or part of the business of
Coastal as to which a Divestiture Bonus may be earned and (ii)
Dauchert accepts full-time employment with the purchaser, then
Dauchert will not be entitled to any Severance Benefit; however,
he shall be entitled to any earned Divestiture Bonus.
11. ATTORNEYS' FEES. Dauchert shall be reimbursed for his
reasonable attorneys' fees incurred in negotiating this Agreement
and the Employment Agreement which this Agreement restates and
amends.
12. GOVERNING LAW. The validity and interpretation and
effect of this Agreement shall be governed exclusively by the
laws of the State of North Carolina.
13. ENTIRE AGREEMENT. This Agreement restates and amends
in its entirety the Employment Agreement dated September 1, 1996
between the parties. This Agreement contains the entire
understanding of the parties. This Agreement may not be changed
orally, but only by agreement in writing signed by both parties
hereto.
14. BINDING EFFECT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their
heirs, personal representatives, successors and assigns.
15. PROVISIONS SEVERABLE. The provisions of this Agreement
shall be severable and should any court determine that any part
of this Agreement is invalid or unenforceable, such part or
portion shall be deemed severable and shall not effect
enforceability of any other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
<PAGE> 6
COASTAL PHYSICIAN GROUP, INC.
By:/S/ HENRY J. MURPHY
Title:President & CEO
/S/ EUGENE F. DAUCHERT, JR.
EUGENE F. DAUCHERT, JR.
<PAGE> 1
EXHIBIT 10.13
STATE OF NORTH CAROLINA RELEASE AND
SETTLEMENT
AGREEMENT
COUNTY OF DURHAM
This Release and Settlement Agreement is made and entered
into this 21st day of January, 1997, by and between Steven M.
Scott, M.D. ("Dr. Scott"), Bertram E. Walls, M.D., M.B.A. ("Dr.
Walls"), and Coastal Physician Group, Inc. ("Coastal") on the one
hand and Joseph G. Piemont ("Piemont") on the other hand
(collectively the "Parties");
WHEREAS, the Parties are currently engaged in litigation in
the General Court of Justice, Superior Court Division, of Durham
County, North Carolina, in a case styled STEVEN M. SCOTT, ET AL.
V. JACQUE JENNING SOKOLOV, JOSEPH G. PIEMONT, STEPHEN D. CORMAN,
AND COASTAL PHYSICIAN GROUP, INC.; 96 CvS 2748 (the "Lawsuit");
and
WHEREAS, Piemont previously resigned his position as
President of Coastal and has made claims against Coastal with
regard to an Employment Agreement between himself and Coastal
dated June 1, 1996 (the "Contract") which claims have been
disputed by Coastal; and
WHEREAS, Piemont has filed Motion for Leave to File
Supplemental Pleading to Assert a Crossclaim Against Coastal
Physician Group, Inc. based upon the Contract in the Lawsuit; and
WHEREAS, Dr. Scott and Dr. Walls, on behalf of themselves
and in their capacities as representatives of Coastal, and
Coastal desire to compromise and settle the Lawsuit with Piemont,
and Piemont desires to compromise and settle the Lawsuit with Dr.
Scott, Dr. Walls and Coastal; and
WHEREAS, the Parties have agreed to enter into this
Agreement to accomplish their joint goal of settling and
resolving all claims
<PAGE> 2
against Piemont in the Lawsuit and any claims Piemont made by or
which could have been made by Piemont in the Lawsuit, including
but not limited to all claims with respect to the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, the adequacy and sufficiency of which
is hereby acknowledged, the undersigned parties hereto agree as
follows:
1. INITIAL PAYMENT: Coastal shall pay Piemont the sum of
One Hundred Fifty Thousand Dollars ($150,000.00) on January 15,
1997, if this Agreement has been approved by the Court presiding
over the Lawsuit by that date. Otherwise, this sum shall be paid
to Piemont within five (5) business days after approval by the
Court;
2. SUBSEQUENT PAYMENTS: As further consideration for the
execution of this Agreement, Piemont shall receive the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) to be paid by
Coastal in equal monthly installments of Twenty Thousand Dollars
($20,000.00) each for a period of twelve months beginning
(subject to prior Court approval) on February 15, 1997, and
ending on January 15, 1998, and a final payment of Ten Thousand
Dollars ($10,000.00) to be paid on February 15, 1998. This
obligation of Coastal to Piemont shall be evidenced by a non-
interest-bearing note in the form attached as Exhibit A and shall
be subject to approval by the Court by February 15, 1997.
Otherwise, the first monthly installment shall be paid by Coastal
on the fifteenth (15th) of the month after the approval by the
Court.
<PAGE> 3
3. STOCK APPRECIATION RIGHTS: Coastal furthermore shall
pay Piemont an amount determined in accordance with the following
provisions:
(a) PURPOSE. Subject to the terms hereof, including
the maximum amount in accordance with Section 3(d) below, Piemont
shall have the right to receive the appreciation occurring from
and after the Initial Date (hereinafter defined) in 50,000 shares
of Coastal's common stock (presently traded on the New York Stock
Exchange) and these provisions shall be interpreted with a view
to accomplishing such purpose.
(b) DEFINITIONS. Terms used herein shall have the
following meanings: (i) the term "Initial Price" shall mean the
price per share for Coastal's common shares at the close of
business of the New York Stock Exchange (as reflected on the New
York Stock Exchange Composite Tape) on December 30, 1996, of
$3.00 per share (the "Initial Date"); (ii) the term "Sales Price"
shall mean the average price per share for Coastal's common
shares at the close of business of the New York Stock Exchange
(as reflected on the New York Stock Exchange Composite Tape, or
if those shares are not traded at that time on the New York Stock
Exchange, the comparable standard for the trading market on which
those shares are then traded) on the ten trading days next
preceding the date (the "Sales Date") on which delivery of notice
of exercise of the rights granted hereunder occurs.
<PAGE> 4
(c) EXERCISE. Piemont shall have the right to
exercise his right to payment under Section 3 at any time and
from time to time during the three-year period beginning on the
date hereof and ending at 12:00 p.m. E.S.T. on the third
anniversary of the date of execution of this Agreement. Such
rights shall be exercised by delivering written notice thereof
(which notice shall specify the number of shares with respect to
which such rights are being exercised) by facsimile (Fax 919-383-
0247) to Coastal's chief executive officer or its general counsel
with copy thereof being delivered promptly thereafter by
certified mail addressed to Coastal, P.O. Box 15309, Durham, N.C.
27704, to the attention of such officer or officers.
(d) AMOUNT. The amount payable to Piemont hereunder
shall be determined in accordance with the following provisions:
(i) the Initial Price shall be subtracted from the Sales Price to
determine the per share appreciation which has occurred,
provided, however, that the per share appreciation to which
Piemont shall be entitled shall not exceed Four Dollars ($4.00);
(ii) the per share appreciation, not to exceed Four Dollars
($4.00), shall then be multiplied by the number of shares with
respect to which Piemont is exercising his rights hereunder; and
(iii) the resulting sum shall be the amount payable to Piemont
under this Section 3. Further, such amount shall be paid to
Piemont within three business days after receipt of the notice
exercising such rights. To the extent not exercised, such rights
shall remain in full force and effect, and upon subsequent
exercise thereof by Piemont as hereinabove
<PAGE> 5
provided, the amount payable to Piemont shall again be determined
in accordance with the foregoing provisions. Any such rights not
exercised within three years of the date hereof shall lapse and
be of no further force and effect.
(e) ADJUSTMENT. In the event Coastal's outstanding
common shares shall be subdivided (split), combined (reverse
split), by reclassification or otherwise, or in the event of any
special dividend payable on such shares in shares of Coastal
stock, the Initial Price and the number of shares with respect to
which the rights granted hereunder exist shall be proportionately
adjusted to accomplish the purposes hereof.
(f) REORGANIZATIONS. If at any time during the three-
year term hereof there shall be a capital reorganization of
Coastal's common shares, then as part of such reorganization,
lawful provision shall be made so that Piemont's rights hereunder
shall be protected in a manner which will accomplish the purposes
hereof.
(g) MERGER, BUSINESS COMBINATION. If a merger,
consolidation, share exchange or business combination occurs
which results in Coastal's common shares being acquired by
another corporation (whether for cash, securities or other
consideration), or if substantially all of Coastal's assets and
properties are sold to another person, the following provisions
shall be controlling for purposes hereof: (i) Piemont shall be
deemed to have exercised his remaining rights on the closing date
of such transaction, (ii) the amount payable to Piemont, if any,
shall be determined and paid
<PAGE> 6
within three business days after such closing date and (iii)
Piemont shall not thereafter have any further right to receive
payments based upon appreciation in Coastal's common shares.
(h) INFORMATION. Upon the occurrence of each
adjustment or readjustment pursuant to the provisions contained
herein, Coastal at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof
and furnish Piemont with information setting forth such
adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based.
4. RELEASE BY PIEMONT: Except as provided in this Release
and Settlement Agreement and as provided in the Promissory Note
to be delivered to Piemont as set forth in Section 2, Piemont
does hereby relinquish, remise, release and forever discharge Dr.
Scott, Dr. Walls, and Coastal and their respective attorneys,
agents, heirs, assigns, servants, officers, directors,
shareholders, representatives, and any and all other persons,
parties or corporations that might be in privity with them,
whether named herein or not, of and from all liabilities, costs,
claims, expenses, attorney's fees, demands, damages, losses,
causes of action, suits and all incidental and consequential
damages of whatever kind, and however arising, which Piemont may
now have or claim to have, or might hereafter have or claim to
have, whether known or unknown, matured or unmatured, from the
beginning of time through the date of this Agreement, including,
but not limited to, matters arising out of or related to the
claims that were asserted
<PAGE> 7
or could have been asserted, in the Lawsuit, and any rights
whatsoever or claims for compensation or benefits arising out of
or related to the Contract or Piemont's employment with Coastal.
5. RELEASE BY DR. SCOTT AND DR. WALLS: Dr. Scott an Dr.
Walls do hereby relinquish, remise, release and forever discharge
Piemont and his respective attorneys, agents, heirs, assigns,
servants, employees, representatives, and any and all other
persons or parties or corporations that might be in privity with
them, whether named herein or not, of and from all liabilities,
costs, claims, expenses, attorney's fees, demands, damages,
losses, causes of action, suits and all incidental and
consequential damages of whatever kind, and however arising which
Dr. Scott and Dr. Walls, may now have or claim to have, or might
hereafter have or claim to have, whether known or unknown,
matured or unmatured, from the beginning of time through the date
of this Agreement, including, but not limited to, matters arising
out of or related to the claims that were asserted, or could have
been asserted, in the Lawsuit and of any rights or claims arising
out of or related to the Contract or Piemont's employment with
Coastal.
6. RELEASE BY COASTAL: Coastal, acting on behalf of its
predecessors, successors and assigns, and its present and former
officers, directors, employees, representatives, and agents, does
hereby relinquish, remise, release and forever discharge Piemont
and his respective attorneys, agents, heirs, assigns, servants,
representatives, and any and all other persons, or parties that
might be in privity with them, whether named herein or not, of
and
<PAGE> 8
from all liabilities, costs, claims, expenses, attorney's fees,
demands, damages, losses, cause of action, suits and all incident
and consequential damages of whatever kind, and however arising,
which Coastal may now have or claim to have, or might hereafter
have or claim to have, whether known or unknown, matured or
unmatured, from the beginning of time through the date of this
Agreement, including, but not limited to, matters arising out of
or related to the claims that were asserted, or could have been
asserted, in the Lawsuit and of any rights or claims arising out
of or related to the Contract or Piemont's employment with
Coastal.
7. SHARES OWNED: Nothing herein shall in any way affect
any shares in Coastal owned by Piemont as of the date hereof.
Piemont hereby waives any options, vested or unvested, held by
him, including but not limited to those described in Section 5(i)
of the Contract.
8. INSURANCE: Coastal agrees to use its best efforts to
continue to provide coverage for Piemont under the executive
protection insurance policies for officers and directors
previously associated with Coastal so long as Coastal does not
incur additional premium cost therefor.
9. INDEMNITY: Coastal hereby indemnifies Piemont and
agrees to hold him harmless from and against all damages, claims,
losses, liabilities and expenses (including reasonable attorneys'
fees) arising from or in any way connected with Piemont's service
as an officer, director or employee of Coastal to the maximum
extent permitted under Section 145 of the General Corporation Law
of the
<PAGE> 9
State of Delaware and Article VIII of Coastal's by-laws (as
presently existing or as hereafter amended to broaden or increase
such indemnification), which indemnification shall continue in
full force and effect notwithstanding any resignation by Piemont
as an officer, director, employee, consultant, agent or
representative of Coastal. Further, if Piemont incurs expenses
(including reasonable attorneys' fees) in defending any civil,
criminal, administrative, or investigative action, suit or
proceeding relating to his service as an officer, director or
employee of Coastal, Coastal shall promptly and forthwith advance
Piemont funds to pay such expenses in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking from Piemont to repay such amount if it shall
ultimately be determined that he is not entitled to
indemnification by Coastal pursuant to Delaware law and pursuant
to Coastal's bylaws in effect at the time of the Contract.
Further, these indemnification provisions shall remain in full
force and effect notwithstanding any insurance coverage afforded
to Piemont with respect to such matters. For purposes of this
agreement reasonable attorneys' fees shall be determined with
reference to regular hourly billing rates for time spent by the
attorney on the matters for which attorneys' fees may be paid or
reimbursed.
10. DEFAULT BY COASTAL: If Coastal fails to make any
payment required to be made by this Agreement, Piemont shall give
notice of default to Coastal which may, within ten (10) days
following the giving of such notice, cure any default. If
Coastal fails to cure
<PAGE> 10
any default as provided herein, the payment for which Coastal is
in default shall accrue interest at the rate of eighteen percent
(18%) per annum, simple interest, from the tenth day following
the giving of the default notice until paid. If Coastal fails to
make any payment required as specified in the Promissory Note to
be delivered to Piemont as set forth in Section 2, Piemont shall
also have the rights and remedies, including acceleration of the
outstanding balance, as specified therein. Upon commencement of
litigation related to a default, the prevailing party in any such
litigation shall be entitled to recover its costs and expenses,
including reasonable attorneys' fees from the party not
prevailing in the litigation. For the purposes of this
paragraph, the term "prevailing party" means that party who has a
final, non-appealable judgment entered in its favor by a court of
competent jurisdiction.
11. DISMISSAL. Upon final approval of this Agreement by
the Court, Dr. Scott and Dr. Walls, individually and on behalf of
Coastal, shall file a voluntary dismissal with prejudice as to
all direct and derivative claims asserted against Piemont in the
Lawsuit and Piemont shall withdraw his Motion for Leave to File
Supplemental Pleading.
12. RETURN OF MONIES ADVANCED TO PIEMONT FOR LITIGATION
EXPENSES: Piemont shall refund to Coastal monies paid by Coastal
to or on behalf of Piemont for legal fees and expenses incurred
in the Lawsuit to the extent such advanced monies exceed payment
for fees and expenses actually incurred by attorneys retained by
or on behalf of Piemont in connection with this Lawsuit.
<PAGE> 11
13. NO ADMISSION OF LIABILITY: The Parties hereto
understand and agree that this Agreement constitutes a compromise
of disputed claims, and that the payments and agreements
contained hereon are not to be construed in any way to constitute
an admission of liability of the Parties.
14. FINAL APPROVAL BY COURT: It is expressly agreed and
understood that the effectiveness of this Agreement is expressly
conditioned on the final approval of this Agreement by the Court
and shall have no force or effect, nor be binding upon any Party
hereto until such time as final approval by the Court is given.
The Parties agree that, as soon as practicable following
execution of this Agreement (and not later than five business
days in any event), they will jointly move the Court to
preliminarily approve the Agreement, to authorize the giving of
notice of the Settlement to shareholders (if deemed necessary by
the Court), to set a hearing for the final approval of the
Agreement, and to grant final approval of the Agreement.
In the event the Court does not grant final approval of
the Agreement prior to March 31, 1997, this Agreement shall be
void and of no effect and the parties shall revert to the status
quo ante as of the date of the Agreement.
15. ENTIRE CONSIDERATION AND AGREEMENT. This document sets
forth the entire consideration for this Agreement, which
consideration is contractual and not a mere recital. All
agreements and understandings between the parties are embodied
and expressed herein.
<PAGE> 12
16. NO OTHER PROMISES OR INDUCEMENT: The undersigned
parties expressly warrant that no promise or inducement has been
offered except as set forth herein. This Agreement is executed
without reliance upon any statement or representation of any
person or party, or their representatives. Acceptance of the
consideration set forth herein is in full accord and satisfaction
of each of the causes of action which are disputed or could have
been disputed herein.
17. VOLUNTARY EXECUTION. The Parties enter into this
Agreement voluntarily, upon advice of counsel and of their own
accord and represent and warrant that they are under no duress
and coercion in entering said agreement. The Parties further
represent and warrant that they have reviewed the Agreement and
agree in all respects to its terms.
18. BENEFIT OF AGREEMENT: This Agreement shall inure to
the benefit of and shall be binding upon the undersigned parties
and their respective heirs, executors, administrators, trustees,
successors and/or assigns.
19. WARRANTY OF OWNERSHIP OF CLAIMS. All Parties warrant
and represent that they are the sole holder and owner of each and
every claim, cause of action, right or chose in action relating
to the matters that are asserted or could have been asserted by
the Parties in the Lawsuit and that no assignment, in whole or in
part, of these claims, causes or rights has been made to any
other party.
<PAGE> 13
20. CONFIDENTIALITY: It is expressly agreed that the terms
and conditions of the Agreement, are, and shall remain,
confidential, and shall not be revealed or disclosed by any party
hereto except (1) with the express written consent of all Parties
hereto, (2) upon the order of a court of competent jurisdiction,
(3) as may be necessary to enforce the terms of this Agreement,
(4) as may be required by law, or (5) as may be required by any
regulatory agencies exercising oversight over any of the parties.
21. NORTH CAROLINA LAW: This Agreement shall be construed
under and governed by the laws of the State of North Carolina.
All Parties consent to the jurisdiction of the General Court of
Justice of Durham County, North Carolina, for the enforcement of
this Agreement.
22. INTEGRATION AND MERGER: This Agreement embodies,
merges and integrates all prior and current agreements and
understandings of the parties with regard to the settlement of
the claims asserted or which could have been asserted by either
Party in the above-styled and numbered cause and may not be
clarified, modified, changed or amended, except in writing,
signed by each of the signatories hereto. The terms of the
Protective Order shall survive this Agreement.
<PAGE> 14
The parties hereto have set their hands and seals this the 21st
day of January, 1997.
/S/ STEVEN M. SCOTT, M.D.
STEVEN M. SCOTT, M.D.
/S/ BERTRAM E. WALLS
BERTRAM E. WALLS, M.D., M.B.A.
COASTAL PHYSICIAN GROUP, INC.
By:/S/ HENRY J. MURPHY
Its:President
/S/ JOSEPH G. PIEMONT
JOSEPH G. PIEMONT
<PAGE> 15
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L. Cannon, a Notary Public of the County and
State aforesaid, certify that STEVEN M. SCOTT M.D. personally
appeared before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 21st day of
January, 1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
<PAGE> 16
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L. Cannon, a Notary Public of the County and
State aforesaid, certify that BERTRAM E. WALLS, M.D., M.B.A.,
personally appeared before me this day and acknowledged the
execution of the foregoing instrument.
WITNESS my hand and official stamp or seal, this 21st day of
January, 1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
<PAGE> 17
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L. Cannon, a Notary Public of the County and
State aforesaid, certify that Henry J. Murphy personally appeared
before me this day and acknowledged that he is President of
COASTAL PHYSICIAN GROUP, INC., a Delaware corporation, and that,
by authority duly given and as the act of the corporation, the
foregoing instrument was signed in its name by himself as
President.
WITNESS my hand and official stamp or seal, this 21st day of
January, 1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
<PAGE> 18
STATE OF NORTH CAROLINA
COUNTY OF CHATHAM
I, Tlynthia P. Jordan, a Notary Public of the County and
State aforesaid, certify that JOSEPH G. PIEMONT personally
appeared before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 23rd day of
January, 1997.
/S/ TLYNTHIA P. JORDAN
Notary Public
My Commission Expires:
1122-98
<PAGE> 1
EXHIBIT 10.14
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF DURHAM 96 CvS 2748
STEVEN M. SCOTT, M.D., on his own )
behalf and on behalf of Coastal Physician )
Group, Inc., and BERTRAM E. WALLS, )
M.D., M.B.A., on his own behalf and on )
behalf of Coastal Physician Group, Inc., )
)
Plaintiffs, )
) AGREEMENT
vs. )
)
)
JACQUE JENNING SOKOLOV, )
JOSEPH G. PIEMONT, STEPHEN D. )
CORMAN, and COASTAL PHYSICIAN )
GROUP, INC., )
)
Defendants. )
This Agreement entered into on the 21st day of January,
1997, between Plaintiffs Steven M. Scott, M.D. ("Dr. Scott") and
Bertram E. Walls, M.D., M.B.A. ("Dr. Walls"), and Defendant
Coastal Physician Group, Inc. ("Coastal") (collectively, the
"Parties").
WHEREAS, the Parties are currently engaged in litigation in
the General Court of Justice, Superior Court Division, Durham
County, North Carolina, in a case styled STEVEN M. SCOTT, ET AL.
V. JACQUE JENNING SOKOLOV, JOSEPH G. PIEMONT, STEPHEN D. CORMAN
AND COASTAL PHYSICIAN GROUP, INC., 96 CVS 2748 (THE "LAWSUIT");
AND
WHEREAS, Plaintiffs, Coastal and Defendant Stephen D. Corman
previously settled all claims asserted by or against Mr. Corman,
such settlement having been approved by the Court on December 2,
1996; and
<PAGE> 2
WHEREAS, the Parties desire to terminate the Lawsuit by
dismissing all the pending claims asserted by Dr. Scott and Dr.
Walls and the claims asserted by Coastal against Dr. Scott; and
WHEREAS, the Parties agree that it is in the best interest
of Coastal for this action to be dismissed and the Parties have
entered into this Agreement to accomplish that purpose.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, the adequacy and sufficiency of which
are hereby acknowledged, the undersigned parties hereto agree as
follows:
1. DISMISSAL BY PLAINTIFFS: Upon approval of this
Agreement by the Court, Plaintiffs will file with the Court a
dismissal of all remaining claims asserted by them without
prejudice.
2. DISMISSAL BY COASTAL: Upon approval of this Agreement
by the Court, Coastal will file with the Court a dismissal of all
claims asserted against Dr. Scott without prejudice.
3. NO RETURN OF MONIES ADVANCED TO DR. SOKOLOV FOR
LITIGATION EXPENSES: Coastal shall not seek the return or refund
of any monies paid by Coastal to or on behalf of Dr. Sokolov for
legal fees and expenses incurred in the Lawsuit to the extent
such advanced monies represent payment for fees and expenses
actually incurred by attorneys retained by or on behalf of Dr.
Sokolov in connection with this Lawsuit.
4. REIMBURSEMENT OF FEES AND EXPENSES INCURRED BY DR.
SCOTT AND DR. WALLS: Coastal shall reimburse Dr. Scott and Dr.
Walls for all legal fees and expenses actually incurred by Dr.
Scott and Dr. Walls in connection with the Lawsuit.
Reimbursement under this paragraph 4 shall be made by issuance by
Coastal to Dr. Scott and Dr. Walls of a number of shares of
convertible preferred stock of Coastal which are convertible into
such number of shares of
<PAGE> 3
common stock of Coastal as are equal in value to the amount
of fees to be reimbursed. The convertible preferred stock will
have a value of $36 per share and each share of preferred stock
will be convertible into ten (10) shares of common stock of
Coastal, representing a $3.60 valuation of common stock upon
conversion. Conversion of the preferred stock into common stock
can occur only upon notice to shareholders and an affirmative
vote of a majority of shares of common stock of Coastal voting on
the question of conversion, provided that the total vote cast on
the question of conversion represents over 50% in interest of all
securities entitled to vote on the question, all in accordance
with the Certificate of Designation of the preferred stock.
5. FINAL APPROVAL OF COURT: It is expressly agreed and
understood that the effectiveness of this Agreement is expressly
conditioned on the final approval of this Agreement by the Court
and shall have no force or effect, nor be binding upon any Party
hereto until such time as final approval of the Court is given.
6. ENTIRE CONSIDERATION AND AGREEMENT: This document sets
forth the entire consideration for this Agreement, which
consideration is contractual and not a mere recital. All
agreements and understandings between the Parties are embodied
and expressed herein.
7. NO OTHER PROMISES OR INDUCEMENTS: The undersigned
Parties expressly warrant that no promise or inducement has been
offered except as set forth herein. This Agreement is executed
without reliance upon any statement or representation of any
person or party, or their representatives.
8. VOLUNTARY EXECUTION: The Parties enter into this
Agreement voluntarily, upon advice of counsel and of their own
accord and represent and warrant that they are under no duress
<PAGE> 4
or coercion in entering said Agreement. The Parties further
represent and warrant that they have reviewed the Agreement and
agree in all respect to its terms.
9. BENEFIT OF AGREEMENT: This Agreement shall inure to
the benefit of and shall be binding upon the undersigned parties
and their respective heirs, executors, administrators, trustees,
successors and/or assigns.
10. NORTH CAROLINA LAW: This Agreement shall be construed
under and governed by the laws of the State of North Carolina.
All parties consent to the jurisdiction of the General Court of
Justice of Durham County, North Carolina for the enforcement of
this Agreement.
The Parties hereto have set their hands and seals this the
21st day of January, 1997.
/S/ STEVEN M. SCOTT, M.D.
Steven M. Scott, M.D.
/S/ BERTRAM E. WALLS
Bertram E. Walls, M.D., M.B.A.
COASTAL PHYSICIAN GROUP, INC.
By:/S/ HENRY J. MURPHY
Its:President
ATTEST:
/S/ RAY A. SPILLMAN
<PAGE> 5
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L Cannon, a Notary Public of the County and
State aforesaid, certify that STEVEN M. SCOTT, M.D. personally
appeared before me this day and acknowledged the execution of the
foregoing instrument.
WITNESS my hand and official stamp or seal, this 21st day of
January, 1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
[NOTARY SEAL]
<PAGE> 6
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L. Cannon, a Notary Public of the County and
State aforesaid, certify that BERTRAM E. WALLS, M.D., M.B.A.
personally appeared before me this day and acknowledged the
execution of the foregoing instrument.
WITNESS my hand and official stamp or seal, this 21st day of
January, 1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
[NOTARY SEAL]
<PAGE> 7
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Virginia L. Cannon, a Notary Public of the County and
State aforesaid, certify that Ray A. Spillman personally came
before me this day and acknowledged that he is Secretary of
COASTAL PHYSICIAN GROUP, INC., a Delaware corporation, and that,
by authority duly given and as the act of the corporation, the
foregoing instrument was signed in its name by its President,
sealed with its corporate seal, and attested by himself as its
Secretary.
WITNESS my hand and notarial seal, this 21st day of January,
1997.
/S/ VIRGINIA L. CANNON
Notary Public
My Commission Expires:
11/12/2000
[NOTARY SEAL]
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of March, 1997 (the "Effective
Date") by and between HEALTHCARE BUSINESS RESOURCES, INC., a
North Carolina corporation ("Employer" or "HBR") and EDWARD L.
SUGGS, JR. ("Employee").
WHEREAS, Employee is currently an Employee of Employer; and
WHEREAS, Employer and Employee desire to substantially and
materially modify the existing terms of employment of Employee in
order to, among other matters, provide for an extended term,
provide additional severance benefits, provide for performance
bonuses and provide for extended limitations on certain
competitive activities; and
WHEREAS, subject to the terms and conditions hereinafter
provided, Employer desires to restate and amend the existing
employment arrangement and to employ Employee, and Employee
desires to accept such employment, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the employment of
Employee and the compensation to be paid by Employer to Employee,
and the covenants set forth herein, Employee hereby accepts
employment hereunder subject to the terms and conditions stated
below, including the agreement of Employee not to enter into
certain competitive activities with the Employer, as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts such employment, subject to the terms and
conditions stated herein. This Agreement shall amend, restate
and supersede the existing employment agreements and arrangements
applicable to Employee.
2. TERM. This Agreement shall commence effective as of March
1, 1997 (the "Effective Date") and shall continue through and
including February 29, 2000 (the "Initial Term"), unless this
Agreement is (a) otherwise terminated in accordance with the
provisions contained herein, or (b) extended by written consent
of Employer and Employee. After the Initial Term, this Agreement
shall renew on a year by year basis unless terminated by either
party in accordance with Section 12.
3. DUTIES. Employee shall perform the following duties
pursuant to this Agreement:
(a) Employee shall serve as the President and Chief
Executive Officer ("CEO") of Employer and shall serve on the
Board of Directors of Employer. Employee may be removed at
anytime from any officer position and/or board seat as
deemed appropriate by (i) the Board of Directors of Employer
or (ii) the shareholder of Employer.
(b) As President and CEO of Employer, Employee shall be
principally responsible for the operations of Employer. In
addition Employee shall be available to assist Employer
<PAGE> 2
and its related entities in connection with the management
and operation of their respective businesses. Employee
shall perform all duties and responsibilities normally
associated with his officer and director positions and shall
carry out such other duties and responsibilities and as
otherwise may be reasonably assigned to Employee by the
Employer's Board of Directors or the Board of Directors of
Coastal.
(c) Employee shall at all times abide and observe
Employer's policies and procedures as are in effect from
time to time. Employee acknowledges that Employer is an
equal opportunity employer and that Employer's established
policy is not to discriminate on the basis of age, marital
status, race, color, sex, religion or national origin, or to
violate any federal or state anti-discrimination law.
Employee shall be responsible for carrying out and
implementing the foregoing policy throughout the operations
and activities of Employer.
4. COMPENSATION. For the services provided by Employee as an
employee of Employer, Employer shall pay Employee the annual base
salary (the "Base Salary") and other compensation identified on
EXHIBIT A.
5. ADDITIONAL BENEFITS. Commencing on or about the Effective
Date, and thereafter during the Initial Term of this Agreement,
Employee shall be entitled to and Employer shall provide to
Employee all employment benefits which are provided to senior
executive officers of Employer.
6. DEVOTION OF TIME. During the term of this Agreement,
Employee shall devote his full time and attention to the business
of Employer and its affiliates in a manner and to an extent
commensurate with the commitment of other executive officers of
Employer, to fulfill his duties and responsibilities under the
Agreement and to advance the business interests and good
reputation of Employer, its shareholder, Coastal Physician Group,
Inc. ("Coastal") and the direct and indirect subsidiaries of
Coastal.
7. CONFIDENTIALITY AND NON-DISCLOSURE. Employee acknowledges
that, during this employment, he will gain access to, or
possession or knowledge of, numerous trade secrets, confidential
information, other valuable properties not generally available to
the public and proprietary information, including but not limited
to, hospital and healthcare facility client lists, client files
and records, lists of potential clients, prospects or targets,
and/or other market and marketing data and plans, price books,
promotional devices and methods, business methods, manuals and
plans, business and sales techniques, strategic plans, computer
programs, hospital and physician contracts, and research and
development (hereinafter referred to collectively as
"Confidential Information"). Employee acknowledges that such
Confidential Information is unique and a valuable asset which is
owned solely by Employer (or affiliates of Employer) and is to be
used only for Employer's or its affiliates' (other than any
natural persons) benefit. Employee shall not, during or after
the term of this Agreement, disclose, divulge, reveal, transfer,
reproduce, sell, capitalize upon or take advantage of such
Confidential Information and, in addition, Employee shall
exercise all reasonable efforts and precautions to protect
against such Confidential Information from misappropriation,
misuse, disclosure, breach of confidentiality, or other conduct
or action inconsistent with Employer's rights; PROVIDED, HOWEVER,
that Confidential Information may be disclosed to the extent (i)
required by law or court order or (ii) generally
<PAGE> 3
available to the public other than by unauthorized disclosure.
Upon termination of this Agreement, Employee shall return
immediately to Employer all of Employer's (or its affiliates)
property (including, without limitation, Confidential
Information) in Employee's possession or control. Any materials,
manuals, documents or records developed, written, edited or
designed by Employee while employed by Employer are the exclusive
property of Employer.
8. COVENANT NOT TO COMPETE. Employee will, as a result of this
employment, be responsible for the executive management and
direction of substantial business resources and assets of
Employer and its affiliates and will develop additional contacts
and relationships with numerous individuals, executives,
companies, insurers, providers and health maintenance
organizations which are also involved in the managed healthcare
business. Such individuals and organizations will have business
and contractual relationships with Employer or its affiliates
that will be a valuable asset thereof. Employee therefore agrees
as follows:
(a) Employee agrees that for a period of twelve (12) months
after termination of this Agreement, Employee will not
become employed by, own, operate, manage, or provide
consulting services to any business that provides the same
type of services as Employer currently provides in the
states where Employer is providing services as of the date
of termination of this Agreement.
(b) Employee agrees for a period of twelve (12) months
after termination of this Agreement not to become employed
by or make, directly or indirectly, any proposal to acquire,
alone or with others, any business or entity, as to which
substantive discussions involving a potential acquisition,
joint venture or other similar or comparable business
arrangement was made by or on behalf of Employer, or any
affiliate of Employer during the six (6) month period
immediately preceding the termination of this Agreement.
(c) Employee agrees for a period of twelve (12) months
after termination of this Agreement, not to solicit any
hospital, clinic, healthcare facility or other client having
a contractual or business relationship with Employer or of
any subsidiary of Employer, or of any prospect or potential
client to which a marketing proposal or presentation was
made within six (6) months of termination, and of which
Employee was aware, involving the provision of billing
services, or other services in the healthcare area, which
solicitation would be for the purpose of providing
healthcare or healthcare related services or billing for
healthcare or healthcare related services.
(d) Employee further agrees to refrain for a period of
twelve (12) months following the termination of this
Agreement, from any activity of any nature intended or
reasonably calculated to result in the termination or
cancellation of any contractual or business arrangement
between the Employer or any subsidiary of Employer, and any
insurer, client, facility or other business or entity.
(e) Employee agrees to notify any entity or organization of
which he is a director, significant shareholder (or other
equity owner), manager, general partner, executive officer
or as to which he is otherwise a controlling party or over
whom he exerts significant influence (an "Affiliate") of the
provisions of Sections 7, 8 and 9 of this
<PAGE> 4
Agreement, and Employee agrees that he will not cause or
permit such Affiliate to engage in any activity that would
be prohibited for Employee personally under this Agreement.
(f) Nothing in this Agreement shall prevent Employee from
making passive investments in third parties so long as such
investments do not require Employee to perform any services
in connection with any such investments in such third
parties.
9. SOLICITATION OF OTHER EMPLOYEES.
(a) Employee agrees that he shall not, for a period of
twelve (12) months after the termination of this Agreement,
solicit or seek to influence, either directly or indirectly,
any employee or any physician or healthcare provider under
contract with Employer at any time during Employee's
employment by Employer or any of its subsidiaries or
affiliates, to enter into any employment agreement,
independent contractor arrangement, or any other contractual
arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any
person, firm, corporation or other entity or business that
provides products or services in competition with Employer
or any of its subsidiaries or affiliates.
(b) Employee further agrees that neither he nor any
Affiliate shall, for a period of twelve (12) months after
the termination of this Agreement, hire, employ, enter into
any employment agreement, independent contractor
arrangement, or any other contractual arrangement whereby a
"Coastal Employee" (as defined below) would perform services
for compensation for Employee or such entity. For the
purposes hereof, "Coastal Employee" shall mean any person
who has been employed by Coastal or any or its direct or
indirect subsidiaries at any time during the six (6) month
period immediately preceding the termination of this
Agreement.
10. BREACH AND REMEDIES.
(a) Employee acknowledges that the breach or threatened
breach of any of the covenants set forth in Sections 7, 8 or
9 may result in immediate and irreparable injury to Employer
or its affiliates. Accordingly, Employee agrees the
provisions of Sections 7, 8 and 9 shall inure to the benefit
of and may be enforced by Employer or any if its affiliates,
including Coastal. In addition to any rights or remedies
available to Employer for a breach by Employee of Sections
7, 8 or 9, Employer and its affiliates shall be entitled to
injunctive relief to enforce the obligations of Employee
contained in such Sections. Nothing herein shall be
construed as prohibiting Employer or its affiliates from
pursuing any other legal or equitable remedies that may be
available to it for any such breach or threatened breach,
including the recovery of damages from Employee.
(b) The periods of time provided for in Sections 7, 8 or 9
shall be extended by any period of violation or periods of
time required to resolve by arbitration, not to exceed 45
days, any dispute regarding the provisions thereof.
<PAGE> 5
(c) Employee hereby acknowledges that the covenants set
forth in Sections 7, 8 and 9 are reasonable in all respects
and are necessary to protect the legitimate business
interests of Employer and its affiliates. In the event that
any of the provisions of this Agreement are found to be
unenforceable or void (either in whole or in part), then the
offending portion shall be construed as valid and
enforceable only to the extent permitted by law and the
balance of this Agreement will remain in full force and
effect. It is the intention of parties to restrict the
activities of Employee only to the extent necessary to
protect the legitimate business interests of Employer, its
subsidiaries and/or affiliates, and not to deprive Employee
of the right or ability to earn a livelihood.
11. VACATION AND SICK LEAVE. All earned, accrued and unused
vacation and any unused sick pay, upon termination, will be
governed by Employer's then current policies.
12. TERMINATION. This Agreement may be terminated as follows:
(a) Employer may terminate this Agreement without cause at
any time upon thirty (30) days' prior written notice to
Employee, and Employee may terminate this Agreement without
cause at any time upon sixty (60) days' prior written notice
to Employer. This thirty or sixty day period (as
applicable) is hereafter referred to as the "Notice Period."
In the event of such termination, Employee, if requested by
Employer, shall continue to perform his obligations and
duties under this Agreement and assist with the transition
of duties to a new employee during the Notice Period.
Employer, at its option, may notify Employee at any time
during the Notice Period that no further services are to be
performed. In the event that this Agreement is terminated
without cause by either party, the covenants set forth in
Sections 7, 8 and 9 shall continue in effect, and the
applicable start date for the periods of time in Sections 7,
8 or 9 shall be the later of the date that notice of
termination is given or the last date upon which services
are performed.
(b) If this Agreement is terminated without cause by
Employer at any time during the term hereof, Employer shall
pay Employee an amount equal to the annual Base Salary then
in effect (see EXHIBIT A) plus any earned and unpaid
Performance Bonus (see EXHIBIT A), all to be paid out in
equal installments over the twelve (12) months following the
date of termination, beginning thirty (30) days from the
date of termination. In addition, if this Agreement is
terminated without cause by Employer at any time during the
first twelve months of the Initial Term, Employer shall
additionally pay to Employee an amount equal to the annual
Base Salary that would have been paid over the remaining
twelve months of the Initial Term but for the termination.
Such additional amount (for termination in the initial
twelve months of the Initial Term) shall be divided by
twelve (12) and the quotient added to the twelve equal
installments paid under the first sentence of this
subsection.
(c) This Agreement may be terminated by Employer at any
time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of
this Subsection 12(c), cause shall include, but shall not be
limited to, the following: fraud; dishonesty; substantial
and continuous nonperformance of assigned duties; failure to
comply with a material written policy of Employer; failure
by Employee
<PAGE> 6
to perform or meet objective and measurable standards;
unlawful activities for which Employee is indicted or
convicted in a jurisdiction of the United States; and
material breach of this Agreement.
(d) This Agreement shall terminate upon the death or total
and permanent disability of Employee. In the event that
this Agreement terminates due to Employee's death or total
and permanent disability, Employer shall pay upon such
termination to Employee, Employee's Base Salary accrued
through the date of Employee's death or the date he becomes
totally and permanently disabled, as the case may be.
Permanent disability for purposes of this Agreement shall
mean the inability to perform the functions of Employee's
position for a continuous period of six (6) months.
(e) Except as expressly set forth herein, all of Employer's
obligations for compensation or other benefits shall
terminate upon the effective date of the termination of this
Agreement.
13. COMPLIANCE WITH SECURITIES LAWS. Employee agrees to comply
with all applicable federal and state securities laws and with
all applicable policies of Coastal and Employer concerning the
buying and selling of stock of Coastal by employees to the extent
such policies do not restrict Employee's express rights under
this Agreement.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties and supersedes and cancels any
prior oral and written understanding and/or agreements between
them respecting the subject matter of this Agreement. This
Agreement may be amended or modified only in writing signed by
both parties.
15. SEVERABILITY. If any provision, term, condition, or clause
of this Agreement or the application thereof shall be invalid or
unenforceable to any extent, the remainder of this Agreement
shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
16. GOVERNING LAW. This Agreement is made and entered into in
the State of North Carolina and is to be construed in accordance
with and take effect under the laws of the State of North
Carolina without regard to principles of conflicts of laws.
17. ASSIGNMENT. No party shall have any right to assign,
mortgage, pledge, hypothecate or encumber this Agreement in whole
or in part, or any benefit or any right accruing hereunder,
without in any such case first obtaining the prior written
consent of the other party hereto, except that Employer may
assign this Agreement to one of its affiliates or wholly-owned
subsidiaries, provided that in the event of such an assignment,
Employer shall remain primarily responsible for its obligations
hereunder. All rights hereunder are personal to the Employee and
shall cease upon the termination of this Agreement unless
otherwise stated herein; PROVIDED, HOWEVER, that the provisions
hereof shall inure to the benefit of the personal
representatives, heirs and legatees of Employee.
<PAGE> 7
18. NOTICE. Any notice, or other written communication to be
given pursuant to this Agreement for whatever reason shall be
deemed duly given and received (a) if delivered personally, from
the date of delivery, or (b) by certified mail, postage pre-paid,
return receipt requested, three (3) days after the date of
mailing, addressed: in the case of Employer, to its principal
office and marked "Attention: President," and in the case of
Employee, to his last known permanent address according to the
books and records of Employer.
19. MISCELLANEOUS. Any protection, benefits, rights or other
provisions given to Employer in this Agreement shall also be
deemed to apply to, protect and inure to the benefit of
Employer's affiliates and subsidiaries. All rights of Employer
expressed in this Agreement are in addition to any rights
available under the common law or other legal principles.
Section or paragraph titles or captions contained in this
Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any provision hereof.
All pronouns and any variation thereof shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or
corporations, and as context may require.
IN WITNESS WHEREOF, the parties sign and seal below,
effective the date first written in this Agreement.
EMPLOYEE:
/S/ EDWARD L. SUGGS, JR. (SEAL)
Edward L. Suggs, Jr.
EMPLOYER:
HEALTHCARE BUSINESS RESOURCES, INC.
By:/S/ EDWARD R> GAINES, III
Name:Edward R. Gaines, III
Title:Senior Vice President, General
Counsel and Secretary
ATTEST:
By:/S/ ANGELA M. SNEDEKER
Assistant Secretary
[CORPORATE SEAL]
<PAGE> 8
EXHIBIT A
COMPENSATION
1. BASE SALARY. For all services provided as an employee of
Employer, Employee shall receive, beginning on the Effective
Date, 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 March 1 during the term of this Agreement.
2. SIGNING BONUS. As an initial signing bonus (the "Signing
Bonus"), upon execution of this Agreement Employer shall forgive
and forever waive any claim to the outstanding indebtedness of
approximately $16,000 evidenced by that promissory note in the
original face amount of $25,000 made by Employee dated October
30, 1988 and amended on November 30, 1993.
3. PERFORMANCE BONUS. Employer intends to establish,
beginning in 1997, an annual bonus program (or participate in the
annual bonus program developed by Coastal) applicable to Employee
(the "Bonus Program"). The Bonus Program may be part of a larger
bonus program or may be specifically tailored for Employee or
such other limited group as Coastal or Employer may determine.
Under the Bonus Program, Employee will have the ability to earn a
quarterly (based on calendar quarters) performance bonus of up to
$20,000 (the "Performance Bonus"), based upon the financial
performance of HBR and other factors, which may include the
discretion of Employer or Coastal. In the event of termination
of this Agreement during any quarter, the Bonus Program may, but
shall not be required to, provide for proration of the
Performance Bonus over a partial quarter. Measurements of
financial performance and other factors may include the
following, and other relevant, factors:
Budget (actual performance versus projected performance)
Free cash flow from operations (actual performance versus
projected performance)
EBITDA (earnings before interest, taxes, depreciation and
amortization)
Revenue Growth
Overall profit or loss of Coastal
DSO
Average collections per patient visit
Patient satisfaction
Employee turnover
No Performance Bonus (other than the minimum provided for
in the following paragraph) will be earned or paid unless by the
end of each of the following calendar years, the Board of
Directors of Employer determines in its reasonable judgment that
Employer is performing at the following minimum percentages
(using fourth quarter run rates) of the industry averages for
growth, revenues, profitability and other commonly used
measurements for companies providing healthcare billing and
collection services:
<PAGE> 9
1997 70%
1998 80%
1999 90%
In any event, the minimum aggregate Performance Bonus for a
calendar year shall be equal to the Base Salary in effect for the
year multiplied by one-half of the percentage increase (if any)
in the Consumer Price Index (the "Index") for All Items, All
Groups published by the United States Department of Labor, Bureau
of labor Statistics from the first day of the month of December
of the previous calendar year through the last day of November of
the calendar year as to which the Performance Bonus is paid. If
publication of the Index is discontinued or computation of the
Index materially altered, Employer and Employee shall use a
comparable index computed and published by an agency of the
United States or a responsible financial periodical of recognized
authority.
4. STAY BONUS. Employee shall receive a stay bonus comparable
to those received by other senior executive officers of HBR (the
"Stay Bonus"). If Employee is still employed by Employer on
September 1, 1997, he shall receive a Stay Bonus equivalent to
twelve weeks of Employee's Base Salary.
5. SALE OF EMPLOYER. If Employer is sold, merged into a
company unrelated to Coastal or substantially all of the assets
of Employer are sold within the first twelve months of the
Initial Term, then Employee may terminate this Agreement
effective as of the closing by notifying Employer in writing of
such election prior to closing, and such termination shall be
treated as a termination without cause by Employer; provided that
the entire amount of severance due shall be paid as follows: 50%
at closing with the remainder placed in escrow and disbursed 25%
at the end of the sixth month following closing and 25% at the
end of the ninth month following closing. An early termination
of this Agreement in connection with a sale or otherwise shall
not release or waive the provisions of Sections 7, 8, 9 or 10 and
the non-competition and non-solicitation provisions of this
Agreement shall continue for the 12 month period following
termination.
6. STOCK OPTIONS OR AWARDS. Employee shall be eligible for
stock options and awards available to other senior management of
Coastal 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 Coastal from time to time.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT AS OF 12-31-96
CORPORATION
Advanced Health Plans, Inc.
BHP Acquisition Company, Inc.
Belle Glade Obstetrics, Inc.@
Better Health Plan, Inc.
Birth Centers of America, Inc.
Birth Centers of Florida, Inc.
CHG Properties, Inc.
Coastal Correctional Healthcare, Inc.
Coastal Emergency Services of Dade County, Inc.
Coastal Emergency Services of Ft. Lauderdale, Inc.
Coastal Emergency Services of Hollywood, Inc.
Coastal Emergency Services of Orlando, Inc.
Coastal Government Services Management Group, Inc.
Coastal Government Services, Inc.
Coastal Managed Healthcare, Inc.
Coastal Medical Management Services, Inc.
Coastal Physician Group Services, Inc.
Coastal Physician Group of Florida, Inc.
Coastal Physician Networks, Inc.
Coastal Physician Services of Orlando, Inc.
Coastal Physician Services of South Florida, Inc.
Coastal Physician Services of the Midwest, Inc.
Coastal Physician Services of the Southeast, Inc.
Coastal Physician Services of the West, Inc.
Coastal Physician Services, Inc.
Coastal Physicians Services of Broward County, Inc.
Coastal Practice Services of the Northeast, Inc.
Coastal Therapeutic Group, Inc.
Coastal/MSO Company
Doctors Health Plan, Inc.
FirstCollect, Inc.
Florida Doctors Network, Inc.
HBR-Medbill West, Inc.
Health Enterprises, Inc.
Health Management Southeast, Inc.
Healthcare Business Resources, Inc.
Healthplan Southeast, Incorporated
Hillsboro Medical Management Company
Integrated Provider Networks, Inc.
Lehigh Medical Associates, Inc.
<PAGE> 2
Medical Air Services, Inc.
Medical Data Solutions, Inc.
Medstaff National Medical Staffing, Inc.
Minor Emergency Center of North Broward Inc.
PPG Acquisition Company
Pediatric Consultants of Broward County, Inc.
Physician Practice Resources, Inc.
Physicians Planning Group, Inc.
Practice Solutions, Inc.
Prim Med, Inc.
Signum Primary Care, Inc.
Specialty Services Group, Inc.
Springs Pediatrics, Inc.
Sunlife OB/GYN Services of Broward County, Inc.
Sunlife OB/GYN Services of Hollywood, Florida, Inc.
Sunlife OB/GYN Services of Maryland, Inc.
Uni-Care America, Inc.
Valley Women's Center, Inc.
Women's & Children's Centers of Florida, Inc.
@ indicates archived corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Coastal Physician Group, Inc.
We consent to incorporation by reference in Registration Statements (No.
33-86434) on Form S-3, (No. 33-83448) on Form S-4, (No. 33-79842) on Form S-8,
(No. 33-62484)on Form S-8, (No. 33-58984) on Form S-8, and (No. 33-86436) on
Form S-8 of Coastal Physician Group, Inc. of our reports dated March 31, 1997
except for paragraphs 5 and 6 of Note 10, which are as of May 30, 1997, and for
paragraphs 1 and 4 of Note 9, which are as of June 3, 1997, and for paragraphs
6, 8, 9 and 10 of Note 7 and the last paragraph of Note 11, which are as of June
10, 1997, relating to the consolidated balance sheets of Coastal Physician
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows and
related schedule for each of the years in the three-year period ended December
31, 1996, which reports appear or are incorporated by reference in the December
31, 1996 annual report on Form 10-K of Coastal Physician Group, Inc.
KPMG Peat Marwick LLP
Raleigh, North Carolina
June 12, 1997
<PAGE> 1
EXHIBIT 99.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
COASTAL PHYSICIAN GROUP, INC.
COASTAL PHYSICIAN GROUP, INC., a corporation organized under
and existing under the General Corporation Law of the State of
Delaware (the "Company"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Amended and Restated Certificate of
Incorporation of the Company, and pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors, at a meeting duly held on
January 21, 1997, adopted a resolution providing for the
designations, preferences and relative, participating, optional
or other rights, and the qualifications, limitations or
restrictions thereof, of the Series A Convertible Preferred
Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Company in accordance
with the provisions of the Amended and Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of
convertible preferred stock, with a par value of $0.01 per share,
of the Company and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitation
thereof (in addition to the provisions in the Amended and
Restated Certificate of Incorporation that are applicable to the
preferred stock of all series) as follows:
Series A Convertible Preferred Stock
Section 1. DESIGNATION AND AMOUNT. The shares of such
series shall be designated as Series A Convertible Preferred
Stock, with a par value of $0.01 per share (the "Series A
Convertible Preferred Stock"), and the number of shares
constituting such series shall be forty-seven thousand five
hundred (47,500).
Section 2. DIVIDENDS. The holders of shares of Series A
Convertible Preferred Stock shall be entitled to receive
dividends, when, as and if declared by the Board of Directors or
a duly authorized committee thereof, out of funds legally
available for the payment of dividends. The amount of dividends
payable in respect of each share of Series A Convertible
Preferred Stock shall be equal to the result obtained by
multiplying (a) the number of shares (including fractions) of the
Company's Common Stock, $0.01 par value per share (the "Common
Stock"), into which such share of Series A Convertible Preferred
Stock is then convertible in accordance with Section 4 hereof
(whether or not the Trigger Date (as defined in Section 4K
hereof) has yet occurred) by (b) the amount of dividends declared
and paid on each share of the Common Stock. No dividend shall be
paid or declared on any share of the Common Stock, unless a
dividend, payable in the same consideration and manner, is
simultaneously paid or declared, as the case
<PAGE> 2
may be, on each share of Series A Convertible Preferred Stock in
an amount determined as set forth above nor shall any dividend be
paid or declared on any share of Series A Convertible Preferred
Stock unless a dividend, payable in the same consideration and
manner, is simultaneously paid or declared, as the case may be,
on each share of the Common Stock, in each case without
preference or priority of any kind. For purposes of this Section
2, the term "dividends" shall include any pro rata distribution
by the Company of cash, property, securities (including, but not
limited to, rights, warrants or options) or other property or
assets to the holders of the Common Stock, whether or not paid
out of capital, surplus or earnings.
Section 3. LIQUIDATION PREFERENCES. Upon any
liquidation, dissolution or winding up of the Company, no
distribution shall be made to the holders of shares of stock
ranking junior to the Series A Convertible Preferred Stock
unless, prior thereto, the holders of shares of Series A
Convertible Preferred Stock shall have received $36 per share.
Following the payment of the full amount of such liquidation
preference, no additional distributions shall be made to the
holders of shares of Series A Convertible Preferred Stock. If,
upon any liquidation, dissolution or winding up of the Company,
the assets of the Company, or proceeds thereof, distributable
among the holders of shares of Series A Convertible Preferred
Stock or any capital stock ranking on a par with the Series A
Convertible Preferred Stock upon liquidation, dissolution or
winding up of the Company, shall be insufficient to pay in full
the preferential amounts to which such stock would be entitled,
then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts
payable thereon were payable in full.
Section 4. CONVERSION RIGHTS, ANTIDILUTION PROVISIONS.
A. Following the Trigger Date (as defined in subparagraph
K of this Section 4), shares of the Series A Convertible
Preferred Stock shall be convertible, in whole or in part, at the
option of either the holder or the Company, into Common Stock, at
any time or from time to time, subject to the following terms and
conditions. The Series A Convertible Preferred Stock shall not
be convertible into any shares of Common Stock unless and until
the Trigger Date has occurred.
B. Following the Trigger Date, the shares of the Series A
Convertible Preferred Stock shall be convertible at the principal
executive offices of the Company, and at such other office or
offices, if any, as the Board of Directors may designate, into
fully paid and nonassessable shares of Common Stock of the
Company, at an initial conversion rate of ten (10) shares of
Common Stock for each share of Series A Convertible Preferred
Stock, subject to adjustment as described in this Section 4.
C. In order to convert shares of the Series A Convertible
Preferred Stock into Common Stock, the holder thereof shall
surrender, after the Trigger Date, at any office hereinabove
mentioned the certificate or certificates therefor, duly endorsed
or assigned to the Company or in blank, and give written notice
to the Company at such office that such holder elects to convert
such shares. Shares of the Series A Convertible Preferred Stock
shall be deemed to have been converted immediately prior to the
close of business on the day of the
<PAGE> 3
surrender of such shares for conversion in accordance with the
foregoing provisions, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
Common Stock at such time. As promptly as practicable on or
after the conversion date, the Company shall issue and shall
deliver at such office a certificate or certificates for the
number of full shares of Common Stock issuable upon such
conversion, together with payment in lieu of any fraction of a
share, as hereinafter provided, to the person or persons entitled
to receive the same.
D. At any time after the Trigger Date the Company, by
written notice to any or all holders of the Series A Convertible
Preferred Stock, may require such holder or holders to convert,
in whole or in part, the Series A Convertible Preferred Stock
into Common Stock. Within thirty days after the receipt of such
written notice, the holder or holders thereof shall cause that
number of shares of Series A Convertible Preferred Stock as
specified in such written notice to be converted into Common
Stock in the manner described in, and subject to the provisions
of, subparagraph C of this Section 4.
E. If at any time the Company shall subdivide or combine
its outstanding shares of Common Stock into a different number of
shares of Common Stock, each share of Series A Convertible
Preferred Stock shall thereafter be convertible into the same
number of shares of Common Stock to which the holder of such
shares of Series A Convertible Preferred Stock would thereafter
have been entitled had such shares of Series A Convertible
Preferred Stock been converted into Common Stock immediately
prior to the effective date of such subdivision or combination.
F. If there occurs any capital reorganization or any
reclassification of the capital stock of the Company or
consolidation or merger of the Company with or into another
corporation or entity, each share of Series A Convertible
Preferred Stock shall thereafter be convertible into, in lieu of
Common Stock, the same kind and amounts of securities or other
assets, or both, which were issuable or distributable to the
holders of shares of outstanding Common Stock of the Company upon
such reorganization, reclassification, consolidation or merger in
respect of that number of shares of Common Stock into which such
share of Series A Convertible Preferred Stock would have been
converted had such share of Series A Convertible Preferred Stock
been converted into Common Stock immediately prior to such
reorganization, reclassification, consolidation or merger.
G. Upon any event described in subparagraphs E and F of
this Section 4, the Company shall promptly mail to each holder of
Series A Convertible Preferred Stock a notice which shall
describe such event and the change in the number of shares or
other assets or securities issuable upon the conversion of Series
A Convertible Preferred Stock, setting forth in reasonable detail
the method of calculation and the facts upon which such
calculation is based.
H. The Company shall at all times reserve and keep
available, free from pre-emptive rights, out of its authorized
but unissued Common Stock, for the purpose of effecting the
conversion of the Series A Convertible Preferred Stock, the full
number of shares of Common Stock then issuable upon the
conversion of all shares of Series A Convertible Preferred Stock
<PAGE> 4
then outstanding and shall take all such action and obtain all
such permits or orders as may be necessary to enable the Company
lawfully to issue such Common Stock upon such conversion.
I. No fractional shares of Common Stock shall be issued
upon conversion, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction.
J. The Company will pay any and all taxes (excluding
federal, state and local income taxes) that may be payable in
respect of the issue or delivery of shares of Common Stock in
conversion of the Series A Convertible Preferred Stock pursuant
hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in
the issue and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Convertible Preferred
Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requiring such issue
has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has
been paid.
K. As used herein, the term "Trigger Date" means the date
of the certification of the vote of stockholders of the Company
held at any annual or special meeting of stockholders of the
Company at which a quorum is present and at which the issuance of
Common Stock upon conversion of the Series A Convertible
Preferred Stock is approved by the holders of a majority of the
shares of Common Stock voted at such meeting, provided that the
total vote cast on the proposal represents over 50% in interest
of all securities entitled to vote on the proposal.
Section 5. NO REDEMPTION. The Series A Convertible
Preferred Stock shall not be redeemable.
Section 6. VOTING RIGHTS. The holders of the Series A
Convertible Preferred Stock shall be entitled to that number of
votes per share of Series A Convertible Preferred Stock equal to
the number of shares of Common Stock into which such share of
Series A Convertible Preferred Stock is then convertible in
accordance with Section 4 hereof (whether or not the Trigger Date
has yet occurred) at all meetings of stockholders of the Company;
provided that shares of the Series A Convertible Preferred Stock
shall not be entitled to vote on the approval of the issuance of
Common Stock upon conversion of the Series A Convertible
Preferred Stock referred to in subparagraph K of Section 4.
Section 7. EXCHANGE. Certificates representing shares
of the Series A Convertible Preferred Stock and, if converted in
accordance with the terms and conditions hereof, after conversion
thereof into Common Stock, certificates representing such shares,
shall be exchangeable, at the option of the holder, for a new
certificate or certificates of the same or different
denominations representing in the aggregate the same number of
shares of Series A Convertible Preferred Stock or shares of
Common Stock, as the case may be.
Section 8. SHARES TO BE RETIRED. All shares of Series A
Convertible Preferred Stock which are converted into Common Stock
shall revert to the status of authorized but unissued
<PAGE> 5
shares of preferred stock of the Company but shall not thereafter
be reissued as shares of Series A Convertible Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be duly executed on its behalf by its undersigned President
and Chief Executive Officer and attested to by its Secretary this
21st day of January, 1997.
/S/ HENRY J. MURPHY
Name: Henry J. Murphy
Title: President and Chief
Executive Officer
[Corporate Seal]
ATTEST:
/S/ RAY A. SPILLMAN
Name: Ray A. Spillman
Title: Secretary
<PAGE> 1
EXHIBIT 99.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
COASTAL PHYSICIAN GROUP, INC.
COASTAL PHYSICIAN GROUP, INC., a corporation organized under
and existing under the General Corporation Law of the State of
Delaware (the "Company"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Amended and Restated Certificate of
Incorporation of the Company, and pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors, at a meeting duly held on
January 21, 1997, adopted a resolution providing for the
designations, preferences and relative, participating, optional
or other rights, and the qualifications, limitations or
restrictions thereof, of the Series B Convertible Preferred
Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Company in accordance
with the provisions of the Amended and Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of
convertible preferred stock, with a par value of $0.01 per share,
of the Company and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitation
thereof (in addition to the provisions in the Amended and
Restated Certificate of Incorporation that are applicable to the
preferred stock of all series) as follows:
Series B Convertible Preferred Stock
Section 1. DESIGNATION AND AMOUNT. The shares of such
series shall be designated as Series B Convertible Preferred
Stock, with a par value of $0.01 per share (the "Series B
Convertible Preferred Stock"), and the number of shares
constituting such series shall be thirty-two thousand five
hundred (32,500).
Section 2. DIVIDENDS. The holders of shares of Series B
Convertible Preferred Stock shall be entitled to receive
dividends, when, as and if declared by the Board of Directors or
a duly authorized committee thereof, out of funds legally
available for the payment of dividends. The amount of dividends
payable in respect of each share of Series B Convertible
Preferred Stock shall be equal to the result obtained by
multiplying (a) the number of shares (including fractions) of the
Company's Common Stock, $0.01 par value per share (the "Common
Stock"), into which such share of Series B Convertible Preferred
Stock is then convertible in accordance with Section 4 hereof
(whether or not the Trigger Date (as defined in Section 4K
hereof) has yet occurred) by (b) the amount of dividends declared
and paid on each share of the Common Stock. No dividend shall be
paid or declared on any share of the Common Stock, unless a
dividend, payable in the same consideration and manner, is
simultaneously paid or declared, as the case
<PAGE> 2
may be, on each share of Series B Convertible Preferred Stock in
an amount determined as set forth above nor shall any dividend be
paid or declared on any share of Series B Convertible Preferred
Stock unless a dividend, payable in the same consideration and
manner, is simultaneously paid or declared, as the case may be,
on each share of the Common Stock, in each case without
preference or priority of any kind. For purposes of this Section
2, the term "dividends" shall include any pro rata distribution
by the Company of cash, property, securities (including, but not
limited to, rights, warrants or options) or other property or
assets to the holders of the Common Stock, whether or not paid
out of capital, surplus or earnings.
Section 3. LIQUIDATION PREFERENCES. Upon any
liquidation, dissolution or winding up of the Company, no
distribution shall be made to the holders of shares of stock
ranking junior to the Series B Convertible Preferred Stock
unless, prior thereto, the holders of shares of Series B
Convertible Preferred Stock shall have received $30 per share.
Following the payment of the full amount of such liquidation
preference, no additional distributions shall be made to the
holders of shares of Series B Convertible Preferred Stock. If,
upon any liquidation, dissolution or winding up of the Company,
the assets of the Company, or proceeds thereof, distributable
among the holders of shares of Series B Convertible Preferred
Stock or any capital stock ranking on a par with the Series B
Convertible Preferred Stock upon liquidation, dissolution or
winding up of the Company, shall be insufficient to pay in full
the preferential amounts to which such stock would be entitled,
then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts
payable thereon were payable in full.
Section 4. CONVERSION RIGHTS, ANTIDILUTION PROVISIONS.
A. Following the Trigger Date (as defined in subparagraph
K of this Section 4), shares of the Series B Convertible
Preferred Stock shall be convertible, in whole or in part, at the
option of either the holder or the Company, into Common Stock, at
any time or from time to time, subject to the following terms and
conditions. The Series B Convertible Preferred Stock shall not
be convertible into any shares of Common Stock unless and until
the Trigger Date has occurred.
B. Following the Trigger Date, the shares of the Series B
Convertible Preferred Stock shall be convertible at the principal
executive offices of the Company, and at such other office or
offices, if any, as the Board of Directors may designate, into
fully paid and nonassessable shares of Common Stock of the
Company, at an initial conversion rate of ten (10) shares of
Common Stock for each share of Series B Convertible Preferred
Stock, subject to adjustment as described in this Section 4.
C. In order to convert shares of the Series B Convertible
Preferred Stock into Common Stock, the holder thereof shall
surrender, after the Trigger Date, at any office hereinabove
mentioned the certificate or certificates therefor, duly endorsed
or assigned to the Company or in blank, and give written notice
to the Company at such office that such holder elects to convert
such shares. Shares of the Series B Convertible Preferred Stock
shall be deemed to have been converted immediately prior to the
close of business on the day of the
<PAGE> 3
surrender of such shares for conversion in accordance with the
foregoing provisions, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
Common Stock at such time. As promptly as practicable on or
after the conversion date, the Company shall issue and shall
deliver at such office a certificate or certificates for the
number of full shares of Common Stock issuable upon such
conversion, together with payment in lieu of any fraction of a
share, as hereinafter provided, to the person or persons entitled
to receive the same.
D. At any time after the Trigger Date the Company, by
written notice to any or all holders of the Series B Convertible
Preferred Stock, may require such holder or holders to convert,
in whole or in part, the Series B Convertible Preferred Stock
into Common Stock. Within thirty days after the receipt of such
written notice, the holder or holders thereof shall cause that
number of shares of Series B Convertible Preferred Stock as
specified in such written notice to be converted into Common
Stock in the manner described in, and subject to the provisions
of, subparagraph C of this Section 4.
E. If at any time the Company shall subdivide or combine
its outstanding shares of Common Stock into a different number of
shares of Common Stock, each share of Series B Convertible
Preferred Stock shall thereafter be convertible into the same
number of shares of Common Stock to which the holder of such
shares of Series B Convertible Preferred Stock would thereafter
have been entitled had such shares of Series B Convertible
Preferred Stock been converted into Common Stock immediately
prior to the effective date of such subdivision or combination.
F. If there occurs any capital reorganization or any
reclassification of the capital stock of the Company or
consolidation or merger of the Company with or into another
corporation or entity, each share of Series B Convertible
Preferred Stock shall thereafter be convertible into, in lieu of
Common Stock, the same kind and amounts of securities or other
assets, or both, which were issuable or distributable to the
holders of shares of outstanding Common Stock of the Company upon
such reorganization, reclassification, consolidation or merger in
respect of that number of shares of Common Stock into which such
share of Series B Convertible Preferred Stock would have been
converted had such share of Series B Convertible Preferred Stock
been converted into Common Stock immediately prior to such
reorganization, reclassification, consolidation or merger.
G. Upon any event described in subparagraphs E and F of
this Section 4, the Company shall promptly mail to each holder of
Series B Convertible Preferred Stock a notice which shall
describe such event and the change in the number of shares or
other assets or securities issuable upon the conversion of Series
B Convertible Preferred Stock, setting forth in reasonable detail
the method of calculation and the facts upon which such
calculation is based.
H. The Company shall at all times reserve and keep
available, free from pre-emptive rights, out of its authorized
but unissued Common Stock, for the purpose of effecting the
conversion of the Series B Convertible Preferred Stock, the full
number of shares of Common Stock then issuable upon the
conversion of all shares of Series B Convertible Preferred Stock
<PAGE> 4
then outstanding and shall take all such action and obtain all
such permits or orders as may be necessary to enable the Company
lawfully to issue such Common Stock upon such conversion.
I. No fractional shares of Common Stock shall be issued
upon conversion, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction.
J. The Company will pay any and all taxes (excluding
federal, state and local income taxes) that may be payable in
respect of the issue or delivery of shares of Common Stock in
conversion of the Series B Convertible Preferred Stock pursuant
hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in
the issue and delivery of shares of Common Stock in a name other
than that in which the shares of Series B Convertible Preferred
Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requiring such issue
has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has
been paid.
K. As used herein, the term "Trigger Date" means the date
of the certification of the vote of stockholders of the Company
held at any annual or special meeting of stockholders of the
Company at which a quorum is present and at which the issuance of
Common Stock upon conversion of the Series B Convertible
Preferred Stock is approved by the holders of a majority of the
shares of Common Stock voted at such meeting, provided that the
total vote cast on the proposal represents over 50% in interest
of all securities entitled to vote on the proposal.
Section 5. NO REDEMPTION. The Series B Convertible
Preferred Stock shall not be redeemable.
Section 6. VOTING RIGHTS. The holders of the Series B
Convertible Preferred Stock shall be entitled to that number of
votes per share of Series B Convertible Preferred Stock equal to
the number of shares of Common Stock into which such share of
Series B Convertible Preferred Stock is then convertible in
accordance with Section 4 hereof (whether or not the Trigger Date
has yet occurred) at all meetings of stockholders of the Company;
provided that shares of the Series B Convertible Preferred Stock
shall not be entitled to vote on the approval of the issuance of
Common Stock upon conversion of the Series B Convertible
Preferred Stock referred to in subparagraph K of Section 4.
Section 7. EXCHANGE. Certificates representing shares
of the Series B Convertible Preferred Stock and, if converted in
accordance with the terms and conditions hereof, after conversion
thereof into Common Stock, certificates representing such shares,
shall be exchangeable, at the option of the holder, for a new
certificate or certificates of the same or different
denominations representing in the aggregate the same number of
shares of Series B Convertible Preferred Stock or shares of
Common Stock, as the case may be.
Section 8. SHARES TO BE RETIRED. All shares of Series B
Convertible Preferred Stock which are converted into Common Stock
shall revert to the status of authorized but unissued
<PAGE> 5
shares of preferred stock of the Company but shall not thereafter
be reissued as shares of Series B Convertible Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be duly executed on its behalf by its undersigned President
and Chief Executive Officer and attested to by its Secretary this
21st day of January, 1997.
/S/ HENRY J. MURPHY
Henry J. Murphy
President, Chief Executive Officer
[Corporate Seal]
ATTEST:
/S/ RAY A. SPILLMAN
Name: Ray A. Spillman
Title: Secretary
<PAGE> 1
EXHIBIT 99.5(A)
AMENDMENT TO CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
COASTAL PHYSICIAN GROUP, INC.
COASTAL PHYSICIAN GROUP, INC., a corporation organized under
and existing under the General Corporation Law of the State of
Delaware (the "Company"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Amended and Restated Certificate of
Incorporation of the Company, and pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors, at a meeting duly held on
January 30, 1997, adopted a resolution increasing the number of
shares constituting the Series B Convertible Preferred Stock,
which resolution is as follows:
WHEREAS, the Board of Directors of the Company (the "Board
of Directors") has previously adopted a resolution creating a
class of Series B Convertible Preferred Stock, with a par value
of $.01 per share (the "Series B Convertible Preferred Stock"),
consisting of thirty-two thousand five hundred (32,500) shares,
and now wishes to increase the number shares constituting the
Series B Convertible Preferred Stock to thirty-three thousand
(33,000) shares.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the
authority granted to and vested in the Board of Directors in
accordance with the provisions of the Amended and Restated
Certificate of Incorporation, the Board of Directors hereby
increases the number of shares constituting the Series B
Convertible Preferred Stock from thirty-two thousand five hundred
(32,500) to thirty-three thousand (33,000).
IN WITNESS WHEREOF, the Company has caused this Certificate
to be duly executed on its behalf by its undersigned President
and Chief Executive Officer and attested to by its Secretary this
21 day of February, 1997.
/S/ HENRY J. MURPHY
Name: Henry J. Murphy
Title: President Chief Executive Officer
[Corporate Seal]
ATTEST:
/S/ RAY A. SPILLMAN
Name: Ray A. Spillman
Title: Secretary
