UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1998
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
COASTAL PHYSICIAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1379244
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 CROASDAILE DRIVE, DURHAM, NC 27705
Address of principal executive offices) (Zip Code)
(919) 383-0355
(Registrant's telephone number including area code)
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
{X} Yes { } No
As of July 31, 1998 there were outstanding 37,699,692 shares of
common stock, par value $.01 per share.
COASTAL PHYSICIAN GROUP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December
31, 1997 and June 30, 1998 (Unaudited) 1
Unaudited Consolidated Statements of
Operations 2
Unaudited Consolidated Condensed
Statements of Cash Flows 4
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 2. Change in Securities 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
COASTAL PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
June 30, December
1998 31,
1997
Assets (unaudite
d)
Current assets:
Cash and cash equivalents 7,295 8,921
Marketable securities 2,508 5,735
Trade accounts receivable, net 20,826 23,612
Reserves held by NCFE 7,148 6,396
Accounts receivable, other 6,084 12,684
Receivables from related party 3,585 9,405
Prepaid expenses and other current 8,628 7,923
assets
Total current assets 56,074 74,676
Property and equipment, at cost, less
accumulated depreciation 9,315 10,342
Excess of cost over fair value of net
assets acquired, net 2,359 2,450
Other assets 10,539 8,628
Total assets 78,287 96,096
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short-term
borrowings 13,202 2,529
Accounts payable 23,093 31,364
Income taxes payable 1,235 1,359
Accrued physicians fees and medical 21,791 31,431
costs
Accrued expenses 11,404 16,142
Total current liabilities 70,725 82,825
Long-term debt, excluding current 74,696 74,698
maturities
Total liabilities 145,421 157,523
Deferred credit on business transferred
net of
note receivable 2,794 ---
Shareholders' deficit:
Preferred stock $.01 par value; shares
authorized 10,000; issued and
outstanding 4 ---
445 and 0 respectively
Common stock $.01 par value; shares
authorized
100,000; shares issued and 377 375
outstanding
37,700 and 37,493, respectively
Additional paid-in capital 162,582 160,374
Common stock warrants 1,582 1,582
Retained earnings (accumulated deficit) (234,620) (223,912)
Accumulated comprehensive income 147 154
Total shareholders' deficit (69,928) (61,427)
Total liabilities and shareholders'
deficit 78,287 96,096
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three months ended
June 30,
1998 1997
Operating revenue, net 78,692 111,496
Costs and expenses:
Physician and other provider services 60,991 88,277
Medical support services 14,386 10,813
Selling, general and administrative 6,783 28,421
Total costs and expenses 82,160 127,511
Operating loss (3,468) (16,015)
Other income (expense):
Interest expense (2,814) (5,911)
Interest income 180 136
Other, net (13) 163
Total other expense (2,647) (5,612)
Loss from continuing operations before
income taxes (6,115) (21,627)
Benefit for income taxes --- ---
Net loss from continuing operations (6,115) (21,627)
Loss from discontinued operations --- ---
Net loss (6,115) (21,627)
Basic and diluted loss per share (0.16) (0.89)
Weighted average number of shares
outstanding 37,665 24,385
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Six months ended
June 30,
1998 1997
Operating revenue, net 166,569 236,210
Costs and expenses:
Physician and other provider services 133,635 182,921
Medical support services 16,372 24,154
Selling, general and administrative 22,689 53,450
Total costs and expenses 172,696 260,525
Operating loss (6,127) (24,315)
Other income (expense):
Interest expense (4,954) (9,754)
Interest income 236 462
Other, net 137 414
Total other expense (4,581) (8,878)
Loss before income taxes (10,708) (33,193)
Benefit for income taxes --- ---
Net loss from continuing operations (10,708) (33,193)
Loss from discontinued operations --- ---
Net loss (10,708) (33,193)
Basic and diluted loss per share (0.28) (1.37)
Weighted average number of shares
outstanding 37,605 24,258
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Three months ended
June 30,
1998 1997
Net cash (used in)provided by
operating activities (2,569) 15,392
Cash flows from investing activities:
Sales of marketable securities and
investments, net 77 (2,154)
Purchases of property and equipment, net (779) 78
Disposition of subsidiaries, net of
cash disposed --- 502
Net cash (used in)investing
activities (702) (1,574)
Cash flows from financing activities:
Repayments of long-term debt (2,839) (90,799)
Borrowings on long-term debt 10,385 62,510
Proceeds from issuances of preferred 2,065 10,000
stock
Proceeds from issuances of common 89 248
stock
Net cash provided by (used
in) 9,700 (18,041)
financing activities
Net increase (decrease)in
cash and cash equivalents 6,429 (4,223)
Cash and cash equivalents at beginning
of period 866 21,136
Cash and cash equivalents at end of
period 7,295 16,913
Supplemental disclosures of cash flow
information:
Cash payments (refunds) during
the period for:
Interest 2,422 2,581
Income taxes 124 (602)
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six months ended
June 30,
1998 1997
Net cash (used in)provided by
operating activities (8,036) 13,793
Cash flows from investing activities:
Sales of marketable securities and
investments, net 322 234
Purchases of property and equipment, net (932) (37)
Disposition of subsidiaries, net of
cash disposed (5,865) 1,402
Net cash (used in) provided
by (6,475) 1,599
investing activities
Cash flows from financing activities:
Repayments of long-term debt (3,453) (91,321)
Borrowings on long-term debt 14,124 72,325
Proceeds from issuances of preferred 2,065 10,000
stock
Proceeds from issuances of common 149 278
stock
Net cash provided by (used
in) 12,885 (8,718)
financing activities
Net (decrease)increase in
cash and cash equivalents (1,626) 6,674
Cash and cash equivalents at beginning
of period 8,921 10,239
Cash and cash equivalents at end of
period 7,295 16,913
Supplemental disclosures of cash flow
information:
Cash payments (refunds) during
the period for:
Interest 4,562 4,631
Income taxes 124 (4,581)
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis Of Presentation
The accompanying consolidated financial statements of Coastal
Physician Group, Inc. and its subsidiaries (the "Company" or
"Coastal") are unaudited and, in the opinion of management,
include all adjustments which are necessary for a fair
presentation. The unaudited consolidated financial statements
should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. Operating results for the
interim periods presented are not necessarily indicative of the
results that may be expected for the fiscal year ending
December 31, 1998.
(2) Health Plan Southeast, Inc.
Management has determined to focus its efforts on the physician
staffing and management services businesses. To this end, on
June 5, 1998 the Company retained an investment banking firm to
advise the Company regarding strategic alternatives related to
HealthPlan Southeast, Inc.("HPSE"), an HMO located in Florida.
This may include the recapitalization, disposition or
restructuring of the operations of HPSE. The success of any of
these alternatives cannot be assured. HPSE's results of
operation for the quarter and six months ended are as follows:
Amounts in Three months Six months
thousands ended ended
June 30, 1998 June 30, 1998
Net revenues $ 28,252 $ 55,580
Operating losses (1,904) (2,571)
(3) Comprehensive Income
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Statement
130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this
Statement requires that unrealized gains or losses on the
Company's available-for-sale securities be included in other
comprehensive income, which in prior periods were reported
separately in shareholders' equity. Prior year financial
statements have been reclassified to conform to the
requirements of Statement 130.
The components of comprehensive income, net of related tax, for
the quarter and six month periods ended June 30, 1998 and 1997
are as follows:
In thousands of Three months ended Six months ended
dollars June 30 June 30
1998 1997 1998 1997
Net loss $(6,115) $(21,627) $(10,708) $(33,193)
Unrealized gains
(losses)on securities (5) (74) (7) (74)
Comprehensive Income $(6,120) (21,701) $(10,715) (33,267)
The components of accumulated comprehensive income, net of
related tax, at June 30, 1998 and December 31, 1997 are as
follows:
In thousands of dollars June December
30,1998 31, 1997
Unrealized gains
(losses)on securities $ (7) 18
Accumulated comprehensive
income $ 147 $ 154
(4) Capital
On June 30, 1998 the Company issued 444,974 shares of Series D
convertible Preferred Stock to Steven M. Scott M.D., Coastal's
Chief Executive Officer, a director and the largest shareholder
of the Company. The stock was issued to Dr. Scott in connection
with the conversion of a $2,000,000 convertible debenture
bearing interest at 10% per annum. The Series D Convertible
Preferred Stock is convertible into 10 shares of common stock
only upon approval of the conversion by the Company's
shareholders.
(5) Sale of Doctors Health Plan, Inc.
In March 1998, the Company received regulatory approval of the
sale of Doctor's Health Plan, Inc., a health maintenance
organization licensed in North Carolina ("DHP") to DHP Holdings
LLC., an entity that is controlled by Dr. Scott. Under terms of
the sale, the Company received cash of $993,000 and a note in
the amount of $5,000,000, bearing interest at the rate of
twelve percent 12% per annum until paid. In addition, the
purchaser assumed all liabilities of DHP as of December 31,
1997, in excess of the amount agreed upon between the buyer and
the Company. The Company has not treated the sale as a
completed transaction for accounting purposes. As a result, the
difference between the proceeds and the Company's basis is
shown on the Consolidated Balance Sheet as of June 30, 1998 as
a deferred credit. The deferred credit has been reduced by the
$5,000,000 note received from the buyer. When the transaction
is completed for accounting purposes, which management believes
will be in the third quarter of 1998, the Company anticipates
that shareholders' equity will be increased by $7,794,000.
On June 7, 1998 the Company's disinterested directors approved
a modification to the note received from DHP Holdings, LLC, in
connection with the sale of Doctors Health Plan, Inc. Under the
terms of the Restated and Amended Promissory Note, interest
accrues at the rate of 12% per annum and is payable quarterly
on the 7th day of September, December, March and June of each
year until the note is paid in full. Principal payments are
required to be made on June 7, 1999 and June 7, 2000 in the
amount of $1,000,000 on each date. A final principal payment of
$3,000,000 is payable on June 7, 2001. The note is secured by a
pledge of all of the outstanding stock of American Alliance
Holding Company, a company controlled by Dr. Scott.
Net revenues and operating losses for DHP for the six months
and three months ended June 30, 1998 and 1997, included in the
Consolidated Statement of Operations were:
Amounts in Three months Six months
Thousands ended June 30 ended June 30
1998 1997 1998 1997
Net revenues - 6,527 10,008 12,018
Operating losses - (1,204) (153) (2,063)
COASTAL PHYSICIAN GROUP, INC.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
INTRODUCTION
The following discussion provides an assessment of the
Company's results of operations, liquidity and capital
resources, and trends and uncertainties and should be read in
conjunction with the consolidated financial statements of the
Company and notes thereto included elsewhere in this document.
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1998 Compared to the Second
Quarter Ended June 30, 1997.
Net operating revenue ("operating revenue") decreased 29.4% for
the second quarter of 1998 to $78,692,000 from $111,496,000 in
the second quarter of 1997. The decrease in operating revenue
due to dispositions completed since the first quarter of 1997
for which prior periods' results were not restated was
approximately $27,506,000 or 24.7% of the 1997 second quarter
revenues. The dispositions included the sale of certain assets
of Better Health Plan, Inc. in August 1997, Coastal Physician
Services of the West, Inc. and Coastal Physician Services of
South Florida, Inc. in November 1997, and the sale of certain
clinics in May 1997 and November 1997; the sale of the stock of
Integrated Provider Networks, Inc., Practice Solutions, Inc.
and Sunlife OB/GYN Services of Broward County, Inc. in November
1997, and the sale of the stock of Doctors Health Plan, Inc. in
March 1998. Operating revenue not related to disposed entities
decreased approximately $5,298,000 or 4.8% from the 1997 second
quarter revenues. The net favorable impact of a growth in
revenue from those contracts that have been in operation since
January 1, 1997 within the emergency room services group and a
growth in the number of enrollees in the HealthPlan Southeast,
Inc. ("HPSE") was more than offset by contract terminations,
net of new contracts added. This decline in operating revenue
is likely to continue during 1998 as a result of the
dispositions listed above.
Operating expenses decreased 35.6% to $82,160,000 in the second
quarter of 1998 from $127,511,000 in the second quarter of
1997. The decrease in operating expenses due to dispositions
completed, as detailed above, for which prior periods' results
were not restated was approximately $29,394,000 or 23.1% of the
1997 second quarter operating expenses. Operating expenses not
related to disposed entities decreased approximately
$15,957,000 or 12.5%. This decrease was partly due to
decreases in the number of contracts within the emergency room
services group. In addition, the reductions in personnel,
telecommunication, and information technology costs, reduced
legal and professional fees, as well as the closure of certain
offices, contributed to the reduction in operating costs. These
reductions were partly offset by increased expenses associated
with the growth in the number of enrollees in HPSE and the
inclusion in selling, general and administrative costs of
certain program fees of approximately $700,000 associated with
the sale of accounts receivable to National Century Financial
Enterprises, Inc.
The changes in operating revenue and operating expenses
resulted in an operating loss of $3,468,000 for the second
quarter of 1998, compared to an operating loss of $16,015,000
for the second quarter of 1997. Approximately $1,900,000 of the
operating loss in the second quarter of 1998 was attributable
to the operations of HPSE.
The Company experienced an improvement in operating margins
during the second quarter of 1998, including the results of
HPSE and charges for program fees discussed above, compared to
the second quarter of 1997. The operating margin as discussed
above, for the three months ended June 30, 1998 was negative
4.4% versus a negative 14.4% for the same period in the prior
year.
Interest expense decreased $3,097,000, or 52.4%, to $2,814,000
for the three months ended June 30, 1998 from $5,911,000 for
the three months ended June 30,1997. The decrease was primarily
due to a change in the Company's debt structure and lower
interest rates charged in the current quarter. The Company
reflected in the second quarter a correction of $1,125,000 in
program fees previously expensed in error.
There was no provision for income taxes recorded for the second
quarter of 1998 or 1997. The Company expects to record no tax
expense or benefit, other than as a result of potential asset
dispositions, until the Company utilizes federal and state net
operating loss carryforwards ("NOL"). As of June 30, 1998 the
Company had approximately $170,000,000 and $210,000,000 in NOLs
for federal and state income tax purposes, respectively. These
amounts are exclusive of current years interim results.
Overall, the Company incurred a net loss of $6,115,000 in the
second quarter of 1998 as compared to a net loss of $21,627,000
in the second quarter of 1997 for the reasons discussed above.
Weighted average shares outstanding increased 54.5% from
24,385,000 shares in the second quarter of 1997 to 37,665,000
shares in the second quarter of 1998, primarily as a result of
shares issued to Dr. Scott during 1997.
Six Months Ended June 30, 1998 Compared to the Six Months Ended
June 30, 1997.
Net operating revenue ("operating revenue") decreased 29.5% for
the six months ended June 30, 1998 to $166,569,000 from
$236,210,000 for the six months ended June 30, 1997. The
decrease in operating revenue due to dispositions completed
since the first quarter 1996 for which prior periods' results
were not restated was approximately $58,253,000 or 24.7%. The
dispositions included the sale of certain assets of Better
Health Plan, Inc. in August 1997, Coastal Physician Services of
the West, Inc. and Coastal Physician Services of South Florida,
Inc. in November 1997, and the sale of certain clinics in May
1997 and November 1997; the sale of the stock of Integrated
Provider Networks, Inc., Practice Solutions, Inc. and Sunlife
OB/GYN Services of Broward County, Inc. in November 1997, and
the sale of the stock of Doctors Health Plan, Inc. in March
1998. Operating revenue not related to disposed entities
decreased approximately $11,388,000 or 4.8%. The net favorable
impact of a growth in revenue from those contracts that have
been in operation since January 1, 1997 within the emergency
room services group and a growth in the number of enrollees in
the HealthPlan Southeast, Inc. ("HPSE") was more than offset by
contract terminations, net of new contracts added. This decline
in operating revenue is likely to continue during 1998 as a
result of the dispositions listed above. This decline in
operating revenue is likely to continue during 1998 as a result
of the dispositions listed above.
Operating expenses decreased 33.7% to $172,696,000 for the six
months ended June 30, 1998 from $260,525,000 for the six months
ended June 30, 1997. The decrease in operating expenses due to
dispositions completed, as detailed above, for which prior
periods' results were not restated was approximately
$68,767,000 or 26.4% of the 1997 level. Operating expenses not
related to disposed entities decreased approximately
$19,062,000 or 7.3% of the 1997 level. This change was partly
due to decreases in the number of contracts within the
emergency room services group. In addition, reductions in
personnel, telecommunication, and information technology costs
and reduced legal and professional fees, as well as the closure
of certain offices, contributed to the reduction in operating
costs. These reductions were partially offset by increased
expenses associated with the growth in the number of enrollees
in the Company's health plans in North Carolina and Florida. In
addition, the Company has included in operating costs
approximately $2,552,000 of program fees associated with the
sale of accounts receivable.
The changes in operating revenue and operating expenses
described above resulted in an operating loss of $6,127,000 for
the six months ended June 30, 1998, compared to an operating
loss of $24,315,000 for the six months ended June 30, 1997.
The Company experienced a slight improvement in operating
margins during the six months ended June 30, 1998 compared to
the six months ended June 30, 1997. The operating margin
(excluding the program fees as discussed above) for the six
months ended June 30, 1998 was negative 3.7% versus a negative
10.3% for the same period in the prior year.
Interest expense decreased $4,800,000, or 49.2%, to $4,954,000
for the six months ended June 30, 1998 from $9,754,000 for the
six months ended June 30,1997. The decrease was primarily due
to a change in the Company's debt structure and lower interest
rates charged in 1998. In addition, the Company reflected in
the second quarter a correction of $1,125,000 in program fees
previously expensed in error.
There was no benefit for income taxes for the six months ended
June 30, 1998 or 1997. The Company expects to record no tax
expense or benefit, other than as a result of potential asset
dispositions, until the Company utilizes federal and state net
operating loss carryforwards ("NOL"). As of June 30, 1998 the
Company has approximately $170,000,000 and $210,000,000 in NOLs
for federal and state income tax purposes, respectively.
Overall, for the reasons discussed above, the Company incurred
a net loss of $10,708,000 for the six months ended June 30,
1998 as compared to a net loss of $33,193,000 for the six
months ended June 30, 1997.
Weighted average shares outstanding increased 55.0% from
24,258,000 shares for the six months ended June 30, 1997 to
37,605,000 shares for the six months ended June 30, 1998,
primarily as a result of shares issued to Dr. Scott during
1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended
June 30, 1998 was $8,036,000 as compared to net cash provided
by operating activities of $13,793,000 for the six months ended
June 30, 1997. The net cash provided by operating activities
for the six months ended June 30, 1997 resulted primarily from
the sale of accounts receivable to various subsidiaries of
National Century Financial Enterprises, Inc. ("NCFE") during
the month of June, as explained below, partially offset by the
net loss for the period.
The Company's strategic business plan provides for ongoing
reviews of its non-core businesses, improving the profitability
of its core businesses, reducing contract attrition rates and
cutting overhead costs. The Company has taken the following
actions to implement this plan.
As a result of the reviews of its business units, the Company
retained an investment banking firm to advise the Company
regarding strategic alternatives available to it regarding the
Company's HealthPlan Southeast, Inc. subsidiary. (See Note 2 in
Notes to consolidated financial statements).
Coastal Physician Services, Inc. ("CPS") continues to implement
its Practice Partners Program which is designed to better match
payments to independent contractor physicians with the revenue
they generate.
Healthcare Business Resources, Inc. ("HBR") continues to
introduce the "T-Chart" system to its clients. The "T-Chart"
system affords the physician a better method of documenting
treatment, while helping HBR streamline the process of coding
and billing. Management believes that the use of the T-Chart
system will assist the Company in reducing processing costs.
Although these actions are expected, over time, to have a
positive effect on the Company's financial performance, there
can be no assurance that these actions, or others the Company
may decide to implement, will be successful or that improved
financial results will be achieved without additional asset
sales, revenue and margin improvements and cost reductions.
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from the amounts
available under its various agreements with NCFE, the sale of
certain non-core assets, as well as a reduction in cash used in
operations.
The Company has been advised by the New York Stock Exchange
("NYSE") that it is not in compliance with certain of the
NYSE's continued listing criteria. Management of the Company
has had discussions with, and furnished current and projected
financial information to, representatives of the NYSE
concerning this matter. The NYSE has advised the Company that
it will review on a quarterly basis the Company's financial
performance in relation to the information provided, and that
continued listing in the future may be dependent on such
financial performance.
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 operating results and cash
flow; the possibility of poor accounts receivable generation,
collection and/or reimbursement experience; 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; and
other important factors disclosed from time to time in the
Company's Form 10-K, Form 10-Q and other Securities and
Exchange Commission filings.
PART II - OTHER INFORMATION
Item 2. - Changes in Securities
The Series D Convertible Preferred Stock was issued to Dr.
Scott in reliance on the private placement exemption from
registration in Section 4(3) of the Securities Act of 1933.
Item 5 Other Information
A. Change in Directors
On July 10, 1998, Mitchell Berger resigned from the Board of
Directors due to the demands upon his time in his law firm and
time devoted to other interest.
On August 12, 1998, the Company announced the appointment of
Mark J. Pastin to the Board of Directors to fill the unexpired
term of Mr. Berger, whose term will expire in 1999.
B. Litigation Settlement
On July 31, 1998, Judge Frank Bullock of the United States
District Court for the Middle District of North Carolina,
entered an Order and Opinion dismissing entirely the case of
Mead Ann Krim v. Coastal Physician Group, Inc. et al, in which
the plaintiff asserted claims on her own behalf and on behalf
of other members of a class of purchasers of the Company's
stock for alleged violations of the Securities Exchange Act and
state law claims for negligent misrepresentation.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation -
Incorporated by reference to the June 30, 1995 Form 10-Q
filed August 11, 1995 (File No. 001-13460)
3.2 Bylaws as amended - Incorporated by reference to the Form
8-K Report for the event dated January 20, 1995, filed on
January 27, 1995 (File No. 001-13460)
4.1 Certificate of Designation fixing the Relative Rights,
Preferences and Limitations of Series D Convertible
Preferred Stock
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
COASTAL PHYSICIAN GROUP, INC.
(Registrant)
Date: August 13, 1998 By: /S/STEVEN M. SCOTT, M.D.
Steven M. Scott, M.D.
President and Chief
Executive Officer
Date: August 13, 1998 By: /S/CHARLES F. KUONI, III
Charles F. Kuoni, III
Executive Vice President
and Chief Financial
Officer
Exhibit 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES D 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, acting at a meeting held on
June 29, 1998, 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 D 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 D Convertible Preferred Stock
Section 1. Designation and Amount. The shares of such
series shall be designated as Series D Convertible Preferred
Stock, with a par value of $0.01 per share (the "Series D
Convertible Preferred Stock"), and the number of shares
constituting such series shall be one million two hundred
thousand (1,200,000).
Section 2. Dividends. The holders of shares of Series
D 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 D
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 D
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 may be, on each share of Series D
Convertible Preferred Stock in an amount determined as set
forth above nor shall any dividend be paid or declared on any
share of Series D 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 D Convertible Preferred Stock
unless, prior thereto, the holders of shares of Series D
Convertible Preferred Stock shall have received an amount per
share equal to ten times the lesser of (i) the average closing
price for shares of Common Stock on the New York Stock Exchange
for the ten (10) trading days ending March 2, 1998 or (ii) the
average closing price for shares of Common Stock on the New
York Stock Exchange for the ten (10) trading days ending June
30, 1998. Following the payment of the full amount of such
liquidation preference, no additional distributions shall be
made to the holders of shares of Series D 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 D
Convertible Preferred Stock or any capital stock ranking on a
par with the Series D 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 D
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 D 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
D 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 D Convertible
Preferred Stock, subject to adjustment as described in this
Section 4.
C. In order to convert shares of the Series D
Convertible Preferred Stock into Common Stock, the holder
thereof shall surrender, after the Trigger Date, at any office
herein above 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 D
Convertible Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day
of the 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 D
Convertible Preferred Stock, may require such holder or holders
to convert, in whole or in part, the Series D 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 D
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 D 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 D Convertible Preferred Stock would thereafter
have been entitled had such shares of Series D 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 D 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 D Convertible
Preferred Stock would have been converted had such share of
Series D 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 D 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 D 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 D Convertible Preferred Stock, the
full number of shares of Common Stock then issuable upon the
conversion of all shares of Series D Convertible Preferred
Stock 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 upon
conversion of the Series D 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 D 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 D
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 D Convertible
Preferred Stock shall not be redeemable.
Section 6. Voting Rights. The holders of the Series D
Convertible Preferred Stock shall be entitled to that number of
votes per share of Series D Convertible Preferred Stock equal
to the number of shares of Common Stock into which such share
of Series D 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 D Convertible
Preferred Stock shall not be entitled to vote on the approval
of the issuance of Common Stock upon conversion of the Series D
Convertible Preferred Stock referred to in subparagraph K of
Section 4.
Section 7. Exchange. Certificates representing shares
of the Series D 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 D Convertible Preferred Stock or
shares of Common Stock, as the case may be.
Section 8. Shares to be Retired. All shares of Series
D Convertible Preferred Stock which are converted into Common
Stock shall revert to the status of authorized but unissued
shares of preferred stock of the Company but shall not
thereafter be reissued as shares of Series D 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 29th day of June, 1998.
_______________________________________
Name: Steven M. Scott, M.D.
Title: President and Chief
Executive Officer
[Corporate Seal]
ATTEST:
__________________________________
Name: Eugene F. Dauchert,Jr.
Title: Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,295
<SECURITIES> 2,508
<RECEIVABLES> 37,643
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,074
<PP&E> 9,315
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,287
<CURRENT-LIABILITIES> 70,725
<BONDS> 0
0
4
<COMMON> 377
<OTHER-SE> (70,309)
<TOTAL-LIABILITY-AND-EQUITY> 78,287
<SALES> 166,569
<TOTAL-REVENUES> 166,569
<CGS> 172,696
<TOTAL-COSTS> 172,696
<OTHER-EXPENSES> (4,581)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,954)
<INCOME-PRETAX> (10,708)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,708)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
