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Coastal Physician Group, Inc.
(Name of Registrant as Specified In Its Charter)
Coastal Physician Group, Inc.
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COASTAL PHYSICIAN GROUP, INC.
2828 CROASDAILE DRIVE
DURHAM, NORTH CAROLINA 27705
September 13, 1996
DESPITE HIS DENIALS, WE THINK IT'S CLEAR
DR. SCOTT WANTS CONTROL OF COASTAL
DEAR SHAREHOLDER:
Dr. Steven Scott's September 7 letter to you claims that
he does not want to be CEO of Coastal and would not control the
Board of Directors if he is successful in this election con-
test. We do not believe this, but you be the judge.
WHY WE THINK DR. SCOTT WANTS TO BE CEO
You should know that Dr. Scott has filed a lawsuit seek-
ing, among other things, to have the Board's action which
removed him as the Company's CEO last May declared null and
void. WE BELIEVE A DECISION IN HIS FAVOR WOULD REINSTATE HIM
AS CEO.
In our view, this would be disastrous. Remember -- Dr.
Scott had his chance to run Coastal and he nearly bankrupted
the Company, losing more than $575 million in shareholder value
from January 1994 until he was removed as CEO on May 29, 1996.
ASK YOURSELF: WOULD SOMEONE WHO TRULY HAS NO INTEREST IN
BEING CEO, GO TO THE TROUBLE AND EXPENSE OF LITIGATION THAT
COULD REINSTATE HIM? WE THINK NOT.
WHY DOES DR. SCOTT WANT CONTROL OF COASTAL'S BOARD?
We think the answer is clear. In Dr. Scott's lawsuit, he
also seeks to have the Court force the Board to consider the
ratification of a five-year agreement between Coastal and
Century American Insurance Company. We think Dr. Scott should
not be permitted to control Coastal -- or transactions related
to Coastal -- as if it were his personal fiefdom, and not a
publicly-owned company with thousands of shareholders. You
should know that:
- Unlike Coastal, Century has a sole shareholder: Dr.
Scott.<PAGE>
- THIS 100% SCOTT-OWNED COMPANY RECEIVES INSURANCE PRE-
MIUMS FROM COASTAL AND COASTAL PHYSICIANS WHICH HAVE
TOTALED MORE THAN $20 MILLION PER YEAR.
- A five-year contract would mean $100 million or more
in revenues for Century -- effectively increasing the
market value for Dr. Scott's company.
AGAIN, ASK YOURSELF: IF DR. SCOTT GAINS CONTROL OF YOUR
BOARD, HOW DO YOU THINK HE AND HIS SUPPORTERS -- WHO WOULD COM-
PRISE A MAJORITY -- WOULD VOTE REGARDING THIS $100 MILLION DEAL
FOR DR. SCOTT?
DR. SCOTT CAN'T CONTINUE TO HAVE IT BOTH WAYS
In addition to this cozy deal with Century, Dr. Scott also
has other lucrative arrangements whose continued existence
would be assured if he controlled your Board. You should know
that:
- Century was paid an additional $2.3 million in other
insurance premiums by Coastal, beyond the $20 million
already described.
- Yet another Scott-owned company, American Alliance
Holding Company, is the landlord for Coastal's corpo-
rate headquarters. Coastal paid Alliance $745,000 in
1995 under sub-lease agreements. Coastal is also
liable for rental payments which could total more
than $14.5 million under the terms of the 15-year
prime lease.
- Coastal also paid more than $500,000 in 1995 to other
Scott-controlled entities including Chateau LLC,
Durham Investment Corp., Coral Ridge Property Land
Trust and Sunco Properties (jointly owned by Drs.
Scott and Walls) for real estate leases.
ONCE MORE, ASK YOURSELF: IS IT PROPER FOR DR. SCOTT TO
USE HIS POSITION AT COASTAL TO LEVERAGE HIS OTHER PERSONAL
BUSINESS AND FINANCIAL INTERESTS?
OUR STRATEGIC PLAN IS WORKING. GIVE YOUR MANAGEMENT
A CHANCE TO MAXIMIZE VALUE FOR ALL SHAREHOLDERS
Reject Dr. Scott and his nominees. It's time to give our
approach for Coastal a chance through the continuation of our
comprehensive plan. Remember -- the crux of our commitment
includes simultaneous and vigorous efforts to:
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- SELL THE ENTIRE COMPANY TO A STRATEGIC OR FINANCIAL
BUYER, OR ACCEPT A SUBSTANTIAL EQUITY INFUSION FROM
ONE OR MORE INVESTORS.
- refocus the Company's efforts on its core operations
in hospital-based contract services and billing busi-
nesses.
- divest our clinical operations and other non-
strategic assets and use the funds raised to pay down
Coastal's debt.
We are extremely pleased with our progress so far and we
look forward to sharing our ongoing results with you in the
weeks ahead. WE ONLY WISH YOU COULD SEE FOR YOURSELVES THE
DRAMATIC CHANGES IN BUSINESS PRACTICES, EMPLOYEE COMMITTMENT,
CUSTOMER SATISFACTION AND OTHER POSITIVE RESULTS SINCE WE'VE
IMPLEMENTED OUR COMPREHENSIVE PLAN.
TIME IS SHORT. VOTE YOUR WHITE PROXY TODAY
REMEMBER -- ONLY YOUR LATEST DATED PROXY WILL COUNT
By the time you receive this letter, Coastal's September
27 annual meeting will be less than two weeks away.
Please sign, date and return the enclosed WHITE proxy in
support of your management's candidates for the Board. Even if
you have already voted a BLUE Scott proxy, you have every legal
right to change your mind and vote a WHITE card.
Do not vote against Dr. Scott on his BLUE card, even as a
protest against his nominees and policies. Simply throw
Scott's BLUE cards away.
If you have further questions or need instructions on how
to vote your shares or to change your vote, please contact
MacKenzie Partners, Inc., which is assisting us with this con-
test, toll-free at (800) 322-2885.
Sincerely yours,
/s/ Jacque J. Sokolov, M.D. /s/ Joseph G. Piemont
JACQUE J. SOKOLOV, M.D. JOSEPH G. PIEMONT
Chairman of the Board President and Chief Executive Officer
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