SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 15, 1998 (December 31, 1997)
COASTAL PHYSICIAN GROUP, INC.
(Exact name of registrant
as specified in its charter)
Delaware 001-
13460 56-1379244
(State or other jurisdiction
(Commission (IRS Employer
of incorporation) File Number)
Identification No.)
2828 Croasdaile Drive, Durham, North Carolina 27705
(Address of principal executive offices)
Registrant's telephone number, including area code
(919) 383-0355
ITEM 5. - OTHER EVENTS
I. On December 31, 1997, Coastal Physician Group, Inc. (the
"Company") and certain subsidiaries of the Company closed on
a transaction pursuant to which the Company sold to Scott
Medical Group LLC ("Scott Medical") the following assets:
(i) all of the issued and outstanding stock of Integrated
Provider Networks, Inc., a North Carolina corporation
("IPN") which provides practice and physician management
services to professional corporations; (ii) all of the
issued and outstanding stock of Practice Solutions, Inc., a
North Carolina corporation ("PSI") which provides billing
services to freestanding physician practices and clinics,
including those under management by IPN; (iii) all of the
issued and outstanding stock of Sunlife OB-GYN Services of
Broward County, Inc., a Florida corporation ("Sunlife");
(iv) substantially all of the assets of Ft. Lauderdale
Perinatal Associates, which operates two physician clinics
located in Plantation, Florida and Fort Lauderdale, Florida,
and Physician Access Center, which operates a clinic in San
Francisco, California (collectively the "Clinics"); and (v)
certain accounts receivable of Sunlife (the "Sunlife
Receivables") which had previously been sold to NPF-XI, Inc.
pursuant to a series of receivables securitizations and
other financing arrangements between the Company and
subsidiaries of National Century Financial Enterprises, Inc.
Scott Medical is a privately held limited liability company
which is controlled by Steven M. Scott, M.D., the Chairman
and Chief Executive Officer of the Company. The December
31, 1997 transactions were adjusted between the parties so
as to be effective as of November 1, 1997. The purchase
price was $10,100,000, paid $5,000,000 in cash at the
closing with the balance paid with a short term promissory
note in the principal amount of $5,100,000, which note has
been paid in full. The purchase price is subject to
adjustment (either higher or lower) if: (i) the liabilities
of IPN (including Prim Med, Inc., its wholly owned
subsidiary) and PSI varies from the liabilities as shown on
their September 30, 1997 balance sheets; and (ii) the actual
collections of the outstanding accounts receivable of IPN,
Prim Med, Inc. and the professional corporations under
management by IPN varies five percent from the value of said
receivables as agreed upon by the parties.
In addition, Scott Medical gave a promissory note (the
"Receivables Purchase Note") as the consideration for Scott
Medical's purchase of the Sunlife Receivables. The
principal amount of the Receivables Purchase Note is
$1,000,727, the book value of the Sunlife Receivables. The
Receivables Purchase Note is subject to adjustment if the
actual collections with respect to the Sunlife Receivables
varies five percent from the principal amount of the
Receivables Purchase Note. The Receivables Purchase Note
bears interest at the applicable federal rate, payable
quarterly, with all principal and accrued but unpaid
interest payable in full on October 31, 1998.
Effective May 31, 1997, the Company has sold certain assets
related to seven primary care clinics operated by the
Company to Scott Medical. Subsequent to that sale of
assets, IPN and PSI provided billing services and some
management services to the seven clinics for Scott Medical.
Since the May 31, 1997 closing, IPN has advanced certain
expenses for the benefit of Scott Medical with respect to
these clinics so that the net owed to Coastal by Scott
Medical is $1,560,283. The amount owed by Scott Medical
pursuant to the purchase of the May clinics is subject to
final verification by both parties. As part of the December
31, 1997 closing, Scott Medical has assumed all of the
obligations of a lease from a subsidiary of the Company at
3000 Croasdaile Drive, Durham, North Carolina. The landlord
at 3000 Croasdaile Drive is Chateau Limited Liability
Company ("Chateau"), a privately held limited liability
company which is controlled by Steven M. Scott, M.D. The
estimated balance of the gross lease payments that were due
under the Chateau lease after October 31, 1997 is
$2,778,056. The parties negotiated a release fee for the
Chateau lease of $750,000. This amount will be credited
against the amount Scott Medical owes the Company relating
to the purchase of the clinics in May of 1997, such that the
net amount owed to the Company and/or affiliates by Scott
Medical is $810,283. At the closing of the December 31,
1997 transaction, Scott Medical delivered a promissory note
in the principal amount of $810,283 payable to an affiliate
of the Company bearing interest at the applicable federal
rate with interest payable quarterly and the entire balance
due in one (1) year.
The Company will obtain for a period of twelve (12) months
from the December 31, 1997 closing a call option (the "Call
Option") on the assets sold whereby the Company or an
affiliate may repurchase from Scott Medical the entirety
(but not less than the entirety) of the assets purchased on
December 31, 1997 by Scott Medical. If the Company
exercises the Call Option, the Company will pay Scott
Medical a purchase price equal to Scott Medical's investment
in the assets with a twelve percent (12%) annualized return.
If, during the twelve (12) month period the Call Option is
in effect, Scott Medical receives a bona fide offer to
purchase the assets from a third party purchaser other than
the Company, Scott Medical shall notify the Company of such
offer and the Company shall have thirty (30) days from such
notification which to determine whether to exercise its Call
Option. If the third party offer is for a purchase price
less than the purchase price computed pursuant to the Call
Option or upon more favorable terms than the Call Option,
the Company shall have the right to exercise its Call
Option, but upon the more favorable terms and conditions of
the third party offer. During the Call Option period, the
Company shall have the right to market the assets subject to
the Call Option to potential third party purchasers.
As part of the December 31, 1997 transaction, the Company
and its subsidiaries agreed that they would not provide
Comprehensive Services (as defined below) to physicians and
clinic practices, whether primary or specialty care
practices and whether free-standing or hospital-based in the
locations and during the time periods set forth in the
Restricted Periods (as defined below); provided, however,
nothing in the non-compete would impair the Company's right
or ability (i) to exercise the Call Option or (ii) to
continue to provide Comprehensive Services to any medical
practice which is currently receiving services from the
Company. For purposes of the non-compete, "Comprehensive
Services" shall mean owning, managing, operating or
otherwise providing physician management services (i) which
involve as a principal component of such owning, managing,
operating or providing services the provision of site-based
medical support personnel, site-based administrative support
personnel, medical and office supplies, inventory and
facilities, or (ii) pursuant to which the Company or its
subsidiaries shall undertake substantial responsibility for
the overall operation of the medical practice. For the
purposes of the non-compete, the "Restricted Period" shall
mean (i) with respect to the counties of Wake, Durham and
Orange, North Carolina and with respect to any area within a
fifty (50) mile radius of any Clinic or within a fifty (50)
mile radius of any medical practice owned by IPN or Sunlife
on the closing date, a period of two (2) years from the
closing date and thereafter until the Company terminates the
Restricted Period at any time following the second
anniversary of the closing date by giving ninety (90) days
prior written notice to Scott Medical; and (ii) with respect
to the rest of the United States, a period of one (1) year
from the closing date, provided that the Company may, with
one hundred eighty (180) days prior written notice,
terminate the Restricted Period with respect to the rest of
the United States prior to the first anniversary of the
closing date.
In order to facilitate the December 31, 1997 purchase by
Scott Medical, the Company also entered into a partial
release of the non-compete agreements pursuant to the
Employment Agreement between Steven M. Scott, M.D. and the
Company. The release allows Scott Medical and any other
Scott entity to own, manage, operate or otherwise provide
physician practice and management services to physician and
clinic practices.
The Company had received prior expressions of interest from
third parties regarding the purchase of IPN, a substantial
portion of the assets sold in the December 31, 1997
transaction. The sale of IPN to Scott Medical was on
financial terms comparable to these third party offers. The
Company was able to sell IPN to Scott Medical without the
possibility of disruption of the clinics managed by IPN,
which was a concern in any possible sale to other parties.
The Company received a fairness opinion relating to the
financial aspects of the December 31, 1997 transaction.
II. Effective January 18, 1998, Jacques J. Sokolov, M.D.
("Sokolov") resigned as a member of the Board of Directors
and as an officer of the Company, pursuant to a letter to
the Company dated January 18, 1998. Sokolov indicated in a
letter to the Company that he was resigning due to the fact
that he would be commencing an arbitration against the
Company related to his employment agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
COASTAL PHYSICIAN GROUP, INC.
By:
____________________________________
Dated: January ____, 1998 Name:
_________________________________
Title:
__________________________________
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
COASTAL PHYSICIAN GROUP, INC.
By:
____________________________________
CHARLES F. KUONI, III
Executive Vice President
&
Chief Financial Officer
Dated: February ____, 1998
