SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Coastal Physician Group, Inc.
(Name of Registrant as Specified In Its Charter)
Coastal Physician Group, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:<PAGE>
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:<PAGE>
[LOGO OF COASTAL PHYSICIAN GROUP, INC.]<PAGE>
COMPREHENSIVE BUSINESS PLAN
1 <PAGE>
COMPREHENSIVE BUSINESS PLAN:
THREE-PHASE TURNAROUND
Goals: Maximize Shareholder Value and Meet Debt Service
Requirement
Defend
January 1996 ------------------------- January 1997
Restructure/Stabilize
May 1996 |----------------------->
Grow Core Businesses
2
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
SNAPSHOT: MARCH 1996
Unclear Future
- The Company had not been able to forecast cash flow
accurately
- No Company-wide action plan to improve cash flow
- "Business as usual" atmosphere at SBU level
- Edge of liquidity crisis
- Receipt of 1995 audit opinion was unclear, 10-K delayed
- 5 of 8 business units were losing money on an EBITDA basis
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
SNAPSHOT: JULY 1996
Focused Comprehensive Business Plan Developed
with Outside Experts
- Revised credit agreement executed - receipt of audit
opinion, 10K filed
- Changed leadership/new management team in place
- Cash flow monitoring system developed and put in place
- Management Action Plan (MAP) underway
- Actual Q2 net cash flows ahead of plan
- Board approved Strategic and Financial Plan for the dives-
titure of certain assets
- Longer-term strategic plan to be developed by year-end
4
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
NEED TO SOLVE FINANCING ISSUES
New Credit Agreement Provides Time
- Original $83M facility matures on 7/1/97
- New credit facility executed in May 1996
- Provides up to $40M in new funding
- Warrants to lenders with clawback for early paydowns
- $40M must be paid down by 1/2/97
5
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
COMPREHENSIVE BUSINESS PLAN
Three-Prong Approach to Solve Financing Issues
Divestitures (Strategic and Financial Plan)
[arrow to and from Operational Initiatives and Refinancing
Alternatives]
Refinancing Alternatives (Maintain Flexibility)
[arrow to and from Divestitures and Operational
Initiatives]
Operational Initiatives (Management Action Plan)
[arrow to and from Divestitures and Refinancing
Alternatives]
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
COMPREHENSIVE BUSINESS PLAN
Execution of Three-Prong Approach
- Improve and increase efficiency in each of the
Company's existing operations and businesses (MAP)
- Divest non-strategic business units, leaving in place the
Company's core operations (Strategic and Financial Plan)
- Refinance and ultimately pay down debt and concentrate on
effective management of the Company's core operations
7
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
STRATEGIC AND FINANCIAL PLAN GOALS
Goal: Build Foundation for Future Growth and
Improve Shareholder Value
- Focus on "core businesses" with competitive advantages and
franchise value
- Leadership position in industry
- Critical mass
- Significant value enhancement opportunity via turn-
around
- Divest non-core assets
- Uncompetitive market positions
- Management issues
- Large, ongoing capital needs
- Lack of clear, near-term turnaround opportunity
- Stabilize financial position/execute strategy to support
liquidity events
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
STRATEGIC PLAN FOCUSES ON CORE BUSINESSES
Non-core Businesses Consumed Inordinate Amount of
Management Time
Core Non-Core
------------------------------- -------------------------
% of Q1 % of Q1
Business 96 Revenue Business 96 Revenue
------------------ ---------- ------------- ----------
Hospital-Based and
Other Contract Practice
Services 57 Management 11
Business Management Better Health
Services (HBR) 8 Plan 6
HMOs (HPSE, DHP) 15 MedCost 2
--------
Corporate Group 19%
and other 1
--------
81%
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
STRATEGIC DIVESTITURE PROCESS
July-August
- Contact strategic acquirors
- Sign confidentiality agreements
- Distribute offering memorandums
August
Preliminary non-binding bids in August
August-October/November
- Due diligence
- Contract negotiations
- Negotiate def. agreements
October/November
Board Approval of Definitive Agreements
October/November-November/December [potentially beyond December]
Close transactions
10<PAGE>
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.]
MANAGEMENT ACTION PLAN/
OPERATIONAL REVIEW
11<PAGE>
HOSPITAL-BASED CONTRACT SERVICES
Early Assessment: February/March
- Traditional financial and operational measurements did not
provide effective management tools
- Revenue-driven focus; insufficient attention to cash flow
- Customer attrition
- Margin erosion
- Many "loser" contracts
- Lack of field management depth
- Extrinsic/intrinsic incentives not significantly aligned
with good business practices
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HOSPITAL-BASED CONTRACT SERVICES
Goal: Redefine the Way CPS Does Business
- Develop consistency in the way we do business and ensure
that we measure results accurately
- Develop short-term and long-term plans and objectives
- Tracking daily and weekly metrics for results to be
constantly and consistently reviewed
- Communicate plans and objectives throughout the
organization
- Provide people with the resources and incentives to
accomplish the plans and objectives
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HOSPITAL-BASED CONTRACT SERVICES
Focus on the Basics
- Terminate unprofitable CES and related contracts that
can't be quickly made profitable
- Size organization to fit resulting revenue base
- Address billing/collection issues
- Reduce direct expenses
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HOSPITAL-BASED CONTRACT SERVICES
Structural Changes
- Greater P&L responsibility at the operating level
- Redefine roles and responsibilities of Medical Direc-
tors
- Operations (recruiting, credentialing & staffing)
- Contract management
- Accounting/financial reporting
- New business development
- Corporate responsibility
- Functional reporting relationships
- Strategy & direction
- Provide resources
- Track & rollup results
15
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HOSPITAL-BASED CONTRACT SERVICES
New and Improved Measurement Tools:
Key Metrics
- Daily cash improvement vs. plan
- Daily cash received:
- Flat rate
- Subsidy
- Third party billing contracts (fee-for-service)
- Daily past due accounts receivable
- Voluntary/involuntary terminations
- Conversions/new business development
- Recruiting and scheduling effectiveness
- New business: margins, visits, working capital require-
ments
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BUSINESS MANAGEMENT SERVICES
Early Assessment: February/March
- Single customer dependency
- Ineffective relationship between HBR and CPS
- A/R collection problems
- Labor turnover issues
- Inefficient information systems
- In midst of major systems conversions
- Marketing deficiencies
- Contract attrition issues
17
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BUSINESS MANAGEMENT SERVICES
Operational Issues
- Organization structure - three different organizational
approaches in three years: Departmental, TQM, Shop Floor
- Minimal standardization of process among regions
- Few meaningful operating indicators
- High rework, suspense and hold rates
- Current process is labor-intensive
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BUSINESS MANAGEMENT SERVICES
MAP Objectives
- Stabilize operations
- Enhance cash, reduce backlog and improve claims filing
- Reorganize and regionalize contract distribution and mar-
keting programs
- Streamline claims process, achieve market growth and
technological advances
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BUSINESS MANAGEMENT SERVICES
New and Improved Measurement Tools: Key Metrics
- Average daily receipts
- Charts processed/FTE
- Collections/FTE
- Charts suspended
- Contract attrition
- Backlog of remittance dollars
- Remittance dollars processed
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HEALTH MAINTENANCE ORGANIZATIONS
Potential for Value Enhancement
- Favorable risk/reward characteristics for both Healthplan
Southeast (Tallahassee, FL) and Doctors Health Plan (NC)
- Improved performance
- Positive medical loss ratio (MLR) trends
- General & administrative expense % reduction
- Generate profit improvement and demonstrate opportunity
for continued growth
- Market expansion in under-penetrated southeastern regions
21
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HEALTHPLAN SOUTHEAST
Assessment
- Renewed contract with state
- Co-exclusivity in largest market
- Expansion approval in three counties
- MLR falling due to renegotiated provider contracts and
other recent actions
- Network development opportunities
22
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HEALTHPLAN SOUTHEAST
Opportunities
- Improved profits on moderate membership and revenue growth
- Reduce drivers of medical cost
- Build membership in expansion markets
- Strengthen management
- Streamline select administrative functions to further
reduce operating costs
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
HEALTHPLAN SOUTHEAST
Improving Trends
1995 Jan '96 Feb '96 Mar '96 Apr '96 May '96
---- ------- ------- ------- -------- -------
Members 56,000(1) 63,095 63,736 64,368 65,340 65,596
MLR 89.8% 93.8% 93.2% 90.4% 88.3% 86.0%
Admin. Exp.% 11.4% 13.2% 12.3% 12.7% 11.8% 11.7%
Days/1000 299 324 290 270 231 263
Note: (1) Average for 12 month period 1/1/95-12/31/95.
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[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
CORPORATE GROUP-MANAGEMENT ACTION PLAN
Major Issues
- Re-evaluate Corporate Group needs as asset sales progress
- Information systems costs rising
- Limited access to relevant financial information
- Significant potential cash outflow related to real estate
put options
25
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
CORPORATE GROUP-MANAGEMENT ACTION PLAN
Accomplishments to Date
- Committed to timely asset disposition
- Implemented "Enterprise Metrics" to permit daily and
weekly SBU management
- Hired CIO to attack large information systems costs
- Realizing initial benefits of cash flow management strate-
gies
- Professionals assisting in managing operational turnaround
26
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BACKGROUND TO PROXY FIGHT
27<PAGE>
BACKGROUND TO PROXY FIGHT
Dr. Scott Presided Over the Company's Decline and
Did Not Return the Company to Profitability
- Beginning in mid-1993, Dr. Scott led an acquisition
strategy in an effort to diversify the business,
expending over $325M in cash and stock
- The Company was not able to integrate the acquired busi-
nesses; specifically, Dr. Scott failed to:
- Put in place effective policies and procedures for
the integration of acquired businesses
- Implement measures for the control of day-to-day
operations (cash flow, accounts receivable collec-
tions, MIS)
- The Company's stock price declined by over 80% from its
peak, losing over $575M of market value (2/94 to 5/96)
28
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BACKGROUND TO PROXY FIGHT
The Board Engaged Outside Turnaround and Financial
Experts and is Implementing a Recovery Plan
- Price Waterhouse was retained to design and implement
operational turnaround (Management Action Plan)
- In March 1996, the Board (including Dr. Scott) unanimously
approved a Management Action Plan
- Morgan Stanley was hired to perform a strategic study,
resulting in the development by management of the Strate-
gic and Financial Plan
- In July 1996, the Board approved the Strategic and Finan-
cial Plan which, together with the MAP, constitutes the
Comprehensive Business Plan
29
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BACKGROUND TO PROXY FIGHT
Dr. Scott Hindered Implementation of the Comprehensive Business Plan,
and was Placed on Leave
- The Board formed the view that Dr. Scott could not produc-
tively work with the Board, senior management and Price
Waterhouse to effect the Company's turnaround
- On May 29, 1996, the Board determined that Dr. Scott's
actions were not consistent with the Company's best inter-
ests and voted 6-3 to place Dr. Scott on sabbatical leave
- Two directors other than Dr. Scott voted against his dis-
missal
- Dr. Walls is employed by an entity affiliated with
Dr. Scott
- Mr. Hemingway recently had his operational duties
changed at the Company
30
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
BACKGROUND TO PROXY FIGHT
Dr. Scott's attempt to Regain Control of the Board is
Against the Economic Interests of Shareholders
- Dr. Scott's desire to replace the board members is a
transparent attempt to regain control of the Company that
he built but did not profitably manage
- The "independence" of one of Dr. Scott's nominees is sus-
pect
- Mitchell Berger's law firm has represented Dr. Scott
on multiple personal matters
- The election of Dr. Scott's two new directors would give
Dr. Scott (with Dr. Walls and Mr. Hemingway) a majority of
the Board and allow him to regain control of the Company
31
[LOGO OF COASTAL PHYSICIAN
GROUP, INC.] <PAGE>
Forward-looking Information or Statements: Except for state-
ments of historical fact, statements made in this presentation
and in the conference of which this presentation is a part are
forward looking statements, and are inherently subject to un-
certainties. The actual results of the Company may differ
materially from those reflected by the forward looking state-
ments 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, fulfillment
of scheduled divestiture efforts; the level and timing of im-
provements in the operational efforts; the possibility of poor
accounts receivable collection and/or reimbursement experience;
the possibility of increased medical expenses due to increased
utilization; the possibility that the Company is not 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, form 8-K and other
Securities and Exchange Commission filings, including the form
10-Q for the quarter ended March 31, 1996 and, when filed, for
the quarter ended June 30, 1996.
Certain Additional Information: Coastal Physician Group, Inc.
will be soliciting proxies to elect directors at its 1996 An-
nual Meeting of Stockholders. The following individuals may be
deemed participants in such solicitations of proxies: Jacque
J. Sokolov, M.D.; Robert V. Hatcher, Jr.; Stephen D. Corman;
John P. Mahoney, M.D.; Richard Janeway, M.D.; Norman H.
Chenven, M.D.; Joseph G. Piemont; Robert P. Borchert; Dennis I.
Simon; and Bettina M. Whyte. As of May 31, 1996, Dr. Sokolov
is the beneficial owner of 263,423 shares of the Company's
common stock; Mr. Hatcher is the beneficial owner of 16,808
shares of the Company's common stock; Mr. Corman is the benefi-
cial owner of 10,138 shares of the Company's common stock; Dr.
Mahoney is the beneficial owner of 4,090 shares of the
Company's common stock; Dr. Janeway is the beneficial owner of
11,451 shares of the Company's common stock; and Mr. Borchert
is the beneficial owner of less than 100 shares of the Com-
pany's common stock. Mr. Simon and Ms. Whyte are employees of
Price Waterhouse LLP and have been appointed by agreement of
Price Waterhouse and Coastal to be Plan Managers of the Com-
pany's revitalization plan. In connection with such agreement,
the Company has agreed to pay Price Waterhouse $70,000 per
month for the services of the Plan Managers, and $46,400 per
month for any additional Price Waterhouse personnel that may
provide services under the agreement. The Company also granted
Price Waterhouse an option to purchase 50,000 shares of Coastal
common stock at a price of $7 7/8, which has not yet vested,
and a separate option to purchase up to 50,000 shares of Com-
pany common stock, which will vest at a rate of 10,000 shares
each month for five months commencing May 15, 1996, at a strike
<PAGE>
price equal to the average closing price of the common stock on
the New York Stock Exchange for the first ten trading days of
each month prior to the vesting date.
Steven M. Scott, M.D., Bertram E. Walls, M.D. and John A.
Hemingway are also directors of Coastal, but are not expected
to solicit proxies on behalf of the Company.
32 <PAGE>
[LOGO OF COASTAL PHYSICIAN GROUP, INC.]
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